Business Insurance under theInsurance Act 2015
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Learning Objectives
We are going to cover:
- Fair presentation of the risk
- Physical and moral hazards
- Rehabilitation of Offenders Act 1974
- Policyholder's state of knowledge
- What does not need to be disclosed?
- Remedies available for breach
Click the headings above to jump to that section,or press on the right hand edge of the screen to start the module.
Assumed Knowledge
This session builds on knowledge from:
EiC Motor Level 1, orEiC Commercial Property Level 1, or EiC Casualty Level 1
Note: You may also find the Fraud Level 1 workbook for your area of claims helpful.
Scope of the Insurance Act 2015
The disclosure provisions in the Insurance Act 2015 apply to non-consumer insurance contracts. (In this module, references to 'the Act' will mean the Insurance Act 2025). A consumer is defined by the Act as, "an individual [who purchases insurance] wholly or mainly for purposes unrelated to the individual's trade, business or profession".
A business is therefore someone who is not a consumer. Where a policy covers a mix of private and business use, it is necessary to consider the main purpose of the insurance. If it is mainly business, the 2015 Act will apply. It has been suggested by the Law Commission that letting a house commercially would be considered a business even if it was not the landlord's primary business.
The Duty of Fair Presentation of the Risk
Section 3 Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.
Business policyholders continue to have a duty of disclosure and not to misrepresent, but the 2015 Act reframes it within a broader duty of fair presentation.
What is a fair presentation?
The test set out in the Marine Insurance Act 1906 is carried through to the 2015 Act – the policyholder still needs to disclose every material circumstance which it knows or ought to know. The nature of the disclosure required is described in Section 3 of the Act. Move on to the next slide when you are ready.
Duty of Disclosure of Material Circumstances
Section 3 (4) A. Every material circumstance which the insured knows or ought to know, or B. Failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
Click the signs to learn more.
If the policyholder fails to meet that test, the 2015 Act then gives them a chance to show that they disclosed enough information to put a prudent underwriter on notice that further information should be requested from the policyholder.
In other words, the test is whether the policyholder gave information which should have set alarm bells ringing for the underwriter.
Balancing Act
However it's not all one way. To balance things a little, the 2015 Act also states that a policyholder cannot get away with 'data dumping'. Information must be presented to underwriters in a way which is clear and accessible.
Click the boxes below to explore in more detail.
fact
belief
is substantially correct
every representation of...
A fair presentation is one in which...
is made in good faith
Move on to the next slide when you are ready.
Which Facts are Material? – Physical
The facts that tend to be material to underwriters fall into two categories, physical and moral, and we will look at Physical Factors first.
- Special or unusual facts relating to the risk
- any particular concerns which led the policyholder to seek insurance cover for the risk
- anything a prudent underwriter would understand as needing to be disclosed, in accordance with fair presentation of the risk.
Material Facts
We will look at some examples on the following slides.
Have a think about what kinds of fact would be material to a property underwriter, and then to a motor underwriter.
Move on to the next slide when you are ready.
Material Facts – Physical – Property Insurance
For example, the following physical facts will usually be considered material to a property insurer: Click the chevrons to learn more.
Nature, age, construction of the building – hover
Physical condition of the property – hover
Method of heating
Purpose for which the property is being used
Whether the property is occupied
Whether the property is to be extended or redeveloped
Geographical location – hover
Details of any previous damage, eg, subsidence
Specific trade issues – hover
Whether the property is protected by alarms and sprinklers – hover
Material Facts – Physical – Motor Insurance
For example, the following physical facts will usually be considered material to a motor insurer: Click the chevrons to learn more.
Vehicle use – hover
Type of driving licence, and when obtained
Where the vehicle is kept overnight – hover
Whether the vehicle is left hand drive, and has been modified
Material facts – Moral factors
Whereas physical facts relate to the nature of the subject of the insurance (the building, the vehicle etc), moral factors concern the policyholder's character, risk appetite, and their propensity to make claims. Some examples:
- Any history of dishonesty
- Criminal record and/or driving convictions
- Directorship disqualifications
- Previous losses (whether insured or not)
- Previous insurance claims
- Refusals by previous insurers to insure or renew a policy
- Claim declinatures for breaches of conditions and/or warranties
- Avoidance or cancellation of policies by previous insurers
- Significantly high risk occupations or nature of businesses
Rehabilitation of Offenders Act 1974
The policyholder must disclose all offences that have resulted in a conviction. However, the Rehabilitation of Offenders Act 1974 modifies this obligation. Certain convictions are regarded as spent and therefore need not be disclosed.
