The 2015 Insurance Act, described as "the biggest reform to insurance contract law in more than a century", will come into force on 12 August 2016. Insurers and the insured should be aware of new laws regulating disclosure in commercial insurance contracts, warranties and other contractual terms. The law will also provide for insurers' remedies for fraudulent claims.
Disclosure by commercial clients is an important element of the Act. Up to now, insured entities have been obliged to disclose issues of which they were - or ought to have been - aware. This helps determine the insurer's decisions on premiums and underwriting. The lack of clear guidance provided to the insured, as well as the passive role played by insurers, has been addressed in the new act. Now, the insured party remains obliged to disclose all information within their knowledge. But only to the degree that it enables the insurer to make further enquiries. So the burden has now shifted to the insurer to define and seek the information required. This is balanced by an obligation on the insured to disclose the information required by the insurer – provided that the latter has been both clear and explicit about the information required. The insured will also be obliged to keep records demonstrating reasonable search efforts to find information that may be of interest to the insurer. A key objective is to prevent 'data dumping': the provision of large quantities of information to the insurer, much of which may otherwise be irrelevant.
Up to now, insurers have been entitled to refuse a claim if pre-disclosure duty has been violated. The 2015 Act seeks to address this through distinguishing on type of non-disclosure. Should the breach be deemed reckless or intentional, the insurer will still be able to avoid payout. Should the breach be neither intentional nor reckless and the insurer would not have entered into the contract if they had known the missing information, the insurer can void the contract but will be obliged to return premiums. If in this case the insurer would have entered the contract on different terms, the contract can be treated as if the different terms applied, for instance, additional exclusions. Furthermore, if the insurer would have entered the contract at a higher premium, then the insurer will be able to decrease cover proportionately. For example, if the insurer would have charged double the premium, it need only pay half the claim. This will have a significant impact on insurers, as they will be obliged to prove how their approach would have differed had the breach not occurred. In effect, they can be obliged to provide transparent insight into the underwriting decision-making process.
Contractual terms and warranties for both commercial and individual clients have also come under the spotlight. Up to now, 'basis of the contract' clauses could convert all statements throughout a contract into warranties (conditions for liability). This means that insurers could avoid payouts due to a warranty breach that may have been unrelated to the loss. For example, if the policy stipulates that windscreen wipers in a car must work at all times, but it could be shown that they did not, then this would allow an insurer to reject a claim even if the car had been damaged by a flood or something equally irrelevant. The new Act seeks to prevent such cases by transforming warranties into 'suspension conditions', allowing an insurer to suspend cover, but only until the problem has been solved. Moreover, the insurer cannot avoid liability if a breach of warranty does not heighten the risk of a loss.
The insurer's ability to avoid payouts to commercial and individual clients alike will also be impacted by new regulation concerning fraudulent claims. Up to now, if fraud had been committed, the entire claim and its contract would be invalidated. Under the new act, insurers will still not be liable to pay fraudulent claims, and can terminate policies. But if a group policy is taken out, then only the fraudulent claimant will be sanctioned, not the other elements of the group policy.
Overall, the Act will have a profound impact on the disclosure process, as insurers will now have to play a more active role in obtaining information from the client, who in turn has a duty to provide appropriate information in order to help the insurer to ask relevant questions. The Act will also distinguish between whether a non-disclosure by the insured of the terms of the insurance was reckless or intentional; this will affect the payout and will also challenge insurers to prove how their approach to underwriting a risk would have been affected had the breach not occurred. Other areas where insurers previously had greater leeway to avoid payouts, such as breach of warranty and fraudulent claims on group insurance have also been addressed, meaning customers can look forward to a more consumer-weighted insurance provision under the new act.
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