Disclosure Requirements under Insurance Contracts Governed by English Law

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If you do not comply with Disclosure Requirements in relation to an Insurance Contract then this may Invalidate the Insurance Policy and/ or prevent a successful claim.

An insurance contract is normally a contract where an insurer agrees to pay money, or provide some form of benefit, such as the reinstatement of property which has been damaged, on the occurrence of a defined event, in return for the payment of an insurance premium. During the last few years, there have been changes to the law that applies to insurance contracts in the United Kingdom, and
two separate principles have developed, relating to consumer insureds, and business insureds.

Consumer insurance is governed by the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA 2012) which came into force on 6 April 2013. CIDRA 2012 provides more clarity to consumers on what information they need to provide to insurers when taking out an insurance policy. Business insurance is governed by the Insurance Act 2015 (the 2015 Act), which came into force on 12 August 2016. The 2015 Act reformed insurance contract law in relation to misrepresentation and non-disclosure, and also in relation to the law of warranties and remedies for fraudulent claims concerning both consumer and business insurance.

The basis of most contracts is caveat emptor, "let the buyer beware", and the burden of risk is on the buyer to find out what it needs to know about the transaction before entering into the contract. However, insurance contracts are based on the legal principle of uberrimae fides, "of the utmost good faith" (section 17, MIA 1906), and the principle and associated obligations are imposed on each party to an insurance contract.

The 2015 Act makes the following significant changes:

1. An insured is under a duty to make a fair presentation and disclosure of the risk to the insurer. This requires disclosure of material circumstances that it knows or ought to know relating to the insurance policy, or to give the insurer sufficient information to put the insurer on notice that it may need to make further enquiries. The duty also requires the insured to ensure that any representations of fact are substantially correct.

2. The insurer's remedy of avoidance is replaced by a range of proportionate remedies. The remedy of avoidance is only available where the breach is deliberate or reckless.

CIDRA 2012 makes the following significant changes:

1. the duty owed by a consumer insured to an insurer in pre-contract negotiations is less onerous, which means that an innocent insured who reasonably and innocently misunderstood what facts might be material to a prudent insurer is not prejudiced. Section 2 removes the duty on consumers when buying or renewing insurance to volunteer information, and replaces this with a duty to take reasonable care not to make a misrepresentation. Generally, representations will be made in response to questions raised by the insurer.

2. the insurerís remedies are more proportionate to the failings of the consumer insured. This means that an insured is not unfairly deprived of all cover in circumstances where, had the insurer known the full facts, it would still have accepted the risk.

Therefore it important for an insured to be aware of the obligations imposed by law and to disclose all information accordingly, otherwise this might risk invalidating the insurance policy.

ABOUT THE AUTHOR: Christian Browne
Christian Browne is Managing Director of Summerfield Browne Solicitors which has offices in London, Birmingham, Oxford, Cambridge, Leicester and Market Harborough

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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