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Insurance Act 2015 & Enterprise Act 2016 – did it change anything?

Author: M Jagannath
Date: February 26, 2017

In our earlier article on “Pay to be Paid rule – An Anachronism?” we had suggested that with the implementation of the Insurance Act 2015, the "Pay to be Paid" rule found in P&I Club Rules would become redundant. We have since been advised by one of our readers that the P&I Clubs have incorporated provisions to oust the application of both the Insurance Act 2015 and the Enterprise Act 2016. This article considers the effect of the Acts in such circumstances.

  1. The Insurance Act 2015 and the Enterprise Act 2016 (which again amended the Insurance Act 2015 and the Limitation Act 1980 and will come into force from 04th May 2017) brought reform to the insurance contract law by amending key sections of the English Marine Insurance Act 1906 (which was a codification of the common law prior to the passing of the act). The reforms were aimed to reflect the best practices in English Insurance Law and dealt with three broad areas – the pre-contractual duty of disclosure, the effect of warranties and the insurers’ remedies for fraudulent claims. The present English Law does not provide any remedy to the Insured for late payment of insurance claims and the effect of the Enterprise Act will be that Insurers must pay any sums due to their insured within a “reasonable time” failing which the Insured would be entitled to enforce payment of their claim and also be entitled to pursue for damages for the late payment of the claim.

  2. Our purpose is not to cover the exact changes of both the Insurance Act 2015 or the the Enterprise Act 2016 and which has been amply discussed by various law firms/ legal luminaries, etc. Our article will focus on the actual effect in the Commercial Marine Insurance Market (P&I and Hull). As mentioned above, we had been advised by one of our readers*** of P&I Clubs having excluded the application of the Insurance Act 2015 and the Enterprise Act 2016.

  3. The Insurance Act 2015:

    1. S 15: This section and in particular subsection (1) deals with contracting out for consumer insurance contracts and states “A term of a consumer insurance contract, or of any other contract, which would put the consumer in a worse position as respects any of the matters provided for in Part 3 or 4 of this Act than the consumer would be in by virtue of the provisions of those Parts (so far as relating to consumer insurance contracts) is to that extent of no effect”. S 1 of The Act states that the consumer insurance contract has the same meaning as in the Consumer Insurance (Disclosure and Representations) Act 2012. The Consumer Insurance (Disclosure and Representations) Act 2012 states “consumer insurance contract” means a contract of insurance between—

      1. an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession, and

      2. a person who carries on the business of insurance and who becomes a party to the contract by way of that business (whether or not in accordance with permission for the purposes of the Financial Services and Markets Act 2000);

        The other Parts of the Insurance Act 2015 are with relation to Commercial Insurances and the effect of this Section is that it would not be possible for Insurers to contract out of the Insurance Act 2015 with consumers.

    2. S 16: This section deals with contracting out for “non-consumer insurance contracts” and states:

      1. A term of a non-consumer insurance contract, or of any other contract, which would put the insured in a worse position as respects representations to which section 9 applies than the insured would be in by virtue of that section is to that extent of no effect.

      2. A term of a non-consumer insurance contract, or of any other contract, which would put the insured in a worse position as respects any of the other matter provided for in Part 2, 3 or 4 of this Act than the insured would be in by virtue of the provisions of those Parts (so far as relating to non-consumer insurance contracts) is to that extent of no effect, unless the requirements of section 17 have been satisfied in relation to the term.

      3. In this section references to a contract include a variation.

      4. This section does not apply in relation to a contract for the settlement of a claim arising under a non-consumer insurance contract.

    3. S 17: This section deals with the Transparency requirements and will come into effect if an Insurer wishes to contract out certain portions of the Insurance Act 2015 for commercial insurances. It states as below:

      1. In this section, “the disadvantageous term” means such a term as is mentioned in section 16(2).

      2. The insurer must take sufficient steps to draw the disadvantageous term to the insured’s attention before the contract is entered into or the variation agreed.

      3. The disadvantageous term must be clear and unambiguous as to its effect.

      4. In determining whether the requirements of subsections (2) and (3) have been met, the characteristics of insured persons of the kind in question, and the circumstances of the transaction, are to be taken into account.

      5. The insured may not rely on any failure on the part of the insurer to meet the requirements of subsection (2) if the insured (or its agent) had actual knowledge of the disadvantageous term when the contract was entered into or the variation agreed.

        The effect of S 16 and S 17 of the Insurance Act 2015 is that except for S 9, Insurers can contract out of all other provisions of the Act for commercial insurances provided they have notified the same to the Insured prior to the formation of the contract. In variably, brokers would be involved in commercial insurances and as long as the brokers were aware of the disadvantageous terms, this will be considered within the actual knowledge of the Insured.

        With respect to S 9, subsection 2 of the Act does not permit an Insurer to convert a representation to a warranty (basis of the contract clause).

        In effect, an Insurer involved in commercial insurances could contract out of all provisions of the Insurance Act 2015 except for S 9.

  1. P&I Clubs: Eight of the members of the International Group of P&I Clubs have their rules subject to English Law and which would mean that they would be affected by the Insurance Act 2015. We have reviewed the Rules of some of these Eight Clubs and note that they have excluded the application of the Insurance Act 2015 for S 8, 10, 11, 13, 13A (which is the changes bought by The Enterprise Act) and 14. In effect, except for S 9 (which is now mandatory), all other changes have been excluded. In addition, some Commercial P&I Insurers have also amended the terms of their Insurance Contract contracting out of the provisions of the Insurance Act 2015 (although there are some who have not made any amendments to their clauses and which would mean that the provisions of the Insurance Act 2015 would apply as long as their contract is subject to English Law).

    In our previous article “Pay to be Paid rule – an Anachronism?”, we had suggested that the application of S 11 Insurance Act 2015 would catch this provision. However, we had not considered the effect of “contracting out” of the Insurance Act 2015 and if this is accomplished (which is certainly the case for the eight of the P&I Clubs of the IG), then this rule would appear to be enforceable.

  1. Other Marine Insurers: We understand that The Lloyds Market Association has published model clauses for use in connection with the Insurance Act 2015. It therefore appears to us that Insurers will obviously consider whether to contract out of the provisions of the Insurance Act 2015 (as the old law is certainly more beneficial to Insurers). It remains to be seen whether this will be the trend for all commercial Insurers and in which case, the only change as a consequence of the Insurance Act 2015 would be in relation to S 9.

  1. Conclusion:

    1. While eight members of the IG P&I Clubs have contracted out of the English Insurance Act 2015, it remains to be seen as to whether all other commercial insurers would similarly follow suit (for P&I and other classes of business).

    2. If contracting out is widely followed by the Insurers, then the only effect of the English Insurance Act may be the application of S 9 (which is certainly not a major reform of the Insurance Contract Law).

    3. The aim of both the Insurance Act 2015 and the Enterprise Act 2016 was to reform the Insurance Contract Law including the Marine Insurance Act 1906. However, if contracting out is widely followed, then reforms would be sadly lacking and which may lead Insureds to consider use of laws of other jurisdictions which have moved with the times.

 

*** We thank Ms Charlotte Warr for advising us that P&I Insurers have contracted out of the application of these two acts. Ms Charlotte War is involved with Sarnia Training which provides insurance consultancy and bespoke training services to the insurance industry. She has been a role model to younger practitioners (including the undersigned) for taking the time to assist them in understanding the application of insurance.

 

 

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