The Insurance Act and what the Film & Media industry needs to know

INSURANCE PREMIUM TAX (AGAIN!)

In March, yet another rise in the standard rate of Insurance Premium Tax was announced, increasing the current rate of 9.5% to 10% with effect from 1st October 2016.  Effectively, this will put an additional fiver on the total cost of your policy for every £1000 of premium you are charged before tax.  This is the second consecutive year that an increase in tax has been applied (last year’s increase from 6% to 9.5% being the first in nearly five years and prior to that the rate remaining untouched for some 12 years).

THE INSURANCE ACT 2015

In 2014, the Law Commission released a set of recommendations to address what it found to be the imbalance between the interests of commercial policyholders (those purchasing insurance in connection with their trade or profession) and insurers. The following year, The Insurance Act 2015 was passed, which comes into effect on 12th August 2016.

This is the biggest shake-up of the legal framework governing Insurance Contract Law, since the introduction of The Marine Act 1906, upon which our current laws are still based. Some would say that things have probably moved on a little since then, so this is long overdue.

So how does this affect you?

As a Policyholder, you currently have a duty to disclose Material Facts when arranging your insurance.  In essence, this says “tell your insurer everything that could influence them in accepting or rating your risk, else your policy can be avoided and your claims not paid”.   The trouble with this approach is that, if you don’t share material information because you don’t think is material, or even if you do but it’s incorrect, you can be left high and dry.

From this month, the Act will still require you to do this, but the idea is that both parties work together to gather the right information.  The duty of supplying this in good faith also remains.

Insurers should make it clear to you as to what should be disclosed to them.  In return, you should  provide the material information in a structured and clear manner (no data dumping) although you may put the insurer on notice need to make further enquiries themselves where appropriate.  The Act calls this “fair presentation of risk” and its aim is to ensure that the cover you buy operates properly and as expected.

Now, supposing you don’t provide the required material information or put the insurer on notice to make further enquiries, then what?

Well, as long as you have not done this intentionally or recklessly, then, rather than being able to void the policy and refuse to pay claims, the insurer will have what is called “proportional remedy” (unless on the facts of the case they can demonstrate that they would not have written the risk in the first place, in which case they could void the policy).   These are based on what the Insurer would have done if the qualifying breach had not taken place and you had made a fair presentation of the risk. For example, if the Insurer would have charged a higher premium, it can proportionally reduce any claim payment or it may impose additional terms retrospectively.

The basis of contract clauses are abolished. These clauses currently operate to turn any of your pre-contractual representations, including answers to proposal form questions, into warranties (promises that you “will do something”, or that you “will not do something”).

As the law currently stands, any warranties that you breach will terminate your cover.  This is also regardless of whether you subsequently fix the breach, or if the loss you suffer is unrelated to the breach of warranty. Under the new Act, warranties are to be treated as “suspensive conditions”, meaning that an Insurer’s liability to you will only be suspended during the period of breach (where the breach is capable of being remedied).  In the event of a claim, the breach of warranty must also have some bearing on the actual loss you have suffered (e.g. by increasing the risk of the loss occurring) for the claim to be avoided.

What do you need to do?

Although the changes may seem subtle, you may need to introduce new processes to ensure compliance with the Act during the “fair presentation” stage:

Accurate content

You should ensure that whoever is arranging the insurance for your business is able to present the facts as they substantially are and that representations of belief/expectation are made in good faith.  You may need to meet with your internal management team, your broker, or any other party who may represent your business in the process.

Accessible Format

The Act requires that information you provide is disclosed in a manner that is reasonably clear and accessible to a prudent Insurer.  Although the information can be contained in more than one document or oral presentation, data-dumping a large volume of information with insufficient direction of structure would not be considered fair – key facts must not be buried within less relevant information.  You need to ensure when you provide the information, this is done so in a logical fashion.

Reasonable Search

You will also need to undertake a reasonable search of your business yourself to uncover information, as you will be taken to know anything that should have been revealed by a reasonable search of information available to you – keep evidence of such searches. You may need to speak to your current insurer or broker to understand what they know about your business and to collate this information.

Early Adoption

We are already seeing some insurers altering their documentation in order to embrace the spirit of the Act before it is introduced on 12th August by, for example, improving their warranty language.  In addition, insurers may opt to use duty of “fair presentation” prior to the 12th August deadline, but they will have to expressly notify you in advance where this is the case so that you are able to comply.

Contracting Out

With the exception of the basis of contract provisions mentioned above, parties to an insurance agreement can contract out of the requirements of the Act, provided that any disadvantageous amendment is drawn to the Insured’s attention clearly and unambiguously.  I would only see this as a route that a policyholder would wish to take where there is a significant saving in premium and/or significant improvement of terms to be had, and where they were certain that all Material Facts had been properly disclosed.

So are we all set?

No, not quite.  Whilst everything is in place, like any new legislation there are some things that will only get ironed out in the fullness of time.  These are largely around definitions of terms – What one party thinks is a “fair presentation”, another may not.  And what is this “sufficient notice” that you need to give your insurer in order to undertake a “reasonable search” of your business?    There are bound to be some arguments and counter arguments around these terms, and the courts will ultimately decide.

These aside, I feel that the spirit of the Act is a big, positive step forward for the industry as a whole and, I hope, signals the start of the end of the “them and us” attitude that sometimes exists between policyholder and insurer – usually in the event of a claim.

ENTERPRISE ACT 2016

Act two!  This received Royal Ascent on 4th May 2016, and whilst you may have heard some of the kerfuffle about the Enterprise Bill regarding Sunday trading and the like, The Enterprise Act (as it now likes to be known), provides some lovely enhancements to the aforementioned Insurance Act 2015.

I’ll probably hear your cheer when you read this bit – drumroll, please…!

With effect from 4th May 2017, any contracts of insurance that are entered into under the law of any part of the United Kingdom will have a requirement on the insurer to pay sums due following a claim within a reasonable time, and will allow policyholders to claim compensation where this is not the case.

Again, ambiguity prevails with this act initially, but the spirit of these amendments can only be applauded.

Having everyone clear on where they stand at the beginning of the insurance contract (and therefore clear on where they stand in the event of a loss) can only be a good thing.  I hope that some of the more vague definitions are made clearer within a “reasonable time” (!)