The Insurance Act 2015

The Insurance Act 2015 received Royal Assent on 12 February 2015 and will come into force in August 2016. It applies to business insurance and, together with the consumer insurance reforms that came into effect in 2013, represents the greatest change to English insurance contract law in over 100 years.

We set out below some of the key changes to impact on the property and liability market.

Utmost good faith/non-disclosure

Under the Act, the insured will remain subject to a duty to volunteer information however, the scope of that duty will be limited to what is necessary to make a "fair" presentation to insurers.

When making disclosure, the insured must carry out a reasonable search for information. What is reasonable will be a question of fact in each case and will take into account factors such as the size, nature and complexity of the business. It is in the insured's interests to carry out a thorough search because it will, regardless of its actual knowledge, be deemed to know what "should reasonably have been revealed by a reasonable search" (section 4(6) of the Act).

When making disclosure, the insured must disclose information in "a manner which would be reasonably clear and accessible to a prudent underwriter" (section 3(3)(b) of the Act).

An insured is not, however, obliged to disclose information an insurer knows, ought to know or is presumed to know (section 3(5)b to d of the Act).

Remedies

Where an insured has made a deliberate or reckless misrepresentation or non-disclosure, insurers may avoid the policy and keep the premium. In all other cases (i.e. innocent misrepresentation and/or non-disclosure), a system of proportionate remedies will apply as follows (schedule 1 of the Act):

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 but included a contractual term, the contract should be treated as if it included that term (irrespective of whether the insured would have accepted that term). Where the insurer would have charged a greater premium, the claim should be scaled down proportionately (for example, if the insurer would have charged double the premium, it need only pay half the claim). Warranties and other policy terms

The Act seeks to move away from situations where what could be perceived by the insured as a "technical" breach deprives it of cover for a loss unconnected to the breach. To achieve this, the Act has...