Things you need to know
SUMS INSURED AND THE EFFECT OF AVERAGE
All sums insured must represent the full value of the insured property in accordance with the basis of settlement in the policy. All claims settlements, whether large or small, will be reduced in proportion if the sum insured falls short of full value. Insurance policies may contain various inflation protection clauses but these require sums insured to be accurate in the first place.
It is therefore important that sums insured are reviewed on a regular basis to take account of rising replacement or rebuilding costs.
Insurers and insurance brokers are not valuers so it is not possible to provide professional advice on rebuilding costs other than to advise that professional valuation advice should be taken. Insurers will rely on the Royal Institute of Chartered Surveyors (RICS) calculation methods when considering a rebuilding sum insured after a claim has occurred so it makes sense therefore to consider obtaining a RICS valuation to ensure that your rebuilding sums insured are accurate. Lenders will often stipulate a rebuilding sum insured based on RICS calculations so if you have a lender involved they may be able to tell you what the correct rebuilding cost is without needing to obtain a further valuation.
Of course valuations are subjective so opinions can be sought from builders and others but it should be remembered that as well as the cost of rebuilding a destroyed property consideration has to be given to the cost of demolition, the clearance of the site and professional fees to achieve an accurate figure.
DISCLOSURE OF MATERIAL FACTS
There is a duty to disclose all material facts as it is upon such information that the underwriters decide whether or not to accept the risk offered and if so at what terms. This obligation applies both at inception and throughout the period of all policies. Failure to comply can invalidate cover so if you have any doubt about what should be disclosed please talk to us.
With regards to motor insurance any convictions, medical conditions or accidents of which your insurers may be unaware could be regarded as material. It is recommended that a regular physical check of employee’s driving licenses is carried out as well as obtaining a declaration of accident history. A drivers' declaration form is available for this purpose. You have a duty of care to employees that drive so you are entitled to ask for this information.
Please though see the section below on the Insurance Act 2015 which introduces important changes during the course of 2016.
WARRANTIES & CONDITIONS PRECEDENT
We will try to offer policies without these onerous conditions but that is not always possible. Where these do apply we will point them out specifically to you.
A warranty or condition precedent is something that imposes a duty on you as a policyholder which must be complied with for the policy to be effective.
The effect of a breach of warranty is to make the policy voidable from inception which removes all cover and thus it is vital these be understood and complied with precisely.
STATUTORY INSPECTION OF PLANT
Current safety legislation calls for the periodic inspection of certain types of plant. Responsibility for ensuring that inspections are performed rests with you even though you employ an Inspecting Engineer for this service. Please contact us in the event of any assistance being required.
EMPLOYERS LIABILITY TRACING OFFICE (ELTO)
The Employers Liability (Compulsory Insurance) Regulations 1998 came into force on 1 January 1999 which for the first time imposed a duty on all employers to retain a copy of each Employers Liability (EL) Insurance Certificate for a period of 40 years beginning on the date on which the insurance to which the certificate relates commences or is renewed. This was subsequently repealed and the onus to keep information on Employers Liability Insurance is now back with the Insurer and the State. ELTO will maintain a register of all EL policies issued to companies and they will do this under the unique Employers Reference Number (ERN) often referred to as the company PAYE number. Insurers will therefore require a note of this number BEFORE they are able to issue EL cover.
LONG TERM AGREEMENTS
Where an insurance is subject to a Long Term Agreement you have agreed, in return for a premium discount, to offer renewal of that insurance to the holding insurers for an agreed time. The insurer is not bound to accept renewal, but only if the terms and conditions change or the premium increases (or your insurable interest in the subject matter ceases) are you able to avoid making the offer and so renewing the policy with that insurer. Some agreements have a more contractual feel – usually supplying better benefit – but any agreement should only be entered into after full consideration of the terms.
Whilst cover was previously provided automatically for loss or damage up to £100,000 per premises for buildings, contents and business interruption, all terrorism cover is now excluded unless a separate policy is arranged.
THE INSURANCE ACT 2015
This will come into force in 2016. It replaces one of the oldest pieces of legislation that currently still applies, i.e., the Marine Insurance Act of 1906. It will change obligations of Insurers, Intermediaries and Policyholders. The Act, which applies to all classes of non-consumer insurance and reinsurance and in part to consumer insurances, comes into effect on 12 August 2016.
It also brings into force the Third Parties (Rights against Insurers) Act and represents a significant change to the legal framework of insurance contracts.
The key changes are as follows:
Policyholders will be under a new duty of fair presentation, replacing the general obligation to disclose all material facts. The insured will have to disclose every material circumstance that he or she knows or ought to know, or sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal the material circumstances. This applies to disclosure before the contract is concluded, for new contracts and renewals, as well as mid-term variations.
Warranties are to be treated as suspensive conditions, meaning that an insurer’s liability will only be suspended when a breach has occurred and a breach of warranty will no longer automatically terminate the policy. The breach of the warranty must also have some bearing on the actual loss by increasing the risk of claim to the insurer
New proportionate remedies can be implemented following a breach of the new duty of fair presentation. So the remedy has to be proportionate to the breach. For example, where a deliberate or reckless breach of fair presentation occurs, insurers can still avoid the insurance and retain any premiums paid. This would normally be from inception except where breach relates to a variation such as a mid-term adjustment. The onus will be on the insurer to show that a qualifying breach was deliberate or reckless. Remedies are also available for other breaches of duty of fair presentation. These are based on what the insurer would have done if the qualifying breach had not taken place and the insured had made a fair presentation of the risk. For example, if a higher premium would have been charged or a higher excess imposed, it can proportionally reduce any claim payment accordingly.
Basis of contract clauses are abolished. These clauses have effectively operated as warranties thus rendering cover void if breached.
Insurer remedies for fraudulent claims are clarified so they remain liable for all legitimate losses suffered prior to a fraud.
The duty of good faith remains but the remedy of avoidance will be lost.
With the exception of the basis of contract provisions, 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.
What does this mean?
Although the changes don’t come into effect until August 2016, it is important to start planning for them now. It is important to ensure that businesses and their employees and officers are able to satisfy the new law and that they have effective internal controls and communication protocols in place so that all relevant people understand their duties. The new duty of fair presentation requires policyholders to introduce new processes to ensure, for example, that they can make sure a reasonable search is undertaken to reveal the required material information and that it makes the disclosure in a manner that is reasonably clear and accessible to a "prudent insurer". Essentially there is little defence in saying that the person giving the information didn't know or understand, wasn't aware of something etc. The data supplied also has to be in a reasonable and understandable form.
We are already seeing changes from some insurers and understand that many more will embrace the Act or at least its spirit before the official date. Generally this is a good thing as is the Act but it has to be remembered that an insurance policy is a complex legal contract and that Insurers will only meet their obligations if policyholders have satisfied theirs. It is important therefore to be aware of the changes and always, always, if in any doubt about what should be disclosed please ask.
If on reading any of the foregoing you are confused, have any doubts or questions please pick up the phone and talk to us. We want any policy that we arrange for you to do its job when most needed so it is vital that all of these things are understood before the event.
It’s not an exhaustive list and you’ll see in all of our correspondence and reports that we “bang on” about reading the policy for full terms and conditions. We cannot though emphasize enough how important it is to understand your duties under the contracts that are your insurance policies.
To speak with one of our team about your insurance requirements, a quotation, or if you would simply like our advice, please call us on 01724 872939 or email us by clicking on the link on the right: