The requirement of "Fair Presentation of Risk" under the Insurance Act 2015 clarifies the obligations of both parties entering into an insurance contract.
The "Fair Presentation of Risk" under The Insurance Act 2015 marks a significant evolution in insurance law, shifting the landscape towards greater clarity and fairness between insurers and insured parties. This concept is rooted in the principle of utmost good faith but is designed to address the perceived imbalances and ambiguities in the previous legal framework.
Fair Presentation of the Risk Definition
Fair Presentation of Risk is defined by the Act as an insured's duty to disclose every material circumstance which the insured knows or ought to know, or failing that, to disclose sufficient information that would put a prudent insurer on notice to ask further questions.
This provision directly addresses the issues that arose under the previous legal framework, where the duty of disclosure was not clearly defined, leading to numerous disputes, and often unfairly penalising the insured for non-disclosure or misrepresentation.
Material Circumstance
A material circumstance is any piece of information that would influence the judgment of a prudent insurer in determining whether to underwrite a particular risk and, if so, on what terms. This can include past claims history, known risks associated with the insured's activities, and any other factors relevant to the likelihood of a claim being made.
The Insured's Knowledge
The Insurance Act 2015 specifies that the knowledge of the insured encompasses what is known to the individuals who are part of the insured's organisation and responsible for its insurance, as well as what should reasonably have been discovered by them through a reasonable search. This includes information held within different sections of a large organisation or by external consultants engaged in the insurance procurement process.
Reasonable Search
A reasonable search is an expectation under the Act, requiring the insured to make an effort to uncover and disclose material circumstances. This might involve reviewing documents, consulting with relevant departments or external parties, and compiling information held by brokers or agents. The scope of what constitutes a reasonable search can vary depending on the size and complexity of the insured's operations.
Disclosure in a Clear and Accessible Manner
The Act also emphasises the manner of disclosure. Information must be presented in a clear and accessible way, avoiding the submission of vast amounts of data without context or direction. This requirement aims to prevent "data dumping," where an insured provides excessive documentation to the insurer without highlighting the relevant information, making it difficult for the insurer to assess the risk accurately.
The Role of the Insurer
Upon receiving a fair presentation of risk, insurers are expected to undertake their due diligence. If the presentation raises questions or suggests that additional information is needed to assess the risk accurately, the insurer is obliged to make further inquiries. This collaborative approach encourages dialogue between the insured and insurer, facilitating a more accurate risk assessment and underwriting process.
Consequences of Failing to Make a Fair Presentation
If the insured fails to make a fair presentation of risk, the Act provides insurers with a range of proportionate remedies based on the nature of the failure. If the failure was deliberate or reckless, the insurer may void the contract, refuse all claims, and retain the premiums paid. For inadvertent failures, the remedies depend on what the insurer would have done had a fair presentation been made, potentially resulting in adjusted terms or reduced claims.
Impact of the Fair Presentation of Risk
This provision has significantly impacted insurance practices, encouraging greater transparency and communication between insureds and insurers. It has shifted the focus from punitive measures for non-disclosure to fostering a more understanding and equitable approach to information sharing and risk assessment.
The fair presentation of risk under the Insurance Act 2015 represents a balanced approach to disclosure in insurance contracts, aiming to eliminate the harsh outcomes that previously resulted from technical breaches of disclosure duties.
Practical Application and Case Law
While specific case law evolving from the Insurance Act 2015 continues to develop, the Act's provisions on fair presentation of risk have already influenced how disputes between insurers and policyholders are approached. Courts are likely to consider the nature of the information withheld or misrepresented, the conduct of the insured in making the disclosure, and whether the insurer would have accepted the risk on different terms had a fair presentation been made.
The requirement for a reasonable search imposes a proactive duty on businesses and organisations to gather relevant information before seeking insurance. This might involve reviewing internal records, consulting with different departments, and considering any external factors that could affect the risk profile.
About the author
Simon Taylor is a respected senior industry professional and a Chartered Insurance Broker with over 20 years’ of experience in the commercial insurance sector as an underwriter, broker and director.