The Act applies a sliding timescale of when certain offences are spent and no longer have to be disclosed.
However, a sentence of over 4 years (or a public protection sentence) will never be spent. A conviction resulting in a sentence of 4 or more years will always have to be disclosed on request.
For sentences under 4 years, the Act provides a defined rehabilitation period for each offence. If the offender does not reoffend within the rehabilitation period, they become a rehabilitated person and their conviction becomes spent – they can lawfully decline to disclose it.
Once a conviction is spent, the law treats the offender as if the offence had never been committed in the first place.
Rehabilitation Periods
The Rehabilitation Act contains detailed provisions as to the relevant rehabilitation periods and various exceptions which can be researched as the issue arises. The principal rehabilitation periods are:
Rehabilitation Periods
The Act also provides timescales for other community sentences:
Exemptions
Move on to the next slide when you are ready.
Knowledge
The duty to make a fair presentation depends on what kind of entity the policyholder is. Click the brains below to learn more.
Business policyholder company
Business policyholder individual
The duty to make a fair presentation extends to material facts which the policyholder "knows or ought to know" or those that are known to those repsonsible for the policyholder's insurance.
Where the policyholder is not an individual (ie, a business legal entity), the duty is to disclose facts which are: "known to one or more of the individuals who are (a) part of the policyholder's senior management, or (b) responsible for the policyholder's insurance."
Move on to the next slide when you are ready.
Information That Does Not Need to be Disclosed
There are some limited circumstances in which a policyholder does not need to disclose facts. Click on the images to learn more.
The insurer ought to know it – click
It diminishes the risk
The insurer knows it
The insurer is presumed to know it
It is something to which the insurer waives information
Information That Does Not Need to be Disclosed
There are some limited circumstances in which a policyholder does not need to disclose facts.
"It is something to which the insurer waives information."
There are two ways in which insurers can waive their right to disclosure of certain facts. Click on the number icons to learn more.
Express waiver – where the insurer asked a limiting question such that the proposer could deduce that the insurer didn't require information that was outside the scope of the question
Implied waiver – where the proposer had submitted information that would prompt a reasonably careful insurer to make further enquiries, but the insurer failed to do so.
Move to the next slide when you are ready.
Examples of Limiting Questions
Here are some examples of limitating questions which would amount to an express waiver.
Asking a proposer to disclose all offences within the last 2 years – insurers waive the right to disclosure of offences more than 2 years ago.
Asking a proposer to disclose convictions relating to offences of dishonesty – insurers waive the right to disclosure of convictions that do not relate to dishonesty but to other things.
Asking a proposer how many insurance claims they have made above £10,000 – insurers waive their right to be told about any claims valued under £10,000.
Asking a proposer if any director has been a director of a dissolved company – this may absolve a director from disclosing information about a company that went into administration but wasn't dissolved.
Young v Royal & Sun Alliance [2019] CSOH 32
This was the first case to be decided under the Insurance Act 2015 that an insurer had not waived its right to disclosure of information. Click on the numbers in order to learn more.
- Proposal prepared by broker
- Full possible answers not seen
- Claimant answered 'no'
- Insurer offered cover with conditions
- "Insured has never been declared bankrupt or insolvent"
- Insurer declined claim for non-disclosure
- Claimant argued insurer had waived their rights
- Insured needed to show waiver fell into one of the two categories
- Insurers did not know about non-disclosure so could not waive rights
Move on to the next slide when you are ready.
Scope for a Remedy
This is one of the most crucial changes in the Insurance Act 2015. Click the images to learn more.
it would have offered cover on different terms
EITHER
OR
The insurer only has a remedy if...
it would have declined to offer cover
If the circumstance is not material (i.e., we would still have offered cover on the same terms), it does not matter that it was not disclosed. This is known as materiality.
