There has been a lot of comment in the insurance press lately about the need for insurance brokers to amend their TOBAs as soon as possible in order to anticipate the changes to insurance law brought in by the Insurance Act 2015 (“the Act”).
Such an immediate reaction is, in our view, unnecessary. In due course changes to TOBAs are likely to be required, for various reasons, but they should not be undertaken hastily.
Firstly, it has been our view for a number of years that advice on insurance law, be it on the duty of disclosure or on the new duty of fair presentation, is not something which should be undertaken in a TOBA. The best TOBAs are simple and transparent. They should:
- Be drafted as clearly and succinctly as possible
- Record the business relationship between the parties
- Clearly define and allocate rights and responsibilities
- Ensure compliance with applicable regulatory or statutory requirements as a continuing obligation.
These aims are sufficiently complex themselves without mixing them up with general advice on insurance law or the insurance market.
Secondly, even if TOBAs do refer to matters of insurance law, they should do so in general terms, and not by reference to specific statutes. A broker’s duty is to give appropriate advice on arranging insurance, whatever the applicable statutory regime.
Thirdly, to the extent that changes are required to TOBAs, practitioners are best advised to wait to see what develops in the insurance market. That was the purpose of the delayed introduction of the Act. As yet there is no consistent market approach to the changes envisaged in the Act and rushing to anticipate those changes before they are properly articulated is likely to be counterproductive. The one change that we have recommended practitioners make to their TOBAs is one which enables them to use client settlement information in the course of settlements on other files. This reflects the emphasis on inducement in the Act, but could just as sensibly be deployed under the current legislation. An underwriter electing to avoid an insurance policy has always had to prove that he was in fact induced by the non-disclosure or misrepresentation of a material fact. In that sense, the new legislation, to the extent that it addresses the issue of inducement, is a change of emphasis, not of substance.
Finally, notwithstanding the many briefing notes from various sources that have appeared on the new Insurance Act, there seems to be a degree of confusion as to the exact date and extent of its application. The correct position is as follows:
Sections 14 (Good faith) and 21 (provisions consequential upon Part 2), and Part 2 (The Duty of Fair Presentation) of the Act apply:
- to contracts of insurance entered into after 12 August 2016, and
- to variations of contracts of insurance made after 12 August 2016, regardless of when the contract itself was entered into.
Contrastingly, Parts 3 (Warranties and Other Terms) and 4 (Fraudulent Claims) of the Act apply:
- only to contracts of insurance entered into after 12 August 2016;
- and to variations of such contracts (but not variations of contracts entered into before 12 August 2016).
Therefore, Parts 3 (Warranties and Other Terms) and 4 (Fraudulent Claims) of the Act cannot apply to variations entered after 12 August 2016 where the underlying policy was entered into before 12 August 2016).
The logic behind this is presumably that it would be too problematic if different rules governed a warranty which was added by way of a variation after 12 August 2016 to a policy that was entered into before that date. The old rules would govern the underlying policy and the new rules would govern the rest of the policy. That is less of a concern on issues of disclosure, which are discrete to the endorsement. Similarly, it would be odd if different rules applied for fraud to the policy and the endorsement.
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