The Airmic Conference this year (June 2017) saw the publication of a paper considering the experience of practitioners in the ten months since implementation of the Insurance Act in August 2016. At this point the vast majority of commercial policyholders will have been through at least one Insurance Act process and thus a report from Airmic, which championed the reforms for that sector, does carry weight. At the conference, Huw Edwards also interrogated the “C-suite” Leadership Panel of brokers and insurers on their collective experience of the Act. The conclusion: so far so good but none wanted to be involved in the first dispute. Plainly the first judgment is going to attract considerable interest and commentary and so the reputational aspect is going to act as a weighty disincentive but which of the areas of the Act are working well and where are the first disputes likely to arise? Fair presentation, remedies for breach or policy terms?
Fair Presentation: this was the area of the Act that caused most discussion pre-implementation. Within the myriad of policies now issued to millions of policyholders who all bring along their own “factual matrix” there will be scope for disputes about disclosure, non-disclosure, the insurers’ obligation to make enquiry, who might be the “senior managers”, whether a reasonable search has been made by the policy holder and the presentation made in a clear and accessible manner. Policyholders have in some instances attempted to mitigate some of the uncertainty by requesting that it is agreed that a fair presentation has been made, effectively asking an insurer to waive its rights in the event of non-disclosure. BLM has in previous blogs, warned of the dangers to insurers and potential longer term costs to policyholders of this approach and we are interested to note that caution is echoed by Airmic’s own advice noting that the Act was designed to promote dialogue and enhanced understanding of risk being placed and accepted. The feedback that we have had is of improvements in the placement process amongst all parties involved whether underwriter, broker or policyholder. We acknowledge that the practices and processes within the industry are not uniform but whilst there are some who may not have moved far enough or fast enough we concur that progress has been made.
It remains possible that the first Insurance Act case will arise from an issue relating to fair presentation but our “book” would be that this is a second favourite perhaps worth an each way bet.
Remedies: the proportionate remedy for breach of the duty of fair presentation is new and so there is no case law to provide guidance. There is, therefore, a risk that disputes could arise because there is no judicial interpretation to assist the parties in resolving their dispute. However, this would be a fairly narrow dispute. There will have been a breach and whilst there are many issues (outlined above) that could give rise to a dispute the remedy is the second that arises. Whether different terms would have been applied will largely be a factual dispute to which expert evidence will be applied and we are then fairly quickly in to the area of narrowing differences, subject to differing opinions which beg compromise. If we also remember that any dispute with a micro-business will be dealt with by the Financial Ombudsman (and CIDRA experience demonstrates support for the policy holder) and also apply the desire of parties not to be “the first case”, then the long odds indicate that “remedies” will be the runner at the back of the field.
Policy Terms: the case law relating to warranties and conditions precedent has become, over the years, something of a mess. Judges faced with minor breaches and draconian consequences have tried, in a very broad sense, to apply sensible outcomes but the consequence has been that they have often had to apply a strained interpretation of the law to new cases, making the jurisprudence harder to apply to the next case. The new law relating to warranties and “other” terms seeks to address the mischief of harsh consequences of irrelevant terms or remedied breaches. But, whilst sometimes it will be clear when a breach has been remedied, there will be other more difficult situations to apply and the new section on “irrelevant terms” (where the policyholder succeeds “if it shows that the non-compliance with the term could not have increased the risk of the loss which actually occurred in the circumstances in which it occurred”) is not in the plainest of English. Thus, we have some awkward existing case law which remains relevant and some new statute which itself is not crystal clear.
Thus if the metaphor is based on Royal Ascot we observe that the Act is a “classy” piece of legislation and predict that the first horse home in the litigation stakes seems likely to be “policy terms” by a short head with “fair presentation” quite some distance ahead of “remedies”.
Written by Terry Renouf, consultant at BLM