Insurance Bill (HC Bill 155)

A

BILL

TO

Make new provision about insurance contracts; to amend the Third Parties
(Rights against Insurers) Act 2010 in relation to the insured persons to whom
that Act applies; and for connected purposes.

Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—

Part 1 Insurance contracts: main definitions

1 Insurance contracts: main definitions

In this Act (apart from Part 6)—

  • 5“consumer insurance contract” has the same meaning as in the Consumer
    Insurance (Disclosure and Representations) Act 2012;

  • “non-consumer insurance contract” means a contract of insurance that is
    not a consumer insurance contract;

  • “insured” means the party to a contract of insurance who is the insured
    10under the contract, or would be if the contract were entered into;

  • “insurer” means the party to a contract of insurance who is the insurer
    under the contract, or would be if the contract were entered into;

  • “the duty of fair presentation” means the duty imposed by section 3(1).

Part 2 15The duty of fair presentation

2 Application and interpretation

(1) This Part applies to non-consumer insurance contracts only.

(2) This Part applies in relation to variations of non-consumer insurance contracts
as it applies to contracts, but—

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(a) references to the risk are to be read as references to changes in the risk
relevant to the proposed variation, and

(b) references to the contract of insurance are to the variation.

3 The duty of fair presentation

(1) 5Before a contract of insurance is entered into, the insured must make to the
insurer a fair presentation of the risk.

(2) The duty imposed by subsection (1) is referred to in this Act as “the duty of fair
presentation”.

(3) A fair presentation of the risk is one—

(a) 10which makes the disclosure required by subsection (4),

(b) which makes that disclosure in a manner which would be reasonably
clear and accessible to a prudent insurer, and

(c) in which every material representation as to a matter of fact is
substantially correct, and every material representation as to a matter
15of expectation or belief is made in good faith.

(4) The disclosure required is as follows, except as provided in subsection (5)

(a) disclosure of every material circumstance which the insured knows or
ought to know, or

(b) failing that, disclosure which gives the insurer sufficient information to
20put a prudent insurer on notice that it needs to make further enquiries
for the purpose of revealing those material circumstances.

(5) In the absence of enquiry, subsection (4) does not require the insured to
disclose a circumstance if—

(a) it diminishes the risk,

(b) 25the insurer knows it,

(c) the insurer ought to know it,

(d) the insurer is presumed to know it, or

(e) it is something as to which the insurer waives information.

(6) Sections 4 to 6 make further provision about the knowledge of the insured and
30of the insurer, and section 7 contains supplementary provision.

4 Knowledge of insured

(1) This section provides for what an insured knows or ought to know for the
purposes of section 3(4)(a).

(2) An insured who is an individual knows only—

(a) 35what is known to the individual, and

(b) what is known to one or more of the individuals who are responsible
for the insured’s insurance.

(3) An insured who is not an individual knows only what is known to one or more
of the individuals who are—

(a) 40part of the insured’s senior management, or

(b) responsible for the insured’s insurance.

(4) An insured is not by virtue of subsection (2)(b) or (3)(b) taken to know
confidential information known to an individual if—

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(a) the individual is, or is an employee of, the insured’s agent; and

(b) the information was acquired by the insured’s agent (or by an
employee of that agent) through a business relationship with a person
who is not connected with the contract of insurance.

(5) 5For the purposes of subsection (4) the persons connected with a contract of
insurance are—

(a) the insured and any other persons for whom cover is provided by the
contract, and

(b) if the contract re-insures risks covered by another contract, the persons
10who are (by virtue of this subsection) connected with that other
contract.

(6) Whether an individual or not, an insured ought to know what should
reasonably have been revealed by a reasonable search of information available
to the insured (whether the search is conducted by making enquiries or by any
15other means).

(7) In subsection (6) “information” includes information held within the insured’s
organisation or by any other person (such as the insured’s agent or a person for
whom cover is provided by the contract of insurance).

(8) For the purposes of this section—

(a) 20“employee”, in relation to the insured’s agent, includes any individual
working for the agent, whatever the capacity in which the individual
acts,

(b) an individual is responsible for the insured’s insurance if the individual
participates on behalf of the insured in the process of procuring the
25insured’s insurance (whether the individual does so as the insured’s
employee or agent, as an employee of the insured’s agent or in any
other capacity),

(c) “senior management” means those individuals who play significant
roles in the making of decisions about how the insured’s activities are
30to be managed or organised.

