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  • Writer's

Underinsurance and the Insurance Act – Has anything changed?

Updated: May 3

A lack of relevant case law means it is still too early to say what impact the Insurance Act (2015) will have on cases of underinsurance.

A spokesperson for law firm Herbert Smith Freehills LLP told us there was nothing yet to add to their advice of last year, which outlined the new range of “proportionate remedies” provided by the Act should the insured breach their duty of fair representation.

Under the Act, the insured must make a "fair presentation of the risk" to the insurer. Previously the duty related to “disclosure and representations” and many key aspects of this have been retained.

However, the big change has been that whereas previously the insurer's only remedy for breach of the duty of disclosure was avoidance of the policy, the Insurance Act provides for a range of “proportionate remedies” if the insured breaches the duty of fair presentation. If the breach is “deliberate or reckless” avoidance will still be available and the insurer can keep the premium. For all other breaches, the onus is now on the insurer to show what it would have done had it received a fair presentation of the risk.

Here are those “proportionate remedies” under the new Act:

  • The insurer will still be entitled to avoid the policy (but must return the premium) if it can show that it would not have entered into the contract;

  • If the insurer shows that it would have entered into the contract, but on different terms, then it may treat the policy as having included those terms from the outset; and

  • If the insurer would have entered into the contract but only at a higher premium, the insurer may reduce the amount to be paid on the claim proportionately. Thus, if it would have charged double the premium, it is only liable to pay 50% of the amount of the claim

Danny Lillington, Director of, commented: “The Insurance Act opened up a wider range of possibilities to insurers in cases of underinsurance. We will continue to consult with legal experts and report back on any significant developments.”

In the meantime, we recommend you download our White Paper – Underinsurance and the Insurance Act (2015) - for more detailed information and legal opinion.

Download PDF • 695KB

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