Airmic has published a clause, drawn up by law firm Herbert Smith Freehills, to protect policyholders who innocently breach the duty of fair presentation introduced by the Insurance Act.
One of the headline features of the Act is to replace the all-or-nothing remedy of avoidance, whereby insurers may currently treat a policy as if it never existed in the event of a material non-disclosure or misrepresentation by the insured. This is being replaced with a series of ‘proportionate remedies’. Under the Act, where an underwriter can show that it would have charged a higher premium had it received a fair presentation of the risk, the insurer can proportionately reduce the claims payment made to the policyholder.
The new sample clause can be inserted into policies by mutual agreement, whereby the insured pays the additional premium that would have been charged rather than face a reduction in the claim. The option would not apply where the failure to provide the relevant information had been either deliberate or reckless.
“Whilst we strongly support the Insurance Act, many of our members have found the ‘fair presentation’ aspects challenging as they are inevitably open to interpretation. This clause drawn up by Herbert Smith Freehills LLP has the potential to significantly strengthen the policyholder's position,” said Airmic CEO John Hurrell.
The sample wording is set out below. As with all aspects of policy wordings, those considering using the clause must do so with care and should think about seeking legal advice.
- In the event that the Insured breaches the duty of fair presentation prior to inception of this insurance, or prior to any variation; and
- the breach is not deliberate or reckless; and
- the Insurer can show that it would have charged a higher premium,
Then the Insured shall be liable for such additional premium as would have been charged had the duty of fair presentation not been breached. It is agreed that in these circumstances the Insurer will have no right whatsoever to reduce proportionately any amount to be paid on a claim.
The phrases “duty of fair presentation” and “deliberate or reckless” in this clause shall have the same meanings as given to them in the Insurance Act 2015. It is not intended that this clause shall amend or vary any other provision of this policy.