INSURANCE ACT DUTY OF FAIR PRESENTATION OF RISK BY ANDRE MEIJER - - PowerPoint PPT Presentation

INSURANCE ACT

DUTY OF FAIR PRESENTATION OF RISK

BY ANDRE MEIJER

21 June

WELCOME (1)

• My name is Andre Meijer
• Insurance Act 2015 - looks like a boring legal and insurance subject
• I won’t take you deeply into small text of Laws or Policies
• In 30 minutes I will give you a guideline on:
• How to get a new mindset on risk information
• How to share risk information
• How to avoid the financial pitfalls of this Duty of Fair Presentation

WELCOME (2)

• Not just for insurance and legal audience
• Anyone working:
• With tenders, in project preparation and operations
• In fleet/equipment management
• I would like to know in which discipline you are working:

tendering, project engineering, project operations, fleet/equipment management, legal, insurance, SHE-Q

AGENDA

• Insurance Policies in scope of Insurance Act 2015
• Breach of The Duty of Fair Presentation
• The financial impact of the breach
• Failure examples
• Which risk information is important?
• Risk Transfer - change hats with the insurer
• Sharing risk information - internally and externally

We will do some intermediate interaction items and have a Q&A session at the end of this webinar

INTRODUCTION

• Andre Meijer
• 50 years in the Marine Insurance industry
• Last 16 years Aon Marine Manager and Broker
• Since 2015 Chairman of Munis (dredging mutual insurer)

INSURANCE POLICIES IN SCOPE OF THE ENGLISH LAW

• Which policies fall under the English Insurance Act 2015?
• Fleet: Hull – War – Kidnap and Ransom
• Projects: C.A.R. – PI design liability
• Liability: P&I – Contractual liability, Umbrella excess liability

INSURANCE POLICIES IN SCOPE OF THE ENGLISH LAW

INSURANCE ACT 2015

POLICIES IN SCOPE OF THE INSURANCE ACT 2015

• English Law? The Britts are Brexit!
• Imperial Century of the British Empire
• 25% of the world’s population and surface
• Trade, cargo and ships = insurance at Lloyd’s
• Marine Insurance Act 1906 - now Insurance Act 2015
• Sub section: THE DUTY OF FAIR PRESENTATION

BREACH OF THE DUTY OF FAIR PRESENTATION

• Duty is a warranty
• Breach of warranty results in:
• Policy is void - end of story or (if you’re lucky)
• As if on other conditions
• As if only part payment (proportional if at other premium)
• Highly debatable “as if” - hard to deliver counter-evidence
• No jurisdiction yet for this new Law

FINANCIAL IMPACT OF A BREACH (1)

• Look at policies in scope to see the potential impact size
• H&M
• EUR 200 million limit (or even over EUR 1 billion)
• P&I (vessel legal and contractual liability)
• EUR 1 billion limit for pollution - also contractual exposure
• C.A.R. and Design Liability (P.I.)
• more EPCI contracts in renewables
• EUR 1 billion contract values becoming more frequent

FINANCIAL IMPACT OF A BREACH (2)

• Non-payment of a large claim will have enormous impact on:
• Your company’s balance sheet
• The stock market price of listed companies
• The image and brand of your company

EXAMPLES OF FAILURE TO DISCLOSE MATERIAL RISK INFORMATION

• C.A.R. policies have strictest wording for disclosure of project info
• Focus on smallest engineering details
• C.A.R. policy holds record for most breaches and rejection of claims

EXAMPLE 1: MODIFIED WORK

Project manager failed to inform Insurance:

• Construction of quay wall, dredging work in port
• Pile driving and sheet pile retraining wall job
• During pile driving soil appered to be much harder
• Method changed to pile drilling
• Construction period + 1 year and cost + 40%

Impact on the C.A.R. Insurance:

• The "Scope of Work" and the risk are much different

EXAMPLE 2: DESIGN & CONSTRUCT

Non-communication in design phase:

• Dredging a new port with taluds 1:10
• Construction steel quay wall with concrete edge cover
• Optimisation during part design
• Taluds steeper (1:4) and quay wall constructed with concrete deep walls

Impact on the C.A.R. Insurance:

• Different method and 30% higher cost

Two typical examples of the frequent flaws in the awareness of a changed risk profile and the reporting thereof

WHICH RISK INFORMATION IS IMPORTANT? (1)

The Insurance Act says:

• Risk Information must be “reasonably clear” and accessible
• “Material facts” must “substantially” correct
• The pictured expectation of the risk must be made in good faith

WHICH RISK INFORMATION IS IMPORTANT? (2)

Starting point: Insurer must know the standard risks of his business

• Reasonably clear means: no spaghetti of data dumping
• Material facts means:
• special or unusual facts that change the risk
• extraordinary circumstances - the specific risk why you take

this insurance

• something ‘material’ for this type of activities (derelict mines)

RISK TRANSFER – CHANGE HATS WITH THE INSURER

Complicated legal rules? Try this approach: Change your insurance mindset

• Why companies buy insurance?
• To protect their assets and capital
• Risks for loss of capital cannot be borne by the company
• Transfer those risks to Insurers = buying a policy

If you were the insurer, what would you like to know? Whenever you wonder which risk information must be disclosed, think: change hats with the insurer

TEST YOUR ABILITIES AS AN INSURER – Q1

The dredging fleet that you have accepted has worldwide sailing limits with no restrictions for Arctic parts. Four ships of the fleet will be working in an area at a time normally considered as “closed for trading/working due to heavy ice conditions” and there is a fair chance that vessels will not be able to return to open sea in time. As an insurer would you like to know this special risk (to check recent ice reports or set special terms for salvage cost or delay cover)?

TEST YOUR ABILITIES AS AN INSURER – Q2

Dredging companies are regularly exposed to unexpected derelict mines or

• ther weapons of war. The War policy provides automatic cover for that.

The insured will execute dredging work at the Paardenmarkt, a famous WorldWar I ammunition dump area. Would you like to be informed of that job and review a survey report before providing cover for that?

TEST YOUR ABILITIES AS AN INSURER – Q3

You are a C.A.R. insurer. Your client will do a pile driving job in a mixed sand and clay seabed, but only has received an incomplete soil sampling survey report from his principal. Nevertheless, the principal wants your client to start the job tomorrow without further surveys. As an insurer, would you like to know about the inadequate survey report and would you still accept the risk?

SHARING RISK INFORMATION – CONCLUSION 1

• Anyone in engineering, operations, legal, finance
• Anyone in fleet and equipment management
• Anyone in senior management

=> INCREASE YOUR LEVEL OF RISK AWARENESS

SHARING RISK INFORMATION – CONCLUSION 2

• Share and disclose unusual/specific circumstances and facts
• At the placing and during the course of the policy
• Hint: Improve your contacts with Insurance Management

ROLE OF THE INSURANCE BROKER

• Mirror the information to your records for those risks
• Share your market submission/info with your clients
• Avoid info getting lost in communication

• There is a new (tricky) Law - Duty of Fair Presentation
• Non-compliance can result in huge financial consequences

Time for a new approach:

• Increase everybody’s alert level for Risk Awareness
• Upgrade internal and external risk communication procedures

TIME FOR QUESTIONS

• I shall try to respond all questions immediately
• Answers to complicated questions will be sent by e-mail
• Don’t hesitate to contact your Insurance Manager

IMPORTANT NOTE

• This webinar is meant as simple guideline - no legal advice
• Insurance Act 2015 reference words are simplified
• We recommend to read the Insurance Act for full wording
• www.legislation.gov.uk/ukpga/2015/4/pdfs/ukpga_20150004_en.pdf