Dr Anna Mari Antoniou outlines what the reforms to UK Marine Insurance Law mean for the industry
2016 brought with it the most significant reform of UK Marine Insurance Law for over 100 years. Policyholders and Insurers alike should have new procedures in place to ensure compliance with the new responsibilities. Also, of note is that more changes are on the horizon.
The English and Scottish Law Commissions have been working on updating insurance law since 2006. In recognition of the fact that the Marine Insurance Act 1906 was considered outdated, a comprehensive process of updating the law was deemed necessary. The 1906 Act as one can imagine, was out of sync with the commercial realities of the modern insurance market. An overhaul was essential and overall good news for ship and cargo owners, as one of the primary aims was to ensure a fairer balance of power and interests between insureds and insurers; the 1906 Act was considered very much insurer friendly. The Commissions’ work led to the new Insurance Act 2015 which took legal effect on 12 August 2016. It should be considered as the first step in insurance reform; at the time of writing a draft bill on Insurable Interest is also at policy development stage and The Enterprise Act 2016 will also affect insurance when it comes into force in May 2017.
Focusing on the 2015 Act two of the key changes to highlight are:
- Insured’s duty of fair presentation
Insureds are now required to present the risk to the insurer in a clear and accessible manner. This means that ‘data dumping’ is not permissible – giving the insurer masses of documentation and expecting him to filter through to find information relevant to the risk is discouraged. Instead, insureds should disclose all material information that is known, or ought to be known by them in a structured and comprehensible form. This includes information known to persons responsible for arranging the insurance, for example brokers, and information known by senior management. Insureds should therefore be keeping a clear record of who is dealing with insurance both within the organisation and without. Furthermore, information that a reasonable search would have revealed will also require disclosure. Insureds will therefore need to show that such searches have been conducted.
One should note that the sections of the Act dealing with knowledge are some of the most complicated provisions and likely to result in disputes where judicial interpretation of the Act will become important. Insurers also have increased responsibilities now. They are required to take an active approach in disclosure procedures. Certain pieces of information will be considered as putting the insurer on notice that further enquiries need to be made. Insurers should be prepared to make such enquiries when they suspect that material information will be revealed. Although the main burden of disclosure remains with the insured, the increased responsibility of the insurer is one example of the shift in the balance of interests.
- Warranties
Prior to the 2015 Act, breach of a warranty in a marine insurance contract would automatically discharge the insurer’s liability from the date of breach, no matter whether the warranty had any bearing on the risk. Further, the so-called ‘basis of contract’ clause often found in such contracts could convert any representation into a warranty, meaning that trivial ‘promises’ if broken, could result in termination of cover. This resulted in insurers avoiding payment for claims on the basis of matters unrelated to the actual risk. Now, ‘basis of contract’ clauses are banned and breaching a warranty results in suspension of cover but only for the duration of the breach. So, if a breach is remedied, cover is reinstated.
Again, one can see that the previous position favoured the insurer; any broken promise whether material to the risk or not could mean denying the claim. Now, a broken promise can be remedied, cover reinstated and trivial promises that have no bearing on the risk will not be bases for denying a claim. It will take some time before the effects of the reforms can truly be appreciated and a certain degree of uncertainty will continue for a while. After all, the 2015 Act was only step one. Those involved in Shipping and Insurance will need to keep updated on all the major developments and amend their practices to reflect the new legal requirements. At the moment, transparency, communication and thorough record keeping is the way to go.
This article was originally published in the Marine Trader, IMPA’s official journal for maritime procurement and supply chain management, in issue 01 of 2017. Head over to www.impa.net to find out more or simply read new issues on the go with the MT Journal app.
