It’s fair to say that Marine Insurance isn’t well known for its rapid evolutionary pace.

The Marine Insurance Act 1906 codified in law the practices at the time, which themselves dated back another 200 years in some parts.  ‘Fast’ forward another 110 years and the new Insurance Act 2015 (no longer the Marine Insurance Act) will finally become law in the UK and take effect in August 2016, after 10 years of consultation.  The 1906 Act will not be repealed in whole, but partially, and the concepts in the new Act are intended to aid fairness and transparency for all parties.

We do not intend to provide a treatise on the new Act here – we would recommend the overview written by our good friends at Waltons & Morse in London which can be found here for all the details.

Whilst this has been a long time coming, and there is still a year to go before the Act comes in to force, it will be effective for amendments to existing policies from August 2016, which is to say that policies incepting from August 2015 will be subject to the new rules before renewals in 2016.

When we raised this with Mark Lloyd at Waltons & Morse his view was that “The new Act is well drafted and whilst there will inevitably be some “grey” areas, if all parties to an insurance contract can address the new requirements now, to include systems for document management, presentation and contracting in or out of the Act’s provisions this will ensure problems later are minimised/avoided”.

In our view, it is important that all parties to the contract understand the consequences, advantages and possible pitfalls that the new Act will give rise to and how we, as an industry, should respond to that.  It is also important for Assureds to be aware that the prevailing practice for their insurance placements will change and to be ready for the inevitable questions that will come with that.

Breaches of Warranty

A significant advantage to Assureds is a much clearer position in relation to a breach of warranty that is non-causative of the loss.  At present, a breach of warranty under an English law policy can allow an insurer to avoid the loss regardless as to whether the breach is causative.  Under the new Act, the breach has to be relevant to the loss for an avoidance to be considered – this is important not just because of the obvious benefit to an Assured, but also because of the contract certainty this creates.

If there is a breach of warranty, the new Act allows for this potentially to be remedied and for the policy to continue – a very welcome change.

A Fair Presentation of the Risk

There are excellent opportunities for Assureds to take advantage of the more reasonable approach to making a ‘fair representation’ of a risk.  Insurers have, for many years, been much better informed than the MIA allowed for (which is hardly surprising given the prevailing environment when it was enacted).  Whilst technically, the Assured is deemed to know almost everything and the insurer almost nothing, the new Act clarifies both parties’ obligations which benefits Assureds.

Times have moved on in the technological world and the Draconian remedy for material non-disclosure was seen to be disproportionate given the current availability of information.  Under the new Act, insurers are obliged to ask about the Assured, their presentation of the risk and where the information has been gathered from.   If insurers do not make enquiries of the presentation, they shall not be able to avoid a claim later on for non-disclosure.  This is not only welcomed but, we hope, will create a more balanced and transparent dialogue during the placement process, particularly where insurers have been involved with a risk over a lengthy period of time.

We will be working with our clients to agree protocols to ensure presentations under the new Act are in accordance with the requirements.  In addition, we will be placing a greater emphasis on insurers to make enquiries of not only the information being provided, but where and how that information was obtained.  This will, as Mark Lloyd mentions, ensure problems later are minimized or avoided.

Contracting Out of the Act

The Act allows for parties to contract out of it, in parts – that can be either the Assured or the Insurer seeking to remove aspects of the Act from the policy.  Whilst the flexibility to do so is welcomed, the complexity (and heightened legal exposure for contracting out ) is going to test the industry, but will create opportunities for insurers to differentiate their products further.  We hope insurers respond in a subjective way to this, rather than industry-wide opt-outs which remove benefits that should be available to Assureds – only time will tell.

In terms of the other jurisdictions enacting or considering similar legislation, particularly Hong Kong, Singapore and Japan, this has yet to be announced but we expect that consultation and new legislation will happen once the UK insurance market starts to work with the new Act.

We will be working with our clients, insurers and lawyers to determine where and in what manner we will be recommending our clients embrace, contract out of or remain neutral as we progress towards the Act taking effect.  We would be pleased to provide advice on any specific questions that you may have, so please don’t hesitate to contact us.

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