Monday, February 16, 2015

Notes on the Insurance Act 2015

The Insurance Act 2015 has passed both Houses of Parliament and is expected to become law in the UK in March 2015.

The Act abolishes some features of the common law that are still followed (at least in the maritime law) in the United States, having been adopted by state and federal courts in the 19th century, see e.g., M'Lanahan v. Universal Ins. Co., 26 U.S. (1 Pet.) 170, 185 (1828); Stipcich v. Metropolitan Life Ins. Co., 277 U.S. 311, 316 (1928), and modifies sections of the Marine Insurance Act of 1906 which has served U.S. lawyers as a guide to the common law of marine insurance.

Part 1 sets out a few definitions.

Part 2 introduces and defines the duty of fair presentation. "Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk." s. 3(1). "Fair presentation" is defined in terms of what must be disclosed, which is set out in s. 3(3). Circumstances that need not be disclosed if the insurer does not inquire are set out in general terms in s. 3(5). The extent to which knowledge will be imputed to the insured and the insurer is set out in ss. 4 and 5, respectively. Whether a failure to disclose is material and, if so, actionable are explored in ss. 7 and 8, respectively.

Part 3 abolishes the rule that a breach of warranty in a contract of insurance results in the discharge of the insurer's liability, and sets out what the consequences of a breach of a warranty will be henceforth. It also makes express changes to ss. 33 and 34 of the Marine Insurance Act of 1906.

Part 4 sets out remedies for fraudulent claims.

Part 5 abolishes the rule permitting a party to avoid a contract of insurance on the ground that the utmost good faith has not been observed by the other party, and modifies the rule (to the extent required by this Act and the 2012 consumer legislation) that a contract of insurance is a contract based on the utmost good faith. It also invalidates any contractual term that would put an insured in a worse position with respect to representations than it would be under this Act. 

Part 6 amends the Third Parties (Rights Against Insurers) Act 2010 by making the changes to it that were thought necessary or advisable before the law came into force.

Part 7 contains technical provisions required to harmonize this Act with existing legislation.

There are explanatory notes provided by the UK Treasury that explain the Act in greater detail. 

For further reading on the law as it was, see Thomas J. Schoenbaum, The Duty of Utmost Good Faith in Marine Insurance Law: A Comparative Analysis of American and English Law, 29 J.Mar.L.Com. 1 (1998).

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