Insurance - the law improves, Part II

Last month we looked briefly at the Insurance Act 2015 which came into force on 12 August 2016.  The article concentrated on the changes to the positions on the disclosure obligation or duty of fair presentation of the insured and the assumed knowledge of the insurer.

This month we will look at the welcome expansion of the remedies available to the insurer in addition to the draconian remedy of avoidance and also at the issue of late payment in insurance claims.

Remedies for Non-Disclosure
Previously an insurer was entitled to avoid the contract of insurance in its entirety if the insured failed to disclose all information material to the claim.  The insurer merely had to demonstrate that the undisclosed information was unknown to the insurer and material.  Such information could be material even if it was unrelated to the loss.

In possibly the most important change introduced by the Insurance Act 2015 section 8 provides that an insurer is now only entitled to avoid the policy in the event that the insured fails to comply with the duty of fair presentation deliberately or recklessly.  In other words the insured either knew he was in breach or did not care if he was in breach.  This will be difficult for the insurer to demonstrate. The insurer would also need to demonstrate that he would not have entered the insurance contract at all or would have done so on different terms had he been aware of the information not previously disclosed.

Where the non-disclosure is not deliberate or reckless other remedies apply.  These remedies are more proportionate and are premised on what the insurer would have done had he been given fair disclosure before the policy was entered.  For example, if the insurer would have accepted the risk but on different terms the contract will be treated as if those terms had been included.  Additionally, insurers could reduce the claim amount in proportion with the higher premium they would otherwise have required.

Late Payment
The previous, much criticised, position was that there could be no award of damages for the non-payment or late payment of an insurance claim.  This was due to the fact that payments pursuant to insurance claims were viewed as damages for breach of contract not as debts due under the contract.

It is now, however, an implied term in all insurance contracts that the claim must be paid “within a reasonable time”.  A “reasonable time" will include the time taken to assess the claim and what is considered reasonable will depend on all relevant circumstances.

Interestingly this was one of the recommendations of the Law Commissions of both England and Wales and Scotland but was considered too controversial to the insurance market for inclusion in the Insurance Act 2015 when passed by Parliament on 12 February 2015. The recommendation was included in the Enterprise Act of 2016 and the applicable provisions of the Enterprise Act take effect as a new section 13A of the Insurance Act 2015.

The key issue for those entering insurance policies following 12 August 2016 is to check that the terms of the policy reflect the changes effected by the Insurance Act 2015 as it is possible for insurers to contract out of some of its terms if they do so transparently.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.