The Insurance Act 2015 sets a default regime, but for business insurance it allows the parties to agree different terms. Sections 15 to 17 govern that freedom and, crucially, impose transparency conditions before an insurer can put a commercial insured in a worse position than the Act's defaults.
Section 15 confirms that a term of a consumer insurance contract which would put the consumer in a worse position than the Consumer Insurance (Disclosure and Representations) Act 2012 provides is of no effect. Consumers keep the statutory protections whatever the policy says. Professional indemnity for a firm is non-consumer insurance, so the business regime in section 16 applies.
Section 16(2) provides that a term of a non-consumer contract which would put the insured in a worse position than the relevant provisions of the Act — the duty of fair presentation, the warranty and section 11 rules, or the good-faith changes — is of no effect unless the insurer has satisfied the transparency requirements in section 17. This is often called a disadvantageous term.
Section 17 sets two conditions an insurer must meet before a disadvantageous term takes effect:
Section 17(4) adds that in deciding whether these are met, the characteristics and circumstances of insureds of the kind in question are relevant — a sophisticated commercial buyer with broker representation may need less spelt out than a small firm buying direct.
Examples include a clause reinstating an all-or-nothing consequence for breach of warranty, a term reintroducing a basis-of-contract effect, or wording that removes the proportionate remedy for an innocent breach of the duty of fair presentation. None of these bites unless the section 17 conditions are met.
Because insurers can contract out, the protections of the Act are a floor that can be lowered if the transparency box is ticked. A firm — or its broker — needs to identify any term that worsens its position and confirm it was genuinely drawn to attention and clearly drafted. Surveyors, engineers and accountants reviewing a renewal should treat contracting-out clauses as a priority. Apex reads PI wordings with section 16 in mind and flags any term that departs from the statutory defaults.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.