The basis of disclosure in insurance contracts has basically remained unchanged for around 100 years, however on 12th August 2016 the Insurance Act 2015 will introduce changes in this area.
The Act’s new regime will require all proposers to make a “fair presentation of risk” to their prospective insurers rather than the current common law test, however the onus will remain to disclose information that would affect the judgement of a prudent underwriter in deciding whether, or on what terms to offer cover.
- The new duty will apply to any information that is within the knowledge of the company’s senior management and those responsible for arranging insurance, including third parties (e.g. brokers)
- Those dealing with the insurance renewal will be expected to know about matters that could have been revealed by a reasonable search of available information thus imposing a duty to make such enquiries within the business.
So what does this mean in practical terms for the legal profession?
In view of this new legislation the SRA has proposed amendments to the Minimum Terms and Conditions for solicitor’s professional indemnity insurance. The SRA consultation closed on the 24th March and confirmation of the proposed changes should be available this month, Legal Services Board approval is expected by the end of July.
The SRA proposes to apply the Act’s new regime, however it is noted that this imposes a tougher disclosure obligation on policyholders. For solicitor’s firms this will be mitigated somewhat by the fact that the Minimum Terms will continue to prohibit the avoidance of a policy for breach of the disclosure obligation. This doesn’t however change the insurers ability to pursue recovery of funds from policyholders where it has suffered losses due to non-disclosure, even where said non-disclosure is reckless or dishonest.
There is an additional practical implication in that the Act requires the information to be presented to an insurer in a way that is reasonably clear and accessible to an underwriter. This is designed to stop data dumping in an attempt by a proposer to bury material matters within a host of other extraneous information. Firms will need to identify and collate only information which is material to the underwriter, which may make the application process more time consuming.
As ever we would recommend tackling renewal as early as possible with a timely presentation to underwriters and a clear strategy of how you intend to prosecute your renewal. The market for solicitors is far easier now than it has been in recent years and on the whole there will be savings to be made for good quality firms with good claims records. This can all be accomplished in a timely manner and ideally policies should be renewed by 1st September. We firmly believe you should be in control of the process and choose your insurer carefully, if you leave it to the last minute and go with the best offer you are effectively allowing the insurer to choose you.