Recent Developments In The Construction Insurance Market: Additional Protections For Consultants, Contractors And Third Parties?

There is a new dawn for construction insurance following introduction of two Acts of Parliament in August 2016. With the introduction of the Insurance Act 2015 ("IA 2015") and Third Parties (Rights against Insurers) Act 2010 ("TPRAIA 2010"), English insurance law has undergone the most significant development since the inaugural Marine Insurance Act 1906 ("MIA 1906").

Insurance Act 2015

Historically, English insurance law developed in the context of servicing the marine industry at a time when insurers required protection and thus the law, partially codified by the MIA 1906, was strongly weighed in favour of insurers. As the insurance industry expanded in the next century, there has been increasing recognition of the need for rebalancing, which culminated in a Law Commission review in 2006. The Law Commission recommended a number of important changes to insurance law and lead to the enactment of the IA 2015.

Duty of fair presentation

Most notably, the IA 2015 replaces the duty of utmost good faith with a duty of fair presentation of the risk which is to be incepted. The IA 2015 indicates that this duty requires disclosure of all material circumstances which the insured knows or ought to know. Much like the MIA 1906, materiality is determined in accordance with whether a non-disclosure would influence the judgement of a prudent insurer in determining whether to take the risk and if so, on what terms.

Importantly, under the IA 2015, breaches of the duty of fair presentation, such as non-disclosure, shall be treated as follows:

If the breach was deliberate or reckless, the insurer may avoid cover and keep the premium If the insurer would not have insured at all, it may avoid cover but must return premium. If the insurer would have insured on different terms, the contract of insurance is treated as being on those terms; If the insurer would have insured with a different premium, the amount paid on the claim is reduced commensurately i.e. in proportion to the difference between the actual premium and the premium that would have been applicable. Remedies for breach of warranty and breach of condition

Under the MIA 1906 an insurer could decline cover as a result of a breach of warranty, such as a basis of contract clause in an insurance proposal, as well as for a breach of condition and this was irrespective of whether the breach related to or was causative of the insured's claim. Unsurprisingly, this was considered to be unfair to insureds and...

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