The Insurance Bill and Security

In July, the Law Commission, a Ministry of Justice sponsored public advisory body, presented a report to Government. It comprised a set of recommendations for reforms and a draft bill called the Insurance Bill, all of which, it is hoped, will revolutionise the way commercial insurance is sold in the UK.

With current insurance law based around the Marine Insurance Act of 1906, it doesn’t take much to realise that the law is now seriously out of date and it is no wonder that so many disputes between businesses and insurers arise.

Insurance warranties set for reform

There are four main areas set for reform under the Insurance Bill and the one we’re going to talk about in this blog is insurance warranties, because they have a link to security. We do suggest however that you read about the Insurance Bill in more detail as the repercussions for businesses will be positive, and it is always a boost to read some good news, even if it is still being bandied about in the House of Lords.

Insurance warranties have always been a major area of confusion. An insurance warranty is a promise you make when you take out a policy, to do something or not do something. In many cases with commercial buildings and contents insurance, warranties are security related. So it might be for example that you have to install a particular type of safe that meets certain standards (we we’ve spoken about in a previous post), or a certain type of window or door lock. It might be a general stipulation, for example an intruder alarm or sprinkler system must be fitted.

What you need to know about warranties as they are now

Whatever the warranty, it is something you absolutely have to comply with to the letter, because if you don’t, the consequences under current law can be very serious indeed, and it is these consequences that are currently under scrutiny and set for reform.

For example, if you fail to follow a warranty, the insurer will be fully discharged from liability from the time the warranty is breached. This is the case even if it is later remedied, and whatever it is you were required to do was in place at the time of an issue leading to a claim. The other major problem is that that breach does not have to be linked to the loss for the insurer’s liability to be cleared. Here is an example to illustrate what all this could mean in practice.

A typical scenario

You are taking out a new buildings and contents insurance policy. You know you have to install an intruder alarm for the cover to be valid. At the time of arranging the insurance you say you have one, but in reality at that moment, you don’t. However, you have arranged to have an alarm fitted a few days later.

The installation goes ahead, so effectively you now comply with the insurance warranty. A few days later you suffer a fire. You make a claim for losses, and the insurer requests proof that you have complied with the warranties. Your installation paperwork for the intruder alarm shows it was fitted after the policy was taken out, so they refuse your claim. Even though by the time of the fire you had remedied the breach of warranty by installing the intruder alarm, and despite the fact the fire could never have been prevented by an intruder alarm, you will still not receive a payout as the insurer, under current law, would be discharged from liability on both counts.

How the law might change

Proposed remedies to the issues surrounding warranties include suspending rather than discharging an insurer’s liability where a breach of warranty has occurred and if a breach is remedied before a loss occurs then the liability will endure. And a breach of warranty must be connected to a loss for it to discharge the insurer’s liability.

The Insurance Bill was introduced in the House of Lords on 17 July 2014 and went to a second reading stage on 30 July. It is currently with a Special Public Bill Committee so it may be a little while yet before it receives Royal Assent and its recommendations become law.

The message in the meantime …

So the message in the meantime is, bear in mind the existing laws on insurance warranties, because failure to comply could be extremely costly. If you are unsure as to how to comply with any insurance related warranties, we can help so please get in touch. Our experts can advise you on which security products meet certain standards required by insurers and as Master Locksmiths Association and National Insurance Inspectorate Gold members, our installations are insurance approved.

One other thing to note is that whilst the Insurance Bill will revolutionise how insurance warranties work, they will still exist and it will continue to be vital to ensure you comply with them.