Simon Brooks from law firm Eversheds Sutherland gave a presentation on major changes to UK insurance law from the Insurance Act 2015. The new law introduces a duty of fair presentation of risk that requires insureds to disclose all material information to insurers. It also changes remedies for breach to include proportionate reductions in claims instead of automatic avoidance of the policy. Warranties will now be treated as suspensory conditions so coverage isn't voided for unrelated breaches. The changes aim to make disclosure obligations and consequences more proportionate and fair.

1. Major changes to UK Insurance Law
Insurance Act 2015
16 February 2017
Simon Brooks
Co-Head of International Insurance
Eversheds Sutherland
simonbrooks@eversheds-sutherland.com

2. Welcome, your presenter today is:
Simon Brooks
Partner
SimonBrooks@Eversheds-sutherland.com
+44 20 7919 4583 linkedin.com/in/simonbrooks
Simon is Joint Global Head of Insurance and specialises in high value insurance and reinsurance disputes and
complex professional indemnity claims. His cases have included major insurance market disputes such as the
long running and high profile film finance and leading cases involving claims against insurance brokers.
Simon has a great deal of experience in defending insurance brokers, solicitors, accountants and construction
professionals, as well as advising on property damage and product liability claims. He has acted in high value
and complex energy related claims in the UK and abroad, and also advises in relation to Directors and Officers
insurance claims and coverage issues.

3. Eversheds Sutherland | 20 February 2017 |
─ The new Act and why it’s important
─ The old regime
─ New “Duty of Fair Presentation of the Risk”
─ New remedies for breach of the new duty
─ Abolition of “Basis Clauses”
─ New rules on warranties
─ New concept of “Risk Mitigation Terms”
─ Contracting out
─ How is the market responding
Introduction

4. Eversheds Sutherland | 20 February 2017 |
─ Why change?
• Unfair rules on disclosure/representations
• Unfair remedies for unrelated breach of warranty
• basis clauses
─ Affects all policies worldwide that are subject to UK law incepting
after 12 August 2016
─ Affects all contracts of insurance, reinsurance, retrocession and
variations to existing contracts
Insurance Act 2015

5. Eversheds Sutherland | 20 February 2017 |
Section 17 – Utmost good faith
• “An insurance contract is a contract of utmost good faith, and if utmost
good faith is not observed … the contract may be avoided”.
• Avoided = treat the contract as if it never existed, return premium.
Section 18 - Disclosure
• The Insured must disclose every material circumstance the insured
knows or ought to know.
• What is a material circumstance? A circumstance is material if it would
influence the judgment of a prudent insurer in deciding whether to write
the risk or in fixing the premium.
• if an Insured fails to disclose a material circumstance the insurer can
avoid the policy if the actual underwriter would not have written the risk,
or would have written it on different terms, had he known the
undisclosed fact.
Marine Insurance Act 1906
The Old Regime

6. Eversheds Sutherland | 20 February 2017 |
Section 20 - Representations
• Every material representation made by an Insured must be true.
• What is a material representation? A a representation is material
if it would influence the judgment of a prudent insurer in deciding
whether to write the risk or in fixing the premium.
• If the material misrepresentation induced the underwriter to write
the risk (i.e. it was a “real and substantial cause” of him entering
the contract of its terms), the insurer can avoid.
Marine Insurance Act 1906
The Old Regime

7. Eversheds Sutherland | 20 February 2017 |
An Insured must satisfy your duty in one of two ways. Either:
• [Limb 1] The Insured discloses every material circumstance it
knows or it ought to know; or
• [Limb 2] In its risk presentation, the Insured provides “sufficient
information to put a prudent insurer on notice that it needs to
make further enquiries for the purpose of revealing those material
circumstances”. [The Fall Back Position]
What is the Insured's duty?
Duty to make a Fair Presentation of the Risk
The New Regime

8. Eversheds Sutherland | 20 February 2017 |
─ Information is material if it "would influence the judgement of a
prudent insurer in determining whether to take the risk and, if so,
on what terms".
─ The Act also provides some examples:
• Special or unusual facts relating to the risk
• Particular concerns that led the Insured to seek cover
• Anything that those concerned with the class of insurance “would
generally understand as being something that should be dealt
with in a fair presentation of the risks of the type in question”.
Satisfying Limb 1 – What is “material”?
Duty to make a Fair Presentation of the Risk

9. Eversheds Sutherland | 20 February 2017 |
─ What does a corporate Insured know?
• What the Insured’s “senior management” knows
“those individuals who play significant roles in the making of decisions about how the
insured’s activities are to be managed or organised”
• What the “people who are responsible for the Insured’s insurance” know
(brokers, insurance department, risk managers)
Satisfying Limb 1 – the Insured’s knowledge
Duty to make a Fair Presentation of the Risk

