The Importance of ‘Duty of Disclosure or Fair Presentation'

When entering into an insurance contract and declaring information, it is important to understand that you have a heightened duty of disclosure to insurers at renewal.

Consequently, when renewing a policy, you will once again have a duty to declare any changes to the risk or new material facts that have come about over the policy period. If no such declarations are made, insurers will assume that all facts remain unchanged; this could leave you open to issues with cover when claims arise, should something come to light that has not been declared.

Denial of Claim by Insurer

A UK court judgment in November 2021 highlights how the courts will approach a policyholder’s breach of the ‘Duty of Disclosure or Fair Presentation’ for a policy that had been renewed. (https://www.klgates.com/Breach-of-Duty-of-Fair-Presentation-under-the-Insurance-Act-2015-Court-Finds-Insurer-was-Entitled-to-Avoid-Policy-12-2-2021).

In January 2020, the policyholder’s property flooded causing significant damage and the policyholder made a claim under their insurance policy;- however, the insurer denied the claim on the basis that the policyholder had failed to disclose one of its company director’s was the subject of criminal charges at the time of renewal of the policy.

The court considered the following key issues:

• Was the fact that the company director was charged with criminal charges a material circumstance for the purpose of the ‘Duty of Disclosure or Fair Presentation’?
• If it was, and if it had been adequately disclosed, would the insurer have agreed to insure the policyholder under the renewed policy?

The court held that the criminal charges did constitute a material circumstance and, accordingly, should have been disclosed upon the renewal of the policy. The trial judge was satisfied, on the evidence, that the insurer would have declined to insure the policyholder if the material fact was disclosed to them. The court found the insurer was entitled to avoid the policy due to a breach of ‘Duty of Fair Presentation'.

This case reinforces the necessity for policyholders to properly disclose information that is material to the risk. Such information is anything which is relevant and important for an insurer to assess risk and decide whether or not to provide cover. This includes any criminal charges and convictions of your organisation, its directors or employees; regulatory investigations or enforcement/health and safety investigations and prosecutions.

Key Points to Remember with Duty of Disclosure or Fair Presentation

Insurance contracts are based on the duty of utmost good faith and the pre-contractual duty of disclosure this imposes. This requires an insured to disclose to the insurer all material facts affecting the risk before the insurer agrees to insure. A fact is “material” if it would influence a prudent insurer’s judgment whether to insure the risk at all, the premium to charge, or the terms on which to insure. If the insured fails to disclose a material fact and this induces the insurer to enter into the insurance contract, the insurer can subsequently avoid the contract ab initio (i.e., treat the insurance contract as having never existed). As such a material non-disclosure has serious consequences.

• It is essential when applying for insurance to disclose every material fact which the insured knows or ought to know, as failure to comply could result in cancellation of the cover or no claims payments being made.
• You are legally required to provide an accurate picture of the risk by disclosing and explaining all information and circumstances relevant to the risk you want to cover.
• It is important to read through documents provided at both renewal and when you are a new customer, thoroughly, to ensure that the material facts you have provided are up to date.
• When renewing a policy, you will once again have to declare any changes to the risk or new material facts (your duty of disclosure) that have come about over the policy period. Again, failure to comply could result in cancellation of the cover or no claims payments being made, should something be discovered that has not been declared.

When providing information or completing a proposal form or otherwise confirming any information to your insurer or broker, you should take care to ensure that the details provided are complete and accurate. Even when a proposal form is used, you should note that your duty to make a disclosure is not confined to answering the specific questions listed in the form and/or asked by a broker or your insurer and that all material circumstances should be disclosed to your insurer, regardless.

If you are in doubt or are unsure whether your insurer needs particular information, please do not hesitate to contact our Howden brokers and we will be happy to advise you.