The Insurance Act 2015 which comes into force on the 12 August 2016 promises to be the most significant change to the commercial insurance industry for over 100 years.

The legislation will reform existing law which is regularly criticised for favouring insurers over the insured causing unnecessary dispute. It is hoped that the forthcoming changes, which apply to businesses, will make it far more difficult for insurers to refuse cover and withhold payment.  It will also set out more clearly the information which businesses must give to their insurers before the inception of a policy.

In English law, the doctrine of Uberrimae Fidei (of the utmost good faith) applies to insurance contracts and requires a full and clear declaration and disclosure of all material facts prior to an insurer. The biggest criticism of the existing rules are that insurers are given too many opportunities to refuse to provide cover entirely, due to relatively minor or non-material non-disclosure at the pre-contract stage.

Under the new legislation however, insurers will now have to consider a range of “proportionate remedies” in the event of non-disclosure or the failure by the insured to comply with policy terms.  This should make it harder for insurers to refuse to pay out and thereby increase confidence and credibility in the insurance market.

Some other key changes include:

• Businesses will be under a duty to make a “fair presentation of risk” of all material information known to the insured.
• “Fair presentation of risk” includes:
  a) Providing information which is in the knowledge of senior management teams, brokers and insurance teams and those other individuals involved in arranging and/or procuring your insurance.
  b) Disclosing information which ought to be known and is revealed by undertaking a reasonable search.
• The information provided has to be in a format which is “reasonably clear and accessible” rather than a “data dump” of information.
• It will be open to policy holders to claim damages for late payment of insurance claims, if it can be established that loss occurred as a result.

Litigation Associate Stephen McArdle comments “although the new law will place some additional burden on businesses applying for insurance, the quid pro quo is that insurers will have fewer opportunities to deny cover and refuse to pay out.  Overall, a more proportionate approach will have be taken by insurers which should reduce the number of disputed claims and thereby speed up the claims process”.