6.2 The Duty of Fair Presentation — Insurance Act 2015

The Insurance Act 2015 — Scope and Purpose

The Insurance Act 2015 is the most significant reform of English insurance contract law in over a century. It came into force on 12 August 2016 and applies to all insurance contracts entered into (or varied) after that date. Its reforms on disclosure and remedies apply to non-consumer (commercial) insurance contracts; consumer insurance is dealt with separately by the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), which the 2015 Act leaves largely untouched (see section 6.4).

The 2015 Act replaced the old Marine Insurance Act 1906 duty of disclosure for commercial insureds with a modernised, more proportionate regime. The key provisions are in section 3 (the duty of fair presentation), section 4 (warranties — outside our scope here), section 7 (circumstances that need not be disclosed), and section 8 (remedies for qualifying breach — see section 6.4).

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Section 3 — The Duty of Fair Presentation of the Risk

Section 3(1) imposes on the insured a duty to make a fair presentation of the risk to the insurer. Section 3(3) sets out what that means in practice. The presentation must satisfy three cumulative requirements:

The second requirement is one of the 2015 Act's innovations. Under the old law, an insured could in theory discharge the duty by dumping a large volume of documents on the insurer and leaving the underwriter to find the material points. Under section 3(3)(b), that is no longer enough: the insured must actively highlight the material or unusual matters so that a reasonably careful underwriter does not have to hunt for them.

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What the Insured Knows or Ought to Know — Section 3(4)

The duty is not limited to what the insured actually has in mind. Section 3(4) extends it to what the insured ought to know. For a commercial insured, this includes:

• what is known to the individuals responsible for the insured's insurance (for example, the risk manager or finance director);
• what is known to the insured's agent (such as a broker acting on the insured's behalf in the placement);
• what the insured ought to know following a reasonable search of information available to the business.

The reasonable search duty is significant. The Act does not expect the insured to turn the company upside down, but it does expect a proportionate effort to gather material information from across the business — for example, asking regional managers about prior losses at their sites, or checking claims records before presenting the risk. What is 'reasonable' depends on the size and sophistication of the insured and the nature of the risk.

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Materiality — The Prudent Insurer Test Preserved

Section 3(2) preserves the established prudent insurer test for materiality. A circumstance is material if it would influence the judgment of a prudent insurer in deciding whether to take the risk and, if so, on what terms. Examples of material circumstances include:

• prior claims history and losses (including near-misses that did not produce claims);
• unusual features of the risk (a factory storing hazardous chemicals, a property in a flood zone);
• previous refusals of cover or imposed restrictions by other insurers;
• criminal convictions or regulatory investigations affecting the insured or key officers;
• the existence of other insurance covering the same risk.

The test is objective and focuses on the hypothetical prudent insurer, not the actual underwriter who saw the presentation. A fact can be material even if the actual underwriter would have quoted the same terms.

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Section 7 — Circumstances That Need Not Be Disclosed

Section 7 of the 2015 Act sets out the circumstances that the insured need not disclose. These fall into four categories:

1. Common knowledge. Circumstances that are common knowledge and ought to be known in the ordinary course of business to insurers underwriting that class of business. The insured does not have to tell a property insurer that certain inner-city postcodes have higher burglary rates — the insurer is expected to know that.
2. What the insurer knows or ought to know. Circumstances that the insurer knows (actually) or ought to know in the ordinary course of business. If the insurer has insured the same risk in previous years and has the claims file, the insured need not repeat it all.
3. What the insurer waives. Circumstances as to which the insurer waives the insured's duty to disclose. If the insurer tells the insured not to worry about a particular point, the insured does not have to disclose it.
4. Waiver by failure to ask. Circumstances where, in the absence of an enquiry by the insurer, the insured is not required to disclose something that the insurer could reasonably be expected to have asked about if it wanted the information. This is sometimes called waiver by the insurer's failure to ask.

These exceptions are narrower than they may look. The 'common knowledge' exception does not cover facts specific to the insured (such as its own claims history); it covers only general market or industry facts that insurers in that class ought to know. The 'failure to ask' exception does not excuse the insured from volunteering its own material history — it applies to matters the insurer could be expected to enquire about in the ordinary course, not to core underwriting information.

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Clear and Accessible Presentation — A Practical Example

A commercial insured submitting a property and business interruption presentation should not simply attach five years of management accounts, a 200-page risk register, and three incident reports, and leave the underwriter to find the key points. Under section 3(3)(b), the insured should present the material facts — for example, the major losses in the last five years, the unusual supply-chain dependency, and the recently installed sprinkler system — in a clear, signposted way, drawing the underwriter's attention to the points a prudent underwriter would want to consider. A 'data dump' that buries material facts is a breach of the clear-and-accessible requirement even if all the facts are technically there.

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Non-Disclosure vs Misrepresentation Under the 2015 Act

Section 3(3)(a) catches both non-disclosure (failing to mention a material circumstance) and misrepresentation (presenting information that is not substantially accurate as to a material fact). Both are treated as breaches of the same statutory duty of fair presentation, and the remedies in section 8 (see section 6.4) apply to both. This is a change from the old law, which treated disclosure and misrepresentation as separate categories with separate statutory provisions.

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Key Takeaways

• The Insurance Act 2015, in force on 12 August 2016, replaced the old common-law duty of disclosure for commercial insureds with a statutory duty of fair presentation of the risk under section 3.
• A fair presentation must be substantially fair, clear and accessible (with unusual matters highlighted), and made before the contract is concluded.
• The insured must disclose every material circumstance it knows or ought to know, including what would be revealed by a reasonable search of the business under section 3(4).
• Materiality follows the prudent insurer test: a circumstance is material if it would influence a prudent insurer's decision whether to take the risk and on what terms.
• Section 7 lists four categories that need not be disclosed: common knowledge, what the insurer knows or ought to know, what the insurer waives, and what is waived by the insurer's failure to ask.