The Insurance world is changing. The Insurance Act 2015 comes into effect on 12 August 2016 and applies to all commercial contracts of insurance, and in part to consumer insurances. This will impact on the Construction Industry given the heavy reliance on insurance products. The Act changes the way in which insurance is conducted and represents a significant change to the legal framework of insurance contracts.
The key provisions of the Act are as follows:
- The Act produces a new concept of “a duty of fair presentation”. An insured will have to disclose every material circumstance that they know or ought to know to put a prudent insurer on notice that it needs to make further enquiries to reveal the material circumstances. This applies to disclosure before the contract is concluded as well as new contracts and renewals and mid-term variations.
- Disclosure of facts must be made in a reasonably clear and accessible manner, and material representations of facts must be “substantially correct”. Further, material representations of expectation or belief must be made in “good faith”.
- Where there has been a breach of “warranty”, being a particular type of contractual term, the Act now prevents the insurer for being able to discharge all liability for the risks covered by the policy from the time of the breach. Where a deliberate or reckless breach of the duty takes place, insurers will still be able to avoid the policy in full and retain any premiums paid. The onus will be on the insurer to show that a breach was, in fact, deliberate or reckless.
For other breaches, the remedies are based on what the insurer would have done if the breach had not taken place and the insured had, in fact, made a fair presentation of the risk.
- What are known as “basis of contract” clauses are now abolished by the Act. Insurers will now generally remain liable for all legitimate losses suffered by an insured if a fraudulent claim is made.
- The duty of good faith remains but the right to avoid the insurance policy if the other party fails to act in accordance with utmost good faith has now been removed.
- Parties to non-consumer insurance contracts can agree less favourable terms than those in the Act. However, it is not possible to contract out of the new prohibition on the “basis of contract” clauses.
Construction companies will need to ensure that they are able to fully comply with the Act’s provisions and that they have appropriate and effective internal procedures in place to ensure the relevant employees are fully conversant with the new requirements.
For further information, please contact Graham Sutton, Associate Solicitor at Hay & Kilner
Call: 0191 232 8345