Description
RÜCKVERSICHERUNG
– Information held by “any other person” is
also subject to search. The examples given
in the Act of “any other person” are “the
insured’s agent or a person for whom cover is provided by the contract of insuran8
ce”. Paragraph 57 of the Explanatory
Notes states that “the reasonable search
may extend beyond the insured itself to
other persons, where such a search would
be reasonable in the circumstances and
where information is available to the insured.” Paragraph 8.90 of the Joint Law
Commissions’ (JLC’s) Report published
in July 2014 suggests that any other person
may include suppliers, lawyers and accountants. Is a retailer now expected to
ask its suppliers whether they have any
material information to pass on to it for
the purposes of the retailer arranging, for
example, its liability insurance?
Areas of uncertainty
– It is not clear from the Act whether information is available to the (re)insured only
in circumstances where the holder of the
information is under a legal duty to pass
that information to the (re)insured (for example an agent) or whether “available to”
means any information that the (re)insured could reasonably be expected to ask
for and obtain.
A person covered under the insurance contract (for example a joint venturer of the insured) may not be under any legal duty to pass any information to the insured, but that joint venturer’s information may nonetheless be disclosable if a court ultimately finds that it would be reasonable for the search to include that information. Brokers are going to have to advise their clients on what enquiries of whom will satisfy the reasonable search requirement. The Insurance Act carves out from information that has to be disclosed to underwriters, information that is acquired by the (re)insured’s agent (typically a broker) which is confidential and is acquired through a business relationship with a person who is not connec9 ted with the contract of (re)insurance. If a broker has highly material information, but that information is not disclosed to underwriters on placing, will it be sufficient that the broker believes that the information it held was confidential, or will a court test whether, objectively, the information was given to the broker confidentially? The broker will have to make this decision in circumstances where there is no current guidance (because no court has had to address this issue). 708 Another area of uncertainty introduced by the Insurance Act is whether the information that would have been revealed by a reasonable search is limited to the information which the (re)insured found out having conducted its search, or includes information that the (re)insured would have found out had the search been conducted immediately prior to the placing of the (re)insurance. Section 7(4) of the Insurance Act sets out examples of things which may be material circumstances.
They include special or unusual facts relating to the risk or anything which those concerned with the class of (re)insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of risks of the type in question. Both of these matters are going to have to be addressed by brokers in advising their clients on what needs to be disclosed to underwriters. Any failure to give appropriate advice may result in the (re)insurance being impaired or even avoided. Proportionate remedies for any material non-disclosure or misrepresentation Under current English law, any failure to disclose a material circumstance may entitle the (re)insurer to avoid the insurance con10 tract ab initio. An important feature of the Insurance Act is the introduction of proportionate remedies for any material non-disclosure or misrepresentation.
The (re)insurer will no longer be automatically entitled to avoid the contract of (re)insurance and its remedies may be restricted to what it would have done had there been a fair presentation (eg charge more premium, or insert an 11 exclusion clause). However, the (re)insurer will have a right of avoidance if the failure to disclose is deliberate or reckless. The decision by a broker to deliberately withhold material information because it was considered to have been acquired in confidence, when in fact it was not, may result in the (re)insured losing its (re)insurance as the result of an error by the broker. to reduce the risk of a loss occurring, but not one which defines the risk as a whole.
Accordingly, it is going to be important to identify which category of term a particular condition or warranty falls into. (Re)insureds will be looking to their brokers for advice in this regard. With the exception of “basis of contract” clauses, (re)insurers of business insurance or reinsurance contracts will be able to contract out of the provisions in the Act (for example, the provision concerning breach of 12 an irrelevant term). One of the requirements for contracting out is that the (re)insurer must take sufficient steps to draw any disadvantageous term to the (re)insured’s attention.
However, if the broker has actual knowledge of the disadvantageous term when the contract is entered into, then this requirement will have been satisfied. It will accordingly fall to the brokers to identify to their clients the terms in the contract of (re)insurance that vary the application of the Insurance Act. If the (re)insured loses cover as a consequence of the underwriter contracting out of the Insurance Act’s effect, the broker will need to establish that it drew the (re)insured’s attention to the contracting out provision. Underwriters and brokers have until August 2016 to adjust their practices and standard terms to the new matters required by the Insurance Act.
The JLC hope that this will result in the introduction of protocols addressing what will be required for a fair presentation of the risk in particular classes of business. The uncertainties in the Act described in this article suggest that the market is going to face challenges when implementing the legislation. Inevitably, there will be differences of opinion as to how best to address these matters in a way that does not harm market efficiency or generate more uncertainty. 1 2 3 4 5 One of the significant changes introduced by the Insurance Act is Section 11 which prevents an (re)insurer from relying on the breach of a term (typically a warranty) where the breach “could not have increased the risk of the loss which actually occurred in the circumstance in which it occurred.” The relevant term has to be one that would tend 6 7 Section 22 Insurance Act 2015 Explanatory Notes provided by HM Treasury on 16 January 2015 See s.18(1) Marine Insurance Act 1906 Section 4(3) Insurance Act 2015 Section 4(6) Insurance Act 2015 Section 4(8)(c) Insurance Act 2015 See Australian & New Zealand Bank Limited v Eagle Wharves Limited [1960] 2 Lloyd’s Rep 241, 252 8 9 Section 4(7) Insurance Act 2015 Section 4(4) Insurance Act 2015 10 11 12 Section 18(1) Marine Insurance Act 1906 Section 8 Insurance Act 2015 Section 16 Insurance Act 2015 Zeitschrift für Versicherungswesen 21 | 2015 .
