At the heart of insurance contracts is an obvious truth: you have an enormous advantage over the insurer. You know all about your business, its history, processes, people and management, but the insurer knows nothing – other than what you tell them.
You have a statutory duty to make a fair presentation of the risk. You must tell the insurer:
Every material circumstance which you know or ought to know and/or
Sufficient information that would cause the insurer to make further enquiries, if necessary, to review those material circumstances
Information must be disclosed in a manner that is reasonably clear and accessible.
You are deemed to have the knowledge of the company’s senior management.
You are deemed to have the knowledge of the person arranging the insurance (who is deemed to be a senior manager under statute).
Anything that can be discovered by a reasonable search.
A failure to make a fair presentation of the risk gives the insurer various remedies, depending upon the nature of the failure, from avoiding the contract and not paying claims to modifying the basis of settlement.
Examples of Misrepresentation
It is often easier to demonstrate the consequences of risk presentation failure by example rather than theory.
Here are some real life examples of typically forgotten or un-revealed material facts which later caused huge problems and repudiated claims:
Fire A reprocessing plant did not reveal a series of small fires during their insurance year.
Theft Following repeated false alarms, a retailer omitted to reveal that Police Response had been withdrawn.
Water A restaurant omitted to reveal repeated minor floods from an upstairs nightclub.
Liability A construction company omitted to reveal potential employee claims recorded in their accident book.
Motor A telecommunications company failed to reveal written warnings to an employee over repeated careless and dangerous driving.
General A company failed to reveal that it had been ‘struck off’ by Companies House and was trading as a new legal entity under a different designation.
Compiling the Risk Presentation: an ongoing process
It is not possible to overstate the importance of researched, adequate risk presentation – there have been countless legal disputes, repudiated claims, ruined businesses and lives arising from the simple failure to reveal all the facts to an insurer. A failure to present risk adequately is a bigger risk than the risk you present.
It doesn’t matter that the failure is innocent, something overlooked, forgotten or discounted as unimportant – might be important to the insurer, in which case it must be revealed.
Should there be anything not yet disclosed, or that you are unsure would influence your insurers about this insurance…