Contracting out

Category: Statutes and regulation · Reviewed by the Apex broking team · Last reviewed 2026-08-22 · ~5 min read

Consumer contracts: section 15

Section 15(1) provides that a term of a consumer insurance contract, or of any other contract, which would put the consumer in a worse position as respects any of the matters provided for in Part 3 or 4 of the Act than the consumer would be in by virtue of those Parts, is to that extent of no effect. Part 3 covers warranties and other terms, including sections 9 to 11; Part 4 covers fraudulent claims, sections 12 and 13. Section 15(2) extends the section to variations, and section 15(3) excludes contracts settling a claim.

Consumers are separately protected on disclosure and misrepresentation by section 10 of the Consumer Insurance (Disclosure and Representations) Act 2012, which makes any term worsening the consumer’s position on those matters of no effect.

Non-consumer contracts: section 16

Section 16 splits into two. Subsection (1) deals with section 9: a term of a non-consumer insurance contract, or of any other contract, which would put the insured in a worse position as respects representations to which section 9 applies is to that extent of no effect — full stop, with no transparency escape route. A commercial policy cannot reinstate the basis of contract clause however clearly it tries.

Subsection (2) deals with everything else. A term putting the insured in a worse position as respects any of the other matters provided for in Part 2, 3 or 4 is of no effect unless the requirements of section 17 have been satisfied in relation to the term. Part 2 is the duty of fair presentation and the Schedule 1 remedies. So a commercial wording may, for example, restore something closer to the old all-or-nothing remedy for non-disclosure, or reinstate discharge of liability for breach of warranty — but only if it is transparent about doing so. As with section 15, variations are included and settlement contracts are excluded.

The transparency requirements: section 17

Section 17 defines a “disadvantageous term” as one within section 16(2) or 16A(4) and imposes two requirements. Under subsection (2), the insurer must take sufficient steps to draw the term to the insured’s attention before the contract is entered into or the variation agreed. Under subsection (3), the term must be clear and unambiguous as to its effect.

Subsection (4) requires the characteristics of insured persons of the kind in question, and the circumstances of the transaction, to be taken into account in deciding whether those requirements are met — so what suffices for a large corporate placed through a specialist broker may not suffice for a small business buying a package policy. Subsection (5) provides that the insured may not rely on a failure to meet the attention requirement if the insured or its agent had actual knowledge of the term when the contract was entered into. Note that the knowledge exception applies to the attention requirement in subsection (2), not to the clarity requirement in subsection (3).

Late payment of claims: section 16A

Section 13A implies into every contract of insurance a term that the insurer must pay sums due in respect of a claim within a reasonable time, and it was inserted by the Enterprise Act 2016 with effect from 4 May 2017. Section 16A governs contracting out of it.

Subsection (1) makes any consumer term worsening the section 13A position of no effect. Subsection (2) provides that a non-consumer term putting the insured in a worse position as respects deliberate or reckless breaches of the implied term is of no effect — an absolute protection, with subsection (3) defining a breach as deliberate or reckless where the insurer knew that it was in breach or did not care whether it was. Subsection (4) then subjects any other disadvantageous term about section 13A to the section 17 transparency requirements. Subsection (6) excludes settlement contracts.

What this means at placement

Contracting out clauses are legitimate and are used, particularly in specialist and subscription market wordings. They are not always signposted with the words “contracting out”. The signals to look for are a clause restoring avoidance as the remedy for non-disclosure regardless of what the insurer would have done, a warranty clause stating that breach discharges the insurer’s liability, an attempt to exclude section 11, or a clause limiting the insurer’s exposure for late payment.

Where such a term exists and has been properly flagged and clearly drafted, it is effective, and the insured is placed in a materially worse position than the default statutory scheme. That is a matter to raise before binding, not after a loss. A term that is buried or ambiguous is likely to fail the section 17 test, but no buyer should want to be litigating that question.

Frequently asked questions

Can a commercial policy contract out of the Insurance Act 2015?

Largely yes. Section 16(2) permits terms putting the insured in a worse position as respects Part 2, 3 or 4 matters provided the section 17 transparency requirements are satisfied. The exception is section 9 on representations, which section 16(1) protects absolutely.

Can a consumer policy contract out?

No. Section 15 of the Insurance Act 2015 makes any consumer term worsening the position under Part 3 or 4 of no effect, and section 10 of CIDRA 2012 does the same for disclosure, representations and the remedies for qualifying misrepresentations.

What are the transparency requirements?

Under section 17 the insurer must take sufficient steps to draw the disadvantageous term to the insured's attention before the contract is entered into or the variation agreed, and the term must be clear and unambiguous as to its effect.

Can an insurer contract out of the duty to pay claims within a reasonable time?

Only in part. Section 16A(2) makes any non-consumer term worsening the position on deliberate or reckless breaches of section 13A of no effect. Other departures are permitted in a non-consumer contract if section 17 is satisfied; consumer contracts cannot depart at all.

Related entries

• Section 13A of the Insurance Act 2015
• Reasonable time under section 13A
• Fair presentation of the risk
• Insurance Act 2015, section 9
• CIDRA 2012
• Commercial insurance UK

This entry is part of the Apex Insurance Wiki. It states the position as at August 2026. Last reviewed 2026-08-22. Next review: 2027-02-22. It is general insurance information, not legal advice, and it is not regulated advice on a specific policy.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.