IF
Scope for a Remedy
It is therefore vital to have access to the relevant underwriting guide AND to consult underwriters. You need to be able to show exactly what they would have done if they had known the true facts (if necessary, the underwriter will have to give evidence about this). In other words you must show that the material non-disclosure or misrepresentation... click images
induced the insurer to enter the contract on the terms they did but they would have imposed different terms if they'd known about the material circumstances – click
induced the insurer to enter the contract when they wouldn't have done so
manned security, installation of fire doors and walls, excluding an element of cover, higher excess, different premium
such as
or
Qualifying Breaches
If you are satisfied that the breach has resulted in the terms of the policy being different/cover being offered when it wouldn't have been, then there has been a qualifying breach and a remedy is available.
There are two types of qualifying breach:
- Those which are deliberate or reckless, and
- the rest (anything that does not fall into that category).
What's the difference?
- Deliberate – the insured knew that it was in breach of the duty of fair presentation
- Reckless – the insured did not care whether they were in breach
Remedies for Qualifying Breaches
Let's take a look at the remedies (consequences) for breaches which are determined to be qualifying, i.e., where the true policy would have been different and/or different cover would have been offered. Click on the notes below to learn more.
The remedy for a reckless or deliberate breach is that the insurer can avoid the contract, refuse all claims, and need not return the premium.
Breach was not deliberate or reckless
Reckless or deliberate breach of duty
If the policy would have had extra terms imposed, or a higher premium charged, there are different rules.
IF...
If the insurer can show that cover would not have been offered at all, they can avoid the contract – click
Move on to the next slide when you are ready.
Proportionate Remedies Under the Insurance Act 2015
Here we will explore 'proportionate remedies'. Click the chevrons to learn more.
For all breaches of the Duty of Fair Presentation that are neither deliberate not reckless
Aim to reflect exactly what underwriters would have done, if there had been a Fair Presentation of the risk, i.e., look at the risk and rating if the full facts had actually been disclosed in the first place
The burden of proof is on the insurer at this point to show that a breach was deliberate or reckless, i.e., by examining evidence in their possession or from a reasonably foreseeable source
Avoidance is still possible here
Examples
What sort of thing do we have in mind when we are talking about deliberate or dishonest?
Signing a proposal form without reading it or completing it, and leaving it for someone else to complete. Incorrect information is filled out, but not corrected. That's clearly an intentional act.
By contrast, let's have a look at an example of when a non-disclosure has been inadvertent or careless.
The customer did not disclose a CCJ on their proposal form because it was ages ago, and they genuinely thought that the insurers would still offer to provide cover.
When is Avoidance a Proportionate Remedy?
Here we will explore 'proportionate remedies'. Click on the coloured shapes to explore the choices made by a policyholder.
Proportionate Remedy
For all other cases where there has not been a fair presentation of the risk, constituting a deliberate or reckless qualifying breach, you should apply a proportionate remedy. Click the number to explore.
If underwriters would have written the policy on different terms, you must apply the policy as if it had contained such terms from the beginning. For example... click here
A commercial proposer for Directors Critical Illness cover inadvertently fails to disclose one of the directors has asthma. This is discovered discovered during an investigation of an unrelated claim for cancer treatment. Cover would have been provided even if the asthma had been disclosed, but asthma claims would be excluded. We can proceed as if policy contained that exclusion, and pay the claim.
Proportionate Remedy
If underwriters would have charged a higher premium instead, you only have to pay a proportionate amount of any claim. For example... click here
The policyholder inadvertently omitted to mention that a painting he owned had recently been judged to be by a famous artist and has quadrupled in value. You charged £1,000 premium but would have charged £1,500 had the policyholder made a fair presentation.
Click here to explore this example. As long as there have been no claims or circumstances which might give rise to a claim, underwriters may give the policyholder the option of paying an additional premium to reinstate full cover.
Proportionate Remedy – Remember
If underwriters would not have acted differently on the basis of a Fair Presentation, i.e.:
- Cover would not have been declined completely
- No additional terms
- No increased premium
Then there is no remedy available – we can do nothing about this. If something is not disclosed, but the risk is still acceptable on the same terms and for no increase in the premium, we have no option but to settle the claim in full (provided the loss is otherwise covered). Move on the next slide when you are ready.
