The Marine Insurance Act 1906 – Not Repealed but Radically Altered
The Insurance Act 2015 received Royal Assent on the 12 February last year. It represented a major change to the Marine Insurance Act which served very well for over 100 years. The Marine Insurance Act was a clear and well written Act and many felt the need for change was unnecessary. The Insurance Act 2015 comes into force on the 12 August of this year, and with the already in force Consumer Insurance (Disclosure & Representations) Act 2012 which came into force on the 6 April 2013, the two change the insurance landscape. The final alteration to the insurance landscape will be Third Parties (Rights against Insurers) Act which was passed as long ago as 2010, but will now come into force on the 1 August 2016. This article summarises the changes to insurance law brought about by the passing of these 3 Acts.
1. The Consumer Insurance (Disclosure & Representations) Act 2012
This came into force on the 6 April 2013. The Act only applies to consumers, and consumers are defined as “individuals who are entering into an insurance contract for reasons wholly or mainly unrelated to that individual’s trade, business or profession” - In short then, your standard household policy or motor policy taken out over your private home or vehicle. Prior to the Act, the consumer’s duty was that of utmost good faith, with a duty not to misrepresent the position to insurers and to ensure that anything relevant to the risk was disclosed to insurers. This is now replaced by a new statutory regime which follows the approach of the FSA and the Financial Ombudsman Service who have been encouraging insurers to take a fairer and more proportionate approach to claims made.
The consumer’s previous positive duty to volunteer all relevant information is now replaced with the duty to take “reasonable care” in answering the questions set by insurers fully and accurately. Whether a consumer has acted reasonably is to be determined by looking at all the circumstances of the matter – this includes the type of contract the consumer was about to enter into and how much information was provided to the consumer by the insurer in respect of the standard of care expected from a reasonable consumer. If a consumer reaches this standard then insurers must meet any claims and cannot avoid the policy.
If a consumer does breach these obligations, there are then two different scenarios – if the consumer has been deliberate or reckless i.e. (1) the consumer knew that the answer was untrue or misleading or frankly just did not care and (2) knew that the information was relevant, but again did not care, then insurers can refuse to pay a claim in full and avoid the policy and retain any premiums paid. The second scenario is where there is a careless breach of the consumer’s obligations. In this case, insurers can apply a compensatory remedy (presumably at their own discretion) which can include a reduction of the amount paid in respect of the claim, or an increase in the premium charged for underwriting of the risk. In summary then, the Consumer Act (a) places a duty on insurers to make sure that they ask all relevant questions of the consumers; (b) gives consumers legal protection in that they know claims will not be declined, unless the information they have given was deliberately or carelessly withheld or misleading. All types of personal insurance are covered by this Act, so home, car, travel, life, critical illness and income protection insurance and health and pension annuities.
2. The Insurance Act 2015
This Act comes into force on the 12 August 2016. The changes made by this Act apply only to business insurance.a
- Utmost Good Faith/Non Disclosure – Unlike in consumer cases, the duty to volunteer information to an underwriter is being retained. An insured will also have to make a fair presentation to an insurer, which will also include putting the insurer on notice of any material circumstances which may effect an underwriter’s decision to write the risk.
When making a decision on what the insured knows, what matters is the senior managements knowledge and the knowledge of those arranging the insurance. The Act goes further in that an insured must carry out a reasonable search for information within the company and has a positive duty to disclose that information to the underwriter. However, it is not all a one way street. The Act also creates a positive duty upon underwriters. An insurer is presumed to know something if it is known to an employee of the underwriting organisation or to its agent. An underwriter is deemed to know something that is common knowledge, and in respect of information that is readily available to everybody i.e. carrying out a company search on the insured.
- Remedies – There will be a significant change in the remedies for material non-disclosure or misrepresentation. Insurers will now only be able to avoid a policy and keep the premium only when the misrepresentation or non disclosure was deliberate or reckless. In every other case, again there are a variety of remedies available.
- Where the insurer would have declined the risk altogether, the policy can be avoided with a return of premium.
- Where the insurer would have accepted the risk by putting in a specific term, the insurance contract will be treated as continuing as if it included that term.
- If an insurer would have charged a greater premium, any payment of a claim would be reduced by the increase in premium charged.
Warranties are no longer to be called “warranties” they are now to be called “suspensive” conditions. This rather odd term is designed to reflect the fact that from now on an insurer is liable for losses that take place after a breach of warranty has been remedied. The Act also does take one very sensible approach however to the question of warranties. If your property is damaged by water, it will no longer be open to insurers to say we are not paying that claim because you have not got a burglar alarm installed. It would still be a defence to insurers if a claim was for theft, but they cannot use a breach of warranty to defeat a claim, if that warranty could not possibly have helped to prevent that type of loss.
Insurers can still deny a claim if a claim is fraudulent and then keep the premium. The Act unhelpfully does not define fraudulent. Although the Act does not specifically say, there is little doubt that this provision also applies to Consumer contracts.
There are also some contracting out provisions which allow the underwriter to contract out of the terms of the Insurance Act providing that the contracting out terms are clear and transparent when drawing an insured’s attention to those contracted out provisions, and underwriters must ensure that the term inserted must be clear and unambiguous as to its effect.
3. Third Parties (Rights Against Insurers) Act 2010
This Act finally comes into force on the 1 August 2016. Broadly, the 2010 Act is intended to make it easier for Third Party Claimants to bring direct actions against insurers where an insured has become insolvent. The 3 changes to the 1930’s Act are as follow:-
- A Third Party Claimant can now bring proceedings against an insurer even if the insured’s liability is still in dispute. In practice, one suspects that one action will be commenced by a Third Party Claimant against insurers in order to establish that the insured was liable and that underwriters have a duty to indemnify that insured.
- There will still be some defences available to underwriters. However, it will be possible for the Third Party Claimant to now fulfil any policy conditions in place of the insured and insurers will not now be able to rely on conditions requiring the insured to cooperate if the insured has been dissolved, has become insolvent or is deceased.
- There are now far stricter rules regarding the provision of policy information. There is now a statutory duty on underwriters, brokers and directors of companies that have become insolvent or who have ceased to trade, to provide information relating to the types of policies of insurance that they held, who those policies of insurance were underwritten by, and what the terms of cover and limits of indemnity were in relation to those policies. There is a 28 day deadline for responding to any requests for information under the Act.
Like the Marine Insurance Act 1906, the Third Party (Rights Against Insurers) Act is still going to apply in certain conditions in certain situations. However, the transitional provisions are to say the least somewhat confusing and convoluted. However, in broad terms, the 1930 Act will continue to apply if the insured’s liability or entry into a formal insolvency process occurred prior to the 1 August 2016. Otherwise, it seems likely that the 2010 Act will apply.
And Finally …
A late amendment to the Insurance Act 2015. From the 4 May 2017, insurers will be liable for the first time under English law to pay damages if they do not pay a claim promptly or within a reasonable time.