Far from being a sleepy holiday month, August 2016 will see the biggest shake up to UK insurance law in living memory. But what's changing and how might it affect you?
It's about two new Acts. On 1 August 2016 the "new" Third Parties (Rights Against Insurers) Act 2010 will finally take effect, changing the landscape for anyone with a claim against an insolvent party.
Less than two weeks later, on 12 August 2016, the Insurance Act 2015 will come into force. This will fundamentally shift the balance of insurance law back in favour of policyholders, bringing UK law more in line with other countries and re-writing up much of the century-old insurance rule book set out in the Marine Insurance Act 1906.
Third Parties (Rights Against Insurers) Act 2010
If you have a claim against an insolvent party, you may sensibly think twice about pursuing it when faced with the uncertainty of how you will recover any damages from them. Sometimes you might bring that claim in the hope that the insolvent party had an insurance policy which will cover the cost. But how can you find out?
Under the existing 1930 Act, it is possible to bring a claim against insurers where the defendant is insolvent, but you must first invest time and money to establish their liability.
Under the new 2010 Act, potential claimants will be able to obtain copies of the terms and details of any insurance cover they expect might exist and establish whether or not it will respond, before having to sue the insolvent defendant. The prospect of reaching the end of a rainbow, only to find that the pot of gold is smaller than you thought (or in fact never existed) will become a thing of the past.
Insurance Act 2015
The arrival of this Act has been heavily trailed for good reason. It will fundamentally shift the balance of power back towards policyholders, from buying cover to bringing a claim. Some of the biggest changes that it will bring include:
When buying cover
- The obligation on policyholders to disclose every material fact which might influence the judgement of an insurer is being replaced with an obligation to provide a "fair presentation of the risk". There is still some uncertainty around what that will mean in every case, but it will nevertheless be a relief to policyholders. Under the current law, policyholders have to guess what might influence an underwriter, under threat of having their policy avoided further down the line if they fail to disclose something, however innocuous, when buying a policy.
- The new rules should also put policyholders off "data-dumping", which means giving the insurer every piece of information you can possibly lay your hands on, for fear of missing something and facing draconian consequences if you don't.
During the life of the policy
- Breaches of a warranty will no longer automatically discharge the insurer from liability if they are trivial, unconnected to the loss or remedied before any loss has been suffered.
- "Basis clauses", which turn all terms of the policy into conditions precedent to liability, will be unenforceable.
If things go wrong
- Breach of an insurance policy will no longer necessarily allow the insurer to avoid liability for the loss or the policy entirely. The new Act provides proportionate remedies to match the seriousness of the breach. In cases of fraud, the insurer will still be able to avoid liability, but in the case of minor breaches it could simply mean recovering less than you might otherwise have done.
A word of caution
- With the exception of abolishing basis clauses, it will be possible for parties to contract out of the provisions of the new Act. It remains to be seen how many insurers will try to do this, but the fact that it is possible means it will be more important than ever to read the policy terms carefully before signing up to them.
For more information on how these upcoming changes, please contact the author or another member of the Mishcon insurance team.