Past, Present, and Future Claims
Having established how we manage present claims, what about past and future ones?
Past, present and future claims in cases of non-deliberate or non-reckless qualifying breaches should all be dealt with in the same way. For example, a non-disclosure which would have doubled the premium, would allow you to pay only 50% of that claim, as well as any further claims that are reported, up until the next renewal date. You could also ask for repayment of 50% of any previous claims (or offset it against the current claim) – this would be a business decision, but we should be mindful of whether we are applying the rules fairly to all.
Summary
We have covered a lot in this module. Click each note for a reminder of the key issues.
Fair presentation of the risk
Disclosure
Knowledge
Be careful!
Proportionality
Remedies
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Business Insurance under theInsurance Act 2015
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The claimant sought cover for his business, via a market proposal prepared by his broker. The proposal required completion of a number of dropdown boxes – the insurer had not seen the full list of possible answers. The claimant had been a director of four businesses that had become insolvent, but the claimant answered ‘no’ to the question about this.
The formula to adjust the amount of payment made is:
In this example, the policyholder was originally charged £1,000 in premium. If they had made a Fair Presentation, we would have charged £1,500. The claim they are making is valued at £4,000.
We will therefore pay £2,666.67 to the policyholder, assuming the claim is otherwise validated and cover is in force.
Knowledge:
- For individuals – policyholder and individuals responsible for their insurance.
- For others – senior management and those responsible for the policyholder's insurance.
Definitely where the policyholder has been reckless about the disclosure of material facts. They have acted as though they don't care whether the information is true or false. No regard for accuracy when completing the proposal, so no return of premium.
A common error that may be made in this scenario is the handler writes
- 'Cancel' the policy, or
- Decline the claim.
Whilst a policy wording may give a contractual right to cancel upon a qualifying breach, the handler has to be extremely careful not to just cancel the policy when avoidance is the proper remedy. Similary if we decline the claim, we implicitly affirm the policy. If we affirm the policy we waive our rights to take action on future instances.
Following a serious fire, insurers declined the claim on grounds of non-disclosure of a material fact. Mr. Young argued that the condition related to his own personal bankruptcy/insolvency, and relied on s 3(5)(e) of the Act to say that insurers had waived their right to consider the other companies of which he had been a director.
The policyholder must make a fair presentation of the risk. This duty requires:
- Policyholders to disclose either(1) every material circumstance they know or ought to know or(2) sufficient information to put a prudent insurer on notice to make further enquiries.
- Policyholders to provide the above information in a manner which would be reasonably clear and accessible to a prudent insurer.
- Material representations to be substantially correct (facts) or in good faith (expectations or beliefs).
There is no need to disclose information the insurer:
- Knows.
- Ought reasonably to know:
- Employee or agent knows it and should have passed it on to underwriters.
- Information readily available to underwriters.
- Is presumed to know.
As you explore the slides, you will see various clickable objects.Hover over them on the image below to learn what function each performs.
---- -- ... --- ...--
---- -- ... --- ...--
After the presentation, the insurer offered cover but with conditions. One of the conditions included that "the insured has never been declared bankrupt or insolvent."
Where the non-disclosure was inadvertent or careless if you can show that underwriters would not have accepted the risk at all based on the true facts, we should consider returning the premium.
The 'duty of fair presentation' test requires policyholders to undertake reasonable searches for information, while also obliging underwriters to play a more proactive role, asking questions as necessary. If alarm bells are not followed up by underwriters, insurers cannot later argue that there has been non-disclosure.
An insurer 'ought to know something' if its employee or agent knows it and should have passed it on to the underwriter, or it is information which is held by the insurer and so is readily available to the underwriter.
There is also a presumption that insurers will have some industry knowledge about the relevant sector (s5(3)(b)).
The Court confirmed that the law on waiver as it had stood prior to the new Acts still stood, with the insured needing to show clearly that the waiver fell into one of the two categories outlined above. Here, the non-disclosure was unconnected to what insurers said after the presentation. In order to waive a remedy, insurers have to be aware of it. As they did not know about the non-disclosure, there could not have been a waiver.
The Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975 provides numerous exclusions to the original Act. In particular, it provides a list professions, offices, employments, and occupations where offences will never be considered spent. An individual will be required by law to list all cautions and convictions, whether spent or not. The rules are complex but broadly they apply to people over the age of 18. Many will be occupations of persons that we insure. Typical occupations include those employed in nursing and healthcare, the legal profession, police, probation service, traffic wardens, social services teachers, anyone in the military, financial services, even taxi drivers.
Always for deliberate or dishonest behaviour – no return of premium.
• Remedies – Avoidance:
- Deliberate or reckless breach, or
- Where the insurer can show on the true facts it would not have accepted the risk even where the breach was not deliberate or reckless.
• Remedies – Proportionate:
- If underwriters would have imposed different terms, the policy is read as including those terms.
- If underwriters would have charged a higher premium, the insurer only has to pay a proportion of any claim.
Discrimination
There are other Acts of Parliament, such as the Equality Act 2010, that limit some of the factors which insurers can take into account when determining the terms upon which to issue a policy (e.g. sex, race, disability).
ND&M ch03 Business Ins under Insurance Act
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Transcript
Business Insurance under theInsurance Act 2015
GO!
help
Learning Objectives
We are going to cover:
Click the headings above to jump to that section,or press on the right hand edge of the screen to start the module.
Assumed Knowledge
This session builds on knowledge from:
EiC Motor Level 1, orEiC Commercial Property Level 1, or EiC Casualty Level 1
Note: You may also find the Fraud Level 1 workbook for your area of claims helpful.
Scope of the Insurance Act 2015
The disclosure provisions in the Insurance Act 2015 apply to non-consumer insurance contracts. (In this module, references to 'the Act' will mean the Insurance Act 2025). A consumer is defined by the Act as, "an individual [who purchases insurance] wholly or mainly for purposes unrelated to the individual's trade, business or profession".
A business is therefore someone who is not a consumer. Where a policy covers a mix of private and business use, it is necessary to consider the main purpose of the insurance. If it is mainly business, the 2015 Act will apply. It has been suggested by the Law Commission that letting a house commercially would be considered a business even if it was not the landlord's primary business.
The Duty of Fair Presentation of the Risk
Section 3 Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.
Business policyholders continue to have a duty of disclosure and not to misrepresent, but the 2015 Act reframes it within a broader duty of fair presentation.
What is a fair presentation?
The test set out in the Marine Insurance Act 1906 is carried through to the 2015 Act – the policyholder still needs to disclose every material circumstance which it knows or ought to know. The nature of the disclosure required is described in Section 3 of the Act. Move on to the next slide when you are ready.
Duty of Disclosure of Material Circumstances
Section 3 (4) A. Every material circumstance which the insured knows or ought to know, or B. Failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
Click the signs to learn more.
If the policyholder fails to meet that test, the 2015 Act then gives them a chance to show that they disclosed enough information to put a prudent underwriter on notice that further information should be requested from the policyholder.
In other words, the test is whether the policyholder gave information which should have set alarm bells ringing for the underwriter.
Balancing Act
However it's not all one way. To balance things a little, the 2015 Act also states that a policyholder cannot get away with 'data dumping'. Information must be presented to underwriters in a way which is clear and accessible.
Click the boxes below to explore in more detail.
fact
belief
is substantially correct
every representation of...
A fair presentation is one in which...
is made in good faith
Move on to the next slide when you are ready.
Which Facts are Material? – Physical
The facts that tend to be material to underwriters fall into two categories, physical and moral, and we will look at Physical Factors first.
Material Facts
We will look at some examples on the following slides.
Have a think about what kinds of fact would be material to a property underwriter, and then to a motor underwriter.
Move on to the next slide when you are ready.
Material Facts – Physical – Property Insurance
For example, the following physical facts will usually be considered material to a property insurer: Click the chevrons to learn more.
