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Duty of fair presentation


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The Insurance Act 2015: What is your duty of fair presentation?

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Duty of fair presentation

  1. 1. Aon UK Limited Insurance Act 2015 - Fair Presentation The Insurance Act 2015: What is the duty of fair presentation? 1 The Insurance Act 2015: What is your duty of fair presentation? In order to meet the duty of fair presentation, you must:  Disclose every material circumstance that you know or ought to know, or sufficient information to put the insurer on notice that it needs to ask further questions to reveal those material circumstances; and  Make disclosure in a manner which would be reasonably clear and accessible to a prudent insurer; and  Make sure that every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith. How does the new ‘duty to provide sufficient information’ work? This is not a new duty in its own right. It forms part of the duty to disclose all material circumstances and will only apply when you have tried but failed to provide all material circumstances, and can show that you have given the insurer a good base from which to ask further questions. Has the definition of ‘material circumstances’ changed? No, the definition of material circumstance stays the same as under the current law i.e. a circumstance (or representation) is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms. Whose knowledge counts as the ‘insured’s knowledge’? If you are an insured who is an individual this will be taken to include your own knowledge and the knowledge of individuals responsible for your insurance. If you are an insured who is not an individual (such as a company) this will be taken as what is known to your senior management and the individuals responsible for your insurance. The Act describes senior management as “those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.” It is intended to cover the highest level of management of an entity (for example, the board), but will vary as there is no “one size fits all”. It will depend on your organisation’s structure and management arrangements. The Act describes individuals responsible for the insured’s insurance as “as individuals who participate on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity)”. This definition is intended to catch all those individuals who, for example, participate in the insurance buying process, collate information about the risk, and negotiate with insurers. These people could be very junior and it isn’t limited to people within your organisation, so would include your broker. However, you won’t be taken to know confidential information your broker has obtained from another client or third party which is unconnected with your insurance contract.
  2. 2. Aon UK Limited Insurancer Act 2015 - Fair Presentation The Insurance Act 2015: What is the duty of fair presentation? 2 What counts as ‘what the insured ought to know’? The Act states that you ought to know what would have been revealed by a reasonable search of any information which is available to you (whether the search is conducted by making enquiries or by any other means). This includes information held within your organisation (which can include persons in addition to senior management and insurance procurement staff, if the knowledge they hold is relevant to the insured risk) and by ‘any other person’. ‘Any other person’ is intended to be interpreted flexibly so is uncertain. It looks likely to include at least your agents, individuals and entities that will have cover under your contract of insurance, outside advisers (including lawyers, accountants, brokers and consultants), suppliers/service providers, and outsourced service partners. What will be regarded as a reasonable search will be judged objectively (i.e. compared to other businesses similar to yours) and will vary based on the type, size, and complexity of your business. The larger your business, the more thorough your search will need to be. If you are only an individual or small business you will still need to review your records, speak with staff, and consult outside advisers where relevant. The precise meaning of a reasonable search is currently uncertain. As such, make sure you discuss the extent of your reasonable search with your broker. You should also document the search you have carried out. What makes a presentation ‘clear and accessible’? Information must be provided to the insurer in an ordered, digestible way. This requirement is designed to prevent, on the one hand, overly brief or cryptic submissions and, on the other hand, “data dumping” where the insurer is presented with an overwhelming amount of undigested information without any explanation or signposting as to what is material. If the presentation isn’t clear and accessible it could amount to a breach of the duty of fair presentation in its own right. What happens if I don’t provide a fair presentation of the risk? Where deliberate or reckless failure to provide a fair presentation has occurred, insurers can avoid the insurance from the date it was entered into or varied. The insurer may retain any premiums paid. A failure will be considered deliberate if it was known that a fair presentation was not being made. It will have been reckless if there was no care as to whether or not the duty was breached. Unless the specific terms of your insurance contract put you in a better position than under the Act, for any other breach (for example, an innocent breach), the remedy will reflect what the insurer would have done if the insured had made a fair presentation of the risk:  If the insurer would not have written the insurance on any terms, then the insurer may avoid the insurance contract, or variation, and refuse all claims. The insurer must return the premium.  If the insurer would have written the insurance but on different terms (other than premium), the insurance contract will be treated as if those different terms apply  If the insurer would have charged a higher premium, the insurer may proportionally reduce any claim payment e.g. if the premium charged is 75% of what the insurer would have charged, the claim payment will be adjusted to 75% of the total claim. For more detailed guidance on any of these points, please speak to your usual Aon contact. Copyright Aon UK Limited. All rights reserved. Aon UK Limited is authorised and regulated by the Financial Conduct Authority.