Legislation that implements reforms recommended by the Law Commissions of England and Wales and of Scotland to modernise and simplify insurance contract law across the UK has received Royal Assent.

The Insurance Act 2015 will give effect to a number of reforms recommended by the Law Commissions, including:

• Under a new “duty of fair presentation”, business policyholders will still have a duty to volunteer information, but what is required of them is made clearer, and insurers will have to play a more active role in asking questions of the policyholder. A new scheme of proportionate remedies will replace the existing single remedy of avoidance, which allows insurers to refuse the whole of a claim.
• Insurers will be liable to pay any claim that arises after a breach of warranty has been remedied such as where a broken burglar alarm has been repaired before the claim arises. And they will no longer be able to escape liability on the basis of the policyholder’s breach of a contract term that is shown to be completely irrelevant to the loss suffered. “Basis of the contract” clauses, which can turn any statement from a policyholder into a warranty, will be abolished.
• The Act provides insurers with clear, robust remedies when a policyholder makes a fraudulent claim. Where any part of a claim is fraudulent, they will be entitled to refuse the whole claim. They will also have the right to refuse any claim arising after the fraud but must pay earlier, valid claims.

“The existing law that governs business insurance contracts is weighted in favour of insurers, giving them wide-ranging powers to refuse claims,” explained Professor Hector MacQueen, Law Commissioner leading on the project for Scotland. “These powers, even if rarely used, can undermine trust between insurers and policyholders.”

“Our recommendations received strong support from across the insurance market, and we were pleased to see these urgently needed reforms complete their passage through Parliament following the Law Commission procedure for uncontroversial Bills,” he added. “We look forward to the Insurance Act 2015 coming into force and delivering for the UK a legal framework fit to support our world-leading insurance industry.”

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