Nature, age, construction of the building – hover
Physical condition of the property – hover
Method of heating
Purpose for which the property is being used
Whether the property is occupied
Whether the property is to be extended or redeveloped
Geographical location – hover
Details of any previous damage, eg, subsidence
Specific trade issues – hover
Whether the property is protected by alarms and sprinklers – hover
Material Facts – Physical – Motor Insurance
For example, the following physical facts will usually be considered material to a motor insurer: Click the chevrons to learn more.
Vehicle use – hover
Type of driving licence, and when obtained
Where the vehicle is kept overnight – hover
Whether the vehicle is left hand drive, and has been modified
Material facts – Moral factors
Whereas physical facts relate to the nature of the subject of the insurance (the building, the vehicle etc), moral factors concern the policyholder's character, risk appetite, and their propensity to make claims. Some examples:
Rehabilitation of Offenders Act 1974
The policyholder must disclose all offences that have resulted in a conviction. However, the Rehabilitation of Offenders Act 1974 modifies this obligation. Certain convictions are regarded as spent and therefore need not be disclosed. The Act applies a sliding timescale of when certain offences are spent and no longer have to be disclosed.
However, a sentence of over 4 years (or a public protection sentence) will never be spent. A conviction resulting in a sentence of 4 or more years will always have to be disclosed on request.
For sentences under 4 years, the Act provides a defined rehabilitation period for each offence. If the offender does not reoffend within the rehabilitation period, they become a rehabilitated person and their conviction becomes spent – they can lawfully decline to disclose it.
Once a conviction is spent, the law treats the offender as if the offence had never been committed in the first place.
Rehabilitation Periods
The Rehabilitation Act contains detailed provisions as to the relevant rehabilitation periods and various exceptions which can be researched as the issue arises. The principal rehabilitation periods are:
Rehabilitation Periods
The Act also provides timescales for other community sentences:
Exemptions
Move on to the next slide when you are ready.
Knowledge
The duty to make a fair presentation depends on what kind of entity the policyholder is. Click the brains below to learn more.
Business policyholder company
Business policyholder individual
The duty to make a fair presentation extends to material facts which the policyholder "knows or ought to know" or those that are known to those repsonsible for the policyholder's insurance.
Where the policyholder is not an individual (ie, a business legal entity), the duty is to disclose facts which are: "known to one or more of the individuals who are (a) part of the policyholder's senior management, or (b) responsible for the policyholder's insurance."
Move on to the next slide when you are ready.
Information That Does Not Need to be Disclosed
There are some limited circumstances in which a policyholder does not need to disclose facts. Click on the images to learn more.
The insurer ought to know it – click
It diminishes the risk
The insurer knows it
The insurer is presumed to know it
It is something to which the insurer waives information
Information That Does Not Need to be Disclosed
There are some limited circumstances in which a policyholder does not need to disclose facts.
"It is something to which the insurer waives information."
There are two ways in which insurers can waive their right to disclosure of certain facts. Click on the number icons to learn more.
Express waiver – where the insurer asked a limiting question such that the proposer could deduce that the insurer didn't require information that was outside the scope of the question
Implied waiver – where the proposer had submitted information that would prompt a reasonably careful insurer to make further enquiries, but the insurer failed to do so.
Move to the next slide when you are ready.
Examples of Limiting Questions
Here are some examples of limitating questions which would amount to an express waiver.
Asking a proposer to disclose all offences within the last 2 years – insurers waive the right to disclosure of offences more than 2 years ago.
Asking a proposer to disclose convictions relating to offences of dishonesty – insurers waive the right to disclosure of convictions that do not relate to dishonesty but to other things.
Asking a proposer how many insurance claims they have made above £10,000 – insurers waive their right to be told about any claims valued under £10,000.
Asking a proposer if any director has been a director of a dissolved company – this may absolve a director from disclosing information about a company that went into administration but wasn't dissolved.
Young v Royal & Sun Alliance [2019] CSOH 32
This was the first case to be decided under the Insurance Act 2015 that an insurer had not waived its right to disclosure of information. Click on the numbers in order to learn more.
Move on to the next slide when you are ready.
Scope for a Remedy
This is one of the most crucial changes in the Insurance Act 2015. Click the images to learn more.
it would have offered cover on different terms
EITHER
OR
The insurer only has a remedy if...
it would have declined to offer cover
If the circumstance is not material (i.e., we would still have offered cover on the same terms), it does not matter that it was not disclosed. This is known as materiality.
