The duty (which stems from the Insurance Act 2015) puts the onus on the policyholder to make a fair presentation of the risk and requires the policyholder to disclose all information, facts and circumstances that are or ought to be known and which are material to the risk being covered.
The recent case of Berkshire Assets (West London) Limited v AXA Insurance UK plc [2021] EWHC 2689 (Comm), involved Contractors All Risk and Business Interruption policies, where a claim was brought following an escape of water through a sprinkler system at a property belonging to the claimant.
In the claim, liability was denied as on renewal of the policy, the claimant failed to disclose criminal charges that had been brought (and subsequently dropped), against one of its Directors.
The Court was asked to decide two things:
1. Whether the criminal charges were a material circumstance
Here, the Court decided that the position was no different to the law that has already been determined by the Courts, namely that materiality is:
- a question of fact to be determined in each individual case
- not altered by subsequent events
- merely something a prudent insurer would take into account.
In addition, the facts do not need to alter the risk – it is enough to raise doubts and any assessment of materiality should be made from the perspective of the insurer. It was held in this case that the criminal charges were a material circumstance and should have been disclosed.
2. Whether the insurer would have taken a different approach to the policy renewal, had it known about the charges.
Here, the Court concluded (after hearing evidence from AXA underwriters), that cover would have been denied.
This case should offer some comfort to insurers where policies are avoided under the duty of fair presentation. Where a material circumstance is not disclosed, this case supports the insurer’s position that cover is not owed to the policyholder, where a different underwriting decision would have been made had the insurer been in possession of all material circumstances affecting the risk. To rely on this decision, insurers should be able to show that a material circumstance was not known to them when the policy was incepted or renewed and that if they had known, this would have affected their underwriting decision.
Also worth noting, the claimant’s expert evidence was dismissed as the expert had no experience in the insurance industry, (and in contrast, the Judge was swayed by the evidence of the AXA underwriters). So, the choice of experts is important. The Judge also referred to underwriting guidance notes produced by AXA, which supported their position that where criminal charges are disclosed, cover will not be provided. AXA was able to rely on its guidance/training materials to back up its position that if it had known about the charges, it would have made a different decision on the renewal.
Overall, this is good news for insurers, with the Court demonstrating that it is ready and willing to uphold the policyholder’s duty to provide the right information in the pre-contract stage. If you need any help with coverage disputes or policy wording, we can help. Please get in touch at c.povey@capitallaw.co.uk.
