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Duty of Disclosure

Your legal duty when applying for an insurance policy (and when making alterations to it)

The Insurance Act 2015 sets out your obligations (as a buyer of commercial insurance), to disclose information before entering into (or varying) a contract of insurance. This is referred to as your duty to make a Fair Presentation of Risk.

It requires that when you seek insurance, you volunteer and disclose all material information that is known by you (or ought to be known by you), which a prudent insurer would want to know when it is deciding whether to offer insurance cover and, if so, on what terms and premium.

You need to ensure that matters of fact are correct or substantially correct, whilst statements of expectation or belief are made in good faith.

The duty of fair presentation is not limited to only answering the questions asked of you.

If facts or matters could be relevant to, or impact on, the insurer’s decision-making process in any way when it is assessing the risk for which cover is sought, they should be disclosed to the insurer. If in doubt, you should tell us.

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What is material will depend upon the type of insurance you are seeking. However, you should consider the following:

  • Special or unusual facts relating to your risk.
  • Features that increase the likelihood of a claim happening or the severity of loss.
  • Any particular concerns which led you to seek insurance.

It is impossible to provide an exhaustive list of what is material, but examples include:

  • Extraordinary additional business activities
  • Solvency issues
  • A health and safety or other prosecution
  • Hazardous processes, materials, machinery or working conditions
  • Unusual contractual obligations
  • Security concerns
  • Potential claims
  • Work activities outside the UK

What you know or ought to know includes circumstances that you could uncover by making a reasonable search of information available to you or by making reasonable enquiries of others. This includes:

  • Information known to your senior management team, i.e. those individuals who play a significant role in the making of decisions about how your business is managed or organised; and
  • Information known to anyone within your business responsible for obtaining insurance; and
  • Information that would be revealed by making enquiries of others who might hold relevant information, both those within and outside your business, e.g. site managers, agents etc.

Knowledge encompasses both actual knowledge and matters that are suspected and would have been known had further enquiries been made. You will need procedures in place to ensure that material information is routinely reported to the person tasked with obtaining insurance.

If you fail to make a Fair Presentation of the Risk, insurers are entitled to apply a remedy, which will differ depending on the circumstances. It could result in your policy being made void so that no claims are paid; or the terms of your policy could be amended, claims payments could be reduced, or you could be asked to pay an increased premium.