IF
Scope for a Remedy
It is therefore vital to have access to the relevant underwriting guide AND to consult underwriters. You need to be able to show exactly what they would have done if they had known the true facts (if necessary, the underwriter will have to give evidence about this). In other words you must show that the material non-disclosure or misrepresentation... click images
induced the insurer to enter the contract on the terms they did but they would have imposed different terms if they'd known about the material circumstances – click
induced the insurer to enter the contract when they wouldn't have done so
manned security, installation of fire doors and walls, excluding an element of cover, higher excess, different premium
such as
or
Qualifying Breaches
If you are satisfied that the breach has resulted in the terms of the policy being different/cover being offered when it wouldn't have been, then there has been a qualifying breach and a remedy is available.
There are two types of qualifying breach:
What's the difference?
Remedies for Qualifying Breaches
Let's take a look at the remedies (consequences) for breaches which are determined to be qualifying, i.e., where the true policy would have been different and/or different cover would have been offered. Click on the notes below to learn more.
The remedy for a reckless or deliberate breach is that the insurer can avoid the contract, refuse all claims, and need not return the premium.
Breach was not deliberate or reckless
Reckless or deliberate breach of duty
If the policy would have had extra terms imposed, or a higher premium charged, there are different rules.
IF...
If the insurer can show that cover would not have been offered at all, they can avoid the contract – click
Move on to the next slide when you are ready.
Proportionate Remedies Under the Insurance Act 2015
Here we will explore 'proportionate remedies'. Click the chevrons to learn more.
For all breaches of the Duty of Fair Presentation that are neither deliberate not reckless
Aim to reflect exactly what underwriters would have done, if there had been a Fair Presentation of the risk, i.e., look at the risk and rating if the full facts had actually been disclosed in the first place
The burden of proof is on the insurer at this point to show that a breach was deliberate or reckless, i.e., by examining evidence in their possession or from a reasonably foreseeable source
Avoidance is still possible here
Examples
What sort of thing do we have in mind when we are talking about deliberate or dishonest?
Signing a proposal form without reading it or completing it, and leaving it for someone else to complete. Incorrect information is filled out, but not corrected. That's clearly an intentional act.
By contrast, let's have a look at an example of when a non-disclosure has been inadvertent or careless.
The customer did not disclose a CCJ on their proposal form because it was ages ago, and they genuinely thought that the insurers would still offer to provide cover.
When is Avoidance a Proportionate Remedy?
Here we will explore 'proportionate remedies'. Click on the coloured shapes to explore the choices made by a policyholder.
Proportionate Remedy
For all other cases where there has not been a fair presentation of the risk, constituting a deliberate or reckless qualifying breach, you should apply a proportionate remedy. Click the number to explore.
If underwriters would have written the policy on different terms, you must apply the policy as if it had contained such terms from the beginning. For example... click here
A commercial proposer for Directors Critical Illness cover inadvertently fails to disclose one of the directors has asthma. This is discovered discovered during an investigation of an unrelated claim for cancer treatment. Cover would have been provided even if the asthma had been disclosed, but asthma claims would be excluded. We can proceed as if policy contained that exclusion, and pay the claim.
Proportionate Remedy
If underwriters would have charged a higher premium instead, you only have to pay a proportionate amount of any claim. For example... click here
The policyholder inadvertently omitted to mention that a painting he owned had recently been judged to be by a famous artist and has quadrupled in value. You charged £1,000 premium but would have charged £1,500 had the policyholder made a fair presentation.
Click here to explore this example. As long as there have been no claims or circumstances which might give rise to a claim, underwriters may give the policyholder the option of paying an additional premium to reinstate full cover.
Proportionate Remedy – Remember
If underwriters would not have acted differently on the basis of a Fair Presentation, i.e.:
Then there is no remedy available – we can do nothing about this. If something is not disclosed, but the risk is still acceptable on the same terms and for no increase in the premium, we have no option but to settle the claim in full (provided the loss is otherwise covered). Move on the next slide when you are ready.
Past, Present, and Future Claims
Having established how we manage present claims, what about past and future ones?