5 Knowledge of insurer

(1) For the purposes of section 3(5)(b), an insurer knows something only if it is
known to one or more of the individuals who participate on behalf of the
insurer in the decision whether to take the risk, and if so on what terms
35(whether the individual does so as the insurer’s employee or agent, as an
employee of the insurer’s agent or in any other capacity).

(2) For the purposes of section 3(5)(c), an insurer ought to know something only
if—

(a) an employee or agent of the insurer knows it, and ought reasonably to
40have passed on the relevant information to an individual mentioned in
subsection (1), or

(b) the relevant information is held by the insurer and is readily available
to an individual mentioned in subsection (1).

(3) For the purposes of section 3(5)(d), an insurer is presumed to know—

(a) 45things which are common knowledge, and

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(b) things which an insurer offering insurance of the class in question to
insureds in the field of activity in question would reasonably be
expected to know in the ordinary course of business.

6 Knowledge: general

(1) 5For the purposes of sections 3 to 5, references to an individual’s knowledge
include not only actual knowledge, but also matters which the individual
suspected, and of which the individual would have had knowledge but for
deliberately refraining from confirming them or enquiring about them.

(2) Nothing in this Part affects the operation of any rule of law according to which
10knowledge of a fraud perpetrated by an individual (“F”) either on the insured
or on the insurer is not to be attributed to the insured or to the insurer
(respectively), where—

(a) if the fraud is on the insured, F is any of the individuals mentioned in
section 4(2)(b) or (3), or

(b) 15if the fraud is on the insurer, F is any of the individuals mentioned in
section 5(1).

7 Supplementary

(1) A fair presentation need not be contained in only one document or oral
presentation.

(2) 20The term “circumstance” includes any communication made to, or information
received by, the insured.

(3) A circumstance or representation 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.

(4) 25Examples of things which may be material circumstances are—

(a) special or unusual facts relating to the risk,

(b) any particular concerns which led the insured to seek insurance cover
for the risk,

(c) anything which those concerned with the class of insurance and field of
30activity in question would generally understand as being something
that should be dealt with in a fair presentation of risks of the type in
question.

(5) A material representation is substantially correct if a prudent insurer would
not consider the difference between what is represented and what is actually
35correct to be material.

(6) A representation may be withdrawn or corrected before the contract of
insurance is entered into.

8 Remedies for breach

(1) The insurer has a remedy against the insured for a breach of the duty of fair
40presentation only if the insurer shows that, but for the breach, the insurer—

(a) would not have entered into the contract of insurance at all, or

(b) would have done so only on different terms.

(2) The remedies are set out in Schedule 1.

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(3) A breach for which the insurer has a remedy against the insured is referred to
in this Act as a “qualifying breach”.

(4) A qualifying breach is either—

(a) deliberate or reckless, or

(b) 5neither deliberate nor reckless.

(5) A qualifying breach is deliberate or reckless if the insured —

(a) knew that it was in breach of the duty of fair presentation, or

(b) did not care whether or not it was in breach of that duty.

(6) It is for the insurer to show that a qualifying breach was deliberate or reckless.

10Part 3 Warranties and other terms

9 Warranties and representations

(1) This section applies to representations made by the insured in connection
with—

(a) 15a proposed non-consumer insurance contract, or

(b) a proposed variation to a non-consumer insurance contract.

(2) Such a representation is not capable of being converted into a warranty by
means of any provision of the non-consumer insurance contract (or of the
terms of the variation), or of any other contract (and whether by declaring the
20representation to form the basis of the contract or otherwise).

10 Breach of warranty

(1) Any rule of law that breach of a warranty (express or implied) in a contract of
insurance results in the discharge of the insurer’s liability under the contract is
abolished.

(2) 25An insurer has no liability under a contract of insurance in respect of any loss
occurring, or attributable to something happening, after a warranty (express or
implied) in the contract has been breached but before the breach has been
remedied.

(3) But subsection (2) does not apply if—

(a) 30because of a change of circumstances, the warranty ceases to be
applicable to the circumstances of the contract,

(b) compliance with the warranty is rendered unlawful by any subsequent
law, or

(c) the insurer waives the breach of warranty.

