In our previous articles, we have explored the changes to the duty of fair presentation owed by policyholders to insurers under the Insurance Act 2015.
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In this fourth part, Matthew Brown, a solicitor within Shoosmiths' insurance team, takes a closer look at the types of information which fall outside the scope of the revised duty on the basis of insurer knowledge.
The duty of fair presentation - a reminder
As explained in our previous articles, the duty of fair presentation replaces the old blanket duty on insureds to disclose all material information to underwriters.
The main aim of the new duty is to create a more balanced regime for insurers and policyholders.
One of the ways in which the Act seeks to reduce the burden placed upon insureds is by widening the scope of the information which insurers are treating as already knowing. Such information does not need to be disclosed by policyholders to achieve a fair presentation of the risk.
Insurers - what do they know?
Under the new regime, policyholders do not have to disclose information based on insurer knowledge in three situations:
- If the insurer knows it;
- If the insurer ought to know it; or
- If the insurer is presumed to know it.
An insurer is now treated as knowing something if it is known to 'one or more of the individuals who participate on behalf of the insurer in the decision whether to take the risk'.
As such, the principal person whose knowledge is relevant is the individual underwriter responsible for writing the risk. However, the Act makes clear that it does not matter whether that person is an employee or an agent of the insurer or writes the risk in any other capacity - the insurer will still be treated as having that person's knowledge.
An insurer cannot get around having knowledge by deliberately turning a blind-eye. In those circumstances, the insurer will still be treated as having the knowledge they have sought to avoid.
Information an insurer 'ought to know'
Insurers are also treated as knowing things the Act says they 'ought to' know, which fall into two categories:
- Information which ought to have been passed onto the individual(s) writing the risk by another employee or agent of the insurer; and
- Information held by the insurer which is 'readily available' to the individual(s) writing the risk.
It remains to be seen how the courts will interpret these provisions, and in particular which individuals will be seen as having a duty to pass information onto underwriters and how easily accessible information will need to be in order to be treated as 'readily available'.
It is not clear, for example, whether underwriters will be expected to have carried out electronic searches of claims files and the like when deciding upon the terms of cover.
Information an insurer is 'presumed to know'
Insurers are further 'presumed' to know about certain matters. Again, there are two categories of relevant information:
- Information which is common knowledge; and
- Information which an insurer offering insurance of that class to insureds in that field would reasonably be expected to know in the ordinary course of business.
This closely resembles the position before the Act came into force, although what is not clear from the wording of the Act is to what extent insurers are expected to proactively make enquiries about potentially relevant matters.
Conclusion - policyholders should avoid relying upon insurer knowledge
At face value, the new regime appears to allocate a slightly broader scope of knowledge to insurers. This should work in policyholders' favour and may give them the opportunity to raise additional arguments where insurers seek to take policy positions based on allegedly unfair presentations of risk.
However, there remains a large amount of uncertainty over the proper interpretation of the new provisions, particularly until they receive attention from the courts.
As a result, our recommended rule of thumb for policyholders is to work on the basis that the insurer doesn't know anything when presenting the risk.
In broad terms, our suggested steps to success are as follows:
- Liaise with insurers at an early stage to establish an agreed list of what they know and where there are gaps in their knowledge. Make full use of brokers when doing this.
- Never assume that insurers have any particular knowledge, particularly where more than one set of underwriters are involved in writing multiple risks or where you are changing insurers.
- As a general rule, if in doubt, disclose.