Insurance Act 2015 comes into force next month: How will it affect farmers?

The Insurance Act 2015 will enforce a duty of 'fair presentation'
The Insurance Act 2015 will enforce a duty of 'fair presentation'

Changes to the way business insurance is underwritten will be coming into force from 12 August next month, which could affect many farmers.

The Act brings in substantial changes to disclosure requirements and obliges insurers to take a more pro-active role in understanding risks, FarmWeb said.

"Everyone in the insurance market will be affected, although policyholders who take out insurance mainly for business, trade or professional purposes and their insurers are the primary focus of the reforms."

Under the Act, there is a new duty of 'fair presentation'.

A policyholder is required to disclose every material circumstance which it knows or ought to know (which is similar to the current law).

However, the duty is also met if a policyholder 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.

"This shifts the obligation towards insurers and recognises that provision of insurance is rarely a simple affair, with questions often being required to draw out all relevant information," said legal firm Wright Hassall.

"Importantly, the Act also requires the policyholder to disclose information in a reasonably clear and accessible manner.

"Simply providing your insurers with vast amounts of data, which contains the relevant information along with an array of irrelevant information, will not discharge your duty."

Remedies

"For breaches that are not deliberate or reckless, the remedies available to insurers have been widened.

"If the insurer would not have entered into the contract on any terms, the insurer may avoid the contract, but they must return the premium;

"If the insurer would have entered the contract but on different terms, those different terms will be deemed to apply;

"If the insurer would have entered the contract but on a higher premium, the amount paid for the claim may be reduced proportionately.

"By way of example, if the premium would have doubled had the duty of fair presentation been properly discharged, the insurer is entitled to only pay 50% of the claim."

Whilst these new remedies are more favourable to policyholders, the practical difference that they will have remains to be seen.

It may be that insurers simply say that they were never have entered into the contract, in which case the policyholder will still be left without cover in a similar way to they are now, but the courts will need to test any such assertion very closely.