The Insurance Act 2015 has passed into law, giving effect to wide-ranging reform recommended by the Law Commission.
Under the Act, insurers will no longer be able to refuse the whole of a claim because of one transgression, as a new scheme of proportionate remedies replaces the existing single remedy of avoidance. The Act also includes a new “duty of fair presentation”, clarifying the information that business policyholders have a legal duty to volunteer.
Insurers will be liable to pay any claim that arises after a breach of warranty has been remedied, for example, where a broken burglar alarm is repaired before the claim arises, and can no longer escape liability on the basis of a breach of contract terms by the policyholder where the breach is irrelevant to the loss suffered. “Basis of the contract” clauses, which can turn any statement from a policyholder into a warranty, will be abolished.
Where a policyholder makes a fraudulent claim, however, the Act aims to provide insurers with a clear remedy, and they can refuse the whole claim if any part of it is fraudulent.
The Act is due to come into force in August 2016.
The Law Commission and Scottish Law Commission made the recommendations in their 2014 report, Insurance Contract Law: Business Disclosure, Warranties, Insurers’ Remedies for Fraudulent Claims, and Late Payment.
Stephen Lewis, Law Commissioner, says: “We are delighted the government has implemented the majority of our recommendations in the Insurance Bill.
“The provisions of the Act will modernise the law.”
Professor Hector MacQueen, Scottish Law Commissioner leading on the project for Scotland, says: “The existing law that governs business insurance contracts is weighted in favour of insurers, giving them wide-ranging powers to refuse claims.
“We look forward to the Act coming into force and delivering for the UK a legal framework fit to support our world-leading insurance industry.”
