Will you be ready for the new Insurance Act?

In practical terms, there are three main areas of which property professionals need to be aware:

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The Duty of Fair Presentation

This will impose upon the insured (such as a landlord or management company) a duty to make disclosure to the insurer of a) every material circumstance the insured knows or ought to know and b) sufficient information to put a prudent insurer on notice that the insurer needs to make further enquiries for the purpose of revealing those material circumstances.

“Material circumstances” are any circumstances that would influence the judgment of a prudent insurer in determining whether or not to take the risk and if so, on what terms.

This may lead to a need for managing agents, particularly where they have recently taken on the management of a development or building, to make much more detailed enquiries of the previous agent and the directors of the management company as to the risks involved. There cannot be any policy of “don’t ask, don’t tell” as any material circumstances which are suspected or which should have been known will have to be disclosed.

If there is any breach of the duty, whether deliberate or reckless, the insurer’s remedy depends on what the underwriter would have done if a fair presentation had been made. This potentially means they will be able to avoid the contract and return the premium, demand a higher premium to reflect the increased risk or treat the contract as though different terms applied.

Warranties

Breaches of warranty that are irrelevant to the loss that occurs will no longer discharge insurers from liability. Warranties will still exist but will be harder to create and will be more limited in scope. Clauses in proposal forms that turn the insured’s representations into warranties will no longer have any effect. Proposal forms and wordings will need to be revised to reflect this.

If the insured can show that failure to comply with any term in the contract could not have increased the risk of the loss actually occurring, insurers will no longer be able to rely on the breach to limit, exclude or discharge liability.

Remedies for fraudulent claims

Insurers will be able to treat the contract as having been terminated from the date of the fraudulent act and need not return any premiums. The insurer will not be liable for the claim and will be able to recover any payments made.