The provisions set out in the Insurance Act 2015 impact all insurance policies purchased by removal and storage contractors who are based in the UK (including Marine policies).
It has been described by the UK government as “the biggest reform to insurance contract law in more than a century”. The Act came into force on 12th August 2016. Here specialist broker Basil Fry explains what has changed.
The Act will be applicable to all commercial insurance policies in the UK which are purchased, renewed or amended after the noted effective date. This means that it is applicable to you, as a removal and storage contractor, and not your customers, regardless of whether you are using ‘Liability’ or ‘Deregulated’ trading conditions.
Insurance in the UK is governed by principles set out in legislation which was enacted over 100 years ago (Marine Insurance Act 1906), which includes disclosure/representations, insurable interest, warranties and general average. The legislation was designed to include only Marine classes (i.e. Hull and Cargo) however the provisions were later deemed to apply to non-Marine insurances too. The following requirements and remedies were set out in the Act.
Pre- Contractual Disclosure
The duty of ‘utmost good faith’ – the proposer must disclose all facts which are material, being those which a prudent underwriter would need to know to fully assess the risk, i.e. the onus is fully placed on the proposer to make, without much guidance, a full declaration of what a hypothetical prudent underwriter may want to know. If you are deemed to have breached this requirement, the insurer can avoid the policy from the beginning with no return of premium.
This is easiest to explain using an example. Say your policy contains a promissory warranty requiring you to set your intruder alarm while the premises are unattended. One evening your employee innocently forgets to set the intruder alarm and leaves the premises for the night. That night there is a devastating fire and your premises are severely damaged. Technically, under the old regime, the Insurer is ‘discharged of liability’ from the moment the employee left the premises unattended without an intruder alarm set and they can avoid any claim for the fire damage repairs. In short, there is no need for a warranty to be connected to a loss and the discharge of liability is automatic following a breach.
Insurers were also in the habit of adding a subtle condition to their policy wordings which converts the information provided by you at inception/renewal (i.e. the pre-contractual disclosure) into a warranty, potentially giving them further opportunity to unfairly avoid a claim.
The New Regime - What’s changed?
The new Act amends some of the provisions set out in the 1906 Act, as outlined below.
Pre- Contractual Disclosure
The automatic ‘discharge of liability’ from a breach of warranty has been removed and a breach must also be connected to a loss for Insurers to avoid a policy. Using the previous example, your Insurers could not avoid paying for a fire damage claim following failure to set the intruder alarm (but they would be able to avoid a theft claim, or a claim for fire that was started by an intruder).
Insurers are no longer allowed to convert the information provided by you (i.e. pre-contractual disclosure) into a warranty.
What does that actually mean?
What is a ‘fair presentation’?
This is the part which makes the most difference to you. The new Act follows some of the same principles and also introduces some new requirements.
You must still take reasonable steps to ensure the information provided to Insurers (via your broker) is, to the best of your knowledge, accurate and complete – nothing new here.
The requirement for a ‘reasonable search’ for information is introduced. This means you must perform sufficient enquiries to build a picture of your risk, including gathering information from your senior management. This is particularly important if you operate multiple sites, or use third-party storage facilities. You must also highlight any special or unusual aspects of the business when providing the information to your broker. - In practice this shouldn’t be too different to what you have done previously, the Act merely formalises the requirements.
The Act introduces the need for you to also seek information from external sources, for example your accountant or solicitor, should it be appropriate, to satisfy the ‘reasonable search’ requirement.
As a minimum, you are required to provide sufficient information to prompt the underwriter to ask further questions. The Act also introduces the requirement for Insurers to seek further information should they require it.
What should I do differently?
In practice, as removal and storage contractors, the information you provide to your Insurers (via your broker) will not need to differ greatly under the provisions of the new Act (provided you were making a full and accurate disclosure of ‘material facts’ previously). Your broker should be asking you some extra questions when discussing your insurance requirements, as it is important that you have satisfied the new prescriptive requirements of the ‘reasonable search’.
It is worth noting also that Insurers are given the choice to opt out of the Act, either in part or on the whole, thus reverting to the provisions of the old regime (Marine Insurance Act 1906), as outlined above. Your broker should be establishing the stance being taken by the Insurers they use as this will dictate what you need to do to satisfy their pre-contractual disclosure requirements.
As you will see, if an Insurer opts to revert to any aspect of the old regime it would be disadvantageous to you. Here at Basil Fry we have ensured that all of the major Insurers that we use are not opting out of any part of the Act, ensuring the utmost protection for our clients.
If you have any questions, or require any further information, please contact us, or your broker.
Adam first joined Basil Fry in 2006, where he progressed to Account Executive level and, during part time study, achieved a First Class Honours degree in Insurance and ACII status. He left the Company in 2012 to gain some experience working in the City of London. During his four years away, Adam worked in the Offshore Energy sector at Marsh, servicing some of the largest Oil & Gas companies in the world. In 2014 he was head hunted to join the underwriting team at QBE and spent time in Lloyds of London, with authority to underwrite Offshore Energy risks. He was involved with the placement of some of the largest and most complex Energy risks in the world, with values of up to US$20bn. Adam has recently returned to Basil Fry to fill the new Technical Broker role and bolster the Company’s technical prowess, being charged with policy wording advancement and product development.