They say time flies. For those of us who have followed the progress of insurance law reform, this could be something of an exaggeration, as the course of law reform in this area has been slowly progressing over several decades. Nevertheless, it is hard to believe that a year has passed since the Insurance Act 2015 (the "Act") came into force with much fanfare on 12 August 2016. How much of an impact has the Act actually had so far?
Insurance law in the UK was for so long based on the Marine Insurance Act 1906, developed over the years by judicial precedent and has provided much of the global (re)insurance markets with their legal frameworks and interpretation. However, market practice moves on and the reform process which led to the Act was intended to bring legal frameworks and market practices into line in the UK and also to reflect practice and developments in other jurisdictions.
Whether the Act has achieved this aim is still too early to tell. Largely welcomed by the market at the time, there has, as yet, been little judicial guidance on how the Courts will interpret the Act when disputes arise, as they inevitably will (however given that the Act only applies to policies incepted (or varied) since the Act came into force, any disputes arising so far have yet to be decided by the Courts).
There are a number of issues that insurers are grappling with now that the Act has become a reality. Insurers have sought guidance on a number of issues, including the application of proportionate remedies and the attachment points of layers, and we have regularly seen that insureds and their brokers are keen to discuss and agree the precise scope of a fair presentation (as required under s.3 of the Act) and what is considered to be a reasonable search (s.4) with insurers. Given the large variance in factors that need to be considered here, it will be helpful to start to see some of these points addressed by the courts in due course.
There have been several cases in the last year which have indicated at least where the differences under the new Act might arise in practice, and also where there will be little difference despite the new regime.
Aldridge & Ors v Liberty Mutual (unreported), concerned the issue of waiver and presumption of knowledge:
Under section 18 of the Marine Insurance Act 1906, in the absence of inquiry, an insured need not disclose any circumstance which the insurer knows or is presumed to know (including matters which an insurer ought to know in the ordinary course of his business) or any circumstance as to which information is waived by the insurer. The general position prior to the Act appeared to be that there was no need for insurers to search their records. In Mahli v Abbey Life Assurance , the Court of Appeal took the view that the underwriting department of an insurer is not deemed to know everything that is held on the insurer's files, where that information is not repeated at placement/renewal.
In Aldridge, the insured notified four incidents to the insurer's claims department. The insurer attempted to avoid the policy for non-disclosure but the claimants argued that the insurer had waived the provision of certain information, or was presumed to know it by virtue of the fact that it had been supplied to Liberty’s claims department. That argument was rejected by the judge: "Facts provided by or on behalf of an insured to his insurers but independently of a renewal placement and not to or for onward transmission to the underwriter writing that renewal are not necessarily presumed known to that underwriter". Accordingly, the insurer was entitled to avoid the policy. The Act now expressly provides that an underwriter is deemed to know something if either (a) an employee (or agent) of the insurer knows it and "ought reasonably to have passed on the relevant information" to the particular underwriter, or (b) the relevant information is held by the insurer and is readily available to the underwriter. Subject to judicial consideration of the relevant provisions, there may well be circumstances where a different approach might have to be adopted in the future to a case with similar facts under the new Act.
In AXA v ARIG, which focused on the issue of inducement, the Court of Appeal refused to overturn the finding at first instance that the particular underwriter had not been induced by non-disclosure of loss statistics. It held that, in considering whether a presentation is fair, the court must decide what the insured or broker would have said in addition to that which was necessary to make the presentation fair, in order to encourage the insurer to write the risk. That is a subjective test and was relevant here because, had the loss statistics been disclosed, it was accepted that the broker would also have told the reinsurer that a change of underwriter at the reinsured would result in a more rigorous approach to the selection of risks going forward.
Although this case concerned policies written before the Act came into force, under the new Act (re)insurers must still prove inducement in order to claim a remedy for the breach of the duty of fair presentation. That test of inducement appears to be a subjective one and so the principles set out by the Court of Appeal will still apply to policies written after the Act.
Dalecroft Properties v Underwriters again involved avoidance arguments on the basis of material non-disclosure and misrepresentation. The court held that that insurers were not obliged to indemnify the insured and that even under the duties in the Act (to provide a fair presentation of the risk) the owners would not have met the essential requirements, as almost every question on their proposal form was essentially incorrect.
Several decisions which predate the enactment of the Act are also worth a mention as they could become relevant now that the late payment provisions have also come into force (on 4th May 2017).
In Gentry v Miller , the Court of Appeal confirmed that a period of two months (including the Christmas period) to investigate a (at the time) low value road traffic accident claim may be reasonable.
In an earlier decision, Brit UW Ltd v F&B Trenchless Solutions , the judge rejected an affirmation of cover argument in relation to a complex claim. Citing Rix LJ's decision in Kosmar Villa v Trustees of Syndicate 1243 , to the effect that insurers should not rush to avoid or "even to destabilise their relationship with their insured by immediately reserving their position", it was held that the insurer had been entitled to await loss adjusters' advice and to verify the information given to it. The judge concluded that: "A period of 4 to 5 months to carry out investigations, take legal advice and the decision to avoid cannot be said to have been unreasonable".
During the next 12 months, as we look towards the second anniversary of the Act, we should start to see a much clearer picture of how the Act is working in practice, once insurers and their customers become accustomed to operating in the new regime, and in particular, once subjected to judicial interpretation in the face of actual disputes, whether it has provided a degree of clarity it was intended to achieve.
For now, we welcome the progress that has been made so far.