By Alexander Oddy and Sarah Irons of Herbert Smith Freehills
New legislation inevitably leads to a period of adjustment while the parties navigate the new law and the Courts are called upon to determine what it means in practice. The results of the Airmic survey last year reveal that a key concern for Airmic members is the likelihood of disputes under the new Insurance Act 2015, which comes into force in August 2016.
The question, then, is what can Airmic members do now to minimise the risk of legal disputes down the line? We explored this question with leading figures from across the industry at an event we hosted in November 2015 to coincide with the publication of the survey results. A number of key tips emerged from that discussion:
Communication – members should engage with their brokers and insurers well in advance of any renewal to discuss the duty of fair presentation in the context of their particular business and the policies they are seeking. Policyholders may be able to agree with insurers the scope of particular aspects of the duty of fair presentation, for example: who falls within the definition of "senior management" by reference to offices held, or
in the context of composite policies insuring multiple parties, the scope of the reasonable search by reference to information held only by particular entities, such as the first named insured or policyholder.
It is crucial that any agreement reached with insurers is properly documented in the policy to avoid disputes at a later date.
Robust disclosure process – members should review their current disclosure process and revisit all aspects of it with the requirements of the Act in mind. Those members who can demonstrate a thorough, documented and auditable disclosure process will be better positioned to rebut any arguments that they did not comply with the duty of fair presentation. Such members are also more likely to find favour with insurers if they are seeking to limit the scope of the duty of fair presentation.
Wording reviews – members should also look closely at their policy wordings to check they are Insurance Act-ready. Think about:
Whether you want to contract out of the provisions of the Act which provide for claim payments to be reduced proportionately in the event of a breach of the duty of fair presentation and to agree instead to pay an additional premium.
Are there clauses in your current policies which put you in a better position than you would be under the Act and which you wish to protect, eg. innocent non-disclosure clauses? Do such clauses need amending to reference the provisions of the Act such as the new proportionate remedies regime they are replacing?
Is your insurer amending its wording to replace warranties with conditions precedent to liability (which will in some cases negate the benefit that an insured gets of being able to remedy a breach of warranty under the Act)?
In summary, members should welcome the opportunity provided by the Act but be ready for some hard work to ensure they are properly prepared.
Alexander Oddy is a partner and Sarah Irons a professional support lawyer at Herbert Smith Freehills
Alexander Oddy - Herbert Smith Freehills
Sarah Irons - Herbert Smith Freehills