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Duty of disclosure: How much do insurers need to know about your business?
Insurance is designed to protect what matters most, your employees, your assets, and the continuity of your operations. But protection is only as strong as the information it's built on.
Whether you're insuring a business, a property, or a professional service, the responsibility to disclose accurate and complete details lies with you. You may have a policy that promises to cover unexpected losses, but have you ensured that your insurer truly understands the nature and scope of what you’re asking them to protect?
Without full disclosure, even the most comprehensive cover can unravel when it’s needed most.
Why disclosure matters
Insurance is a contract based on trust. Disclosures are essential for a proper business risk assessment and help insurers to decide if they do have the risk appetite to offer the necessary scope of coverage and if so, at what terms.
If the disclosed information is incomplete, misleading, or inaccurate, the entire foundation of your policy is compromised.
In legal terms, this is known as the duty of disclosure. It’s not just a recommendation, it’s a requirement. Failure to comply can result in:
- Claim rejection: Your insurer may refuse to pay out if they discover undisclosed information during a claim investigation. This is one of the most common causes of insurance claim denial.
- Policy cancellation: Inaccurate or missing details can lead to your policy being voided, leaving you uninsured.
- Difficulty securing future coverage: A cancelled or voided policy can make other insurers hesitant to offer terms.
- Higher premiums: Once discrepancies are discovered, your future premiums may increase to commensurate with the risk assumed by the insurers. This is no excuse for not providing disclosure to ensure you’ve a valid policy.
- Legal liability: In some jurisdictions, knowingly withholding material facts may expose you to legal action for misrepresentation or breach of contract
- Reduced scope of cover: Even if the policy isn’t cancelled, insurers may impose exclusions or reduce coverage limits retroactively.
Failing to disclose complete and accurate business information isn’t just an oversight; it’s a risk. And risks that stem from under-preparedness often lead straight to being an under-insured business.
Lets take a look at one such case that happened back in 1993.
The case of a Crane Lessor vs an Insurer
- The companies involved
- Rental with a secret side letter
- The insurance & the accident
- The unraveling
- The court's verdict
- The company that owns and leases a crane: let's call him Timothy
- The company that rented a crane from Timothy: let's call him Shane
- The insurer who provided an insurance policy to Timothy: let's call her Amanda
Timothy, the owner of a crane, had leased it to Shane under a standard rental agreement. Like most rental contracts, Shane was supposed to be responsible for repairs, maintenance, and insurance. These terms typically shift operational risk to the renter.
However, Timothy had issued a separate “side letter” to Shane that reversed these responsibilities. Under this private arrangement, Timothy agreed to take on all repairs and maintenance. This side letter, which fundamentally changed who held the risk for the crane's safety, was not disclosed to Amanda.
Timothy bought an insurance policy from Amanda to cover the crane. When assessing the risk, Amanda would have assumed - based on the standard rental agreement - that the renter (Shane) was responsible for looking after the crane. This makes the risk look better, because the insurer knows if something happens, they can potentially recover their costs from the responsible renter. Amanda issued a policy to Timothy based on the assumption that Shane bore the risk.
During the policy period, the crane was damaged, and Amanda paid out the claim and exercised its subrogation rights to initiate legal proceedings against Shane.
After paying the claim, Amanda exercised its right of subrogation—the right to step into their client's shoes and sue the party responsible for the loss to recover the money they paid out. They started legal proceedings against the renter, Shane.
It was during this lawsuit that the secret side letter was discovered. Amanda realized that Shane was not responsible for repairs at all; their own client, Timothy, had secretly agreed to take on that responsibility. Their subrogation action against Shane was now worthless.
Amanda sued Timothy to void the policy, and the court agreed. Here's why:
- The side letter was a material fact. It completely changed the insurer's understanding of the risk and, crucially, it destroyed their ability to recover their losses from the renter.
- By not disclosing the side letter, Timothy had hidden the true nature of the risk.
- As a result, Amanda was entitled to avoid the policy, meaning they could act as if it never existed and demand that Timothy return the claim money they had paid.
Best practices for insurance disclosure
- Keep records accurate and current
Your insurer relies on financial and operational data to assess risk. Ensure figures like turnover, payroll, and asset values are up to date and backed by documentation. This forms the foundation of your coverage.
- Disclose all material facts
Any detail (whether favourable or not) that could influence your insurer’s decision to underwrite the risk and if so, on what terms and at what premium will need to be disclosed. This includes information such as business activities, claims history, or use of hazardous materials. Omissions, even unintentional, can void your policy.
- Report changes immediately
Don’t wait for renewal to update your insurer. Notify them promptly about relocations, new hires, equipment purchases, new business activities or service expansions. Timely updates help maintain proper coverage.
- Review before renewal
Each year, re-assess your disclosures to reflect current operations. Businesses evolve, and outdated information can lead to under-insurance or claim disputes. These policy renewal tips help to ensure that your coverage stays relevant.
- Understand policy requirements
Different policies demand different disclosures. Property, cyber, and liability insurance each have unique criteria. Know what’s required and tailor your information accordingly.
- Educate your team
Ensure staff involved in finance, HR, or operations understand what needs to be disclosed and when. Internal awareness reduces errors and strengthens compliance.
Feeling confused? Engage an expert to help you
Engaging with an insurance specialist can significantly reduce the risk of under-disclosure. Insurance brokers are trained to identify the nuances of your operations that may not be captured in standard application forms or comparison platforms.
Through direct consultation, a broker asks you the right questions, interpret complex risk factors, and ensure that all material information is accurately presented to the insurer.
This not only strengthens the integrity of your policy but also positions your business for faster claims processing and more favourable terms. A broker acts as a strategic intermediary, bridging the gap between your business and the insurer to ensure nothing critical is overlooked.