A person covered under the insurance contract (for example a joint venturer of the insured) may not be under any legal duty to pass any information to the insured, but that joint venturer’s information may nonetheless be disclosable if a court ultimately finds that it would be reasonable for the search to include that information. Brokers are going to have to advise their clients on what enquiries of whom will satisfy the reasonable search requirement. The Insurance Act carves out from information that has to be disclosed to underwriters, information that is acquired by the (re)insured’s agent (typically a broker) which is confidential and is acquired through a business relationship with a person who is not connec9 ted with the contract of (re)insurance. If a broker has highly material information, but that information is not disclosed to underwriters on placing, will it be sufficient that the broker believes that the information it held was confidential, or will a court test whether, objectively, the information was given to the broker confidentially? The broker will have to make this decision in circumstances where there is no current guidance (because no court has had to address this issue). 708 Another area of uncertainty introduced by the Insurance Act is whether the information that would have been revealed by a reasonable search is limited to the information which the (re)insured found out having conducted its search, or includes information that the (re)insured would have found out had the search been conducted immediately prior to the placing of the (re)insurance. Section 7(4) of the Insurance Act sets out examples of things which may be material circumstances.
They include special or unusual facts relating to the risk or anything which those concerned with the class of (re)insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of risks of the type in question. Both of these matters are going to have to be addressed by brokers in advising their clients on what needs to be disclosed to underwriters. Any failure to give appropriate advice may result in the (re)insurance being impaired or even avoided. Proportionate remedies for any material non-disclosure or misrepresentation Under current English law, any failure to disclose a material circumstance may entitle the (re)insurer to avoid the insurance con10 tract ab initio. An important feature of the Insurance Act is the introduction of proportionate remedies for any material non-disclosure or misrepresentation.
The (re)insurer will no longer be automatically entitled to avoid the contract of (re)insurance and its remedies may be restricted to what it would have done had there been a fair presentation (eg charge more premium, or insert an 11 exclusion clause). However, the (re)insurer will have a right of avoidance if the failure to disclose is deliberate or reckless. The decision by a broker to deliberately withhold material information because it was considered to have been acquired in confidence, when in fact it was not, may result in the (re)insured losing its (re)insurance as the result of an error by the broker. to reduce the risk of a loss occurring, but not one which defines the risk as a whole.
Accordingly, it is going to be important to identify which category of term a particular condition or warranty falls into. (Re)insureds will be looking to their brokers for advice in this regard. With the exception of “basis of contract” clauses, (re)insurers of business insurance or reinsurance contracts will be able to contract out of the provisions in the Act (for example, the provision concerning breach of 12 an irrelevant term). One of the requirements for contracting out is that the (re)insurer must take sufficient steps to draw any disadvantageous term to the (re)insured’s attention.
However, if the broker has actual knowledge of the disadvantageous term when the contract is entered into, then this requirement will have been satisfied. It will accordingly fall to the brokers to identify to their clients the terms in the contract of (re)insurance that vary the application of the Insurance Act. If the (re)insured loses cover as a consequence of the underwriter contracting out of the Insurance Act’s effect, the broker will need to establish that it drew the (re)insured’s attention to the contracting out provision. Underwriters and brokers have until August 2016 to adjust their practices and standard terms to the new matters required by the Insurance Act.
The JLC hope that this will result in the introduction of protocols addressing what will be required for a fair presentation of the risk in particular classes of business. The uncertainties in the Act described in this article suggest that the market is going to face challenges when implementing the legislation. Inevitably, there will be differences of opinion as to how best to address these matters in a way that does not harm market efficiency or generate more uncertainty. 1 2 3 4 5 One of the significant changes introduced by the Insurance Act is Section 11 which prevents an (re)insurer from relying on the breach of a term (typically a warranty) where the breach “could not have increased the risk of the loss which actually occurred in the circumstance in which it occurred.” The relevant term has to be one that would tend 6 7 Section 22 Insurance Act 2015 Explanatory Notes provided by HM Treasury on 16 January 2015 See s.18(1) Marine Insurance Act 1906 Section 4(3) Insurance Act 2015 Section 4(6) Insurance Act 2015 Section 4(8)(c) Insurance Act 2015 See Australian & New Zealand Bank Limited v Eagle Wharves Limited [1960] 2 Lloyd’s Rep 241, 252 8 9 Section 4(7) Insurance Act 2015 Section 4(4) Insurance Act 2015 10 11 12 Section 18(1) Marine Insurance Act 1906 Section 8 Insurance Act 2015 Section 16 Insurance Act 2015 Zeitschrift für Versicherungswesen 21 | 2015 .
