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  • How your duty of disclosure and fair presentation of risk can invalidate insurance

    How duty of disclosure and fair presentation of risk can invalidate insurance

    Following the introduction of the Insurance Act 2015, if you are in business and your insurance policy is governed by the laws of England and Wales, Scotland or Northern Ireland then you will have a duty to disclose and provide a fair representation of information regarding your business risk to your insurer.

    Why was the new act introduced?

    The new standards were put in place in part to prevent ‘data dumping’ which often occurred with the presentation of large volumes of material information to insurers without the distinction between important and trivial information.

    Disclosure of information must now be reasonably clear and in an accessible manner. Previously, insurers were required to predict without much guidance what factors influenced the policy.

    The Act came into force on 12 August 2016 and whilst the policyholder has always had an obligation of good faith to disclose full details the Act now includes the duty to disclose every material circumstance the policyholder knows and ought to know.

    What does what you ‘ought to know mean?’

    What policy holders ‘ought to know’ includes information available to anyone conducting a reasonable search on the company in question. Clearly what policyholders ‘ought to know’ can be quite ambiguous, but it includes information held within your organisation but also outside it via agents or persons covered by the insurance.

    Policyholders should seek guidance from their brokers as to what a reasonable search entails in the context of their own individual business, and depending on the circumstances of the business may even require guidance from lawyers.

    What is a fair presentation of risk?

    Disclosure of a fair presentation of risk includes all facts, information, and circumstances that are material to the risk that your business holds. This may be anything that would influence the judgement an insurer takes in fixing the premium, terms and determining whether to accept the risk.

    Failure to disclose information may result in your insurer reducing their claim payment, applying additional terms or even avoiding the policy altogether. After the policy is placed, you also have the duty to disclose additional information when you wish to make changes to the policy or upon renewal.

    Who is responsible?

    Under the new act you must disclose material circumstances known by senior management and those responsible for arranging your insurance. We would therefore advise that senior management are heavily involved in the disclosure process.

    Senior management may differ depending on their relevant significance for different types of business insurance (for example, public liability senior management may be different to those involved in professional indemnity).

    What happens if you fail to disclose?

    There is no longer only one remedy of avoidance for non-disclosure or misrepresentation. Alternative measures are available depending on the circumstance:

    • If you have deliberately failed to provide information, then your insurer is entitled to avoid the policy contract and may retain the premium.
    • However, if you unintentionally or recklessly withhold information then the insurer’s remedy will depend on what the insurer can show they would have done should a fair presentation of risk been made.
    • If they would not have entered into the contract, they can avoid the contract but must return the premium.
    • If they would have entered the contract on different terms, then those terms may be included.
    • Alternatively, if they would have charged a higher premium then the amount paid out on a claim can be reduced proportionately.


    If there is any information within this article that concerns you or you would like explaining, please contact one of our experts to discuss further.

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