10. Eversheds Sutherland | 20 February 2017 |
─ What ought a corporate Insured know?
• “… an Insured ought to know what should reasonably have been revealed
by a reasonable search of information available to the Insured”.
• … including information which is “held within the insured’s organisation or
by any other person (such as the insured’s agent..)”
─ Broader than the current test of what the insured ought to know
“in the ordinary course of business” as it is assumed all
businesses are run efficiently.
Satisfying Limb 1 –the Insured’s knowledge
Duty to make a Fair Presentation of the Risk

11. Eversheds Sutherland | 20 February 2017 |
─ What is a “reasonable search”?
• Legal definition of “reasonable”
“fair, proper or moderate having regard to the circumstances”
• Test includes information held by “any other person” – very broad e.g. an
outsourced service provider? IT consultant?
Satisfying Limb 1 - The Insured’s knowledge
Duty to make a Fair Presentation of the Risk

12. Eversheds Sutherland | 20 February 2017 |
In its risk presentation, the Insured must provide “sufficient information to put a
prudent insurer on notice that it needs to make further enquiries for the purpose
of revealing those material circumstances”.
• If insurers are put on enquiry, and they don’t ask questions to reveal further
information, they cannot argue that that information was not disclosed.
• Disclosure must be clear and accessible to a prudent insurer - no data
dumping.
• An Insured cannot deliberately conceal material information through
intentionally cryptic or elusive references in the risk presentation.
• Underwriters will be more engaged in the process as will be on enquiry.
• Insurers may ask for information to be re-presented where it is initially
incomprehensible.
The Fall Back Position
Satisfying Limb 2 – the Fall Back Position
Duty to make a Fair Presentation of the Risk

13. Eversheds Sutherland | 20 February 2017 |
The Insured need not disclose information which the Insurer knows, or
ought to know, or is presumed to know.
─ includes what the actual underwriter actually knows
─ includes information held by the insurer that is readily available to the
actual underwriter
─ includes information known to employees of the Insurer who ought to
have passed it to the underwriter
─ includes things which are common knowledge and “"things which an
insurer offering insurance of the class in question …would reasonably
be expected to know in the ordinary course of [its] business."
You don’t need to disclose what the insurer already knows
Duty to make a Fair Presentation of the Risk

14. Eversheds Sutherland | 20 February 2017 |
─ The main, technical change is the removal of avoidance as the
automatic remedy for breach of Utmost Good Faith.
─ Replacement with a range of remedies:
• If the breach of duty to make a fair presentation of the risk is deliberate
or reckless, the insurer may avoid the policy and keep the premium.
• A breach of the duty to make a fair presentation of the risk is “deliberate” if
insured knows he is in breach of the duty (i.e. intentional breach).
• A breach of the duty to make a fair presentation of the risk is “reckless” if the
insured does not care whether he is in breach of the duty or not.
Insurer’s Remedies
Remedies for Breach of the Duty
Duty to make a Fair Presentation of the Risk

15. Eversheds Sutherland | 20 February 2017 |
─ 3 remedies under the Act
• Avoidance
• Varying the terms of the contract
• proportionate reduction of the claim payment
─ Avoidance
• Only available if the insurer proves that, had there been
a fair presentation of the risk, the underwriter would not
have written the risk at all
Insurer’s Remedies where breach is not deliberate or reckless
Remedies for Breach of the Duty
Duty to make a Fair Presentation of the Risk

16. Eversheds Sutherland | 20 February 2017 |
─ Varying the terms of the policy
• If, on a fair presentation of the risk, the underwriter
would have written the risk but on different terms, the
policy is treated as if it was written on those terms (i.e.
the Court re-writes the contract).
• But what terms? Extra warranties? How would they effect
the loss? Or the future viability of the policy?
• Has retrospective effect, so what effect on claims already
paid?
Insurer’s Remedies where breach is not deliberate or reckless
Remedies for Breach of the Duty
Duty to make a Fair Presentation of the Risk

17. Eversheds Sutherland | 20 February 2017 |
─ Proportionate reduction in the claim
• If, on a fair presentation of the risk the insurer would
have written the risk, but for a higher premium, then the
insurer may proportionately reduce the claim.
• The reduction will be in the same proportion that the
actual premium bears to the premium that would have
been charged if a fair presentation had been made.
• Claim is £1000; actual premium was £100; would have
charged £150; 100/150= 0.67; 0.67 x £1000 = £670
Insurer’s Remedies where breach is not deliberate or reckless
Remedies for breach of the duty
Duty to make a Fair Presentation of the Risk