Past, present and future claims in cases of non-deliberate or non-reckless qualifying breaches should all be dealt with in the same way. For example, a non-disclosure which would have doubled the premium, would allow you to pay only 50% of that claim, as well as any further claims that are reported, up until the next renewal date. You could also ask for repayment of 50% of any previous claims (or offset it against the current claim) – this would be a business decision, but we should be mindful of whether we are applying the rules fairly to all.
Summary
We have covered a lot in this module. Click each note for a reminder of the key issues.
Fair presentation of the risk
Disclosure
Knowledge
Be careful!
Proportionality
Remedies
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Let's see what you remember!
Business Insurance under theInsurance Act 2015
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The claimant sought cover for his business, via a market proposal prepared by his broker. The proposal required completion of a number of dropdown boxes – the insurer had not seen the full list of possible answers. The claimant had been a director of four businesses that had become insolvent, but the claimant answered ‘no’ to the question about this.
The formula to adjust the amount of payment made is:
In this example, the policyholder was originally charged £1,000 in premium. If they had made a Fair Presentation, we would have charged £1,500. The claim they are making is valued at £4,000.
We will therefore pay £2,666.67 to the policyholder, assuming the claim is otherwise validated and cover is in force.
Knowledge:
Definitely where the policyholder has been reckless about the disclosure of material facts. They have acted as though they don't care whether the information is true or false. No regard for accuracy when completing the proposal, so no return of premium.
A common error that may be made in this scenario is the handler writes
- 'Cancel' the policy, or
- Decline the claim.
Whilst a policy wording may give a contractual right to cancel upon a qualifying breach, the handler has to be extremely careful not to just cancel the policy when avoidance is the proper remedy. Similary if we decline the claim, we implicitly affirm the policy. If we affirm the policy we waive our rights to take action on future instances.Following a serious fire, insurers declined the claim on grounds of non-disclosure of a material fact. Mr. Young argued that the condition related to his own personal bankruptcy/insolvency, and relied on s 3(5)(e) of the Act to say that insurers had waived their right to consider the other companies of which he had been a director.
The policyholder must make a fair presentation of the risk. This duty requires:
There is no need to disclose information the insurer:
As you explore the slides, you will see various clickable objects.Hover over them on the image below to learn what function each performs.
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After the presentation, the insurer offered cover but with conditions. One of the conditions included that "the insured has never been declared bankrupt or insolvent."
Where the non-disclosure was inadvertent or careless if you can show that underwriters would not have accepted the risk at all based on the true facts, we should consider returning the premium.
The 'duty of fair presentation' test requires policyholders to undertake reasonable searches for information, while also obliging underwriters to play a more proactive role, asking questions as necessary. If alarm bells are not followed up by underwriters, insurers cannot later argue that there has been non-disclosure.
An insurer 'ought to know something' if its employee or agent knows it and should have passed it on to the underwriter, or it is information which is held by the insurer and so is readily available to the underwriter. There is also a presumption that insurers will have some industry knowledge about the relevant sector (s5(3)(b)).
The Court confirmed that the law on waiver as it had stood prior to the new Acts still stood, with the insured needing to show clearly that the waiver fell into one of the two categories outlined above. Here, the non-disclosure was unconnected to what insurers said after the presentation. In order to waive a remedy, insurers have to be aware of it. As they did not know about the non-disclosure, there could not have been a waiver.
The Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975 provides numerous exclusions to the original Act. In particular, it provides a list professions, offices, employments, and occupations where offences will never be considered spent. An individual will be required by law to list all cautions and convictions, whether spent or not. The rules are complex but broadly they apply to people over the age of 18. Many will be occupations of persons that we insure. Typical occupations include those employed in nursing and healthcare, the legal profession, police, probation service, traffic wardens, social services teachers, anyone in the military, financial services, even taxi drivers.
Always for deliberate or dishonest behaviour – no return of premium.
• Remedies – Avoidance:
• Remedies – Proportionate:
Discrimination
There are other Acts of Parliament, such as the Equality Act 2010, that limit some of the factors which insurers can take into account when determining the terms upon which to issue a policy (e.g. sex, race, disability).