The Insurance Bill introduces significant reform for commercial policies and will benefit both insurer and insured, says leading barrister Alison Padfield.
Padfield, of Devereux Chambers, said one of the most significant changes was on breach of warranty, particularly the abolition of basis clauses. These clauses, which occur in almost all commercial policies, state that everything in the proposal form forms the basis of the contract. This means that insurers don’t need to pay out for completely unrelated breaches, for example, if a ship sails into a war zone and then sails out again unharmed but catches fire years later. These clauses are now abolished, which means remedies can be breached.
“These clauses seemed counter-intuitive and surprising to clients when they were explained, and I think that is a good indication that reform was needed,” said Padfield.
“Overall, the Bill attempts to strike a balance between insured and insurer.”
The Bill introduces a new remedy for breach of “fair presentation”. Currently, the policy can be entirely avoided as if it never existed if it is later discovered that the insured failed to disclose everything about their business. Under the Bill, however, the insurer would have to say what they would have done had they known and the payment would be reduced proportionately.
The Bill also repairs a mistake in the Third Parties (Rights against Insurance) Act 2010, preserving the policy claim even if the insurer goes into administration. This means the Act can finally be brought into force. It has been delayed as the current version only applies if the insurer went into administration through a court order.
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