The Insurance Act 2015 comes into force today. The new act represents the greatest change to insurance contract law in the UK in over 100 years. It has the potential to have a significant effect on construction firms insurance policies.
On the one hand construction firms should benefit as insurers' ability to refuse claims is restricted, a completely new and additional remedy of proportional claims payments is now made available to policyholders.
However, another key changes in the Act is the new duty of fair presentation of the risk. The insured construction firm is now required to disclose material circumstances which it knows or to give insurers sufficient information to put a prudent insurer on notice that it needs to make further enquiries.
What an insured construction firm "knows" will include what should have been reasonably revealed by a search of information available to the insured.
Both of these aspects of the Act have the potential to cause difficulties for a large construction comapny. It is currently unclear what the extent of a reasonable search would be, but it would appear to be drawn very widely and to include agents.
Therefore, it may be necessary for an insured construction firm to seek information, for example, from architects or engineers who are not employees of the firm.
The potential here is for insurers and insureds to agree what should generally be disclosed as part of a fair presentation of risk. However, it may often be difficult for such information to be agreed, given the nature of large construction companies which often have an international aspect.
This information may be needed in order for the insurer to fully assess the risk and the level at which to set the premium. This could mean that an insured construction firm may need to disclose contracts undertaken by subsidiaries, the level of fees paid to sub-contractors and sub-consultants and any contractual limitations of liability agreed with designers, which is a tall order for a large construction companies.
What do construction firms need to do?
Like all new statutes, the full impact of the Act will not be appreciated until some of the provisions are interpreted by judicial precedent. Over the coming years we will see further definition of the Act as it is put into practice.