(4) 35Subsection (2) does not affect the liability of the insurer in respect of losses
occurring, or attributable to something happening—

(a) before the breach of warranty, or

(b) if the breach can be remedied, after it has been remedied.

(5) For the purposes of this section, a breach of warranty is to be taken as
40remedied—

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(a) in a case falling within subsection (6), if the risk to which the warranty
relates later becomes essentially the same as that originally
contemplated by the parties,

(b) in any other case, if the insured ceases to be in breach of the warranty.

(6) 5A case falls within this subsection if—

(a) the warranty in question requires that by an ascertainable time
something is to be done (or not done), or a condition is to be fulfilled,
or something is (or is not) to be the case, and

(b) that requirement is not complied with.

(7) 10In the Marine Insurance Act 1906—

(a) in section 33 (nature of warranty), in subsection (3), the second sentence
is omitted,

(b) section 34 (when breach of warranty excused) is omitted.

11 Terms not relevant to the actual loss

(1) 15This section applies to a term (express or implied) of a contract of insurance,
other than a term defining the risk as a whole, if compliance with it would tend
to reduce the risk of one or more of the following—

(a) loss of a particular kind,

(b) loss at a particular location,

(c) 20loss at a particular time.

(2) If a loss occurs, and the term has not been complied with, the insurer may not
rely on the non-compliance to exclude, limit or discharge its liability under the
contract for the loss if the insured satisfies subsection (3).

(3) The insured satisfies this subsection if it shows that the non-compliance with
25the term could not have increased the risk of the loss which actually occurred
in the circumstances in which it occurred.

(4) This section may apply in addition to section 10.

Part 4 Fraudulent claims

12 30Remedies for fraudulent claims

(1) If the insured makes a fraudulent claim under a contract of insurance—

(a) the insurer is not liable to pay the claim,

(b) the insurer may recover from the insured any sums paid by the insurer
to the insured in respect of the claim, and

(c) 35in addition, the insurer may by notice to the insured treat the contract
as having been terminated with effect from the time of the fraudulent
act.

(2) If the insurer does treat the contract as having been terminated—

(a) it may refuse all liability to the insured under the contract in respect of
40a relevant event occurring after the time of the fraudulent act, and

(b) it need not return any of the premiums paid under the contract.

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(3) Treating a contract as having been terminated under this section does not affect
the rights and obligations of the parties to the contract with respect to a
relevant event occurring before the time of the fraudulent act.

(4) In subsections (2)(a) and (3), “relevant event” refers to whatever gives rise to
5the insurer’s liability under the contract (and includes, for example, the
occurrence of a loss, the making of a claim, or the notification of a potential
claim, depending on how the contract is written).

13 Remedies for fraudulent claims: group insurance

(1) This section applies where—

(a) 10a contract of insurance is entered into with an insurer by a person (“A”),

(b) the contract provides cover for one or more other persons who are not
parties to the contract (“the Cs”), whether or not it also provides cover
of any kind for A or another insured party, and

(c) a fraudulent claim is made under the contract by or on behalf of one of
15the Cs (“CF”).

(2) Section 12 applies in relation to the claim as if the cover provided for CF were
provided under an individual insurance contract between the insurer and CF
as the insured; and, accordingly—

(a) the insurer’s rights under section 12 are exercisable only in relation to
20the cover provided for CF, and

(b) the exercise of any of those rights does not affect the cover provided
under the contract for anyone else.

(3) In its application by virtue of subsection (2), section 12 is subject to the
following particular modifications—

(a) 25the first reference to “the insured” in subsection (1)(b) of that section, in
respect of any particular sum paid by the insurer, is to whichever of A
and CF the insurer paid the sum to; but if a sum was paid to A and
passed on by A to CF, the reference is to CF,

(b) the second reference to “the insured” in subsection (1)(b) is to A or CF,

(c) 30the reference to “the insured” in subsection (1)(c) is to both CF and A,

(d) the reference in subsection (2)(b) to the premiums paid under the
contract is to premiums paid in respect of the cover for CF.

Part 5 Good faith and contracting out

35Good faith

14 Good faith

(1) Any rule of law permitting a party to a contract of insurance to avoid the
contract on the ground that the utmost good faith has not been observed by the
other party is abolished.

(2) 40Any rule of law to the effect that a contract of insurance is a contract based on
the utmost good faith is modified to the extent required by the provisions of
this Act and the Consumer Insurance (Disclosure and Representations) Act
2012.

