Following the Consumer Insurance (Disclosure & Representation) Act 2012, the Insurance Act 2015 was released to target commercial insurance contracts. Going into effect on August 16th 2016, the law will change the commercial insurance industry.
Charles Foster, of insurance experts Lycetts (based in Newcastle), discuss the act and how it affects business.
The act is flexible to help cater to different sized businesses – as it sets out a number of principles to be followed that can be adjusted depending on size. The act clarifies current law, but also modifies the idea of duty of good faith that underlies insurance contracts. The act therefore introduces a ‘duty of fair presentation’ – which means that a policyholder should either disclose every material circumstance that the insured knows, or should know. Or, the policyholder should provide the insurer with enough information to put a ‘prudent insurer’ on notice that they should investigate the material circumstances further.
The act includes the disclosure of every material circumstance that you know, or ought to know, which could be undertaken by a reasonable search. If every material circumstance relating to the business has been disclosed, duty is then satisfied. However, if every circumstance is not disclosed, sufficient information must be provided to put a ‘prudent’ insurer on notice to make further enquiries.
As well as this, a warranty breach now suspends an insurer’s liability as opposed to avoids it. Once the breach is remedied, the policy resumes in full force. The act could allow the insured to avoid an insurer’s defence of breach of warranty by illustrating that the breach would not have increased the risk of loss.
Once, the client was fully responsible for disclosing any circumstances around a property, but the Insurance Act seeks to increase the responsibility of third parties, such as land agents, who arrange insurance on a client’s behalf. These third parties are deemed to have expertise and knowledge of a property, and therefore should disclose circumstances which they ‘know or ought to know’.