Our third blog in the Insurance Act 2015 series looks at warranites- or “what are my responisbilities under the Insurance Act 2015?”. For an overview of the new Act, coming into effect on 12th August 2015, click here.
In insurance contracts a warranty is something that a policyholder promises to do in order to maintain insurance cover. They are used by insurers to control risk, ensuring that they remain liable for risks only for as long as policyholders keep to their promises. If the policyholder fails to live up to those promises, then cover is no longer in place.
An example of warranty might be that a policy holder is required to ensure regular maintenance checks of a security alarm so that the property is adequately protected by the anti-intruder systems in place. Another example of a warranty might require a business to remove waste from the premises at the end of each working day to reduce the risk of a fire taking hold of the building.
Until now, one of the problems has been that failing to comply with a warranty could void the whole policy. For example, failing to keep a warranty to maintain a burglar alarm could remove all cover from an insurance policy – including unrelated cover such as Employers’ Liability, Public Liability, Legal Expenses etc.
Under the old legislation, a breach of warranty (the policy holder failing to keep their promise) would terminate the whole insurance cover. Under the new legislation, a breach or warranty just suspends the insurance cover relating to that warranty only, until the breach is fixed. So, under the new Act, failing to comply with a waste warranty (see the example above), only the property section of the insurance policy would be suspended. Even if it were proven that waste hadn’t been removed daily, as required, Employers’ Liability, Public Liability and Legal Expenses would (likely) still be in place. Of course, if there was a fire and the waste warranty hadn’t been kept, the claim would not be paid.
The other type of warranty to be addressed in the new Act are “basis of contract” clauses. Under the old system, some insurance proposal forms contain clauses using the ‘basis of the contract’ principle. This is a statement that effectively turns everything on that form into a warranty. This allows the insurer to void the claim if any information on the form, however immaterial, is inaccurate- this can include a mis-spelt address! Thankfully, clause 9 of the 2015 Act abolishes such ‘basis of contract’ clauses from business insurance contracts.
This new way of dealing with warranties affects warranties started or renewed on or after 12th August 2016.
In summary then, warranties have to be specific from now on. If they are not complied with cover is suspended rather than terminated, and claims cannot be rejected due to non-compliance with a warranty, unless the warranty is relevant to the claim.
There’s a lot to take in, and a lot of significant changes, so do keep checking back for the other blogs in the series.
- What is the Insurance Act 20015?
- What do I have to tell my insurer?
- What are my responsibilities once my insurance cover starts?
- What is the impact of making a Fraudulent Claim?
- What is Contracting Out?
Give us a call or drop us an email at any stage with any questions about the Insurance Act 2015 and how it will impact your organisation. We’ll be happy to answer any questions and ensure that you are confident about the insurance you have in place.