18. Eversheds Sutherland | 20 February 2017 |
In summary:
Duty to make a Fair Presentation of the Risk
• Meaning of “material information” hasn’t changed
• You must disclose material information you know or ought to know
• “What you know” includes the actual knowledge of “Senior
Management” and those individuals who are responsible for insurance
is relevant
• You need to make a “reasonable search” for information you ought to
know
• That search is of your organisation but also includes information held by
any other person (e.g. you broker)
• There is a fall back position where you can put insurers on notice to ask
question, but full disclosure is preferable
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19. Eversheds Sutherland | 20 February 2017 |
─ Example of a basis clause “The proposal or application and
declaration you have completed, and any other information
supplied, form the basis of this contract”.
─ Held to mean that the insured warrants the truth of the answers
given in the proposal form.
─ IA15: Insurers may not use such a clause to “convert”
representations made in connection with a policy into such a
warranty.
Abolition of Basis Clauses
Warranties and Other Terms

20. Eversheds Sutherland | 20 February 2017 |
─ Old law: breach of warranty discharges insurer’s liability under the
policy from moment of breach onwards. Remedy of the breach does
not reinstate cover.
─ IA15 transforms warranties into ‘suspensory conditions’, i.e. the insurer
will not be liable for losses while insured is in breach of warranty.
─ The insurer remains liable for:
• any loss occurring before the breach of warranty occurred;
• any loss “attributable to something happening” before the breach of warranty
occurred;
• any loss occurring after the breach of warranty is remedied.
─ The insurer is not liable for:
• any loss occurring whilst the warranty is being breached;
• any loss “attributable to something happening” before the breach was
remedied.
Converting Warranties into Suspensory Conditions
Warranties and Other Terms

21. Eversheds Sutherland | 20 February 2017 |
─ Breach of a “Time warranty” (requiring something to be done by
a particular time) could be remedied if the “risk to which the
warranty relates later becomes essentially the same as that
originally contemplated by the parties”. E.g. late installation of a
fire alarm.
─ Breach of any other warranty can be remedied “if the insured
ceases to be in breach of warranty”.
─ Some breaches of warranty cannot be remedied (e.g. warranties
to protect the condition of goods).
Remedying a Breach of Warranty
Warranties and Other Terms

22. Eversheds Sutherland | 20 February 2017 |
• Old law – breach of warranty/CP, even if not connected to the
loss in question, means the insurer can deny liability for loss.
• The Act identifies “Risk Mitigation Terms” which are
terms/warranties in the policy that “tend to reduce the risk” of a
loss of a particular kind or a loss at particular location or a loss at
a particular time.
• If breach of a “Risk Mitigation Term” could not have “increased
the risk of the loss which actually occurred” then the insurer
cannot rely on that breach to deny liability for the claim in respect
of that loss.
Terms not Relevant to the Actual Loss
Warranties and Other Terms

23. Eversheds Sutherland | 20 February 2017 |
Parties can contract out of all provisions (save for the ban on Basis
Clauses) and subject to “transparency requirements”
• “Sufficient steps” must be taken to draw it to the attention of the
insured
• The contracting out clause must be “clear and unambiguous as to
its effect”. i.e. state its effect
• Example “Section 10 of the Insurance Act 2015 is excluded in its entirety.
As a result, if the insured fails exactly to comply with any warranty in the
policy, the insurer is irrevocably discharged from liability from the date of
the breach of warranty. Accordingly, the insured cannot avail itself of the
defence that it has remedied the breach of warranty before any loss has
occurred.”
Parties can contract out of the new Act
Contracting Out

24. Eversheds Sutherland | 20 February 2017 |
6 months on – what’s happening?
Insurance Act 2015
• Was the market ready on 12 August 2016?
• Contracting out for harsher remedies?
• Contracting out for simpler remedies?
• Agreement on “Senior Management”, “Reasonable Search”?
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25. Eversheds Sutherland | 20 February 2017 |
Checklist
Insurance Act
• Did your current insurance programme incept post 12 August
2016?
• Are your processes for identifying and disclosing material
information fit for purpose:
• Who are your senior management?
• Who is “responsible” for your insurance?
• How have you defined your “reasonable search”?
• Have your insurers contracted out of the benefits of the act?
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26. Eversheds Sutherland | 20 February 2017 | 26Use Insert tab, Header & Footer to change this text, then Apply to All to change on all slides

27. Thank you for joining us, for more information please
contact:
Simon Brooks
Partner
SimonBrooks@eversheds-sutherland.com
+44 20 7919 4583 linkedin.com/in/simonbrooks

28. Eversheds Sutherland | 20 February 2017 |
Insurance Webpage
http://www.eversheds-
sutherland.com/global/en/what/practices/insurance-law/index.page
Guide to the Insurance Act
http://www.eversheds-
sutherland.com/documents/services/insurance/Insurance-Act-guide-
for-clients_pr.pdf
Subscribe to our ebulletins
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sutherland.com/global/en/what/publications/subscribe.page
Useful links
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