The Insurance Act 2015 came into effect in August 2016. Its purpose is to update the law (which was over 100 years old) to reflect the way the insurance market has evolved. The aim is to achieve a fair and balanced regime between insurers and insureds. In summary, the Act includes some fundamental changes to the approaches to be taken by insureds and insurers in presenting/assessing risks and addressing coverage issues. The key changes are as follows:
- The pre-contractual duty of disclosure has been replaced by the new duty of fair presentation.
- The law on breach of warranty has been changed to prohibit "basis of contract" clauses.
- The law on fraudulent claims has been clarified, and remedies for such claims have been set out in the Act.
On 12 February 2016 the Solicitors Regulation Authority (SRA) released a consultation document proposing an update of the Solicitors' Minimum Terms and Conditions (MTC) to ensure consistency with the Insurance Act.
The amendments proposed by the consultation focus on the reimbursement and disclosure sections of the MTC. Under the Insurance Act, the test to determine whether there has been "non-disclosure" by an insured at the proposal stage will be different for consumer and non-consumer contracts. Unsurprisingly the SRA's proposed approach adopts the non-consumer test. This means that firms seeking cover will be required to make a "fair presentation of risk". However, while the impact of this issue is potentially significant across the professional indemnity market more generally (as a reckless or deliberate failure to make a fair presentation will allow insurers to avoid the policy), it is unlikely to affect the solicitors' market. The MTC (both in its current form and based on the proposed amendments) is extremely restrictive in terms of insurers' rights to avoid a policy or repudiate a claim, primarily in the interests of public protection.
The consultation has now closed but formal conclusions have yet to be published. However, significant changes to the MTC are not expected.