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What is the impact of the Insurance Act 2015 on business insurance contracts?

The Insurance Act 2015 received Royal Assent earlier this year and will come into force on 12 August 2016. The Act applies to all types of insurance contracts.

The Act introduces a number of key changes which will impact on business insurance contracts. The most significant changes for business insurance contracts are as follows:

  • The Act introduces a new duty of “fair presentation of risk” for business policyholders. This replaces the existing duty of disclosure.
  • The Act clarifies the information the insured needs to provide to the insurer.
  • The Act introduces a positive duty of inquiry for the insurer.
  • The Act introduces a new system of proportionate remedies which will apply in the event that the duty of fair presentation is breached.
  • For business insurance contracts entered into on or after 12 August 2016, the Act prohibits the use of “basis of contract” clauses which aim to convert all statements made by the business policyholder to the insurer into warranties so that the insurer can refuse to pay a claim if the information proves to be inaccurate.
  • The Act provides clearer remedies for insurers where the business policyholder submits a fraudulent claim.
  • The Act allows insurers to “opt out” of the new law for business insurance contracts and introduce less favourable terms providing certain transparency requirements are met.

The Act will make a number of significant changes to the existing insurance law regime.

Business policyholders should review their existing policies, evaluate their existing disclosure processes and liaise with their insurance brokers, at an early stage, to ensure that they are ready for the changes and have sufficient time to collect additional information before the Act comes into force next year.

If you require further information regarding these changes, please contact Rachel Brown of Druces LLP’s commercial litigation team.

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