The long awaited reforms to business insurance law have now been enacted in the Insurance Act 2015. It received Royal Assent on 12 February 2015 and will come into force in August 2016 and apply to all policies entered into or varied after that date.
Particularly with regard to certain remedies available to Insurers, it makes the English law less draconian and more in line with the US position and the concepts of proportionality in the EU.
The Act will affect policyholders who enter into insurance contracts wholly or mainly for the purposes of their trade, business or profession. These policyholders therefore need to be aware of the changes the Act will introduce.
The reforms considered in this alert include (1) disclosure, the duty to make a fair presentation of risk, breach of that duty and misrepresentation; (2) warranties and breach; (3) insurers’ remedies for fraudulent claims; and (4) contracting out.
From a policyholder’s perspective, the most important change is the prohibition of ‘basis’ of the contract clauses, which previously had the effect that innocent mistakes could constitute a breach of warranty and enable insurers to avoid the contract.
Warranties must also now be relevant to the claim and a breach of warranty will only suspend the insurer’s liability for a claim. If the breach of warranty can be remedied, the insurer will be liable for losses which occur after it has been remedied.
Given the importance of the reforms ushered in by the Act, policyholders must now begin to focus their minds on how these changes will impact the placing and management of their cover and claims.
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