It is widely acknowledged that the insurance law in the U.K has a rich
heritage as it roots as far back as in the 18th and 19th century. One could
say that is the bedrock of today's London financial market. The Marine
Insurance Act 1906which is currently in force, serves more than a
century the commercial market by providing and securing protection
against any kind of loss that is related to marine and non-marine matters.
Under the MIA 1906 a wide range of cases were codified, as well as legal
issues that are directly linked to the practice of marine insurance.
According to Noussia ''the primary aim of the MIA 1906 was to achieve
certainty, and to a certain extent this has been achieved at the time of its
enactment''.
However, many authors have described the Marine Insurance Act
1906 as an old fashioned due to the fact that is in force for more than 1oo
years and it does not reflect the needs of the insurance market of the 21st
century. As a consequence, the Law Commission together with the
Scottish Law Commission, have reviewed the MIA 1906 and introduced
operational changes that would replace the MIA 1906 and redraft the
legislation in order to be applicable in today's modern insurance market.
In this way, the Insurance Act 2015 received Royal Assent on the 12th of
February 2015 and will enter fully into force on the 16th of August of the
following year. The new Act introduces a plethora of changes that are
considered substantial to the law that is related to contracts of insurance.
More specifically, these alterations are connected to to the disclosure in
non-consumer insurance contracts (duty of utmost good faith and/or duty
of fair presentation), it introduces remedies for non-disclosure for
fraudulent claims as well as warranties and other contractual terms.
DUTY OF FAIR PRESENTATION - GOOD FAITH
The Insurance Act 2015 under section 3 (1) has introduced a new
obligation for the insured; the duty to make a fair and reasonable
presentation of the risk(s) to the party(ies) involved before the formation
of the contractual agreement. Therefore, when the Act comes into force,
before the conclusion of the contract of insurance, the insured parties will
be required to disclose every material circumstance they know or ought to
know or to disclose every information that is considered significant in
order to put the insurer on notice. In addition, the Act by virtue of section
7(4) gives some examples of what may be considered a material
circumstance. An important example could be that of unusual facts
relating to the risk. One could say that the insurer would have the
privilege to make more queries in case where he reasonably believes that
the risks are higher than it is expected to be. In other words, by virtue of
section 4 (b) the insured has the duty of disclosure: which gives the
insurer sufficient information to put a prudent insurer on notice that it
needs to make further queries for the purpose of revealing those material
circumstances.
Therefore, it could be said that the practical implications related to these
changes are considered to be significant as the insurers could be a step
forward as they will practically examine and assess in depth all those risks
which might be linked to the agreement. In this way, they would not only
rely on the ship-brokers or the insured so as to reveal every material
risk(s) and information to the insurers, even though sometimes is
considered to be of confidential nature.
The Insurance Act 2015 under section 3 (1) has introduced a new
obligation for the insured; the duty to make a fair and reasonable
presentation of the risk(s) to the party(ies) involved before the formation
of the contractual agreement. Therefore, when the Act comes into force,
before the conclusion of the contract of insurance, the insured parties will
be required to disclose every material circumstance they know or ought to
know or to disclose every information that is considered significant in
order to put the insurer on notice. In addition, the Act by virtue of section
7(4) gives some examples of what may be considered a material
circumstance. An important example could be that of unusual facts
relating to the risk. One could say that the insurer would have the
privilege to make more queries in case where he reasonably believes that
the risks are higher than it is expected to be. In other words, by virtue of
section 4 (b) the insured has the duty of disclosure: which gives the
insurer sufficient information to put a prudent insurer on notice that it
needs to make further queries for the purpose of revealing those material
circumstances.
Therefore, it could be said that the practical implications related to these
changes are considered to be significant as the insurers could be a step
forward as they will practically examine and assess in depth all those risks
which might be linked to the agreement. In this way, they would not only
rely on the ship-brokers or the insured so as to reveal every material
risk(s) and information to the insurers, even though sometimes is
considered to be of confidential nature.
REMEDIES FOR NON-DISCLOSURE
Previously under the MIA 1906 the insurer had the privilege to refuse any
claims related to the insurance agreement even in the case the breach
was committed by the ship-broker or the insured as they had the
obligation to disclose every material circumstance during the pre-
contractual discussions. The new Act has now introduced a range of
proportionate remedies, which are applicable depending on the scale of
the breach and the state of mind of the insurer. More specifically the new
Act distinguishes between two different categories of breach and depend
whether the breach by the insured party was deliberate or reckless.
In this way, if it is recorded a deliberate or reckless breach by the insured,
then the insurer has the right for a proportionate remedy. What that
means is that the insurer would be able to avoid the contract and
therefore put him in the same position as he was before entering into the
agreement. In addition, the premiums might be paid by the insurer and
that would have an increase. Also if a dishonest or reckless breach is
witnessed, then the insurer would be entitled to refuse all claims related
and maintain the premium.
