2016 legal changes explained

  • The Insurance Act has introduced some of the most important changes to UK insurance contract law in more than a century
  • The Enterprise Act and the Third Parties (Rights Against Insurers) Act will also have significant implications for the insurance industry
  • We discuss what you need to know about these three pieces of legislation

Keeping pace with legislative changes that could affect your organisation is important.

Three pieces of recent legislation are having a particularly significant impact on the UK insurance sector, as we discuss here.

1. The Insurance Act 2015

How long has it been in force?
Since 12 August 2016.

Why was it introduced?
To ensure a better balance of interests between policyholders and insurers and bring UK insurance law into line with modern market practice.

Zurich Municipal has welcomed the Insurance Act, as we believe it will increase overall confidence in the UK insurance sector.

What are the key changes?
The main reforms relate to the duty of fair presentation of the risk and the remedies in case of breach. The Act also reforms the remedies for breach of warranties and terms not relevant to the loss and the remedies for fraudulent claims.

The new “duty of fair presentation” of the risk clarifies what an insured must disclose to an insurer and what an insurer ought to know about its insureds.

Why are the changes to the disclosure regime significant?

Our approach, where an insured’s failure to make a fair presentation is not deliberate or reckless, is to either:

  • Avoid the policy if we would not have entered into it had we known the material facts; or
  • If we would have entered into the policy, but on different terms and/or on additional premium, we will apply those terms (e.g. applying excesses or exclusions to the policy) and/or charge the additional premium.

Key points

  • Ensure you understand the key principles of the Insurance Act, including your duty to make a fair presentation of the risk
  • Keeping records in good order to ensure that information is presented to insurers in a clear and structured way
  • Understand our stance on the Insurance Act, including our additional premium approach

2. The Enterprise Act 2016

How long has it been in force?
The Act was passed on 4 May 2016 but will not come into force until 4 May 2017.

Why was it introduced?
To give customers the right to claim damages if they have suffered a loss because their insurer unreasonably delayed payment of a claim.

Why is it significant?
Every insurance contract entered into on or after 4 May 2017 will include an implied term that claims must be paid within a ‘reasonable time’.

Fundamental to the Enterprise Act is the question of what constitutes an ‘unreasonable’ delay. We have previously discussed some of the factors that courts are likely to consider when deciding if an insurer has acted reasonably, but it is clear that the complexity of the claim will be crucial, and insurers will still be entitled to carry out necessary investigations.

In order to pursue a claim, an insured must prove they have suffered a loss as a result of the insurer’s delay.

Key points

  • It is possible for insurers to contract out of the implied term that claims must be paid within a reasonable time. However, this only applies to commercial policies
  • It is important that you are aware of whether or not your insurer has contracted out of this section of the Act
  • You should also be aware that you only have 12 months from the date that a claim was settled to bring an action for unreasonable delay in making the claim payment

3. Third Parties (Rights Against Insurers) Act 2010

How long has it been in force?
The Act came into force on 1 August 2016.

Why was it introduced?
To allow third parties to bring proceedings directly against insurers when the insured is liable to the third party but has become insolvent.

Why is it significant?
A third party is no longer required to first establish liability against the insured before pursuing the insurer for damages – the third party can now sue the insurer directly. If the insured has been dissolved, the Act removes the need for the third party to restore the insured company.

The Act also makes it easier for third parties to obtain the information required in order to pursue a claim, by increasing the categories of people who may be asked for information, and placing a 28-day time limit on their response.

Any individual or organisation that fails to respond to a request for information within that time frame could potentially be forced to do so by means of a summons to court.

Key points
Under the Act, individuals are only required to provide information that they can obtain “without undue difficulty” from documents within their control.

If you are asked for information that you are unable to provide, you should ensure that you:

  • Promptly respond to the person who made the request, which is likely to be a solicitor acting on behalf of a third party
  • Explain whether or not you will be able to provide the information requested
  •  Ask for additional time if necessary

Keeping up-to-date records that can be retrieved easily and quickly in the event of an enquiry will help your ability to handle such requests.