Today's columnist, John Leigh: Getting to grips with new Act

n New responsibilities for policyholders to provide all relevant information to underwriters

n Policyholders must involve all relevant senior management when compiling information for insurers

n The potential remedies for insurers for non-disclosure or fraud, making a more level playing field between the policyholder and insurer

n Changes around how insurers must deal with a breach of warranty making the position fairer for the policyholder

n Option for insurers to ‘opt out’ of much of the Act

Certainly some changes – such as the new legislation on warranties – introduce a much more level playing field. A warranty in an insurance contract is a promise by the policyholder to the insurer to do (or not do) something or a promise to maintain a certain state of affairs.

Previously, insurers could refuse to pay a claim if the policyholder breached a warranty, even if the breach was unconnected with the loss or even if the breach was remedied before the loss occurred.

The ability for insurers to avoid claims in such circumstances is now removed and insurers can only suspend cover for periods where a warranty is not complied with.

If the warranty is designed to reduce the risk of a certain type of loss or a loss at a certain place or time and the policyholder can demonstrate that a breach could not have increased the risk of that loss occurring, insurers must still pay the claim.

This removes the classic example where an insurer could use the failure to set a burglar alarm as a reason not to pay for fire damage.

Finally, insurers often use a ‘basis of contract’ clause to convert all information given by policyholders to insurers into warranties. This enables insurers to refuse to pay claims if any part of a risk presentation or proposal form is inaccurate. Now, the position is fairer for policyholders as the Act specifically removes this as an option.

The Act also requires policyholders to make a ‘fair presentation of the risk’ to the insurer. This applies for all renewals as well as new policies. A fair presentation is one that discloses, in a manner that is reasonably clear and accessible, every material circumstance which is known or ought to be known by the policyholder’s senior management, or those responsible for arranging insurance, after a reasonable search.

The new legislation is broadly good news for local firms. But it introduces many elements of uncertainty. Sheffield firms will, therefore, need to engage closely with their broker to ensure they stay ahead of the contractual game.

* John Leigh, Director at IFM Insurance Brokers Ltd