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Insurance act 2015

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39 Essex Chambers
39 Essex Chambers

The Insurance Act 2015 (IA 2015) comes into force on August 12, 2016 and applies to non-consumer contracts of insurance governed by English law. It introduces several key changes, including modifying the insured's pre-contractual duty from utmost good faith to a duty to make a "fair presentation of risk." It also abolishes the insurer's power to avoid the contract for a breach of utmost good faith, instead providing proportionate remedies for a breach of the duty to make a fair presentation. Warranties will operate as suspensive conditions only during the period of breach. The Act also establishes a statutory regime for fraudulent claims. Contracting out is permitted if disadvantageous terms are transparently presented.

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39 ESSEX CHAMBERS Insurance Law Association Singapore 25 May 2015 INSURANCE ACT 2015 Jonathan Bellamy FCIArb, Barrister
Scope and application IA 2015 ? comes into force 12 August 2016 ? applies to contracts of insurance and reinsurance governed by English law ? applies to contracts of insurance (incl. variations and renewals) made after 12.08.16 ? applies only to non-consumer contracts of insurance (B2B) ? applies to all classes of non-consumer contracts of insurance and industry sectors ? no duty to pay insurance claims within a reasonable time
Principal Changes ? Pre-contractual duty on the insured modified from utmost good faith to a duty to make a ＾fair presentation of risk￣ (＾FPR￣) ? Abolition of power to avoid contract of insurance for breach of duty of utmost good faith MIA 1906 ss18-20 ? Proportionate remedies for breach of duty to make FPR ? Basis clauses will not convert a representation into a warranty ? Warranties to operate as suspensive conditions - only during the period of breach and where the warranty is ＾applicable to the circumstances of the contract￣ ? No defence for breach of a clause (not defining the risk as a whole) not relevant to the actual loss ? Statutory regime for insurer in the event of fraudulent claim ? Contracting out: permitted if transparent in form and substance
Key terms and phrases ? Fair presentation of risk Disclosure of ? ＾every material circumstance which the insured knows or ought to know￣ or ? ＾sufficient information to put a prudent insurer on notice that it needs to make further enquiries￣ to reveal those material circumstances ? Deliberate or reckless breach ? If the insured knew that it was in breach of the duty of fair presentation or ＾did not care whether it was in breach of that duty￣
Fair presentation of risk (＾FPR￣) ? Form: ? ＾disclosure in a manner which would be reasonably clear and accessible to a prudent insurer￣ ? need not all be in one document or oral presentation ? Substance: disclosure in which every material representation: ? ＾as to a matter of fact is substantially correct￣ ? ＾as to a matter of expectation or belief is made in good faith￣
Knowledge ? Knowledge: includes actual knowledge and blind-eye knowledge: ＾matters which the individual suspected and of which [he] would have had knowledge but for deliberately refraining from confirming them or enquiring about them￣ ? Limited imputation of knowledge of insured: Where insured is not an individual, it knows only what is known to those who are part of its senior management or who are responsible for its insurance ? Defined constructive knowledge of insured: An insured ＾ought to know what should reasonably have been revealed by a reasonable search of information available to the insured￣ ? Defined constructive knowledge of insurer: An insurer ought to know something only if an employee or agent knows it and ought reasonably to have passed it on the individual(s) who decides whether to accept the risk
Remedies for breach of duty FPR ? Would the insurer have acted differently (Pan Atlantic) absent the breach of duty? ? If so, is there a ＾qualifying￣ breach? ? If so, is the breach ＾deliberate or reckless￣ (DRB) or not (B)? ? If DRB, insurer may avoid contract and retain premium ? If B, and insurer would not have entered the contract on any terms: C it may avoid contract and reject all claims but must return premium ? If B, and insurer would have entered contract on different terms (other than premium): ? insurer may treat contract as being on those terms and ? if it would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim
Remedies for fraudulent claims ? Codification of current law on forfeiture and new right to terminate ? The insurer may: C reject the claim C recover any money paid out in respect of the claim C terminate contract of insurance with effect from the time of the fraudulent act ? On electing to terminate, the insurer may C reject any claim occurring or arising after the time of the fraudulent act C retain premium paid ? Claims occurring or arising before the time of the fraudulent act are unaffected
Contracting out ? Presumption of default regime ? Party autonomy (excl. basis clauses) ? For other clauses (e.g. fair presentation of risk, breach of warranty and fraudulent claims), contracting out only if: C transparent presentation of ＾disadvantageous term￣: ? form: ＾sufficient steps to draw to insured¨s attention￣ ? substance: ＾clear and unambiguous as to its effect￣ ? sophistication/experience of policyholder (e.g. reinsurance) ? ＾circumstances of the transaction￣ ? policyholder¨s actual knowledge of ＾disadvantageous term￣ JONATHAN BELLAMY

