Insurance law is an area which has remained unchanged for over
100 years. The Insurance Act 2015 (the Act) will have a significant
impact on non-consumer insurance contracts post 12 August 2016.
The old law
The insured is under the duty of utmost good faith to disclose
all facts material to the risk insured.
Every material circumstance would influence the insurer in
deciding to take the risk and when quantifying the premium.
The smallest adjustment to the premium constituted
A material non-disclosure (even if innocent) which increased
the risk gave the insurer the remedy to avoid the policy.
The new law under the Insurance Act 2015
The duty of "fair
presentation" – 2 part test
First limb – duty to disclose
information which the insured knows or ought to know having
conducted a reasonable search
Whilst the duty to disclose remains, the Act requires the
insured to make a fair presentation of risk by disclosing all
relevant circumstances which the insured knows or ought to
In determining what the insured knows, it will be key to assess
the knowledge of senior management and/or decision-makers as well
as the individuals putting the insurance in place (excluding
The insurer is deemed to know what "should reasonably have
been revealed by a reasonable search". The extent of what is
deemed "reasonable" is objective and depends on the
nature, size and complexity of the business.
It is worth noting that, if as a consequence of a reasonable
search made in the context of the ordinary course of business, a
non-managerial/decision-maker is found to hold information, this
too should be revealed.
If the first limb is not satisfied, the
insured's duty to disclose may be fulfilled by satisfying the
Second limb - duty to put the
insurer on notice to make further enquiries
The insured may satisfy its duty if it discloses sufficient
information to put a prudent underwriter on notice that it needs to
make further enquiries for the purpose of revealing those material
The duty requires the disclosure to be reasonably clear and
Knowledge of insured and
An insurer's knowledge is now
presumed if information is:
held by the insurer or an agent/employee who ought reasonably
to have passed on the information (i.e. constructive knowledge);
readily available – for example, common knowledge or
information which the insurer would be expected to know in the
ordinary course of business.
The insurer's remedy of avoidance of the policy for a
breach of the duty of good faith is now abolished
unless there has been a breach of the duty of fair
presentation and the insurer can show the breach was
deliberate or reckless, in which case it
may avoid the contract and need not return the premium.
Otherwise, if there has been a breach of the duty of fair
presentation that is not deliberate or reckless, the
remedy will depend upon what the insurer would have done had the
risk been fairly presented.
Using a subjective standard, the insurer may prove that:
it would not have insured at all, in which case it may then
avoid the contract (however it must return the premium); or
it would have insured on different terms, then the
insurance is treated as being on those terms; and if a different
premium would have been payable, the amount paid out is reduced
Despite there no longer being a remedy for the breach of the
duty of utmost good faith, insurance contracts will still be
founded on utmost good faith.
Owing to the insurer's positive duty of inquiry, the
insured's burden of disclosure will increase, particularly in
circumstances where a reasonable search leads to information being
disclosed by third parties (i.e. who are not employees or agents of
Insurers are likely to store more data on the insured from the
Companies may form their own protocols in response to the
revised disclosure duties.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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