Insurance Act 2015
This is a major reform of UK insurance law (for England, Wales and Scotland) and in effect sets up a new statutory code for insurance law. The Act comes into force from August 2016 and supersedes the old Marine Insurance Act 1906 plus a great deal of the common law which had accumulated around insurance.
The old law on “utmost good faith” and “disclosure” will be swept away and modern terms are substituted which are intended to be simpler and fairer, particularly a new concept that the insured must make a “fair representation of risk” to the insurer.
Old rules on insurance policy terms have been removed so the insurers can no longer rely upon “basis of contract” clauses or “conditions precedent” in order to absolutely discharge themselves from performance of insurance obligations. The new rules now provide that, in a number of cases, a breach of an insurance “warranty” or term of the contract will only have a “suspensive” effect, suspending obligation until the breach is rectified.
General breaches will either entitle the insurer to avoid if it can show that it would not have taken on the risk, or to charge extra if it would have required a higher premium. This reform poses problematic challenges to insurers in terms of the burden of risk and it remains to be seen what policy line will be taken by the courts in administering the new law.
These changes may not be as far-reaching as they first seem. Although the abolition of the “basis of insurance” concept is an absolute change, insurers can otherwise contract out of much of the effect of the new rules as long as they “take sufficient steps” to make the insured aware of the implications. Obviously an exclusion clause against a large sophisticated commercial entity will probably be effective whereas smaller, less experienced or sophisticated insureds may be able to object to contracting out clauses. Much of how the Act will work will lie in the hands of the courts. We will issue more detailed guidance during 2016 prior to the commencement of the new legislation.