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Insurance act 2015

  • 1. 39 ESSEX CHAMBERS Insurance Law Association Singapore 25 May 2015 INSURANCE ACT 2015 Jonathan Bellamy FCIArb, Barrister
  • 2. Scope and application IA 2015 ? comes into force 12 August 2016 ? applies to contracts of insurance and reinsurance governed by English law ? applies to contracts of insurance (incl. variations and renewals) made after 12.08.16 ? applies only to non-consumer contracts of insurance (B2B) ? applies to all classes of non-consumer contracts of insurance and industry sectors ? no duty to pay insurance claims within a reasonable time
  • 3. Principal Changes ? Pre-contractual duty on the insured modified from utmost good faith to a duty to make a ＾fair presentation of risk￣ (＾FPR￣) ? Abolition of power to avoid contract of insurance for breach of duty of utmost good faith MIA 1906 ss18-20 ? Proportionate remedies for breach of duty to make FPR ? Basis clauses will not convert a representation into a warranty ? Warranties to operate as suspensive conditions - only during the period of breach and where the warranty is ＾applicable to the circumstances of the contract￣ ? No defence for breach of a clause (not defining the risk as a whole) not relevant to the actual loss ? Statutory regime for insurer in the event of fraudulent claim ? Contracting out: permitted if transparent in form and substance
  • 4. Key terms and phrases ? Fair presentation of risk Disclosure of ? ＾every material circumstance which the insured knows or ought to know￣ or ? ＾sufficient information to put a prudent insurer on notice that it needs to make further enquiries￣ to reveal those material circumstances ? Deliberate or reckless breach ? If the insured knew that it was in breach of the duty of fair presentation or ＾did not care whether it was in breach of that duty￣
  • 5. Fair presentation of risk (＾FPR￣) ? Form: ? ＾disclosure in a manner which would be reasonably clear and accessible to a prudent insurer￣ ? need not all be in one document or oral presentation ? Substance: disclosure in which every material representation: ? ＾as to a matter of fact is substantially correct￣ ? ＾as to a matter of expectation or belief is made in good faith￣
  • 6. Knowledge ? Knowledge: includes actual knowledge and blind-eye knowledge: ＾matters which the individual suspected and of which [he] would have had knowledge but for deliberately refraining from confirming them or enquiring about them￣ ? Limited imputation of knowledge of insured: Where insured is not an individual, it knows only what is known to those who are part of its senior management or who are responsible for its insurance ? Defined constructive knowledge of insured: An insured ＾ought to know what should reasonably have been revealed by a reasonable search of information available to the insured￣ ? Defined constructive knowledge of insurer: An insurer ought to know something only if an employee or agent knows it and ought reasonably to have passed it on the individual(s) who decides whether to accept the risk
  • 7. Remedies for breach of duty FPR ? Would the insurer have acted differently (Pan Atlantic) absent the breach of duty? ? If so, is there a ＾qualifying￣ breach? ? If so, is the breach ＾deliberate or reckless￣ (DRB) or not (B)? ? If DRB, insurer may avoid contract and retain premium ? If B, and insurer would not have entered the contract on any terms: C it may avoid contract and reject all claims but must return premium ? If B, and insurer would have entered contract on different terms (other than premium): ? insurer may treat contract as being on those terms and ? if it would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim
  • 8. Remedies for fraudulent claims ? Codification of current law on forfeiture and new right to terminate ? The insurer may: C reject the claim C recover any money paid out in respect of the claim C terminate contract of insurance with effect from the time of the fraudulent act ? On electing to terminate, the insurer may C reject any claim occurring or arising after the time of the fraudulent act C retain premium paid ? Claims occurring or arising before the time of the fraudulent act are unaffected
  • 9. Contracting out ? Presumption of default regime ? Party autonomy (excl. basis clauses) ? For other clauses (e.g. fair presentation of risk, breach of warranty and fraudulent claims), contracting out only if: C transparent presentation of ＾disadvantageous term￣: ? form: ＾sufficient steps to draw to insured¨s attention￣ ? substance: ＾clear and unambiguous as to its effect￣ ? sophistication/experience of policyholder (e.g. reinsurance) ? ＾circumstances of the transaction￣ ? policyholder¨s actual knowledge of ＾disadvantageous term￣ JONATHAN BELLAMY