The Insurance Act 2015 (the “Act”) came into force in the United Kingdom on 12 August 2016. The Act changes English insurance contract law previously set out in the Marine Insurance Act 1906 (“MIA 1906”) and subsequent case law.
The Act applies to all contracts of insurance governed by English law which includes the Protection and Indemnity (“P&I”) policies provided by British Marine.
British Marine has assessed the position under the Act and given that P&I is a sophisticated insurance market, British Marine has decided to apply most of the provisions of the Act which brings clarity to certain aspects of the law, and exclude other sections where the existing law reflects well-established practices that benefit both Assureds and the P&I insurers.
With effect from 20 February 2016 the 2016/2017 terms and conditions now include changes to reflect the coming into force of the Act.
The table below sets out which provisions of the Act apply to the Marine Liability, Protection and Indemnity and Legal Expense Terms and Conditions (“T&Cs”) and those provisions of the Act which are excluded from applying to the T&Cs.
Insurance Act SectionDescription of Act SectionApplies or Excluded from T&CsClause No. of T&CsReason for Application or ExclusionEffect on the Assured
Duty of Fair Presentation
(Sections 3-7 of the Act)The duty to volunteer information is retained under this section of the Act. The assured will have to make a fair presentation, which will include putting a prudent insurer “on notice”. The disclosure by the assured must be in a manner which would be reasonably clear and accessible to a prudent insurer. In deciding what an assured knows, what matters is the knowledge of senior management and those responsible for arranging the insurance. An assured must carry out a reasonable search and the assured will be deemed to know what should have been revealed by a reasonable search. Information held by any other person with relevant information will also be imputed to the assured if a reasonable search would have revealed that information.Applies to T&Cs62.1British Marine agrees with these provisions of the Act and believes that owing to the close relationship between a club and its member, a fair presentation and a professional assessment of the risk are of mutual benefit to both parties.As provided for under the Act.
Remedies for breach of the Duty of Fair Presentation
(Section 8 of the Act)The insurer remains entitled to avoid the policy and keep the premium if an assured deliberately or recklessly fails to make a fair presentation.
In cases where the assured’s failure to make a fair presentation was neither deliberate or reckless the a number of proportionate remedies apply:
Where the insurer would have declined the risk altogether, the insurer can avoid the policy but return the premium.
Where the insurer would have accepted the risk but included a contractual term, the contract should be treated as if it included that term.
Where the insurer would have charged a greater premium, the claim will be reduced proportionately.
Excluded from T&Cs62.2In the P&I market it is important to ensure a degree of certainty and conformity. Therefore British Marine intends to exclude the Act’s provisions on remedies for breach of the duty of making a fair presentation and will maintain the Marine Insurance Act 1906 sole remedy of avoidance in respect of any breach of that duty.If the assured breaches the duty of fair presentation the insurer will only be entitled to avoid the policy.
Warranties and representations
(Section 9 of the Act)Basis of the contract clauses are prohibited under the Act. Any provision which purports to convert answers in a proposal into a warranty is ineffective.Applies to T&Cs63.5It is not possible for insurers to contract out of this particular change.As provided for under the Act.
Breach of Warranty
(Section 10 of the Act)Under the Act all warranties become "suspensive conditions". This means that an insurer will be liable for losses that take place after a breach of warranty has been remedied (where this is possible).Excluded from T&Cs63.6.1It is important that there is conformity across the market place and the basic standards which flow from these warranties to maintain Class etc. are upheld and preserved. These standards could be undermined if it could be seen that lowering standards might still permit claims to be paid. British Marine will therefore preserve the pre-existing position by excluding the Act’s provisions on warranties.If the assured breaches a warranty the insurer has the right to terminate the policy from the date the warranty was breached.
Terms not relevant to the loss
(Section 11 of the Act)The Act states that the insurer cannot refuse to indemnify the assured for a loss where an assured has failed to comply with a contractual term designed to reduce the risk of a particular type of loss, or of loss at a particular time or in a particular place, and if the non-compliance could not have increased the risk of the loss which actually took place.Excluded from T&Cs63.6.2British Marine has decided that this section of the Act would result in a degree of uncertainty which would not be in the interests of either the assured or insurer.If the assured fails to comply with any of the terms of the policy the insurer’s remedies will depend on the type of clause breached and the relevant provisions under the MIA 1906.
Remedies for fraudulent claims
(Section 12 of the Act)Where the assured makes a fraudulent claim, the insurer is not liable to pay that claim and may recover any sums paid to the assured in respect of that claim. The insurer may also treat the contract as having been terminated with effect from the time of the fraudulent act.Applies to T&Cs63.5
63.6.3The Act’s provisions on fraud provide clarity in this area of law.As provided for under the Act.
Remedies for fraudulent claims: group insurance
(Section 13 of the Act)Where a fraudulent claim is made by one of the beneficiaries (affiliates or associated companies) to the policy (who is not a party to the policy), the insurer may treat cover for the fraudulent beneficiary only as having been terminated at the time of the fraudulent act (and cover will remain in place for the other "innocent" beneficiaries).Excluded from T&Cs63.6.3The Act would allow affiliates or associated companies to submit fraudulent claims and the insurance contract would not be affected. British Marine feel that a fraudulent claim should have the same impact on the assured as if it had itself made the fraudulent claim. A fraudulent act committed by the assured or beneficiary under the policy means the insurer is not liable to pay that claim and can recover any sums paid to the assured. The insurer is entitled to treat the contract of insurance as being terminated from the date of the fraudulent act.
Implied term about late payment of claims
(Section 13A of the Act)From 4 May 2017 all contracts of insurance will contain an implied term requiring insurers to pay claims within a reasonable time and giving the assured the right to claim damages from the insurer for losses suffered as a result of this delay.Excluded from T&Cs63.6.4This section of the Act does not appear to be appropriate owing to the nature of the risks insured and the claims handling process unique to the marine insurance market.Save for if the delay is deliberate or reckless, the assured will not be able to claim damages from the insurer for losses suffered resulting from a delay in payment of a claim.
Good faith
(Section 14 of the Act)The Act abolishes the rule allowing a party to a contract of insurance to avoid the contract for breach of the duty of utmost good faith.Excluded from T&Cs62.3British Marine believes that marine insurance is based upon the doctrine of utmost good faith.The insurer can avoid the policy if the assured fails to comply with the duty of utmost good faith.