Non-Disclosure is Fault of Policyholder Not Brokers

It is no real surprise that insurers are often not wildly enthusiastic about paying claims and will deny liability when they are able to do so. One condition which is normally present in a policy application is that the insured discloses any past criminal convictions.

In a recent case, the refusal of an insurer to cover a company’s losses because of non-disclosure of past convictions of a director led to a claim exceeding £1.5 million coming before the court.

The company manufactured exhibition stands and was run by a man who had two criminal convictions which were not disclosed to the insurer. The insured company had a fire which destroyed its trading stock and damaged its premises. When the insurer discovered the undisclosed criminal convictions, it declined to settle the claim as it was entitled to do under the policy terms.

The insured had used brokers to arrange the cover and claimed that they had been told about the convictions but had failed to pass the information on to the insurer. The company claimed that the loss was therefore the fault of the brokers, who had negligently failed to inform the insurer.

The court had two issues to deal with. Firstly, had the brokers been told? Secondly, if the brokers had not been told, were they negligent in not making clear to the person seeking insurance the importance of disclosing all relevant information?

The evidence did not support the contention that the brokers knew about the convictions. The court also decided that the failure to ask the necessary questions when the insurance proposal was in progress was not negligent.

Richard Forskitt says “What this case spells out clearly is that if you are undertaking an insurance policy and are aware of a material fact that may affect the insurer’s assessment of risk, the fact that you are not asked about it may well not shift the blame in similar circumstances to your broker. In such cases, it is important to make a proper disclosure and retain evidence that this has been done.”

If you are in any doubt as to the meaning of the terms of an insurance policy you hold, we can advise you.