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(3) Accordingly—

(a) in section 17 of the Marine Insurance Act 1906 (marine insurance
contracts are contracts of the utmost good faith), the words from “, and”
to the end are omitted, and

(b) 5the application of that section (as so amended) is subject to the
provisions of this Act and the Consumer Insurance (Disclosure and
Representations) Act 2012.

(4) In section 2 of the Consumer Insurance (Disclosure and Representations) Act
2012 (disclosure and representations before contract or variation), subsection
10(5) is omitted.

Contracting out

15 Contracting out: consumer insurance contracts

(1) A term of a consumer insurance contract, or of any other contract, which would
put the consumer in a worse position as respects any of the matters provided
15for in Part 3 or 4 of this Act than the consumer would be in by virtue of the
provisions of those Parts (so far as relating to consumer insurance contracts) is
to that extent of no effect.

(2) In subsection (1) references to a contract include a variation.

(3) This section does not apply in relation to a contract for the settlement of a claim
20arising under a consumer insurance contract.

16 Contracting out: non-consumer insurance contracts

(1) A term of a non-consumer insurance contract, or of any other contract, which
would put the insured in a worse position as respects representations to which
section 9 applies than the insured would be in by virtue of that section is to that
25extent of no effect.

(2) A term of a non-consumer insurance contract, or of any other contract, which
would put the insured in a worse position as respects any of the other matters
provided for in Part 2, 3 or 4 of this Act than the insured would be in by virtue
of the provisions of those Parts (so far as relating to non-consumer insurance
30contracts) is to that extent of no effect, unless the requirements of section 17
have been satisfied in relation to the term.

(3) In this section references to a contract include a variation.

(4) This section does not apply in relation to a contract for the settlement of a claim
arising under a non-consumer insurance contract.

17 35The transparency requirements

(1) In this section, “the disadvantageous term” means such a term as is mentioned
in section 16(2).

(2) The insurer must take sufficient steps to draw the disadvantageous term to the
insured’s attention before the contract is entered into or the variation agreed.

(3) 40The disadvantageous term must be clear and unambiguous as to its effect.

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(4) In determining whether the requirements of subsections (2) and (3) have been
met, the characteristics of insured persons of the kind in question, and the
circumstances of the transaction, are to be taken into account.

(5) The insured may not rely on any failure on the part of the insurer to meet the
5requirements of subsection (2) if the insured (or its agent) had actual
knowledge of the disadvantageous term when the contract was entered into or
the variation agreed.

18 Contracting out: group insurance contracts

(1) This section applies to a contract of insurance referred to in section 13(1)(a);
10and in this section—

  • “A” and “the Cs” have the same meaning as in section 13,

  • “consumer C” means an individual who is one of the Cs, where the cover
    provided by the contract for that individual would have been a
    consumer insurance contract if entered into by that person rather than
    15by A, and

  • “non-consumer C” means any of the Cs who is not a consumer C.

(2) A term of the contract of insurance, or any other contract, which puts a
consumer C in a worse position as respects any matter dealt with in section 13
than that individual would be in by virtue of that section is to that extent of no
20effect.

(3) A term of the contract of insurance, or any other contract, which puts a non-
consumer C in a worse position as respects any matter dealt with in section 13
than that person would be in by virtue of that section is to that extent of no
effect, unless the requirements of section 17 have been met in relation to the
25term.

(4) Section 17 applies in relation to such a term as it applies to a term mentioned
in section 16(2), with references to the insured being read as references to A
rather than the non-consumer C.

(5) In this section references to a contract include a variation.

(6) 30This section does not apply in relation to a contract for the settlement of a claim
arising under a contract of insurance to which this section applies.

Part 6 Amendment of the Third Parties (Rights against Insurers) Act 2010

19 Power to change meaning of “relevant person” for purposes of 2010 Act

35For section 19 of the Third Parties (Rights against Insurers) Act 2010 (power to
amend sections 4 to 6 of the Act) substitute—

19 Power to change the meaning of “relevant person”

(1) The Secretary of State may by regulations make provision adding or
removing circumstances in which a person is a “relevant person” for
40the purposes of this Act, subject to subsection (2).

(2) Regulations under this section may add circumstances only if, in the
Secretary of State’s opinion, the additional circumstances—