Every now and again it’s worth recalling the basic responsibilities when taking out a commercial insurance policy. In 2023 you’ll hear an awful lot about things like indexation, indemnity periods, cyber cover and all for good reason – these are very crucial conversations to have with regards to the current business environment.
In comparison, the term ‘Duty of Disclosure’ seems rather self-evident, even obvious. Of course I need to disclose everything to my insurer! Well, not necessarily; it shouldn’t be an interrogation and the Insurance Act 2015 deems certain things (matters of law or factors that reduce risk) non-disclosable. The key thing here is the need to make ‘fair presentation of risk’.
So, what is it? In simple terms, it’s your obligation to disclose all material information which is known, or ought to be reasonably known by the company’s principals, directors, senior management or anyone playing a significant role in the decision making process of the business.
The reasoning is simple: such information could be of significance as to influence the judgement of a prudent insurer in determining whether to insure your business and on what terms. An Underwriter will probably want to know why your old company became insolvent before deciding to insure the new one!
Examples
How long is a piece of string? A degree of judgement is needed otherwise the list might be endless! At the very minimum this should include anything pertaining to:
- Prior claims history
- Special or unusual facts about the business itself
- Confirmation if any principal/partner/director(s) have incurred CCJ’s, been refused insurance or have prior convictions, bankruptcies or involvement in companies that have become insolvent or gone into liquidation/receivership.
Gone are the days where an Insurer is likely to take draconian action in the event of non-disclosure. Most typically only exercise the option to void policy coverage when the breach is deemed to be deliberate or reckless.
Most common remedies available when said breach isn’t deliberate or reckless include:
- Application of additional terms & conditions to mitigate risk if the insurer can establish it would have offered these terms in full receipt of the information.
- Charge an additional premium or proportionately reduce settlement of any claims.
For the most part, people act with fidelity and provide diligent submissions at the onset. Problems usually arise however when the policy is long established and things innocently start to come out in the wash; this is a continuous duty after all and not one that merely applies at policy inception.
For this reason, annual reviews with your broker are a great way of tracking changes in the business and identifying anything of significance that insurers ought to be made aware of. Failing that, pick up the phone! Use us as a soundboard at anytime if unsure or needing advice on the matter.
You can talk to myself or one of our team on Doncaster: 01302 341 344 or Sheffield: 0114 243 9914
By Simon Wright Dip CII – Account Executive