BILA, the British Insurance Law Association, tackled the thorny issues of fair presentation of risk and warranties under the new Insurance Act 2015 (in force from 12 August 2016) at a recent mock trial presided over by the Right Honourable Lord Mance.
Derrick Dale QC (Fountain Court Chambers) and Ben Lynch (Devereux Chambers) acted on behalf of the insurer and Alistair Schaff QC (7 KBW) and Harry Wright (7 KBW) acted for the insured. Ishaani Shrivastava (Devereux Chambers) acted as Lord Mance’s judicial assistant. Over 150 attended the event held at the Great Hall and Bench Rooms, Lincoln’s Inn.
The trial concerned a hypothetical case in which an insured claimed for loss caused by hacking of its client database. The insurer contended that material circumstances had not been disclosed and that a material representation had not been substantially correct at the time the policy was written. There was also a dispute as to potential remedy. The insured’s IT system was infected with a virus and the insurer alleged that the insured should have been aware of this and should have informed the insurer. The insurer also denied cover as monthly checks of the IT system, required by a warranty, had never been conducted.
Lord Mance stated that a reasonable search had not been conducted, the insured ought to have known about the virus, and the representation made had not been substantially correct, the duty of fair presentation of risk was breached. He stated that breach of warranty was a difficult area but that breach of a warranty directed at virus-based hacking “could not have increased the risk of loss” of hacking by means unrelated to a virus. The insurer could not deny cover on the basis of breach of this warranty.
Proceedings were opened by Michael Mendelowitz, BILA Chairman. David Hertzell, BILA President and former Law Commissioner responsible for the introduction of the new Act, said at the event: “The Act is very market driven. No provisions went through without support and we wanted to preserve concepts and provisions. Questions have been raised however, such as what is a reasonable search? The ultimate aim of the act is to encourage dialogue.”