The Insurance Act 2015 heralds the long-awaited reform of insurance contract law. It represents a number of significant changes to the rights and remedies of insurers and policyholders and impact on the role and duties of commercial brokers. In this article we consider changes to the Insured’s disclosure obligations at a pre-contract stage.
Previously, an insured’s duty stemmed from the principle of utmost good faith and in real terms required an insured to disclose every circumstance they knew, or ought to have known would be material to the risk. This duty was wide-ranging and placed the onus on the insured and their broker.
The duty has now changed to one of ‘fair presentation’ and places different obligations upon the insurer and insured. Now the insured must disclose either:
1. ‘every material circumstance’ which the insured knows or ought to know. An insured ‘ought to know’ matters which would be revealed by a reasonable search of available information including information held within the organisation or by a broker, matters known to any individual (such as a broker); or
2. ‘sufficient information’ to put a prudent insurer on notice that it should make further enquiries in relation to material circumstances.
The Act also places an obligation upon insureds to present material circumstances in a way that is ‘reasonably clear and accessible’. This is designed to discourage ‘data-dumping’ in favour of a more practical and thoughtful approach to presenting information.
The insured will be required to carry out reasonable searches for information. As with any concept of reasonableness, it will to some degree vary from case to case. It will be prudent for organisations to put in place appropriate record-keeping and ensure that senior staff are sufficiently involved in the process of buying insurance as their knowledge is deemed to be the knowledge of the insured. Advice should be taken as to how far that duty stretches to avoid wasting valuable resources or putting the insured at risk of material non-disclosure arguments.
The good news in that it is no longer one-way traffic. A prudent insurer is required to make enquiries when they are on notice of the possibility of material circumstances. A key aim of the changes is to redress the balance in favour of the insured and in circumstances where an insurer seeks to decline cover on grounds of non-disclosure, there is now fresh scope to argue that, if the information was that important to an insurer, they should have asked further questions.
Whilst the Act does not place duties on the brokers themselves, the role of a broker in assisting with disclosure has become more complex. Documents within a broker’s possession or information ‘within its knowledge’ is disclosable by the insured. Furthermore, insureds will require guidance as to the practical impact of the Act. Therefore there is a greater need than ever for brokers to work closely with an insured in presenting risk.
An insured can now satisfy its disclosure obligations in circumstances where it actually falls short of full disclosure so long as sufficient information is given. The insurer will need to take a more pro-active approach to reviewing disclosure and develop appropriate checks and procedures to identify what questions should be asked.
For all parties, the changes should provide for a more commercial, common-sense approach to disclosure. However, the relevant knowledge of both insurer and insured, as well as concepts such as the ‘reasonable search’, are likely to provide a fertile battleground in cases where cover is called into question.