Recent data purporting to show a 180% rise in commercial insurance disputes reaching the High Court since 2016 has generated headlines, with particular scrutiny surrounding whether the Insurance Act 2015 is doing what it was brought in to do: bring clarity, modernise disclosure obligations, and bring greater certainty to the claims process.
One might note that, to a significant extent, any such trend has come about in circumstances of a growth in the ‘Claimant Market’ for contentious insurance claims fostered by Covid-19 business interruption coverage issues and a whole range of bulk financial claims over recent years.
Certainly from the perspective of those of us who act for insurers, the story is more complex than a narrative of ‘insurers refusing to pay’.
A significant proportion of the disputes Keoghs sees stem from policyholders not meeting their duty of fair presentation, with many businesses still underestimating the breadth of information they must disclose. Limited broker guidance means many policyholders do not fully understand the disclosure risks that can surface in the event that a major loss occurs. This inevitably raises issues of breach of fair presentation as well as underinsurance.
When a major loss does occur, these disclosure gaps matter as insurers can be left trying to apply the contract fairly in circumstances that were never fully described at inception. Insurers are entitled – and in some cases obliged – to scrutinise the accuracy of the information on which the policy was incepted. That scrutiny is not a ‘negotiating tactic’; it is a legal and commercial necessity, part of the balancing of the interests of all policyholders, especially in an ever-increasing inflation-driven market where claims inflation is outpricing premium growth.
The surge in disputes linked to events such as Covid‑19 and world conflicts, along with other emerging new risk categories such as cyber and cladding/fire safety, highlight the reality that today’s commercial risks are more complex, more interconnected and more volatile than ever; pushing policy construction into new contexts and new territory as policy wordings are being tested against scenarios that were once considered remote, if foreseen at all. Inevitably, that leads to litigation. Not because insurers are acting in bad faith, but because the courts are being asked to apply ‑longstanding policy wordings to unprecedented scenarios. Litigation in these circumstances is not a sign of bad faith on the part of insurers but part of the process of clarifying how policies respond to modern risks.
The solution is not to vilify insurers for respecting the legal framework they are bound by, rather it is to strengthen the entire chain.
From the perspective of those of us who act for insurers, many disputes arise not because insurers are acting unreasonably, but because the foundations laid at inception are not as strong as they need to be. These weaknesses create uncertainty and increase the likelihood of disputes, often through no fault of the insurer.
Certainly, this does not mean that insurers can be complacent. As solicitors acting for insurers, Keoghs sees the consequences when policy wordings are unclear or when claims handling communication breaks down. A more aligned and disciplined market benefits everyone and is the most effective way to reduce avoidable litigation, while ensuring insurers can continue to price and pay claims fairly. If the recent data encourages investment in the improving of existing policy wordings and the innovation of new more bespoke insurance products, then that is certainly a good and welcome thing.
In many instances, litigation is not a sign of insurers being obstructive; it is an opportunity and a necessary step to resolve genuine grey areas and establish the clarity the market needs. Over time, the decisions reached will continue to deliver the certainty the Insurance Act was designed to provide.
For now, the trend should be seen as a call for the wider market to tighten its practices. Insurers can only apply the contract as written. To reduce disputes, the focus must be on improving communication, strengthening the understanding of risk presentation obligations and ensuring that when a claim arises, all parties have a shared understanding of what was, and was not, agreed at the point of inception.
For insurers, brokers and policyholders alike, the message is the same: if all parties focus on achieving real clarity and understanding at inception, insurers can assess the position fairly once a loss arises and claims can be resolved without unnecessary conflict.
If you would like to discuss this topic further or have any questions, please get in touch.
John Quirk - Associate and Coverage SIG member
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