From August 12 2016 when the UK's Insurance Act 2015 takes effect there will be differences affecting business (ie non-consumer) policies issued in Isle of Man and those issued in UK, including renewals.
The new UK Act has been well trailed, but generally it is more favourable than previously to the insured.
Manx entities issuing policies in the Isle of Man to clients who may expect Manx insurance practices to be similar to those applicable in UK will need to be aware of the differences, as will those acting as agents for policies which may be issued in UK.
The main differences include the following:
- The duty to provide information is
retained. An insured will have a duty to make "a fair
presentation of the risk" and to disclose "every material
circumstance" which the insured "knows or ought to
know" to put a prudent insurer on notice. Disclosure must be
"in a manner which would be reasonably clear and accessible to
a prudent underwriter" (This compares with the position with
regard to consumers dealt with in the Consumer Insurance
(Disclosure and Representations) Act 2012 which replaced the
consumer's duty to volunteer information with a duty to answer
the insurer's questions honestly and reasonably).
The new UK Act also creates a positive duty of inquiry for the insurer as regards information which it "ought reasonably to know"; this includes information known to agents. Accordingly, agents in the Isle of Man for UK underwriters will need to ensure that any relevant information is passed on.
- In case of material non-disclosure or
misrepresentation it will be possible to avoid a policy and keep
the premium only where the misrepresentation or non-disclosure was
deliberate or reckless. In all other cases (even where the insured
is innocent), a scheme of proportionate remedies will apply, as
- where the insurer would have declined the risk altogether, the policy can be avoided, with a return of premium;
- where the insurer would have accepted the risk but included a contractual term, the contract should be treated as if it included that term (irrespective of whether the insured would have accepted that term), and
- where the insurer would have charged a greater premium, the claim should be scaled down proportionately (eg, if the insurer would have charged double the premium, it need only pay half the claim).
- Any provision in a proposal form which purports to convert answers in the proposal into a warranty (so-called "basis of contract clauses) will be ineffective (but insurers will still be able to specifically agree a warranty in respect of any particular matter in the policy).
- All warranties will become "suspensive conditions" ie. an insurer will be liable for losses that take place after a breach of warranty has been remedied, assuming this is possible. For example, if an insured breaches a warranty that a lift is serviced every 12 months, that breach will be "remedied" if it is serviced after 13 months, and so coverage will be suspended for only one month.
- Non-compliance will not provide a defence if the insured can demonstrate that such non-compliance could not potentially have increased the risk of the loss which actually occurred; for example a breach of a warranty to service a lift will not entitle an insurer to refuse to pay a claim for subsidence. It can be expected, therefore, that UK insurers begin to specify in their policies what requirements they wish to impose, what risk of loss that requirement is intended to deal with and what consequence non-compliance may have.
- An insurer will have the option of terminating the contract from the date of the fraudulent act (not the discovery of it), without any return of premium and so can then refuse to pay any claims from that point onwards whilst remaining liable for legitimate claims before the fraud. Also, in the case of group policies where a fraudulent claim is made by one insured, the policy may be avoided in relation to the fraudulent insured but continue in force for the remaining parties.
- The Act removes the remedy of avoidance of the contract for breach of the duty of good faith.
- In introducing the above changes, the new UK Act is intended to constitute a "default" regime for business insurance contracts. Where an insurer intends to opt out (but not in respect of "basis of contract clauses – see above), it must take sufficient steps to draw that to the insured's attention before the contract is entered into and the disadvantageous term must be "clear and unambiguous as to its effect", so that, for example, greater effort would be needed to draw disadvantageous term to the attention of a small business arranging insurance on-line, as compared with a large organisation acting with the benefit of legal advice.
For consumer insurance contracts, the intention of the UK Act is that an insurer will not be able to use a contractual term to put a consumer in a worse position than he or she would be in under the terms of the Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.