Insurance Act 2015: The Issues The Market Is Grappling With

There have been a number of issues circulating the market since the Insurance Act 2015 (the "Act") came into force. In particular:

The scope of the new duty of fair presentation - whose knowledge is relevant and what is meant by "reasonable search"? Should agreements be put in place as to what these entail? Should sign-off be sought from insurers that a fair presentation has been made? The market's response to the Act by way of wordings - what has been generated and how effective are they? What is considered deliberate or reckless; is it something less than fraud? How are proportionate remedies applied? What is a reasonable time and when are sums "due" for the purposes of a claim for damages for late payment? Are there particular issues that may arise on large structured programmes? We are yet to see the first case decided under the Act and, until we do, there is a lot of speculation as to how the Act will be interpreted. At a Clyde & Co Financial Institutions and D&O conference, we held a panel discussion between legal, broker and insurer experts and their views on these issues are incorporated in this briefing. We also examine some other issues that we have encountered since the Act came into force.

This briefing should be read in conjunction with our comprehensive guide to the Act: Insurance Act 2015 - Shaking up a century of insurance law.

Fair presentation

One of the main changes brought about by the Act is that an insured must now give a "fair presentation" of the risk; it must disclose all material circumstances it knows or ought to know or give enough information to put a prudent insurer on notice to make further enquiries.

Whose knowledge?

For a corporate insured, "knowledge" is determined by what the insured's senior management, or those responsible for the insured's insurance, knows. The scope of the definition of "senior management" is one of the most frequent queries that brokers receive.

Despite the intention being to restrict actual knowledge to board level, arguably the wording is considerably broader. Section 4(8)(c) defines "senior management" as meaning "those individuals who play significant roles in the making of decisions about how the insured's activities are to be managed or organised." In practice, this presents a number of difficulties, especially for large, global organisations. For example:

Do senior managers in such organisations have the requisite knowledge of the day-to-day business? Who are the senior managers of organisations split into numerous subsidiaries? Will knowledge, held by those who are not considered senior management, but who perform a managerial role, be imputed? The Act further extends knowledge to those responsible for arranging the insurance. Brokers...