Previously under the MIA 1906 the insurer had the privilege to refuse any
claims related to the insurance agreement even in the case the breach
was committed by the ship-broker or the insured as they had the
obligation to disclose every material circumstance during the pre-
contractual discussions. The new Act has now introduced a range of
proportionate remedies, which are applicable depending on the scale of
the breach and the state of mind of the insurer. More specifically the new
Act distinguishes between two different categories of breach and depend
whether the breach by the insured party was deliberate or reckless.
In this way, if it is recorded a deliberate or reckless breach by the insured,
then the insurer has the right for a proportionate remedy. What that
means is that the insurer would be able to avoid the contract and
therefore put him in the same position as he was before entering into the
agreement. In addition, the premiums might be paid by the insurer and
that would have an increase. Also if a dishonest or reckless breach is
witnessed, then the insurer would be entitled to refuse all claims related
and maintain the premium.
WARRANTIES
An important reform in the new Act is the classification of warranties
where currently by virtue of the the Marine Insurance Act 1906 a breach
of a warranty in the contractual agreement by an insured entitles the
insurer to avoid all claims from the date of the breach. On the other hand,
under section 9 of the new Act applies to representations made by the
insured in connection with a proposed non-consumer insurance contract,
or a proposed variation to a non-consumer insurance contract. More
specifically section 9 prohibits provisions which might be capable of
converting all representations into warranties.
Moreover, section 10 has an important amendment as it abolishes the
provisions contained in the Old Bill as it states that: Any rule of law that
breach of a warranty (express or implied) in a contract of insurance results
in the discharge of the insurer’s liability under the contract is abolished.
However, any breach of warranty occurred by the insured temporarily
postpones the insurer's liability until the breach is remedied.
Lastly as to section 11 of the Act is applicable to a term (express or
implied) of a contract of insurance, other than a term defining the risk as a
whole, if compliance with it would tend to reduce the risk of one or more
of the following:(a)loss of a particular kind,(b)loss at a particular location,
(c)loss at a particular time.
(2)If a loss occurs, and the term has not been complied with, the insurer
may not rely on the non-compliance to exclude, limit or discharge its
liability under the contract for the loss if the insured satisfies subsection
(3).
(3)The insured satisfies this subsection if it shows that the non-compliance
with the term could not have increased the risk of the loss which actually
occurred in the circumstances in which it occurred.
Thus, one could say that there must be always the causation element into
a breach contracts of insurance which establishes the actual loss occurred
by the violation of the insurance contract.
An important reform in the new Act is the classification of warranties
where currently by virtue of the the Marine Insurance Act 1906 a breach
of a warranty in the contractual agreement by an insured entitles the
insurer to avoid all claims from the date of the breach. On the other hand,
under section 9 of the new Act applies to representations made by the
insured in connection with a proposed non-consumer insurance contract,
or a proposed variation to a non-consumer insurance contract. More
specifically section 9 prohibits provisions which might be capable of
converting all representations into warranties.
Moreover, section 10 has an important amendment as it abolishes the
provisions contained in the Old Bill as it states that: Any rule of law that
breach of a warranty (express or implied) in a contract of insurance results
in the discharge of the insurer’s liability under the contract is abolished.
However, any breach of warranty occurred by the insured temporarily
postpones the insurer's liability until the breach is remedied.
Lastly as to section 11 of the Act is applicable to a term (express or
implied) of a contract of insurance, other than a term defining the risk as a
whole, if compliance with it would tend to reduce the risk of one or more
of the following:(a)loss of a particular kind,(b)loss at a particular location,
(c)loss at a particular time.
(2)If a loss occurs, and the term has not been complied with, the insurer
may not rely on the non-compliance to exclude, limit or discharge its
liability under the contract for the loss if the insured satisfies subsection
(3).
(3)The insured satisfies this subsection if it shows that the non-compliance
with the term could not have increased the risk of the loss which actually
occurred in the circumstances in which it occurred.
Thus, one could say that there must be always the causation element into
a breach contracts of insurance which establishes the actual loss occurred
by the violation of the insurance contract.
CONCLUSION
No doubt several changes would be witnessed by the application of the
new law which essentially amends many provisions in the current
legislation. However, this new Bill marks significant changes in the
upgrading of the role of insurance in the UK as following & applying the
new provisions it will deliver significant quantitative and qualitative results
in the insurance sector, even though there is enough scepticism about it.
No doubt several changes would be witnessed by the application of the
new law which essentially amends many provisions in the current
legislation. However, this new Bill marks significant changes in the
upgrading of the role of insurance in the UK as following & applying the
new provisions it will deliver significant quantitative and qualitative results
in the insurance sector, even though there is enough scepticism about it.
Petros Papaevagorou
Advocate & Legal Consultant at ANDREAS DEMETRIADES & CO LLC
Advocates & Legal Consultants.
Advocate & Legal Consultant at ANDREAS DEMETRIADES & CO LLC
Advocates & Legal Consultants.
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