Lancashire firms urged to review insurance needs

Businesses in Lancashire are being urged to look closely at their insurance cover ahead of the biggest shake-up to insurance contract law in more than 100 years.

The Insurance Act 2015 comes into force in August and brings fundamental changes to the way insurance policies for businesses work.

Lawyers at Lancashire law firm, Harrison Drury, say the changes mean businesses will need to be more diligent in ensuring they have adequate cover and in remaining compliant with their terms of insurance.

The reforms, which affect policies entered into after August 12, also have important implications for insurance brokers who will need to ensure policies they recommend to clients are appropriate for their needs.

Nick Booth, an expert in contract law and commercial litigation at Harrison Drury, said: “The Act will give greater scope to insurers to tailor the terms of their commercial insurance policies and to contract out of parts of the Act, meaning that deciding upon a policy simply by reference to the premium, without properly considering the policy wording and implications will be increasingly risky. Businesses should shop around to get the best product to suit them and take advantage of the new landscape.”

According to Nick much greater care will need to be taken by businesses, particularly given their new obligations to make fair representations to the insurer, in a clear and accessible way, all those relevant matters affecting the risks to be insured.

He said: “A failure to comply with these disclosure obligations may have disastrous consequences as the insurers may be in a position to reduce the amount of any pay out, if, for example, it would not have insured the risk and or would have charged an increased premium for doing so had the insured disclosed fully the true nature of the risk to be insured.”

Businesses will need to ensure compliance with all conditions of cover. For example, a policy may require that a business installs and routinely maintains a fire alarm. However, the insurer may now only be in a position to suspend cover while a fire system is not installed and maintained, in contrast to the old regime.

The main changes coming in under the Insurance Act relate to duties of good faith and disclosure, remedies, use of warranties, fraudulent claims and contracting out. Nick added: “Businesses, insurers and brokers will all need to pay particular attention to these important legislative changes and ensure that they are well prepared in advance of them coming into force.”