Insurance material non-disclosure: cause and effect

The effect of failing to disclose truthful and accurate information when applying for a policy of insurance is often underestimated.  The reasons for this are varied and numerous and include agendas often honest and well intentioned but sometimes deliberate and dishonest.

It is extremely important to appreciate that whilst an insurance acceptance of your risk for policy coverage may not immediately be an issue should you fail to disclose all material facts, the problem will almost inevitably rear its ugly head at the time you need your insurance most, in the event of a loss.

Whilst a formal insurance proposal form is less common in the modern insurance market it remains a fact that the information provided to an insurer or your insurance broker when applying for insurance is held on record and will be checked and verified in the event that you make a claim under the policy.  As some insured find to the great displeasure, an insurer may agree to provide cover and renew a policy over many years only to then refuse to pay a claim in the event of a loss if it is discovered that a material fact has not been disclosed.

The question therefore arises what is a material fact?  There has been a great deal of insurance text and legal precedence set about this issue but fundamentally the duty to disclose material facts starts with the information you are specifically asked to provide on a proposal form.  Whilst you may be tempted to think that because something happened a long time ago or, because you may feel certain information to be irrelevant you should not disclose it there is a very real risk that this information will be discovered when Insurers investigate their potential liability for your claim and should this occur there is a very real risk that your claim will not be paid.

Whilst many believe the proposal form to be a minor piece of bureaucratic administration in the wider scheme of their business it is imperative that when completing an insurance proposal form you consider the questions in detail and respond to them fully and honestly.  If, as many businesses do, an insurance broker completes the form on your behalf and passes it to you for checking and signing, it is equally important that the information is checked and verified because ultimate responsibility to provide the information rests with you the proposer/Insured.

It is also important to remember that at each annual insurance policy renewal, when the renewal invitation paperwork is received it will in all likelihood contain a reminder of your continuing duty to disclose such information.  This is important as in some cases information relevant to the proposal may change subsequent to the original policy being issued.  For example, if you are asked on an insurance proposal form whether any of the proprietors or directors of a business had a criminal record and the answer to this at the time of original proposal was ‘no’ but this had subsequently changed, you are under a strict duty to disclose the change in circumstances at the latest in the next policy renewal.

Ultimately, Insurer’s sanction in the event of a non disclosure of material fact is at the very least to repudiate your claim and, possibly worse still, to cancel the policy as it had never existed.  In this event not only might your insurance claim be refused but also you will have difficulty in obtaining insurance in the future.

However, as stated above there is considerable legal precedent regarding Insurer’s rights in the event of non-disclosure.  As with most things in insurance, this issue is far from black and white.  Therefore, in the event that non-disclosure is discovered it is extremely important to take professional advise as to the potential implications for a claim.

Should Thompson & Bryan loss assessors be appointed to represent you in regard to your claim we will undertake a detailed review of the insurance proposal information and provide you with our expert advise in relation to the potential issues regarding policy liability.  Should you have a query relating to insurance proposals or nondisclosure issues please contact one of our qualified technical staff for further information.