The UK insurance and business market has changed significantly during the last 100 odd years since the Marine Insurance Act 1906 received royal assent. Although that Act has served the marine industry well and has stood the test of time, after substantial review, the Law Commission concluded that the current law was out of step with twenty-first century commercial practice. The Insurance Act 2015 (which came in force on 12 August 2016) represents revolutionary change to insurance contract law; the harshness of the law with regard to effect of non-disclosure is mitigated and an emphasis has been placed on the need for co-operation during the disclosure process.
The 2015 Act will make six main changes to the law:
1. Duty of fair presentation
The insured has a duty to disclose to the insurer "every material circumstance" which the insured knows or ought to know. This duty can also be fulfilled by providing "sufficient information" to put the insurer on notice to make further enquiries.
2. New remedies for non-disclosure
An insurer will only be able to entirely avoid a policy (in the absence of fraud) where the breach of duty of fair presentation is "deliberate and reckless" and the insurer can show he would not have entered the contract or would have done so on different terms. If this can be shown, the contract is treated as entered in to on those terms.
3. Warranties and other terms
A breach of warranty by an insured suspends the insurers liability until the breach is remedied. If an insured does not comply with a warranty or another term which relates to a particular type of loss, the insurer may not rely on non-compliance with that contractual term if the insured is able to show that non-compliance with the term could not have increased the risk of the loss which actually occurred.
4. Fraudulent claims
If an insured makes a fraudulent claim, the insurer is not liable to pay the claim. If such a claim is paid out on, the insurer may recover any sums paid out and terminate the insurance from the date of the fraudulent act without returning the premium. Claims arising before the fraudulent act would continue to be payable.
5. Contracting out and transparency requirements
Parties to non-consumer contracts will be entitled to agree terms less favourable than those under the 2015 Act, subject to certain transparency requirements; there must be "sufficient steps" to draw "disadvantageous terms" to the insureds attention.
6. The Third Parties (Rights against Insurers) Act 2010
The Third Parties (Rights against Insurers) Act 2010 has not come in to force due to technical difficulties. The 2015 Act addresses certain deficiencies, paving the way for the 2010 to come in to force.
All of the above will have a significant impact on the marine underwriting industry but, on balance, should improve the position of the assured when claims are submitted.