CA-2024-000950 - [2025] EWCA Civ 1019

The Insurance Act 2015 reformed the law concerned with disclosure of material facts following a joint report by the Law Commission and the Scottish Law Commission (Law Com No. 353 / Scot Law Com No. 238).

Section 3 of the Act provides for a duty of fair presentation as follows:

‘3. The duty of fair presentation

(1)

Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk.

(2)

The duty imposed by subsection (1) is referred to in this Act as “the duty of fair presentation”.

(3)

A fair presentation of the risk is one—

(a)

which makes the disclosure required by subsection (4),

(b)

which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and

(c)

in which every material representation as to a matter of fact is substantially correct, and every material representation as to a matter of expectation or belief is made in good faith.

(4)

The disclosure required is as follows, except as provided in subsection (5)—

(a)

disclosure of every material circumstance which the insured knows or ought to know, or

(b)

failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.

(5)

In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if—

(a)

it diminishes the risk,

(b)

the insurer knows it,

(c)

the insurer ought to know it,

(d)

the insurer is presumed to know it, or

(e)

it is something as to which the insurer waives information.

(6)

Sections 4 to 6 make further provision about the knowledge of the insured and of the insurer, and section 7 contains supplementary provision.’

For present purposes the critical provision is subsection (4)(a): disclosure is only required of material circumstances ‘which the insured knows or ought to know’. What this means is explained in section 4:

‘4. Knowledge of insured

(1)

This section provides for what an insured knows or ought to know for the purposes of section 3(4)(a).

(2)

An insured who is an individual knows only—

(a)

what is known to the individual, and

(b)

what is known to one or more of the individuals who are responsible for the insured’s insurance.

(3)

An insured who is not an individual knows only what is known to one or more of the individuals who are—

(a)

part of the insured’s senior management, or

(b)

responsible for the insured’s insurance.

…

(6)

Whether an individual or not, an insured ought to know what should reasonably have been revealed by a reasonable search of information available to the insured (whether the search is conducted by making enquiries or by any other means).

(7)

In subsection (6) “information” includes information held within the insured’s organisation or by any other person (such as the insured’s agent or a person for whom cover is provided by the contract of insurance).

(8)

For the purposes of this section—

(a)

“employee”, in relation to the insured’s agent, includes any individual working for the agent, whatever the capacity in which the individual acts,

(b)

an individual is responsible for the insured’s insurance if the individual participates on behalf of the insured in the process of procuring the insured’s insurance (whether the individual does so as the insured’s employee or agent, as an employee of the insured’s agent or in any other capacity), and

(c)

“senior management” means those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised.’

So far as actual knowledge is concerned, in the case of corporate insureds such as the respondents the relevant knowledge is that of two categories of individual identified in subsection (3). The first category consists of those who are ‘part of the insured’s senior management’, a phrase which is defined by subsection (8)(c) to mean ‘those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised’.

The section assumes, therefore, that a corporate insured will have a senior management consisting of one or more individuals. Identification of the individuals who comprise that senior management will be a question of fact, requiring an evaluation of the significance of the roles played by various individuals in the making of decisions about how the insured’s activities are to be managed or organised. In the present case the issue on actual knowledge is whether Mr Bairactaris formed part of the insureds’ senior management. He was the only person connected in any way with the respondents who had any knowledge of the charges against him. Accordingly, if he was not part of the insureds’ senior management, there was no relevant individual who had actual knowledge of the charges.

The second category of individual referred to in subsection (3) whose actual knowledge will be relevant consists of those individuals who are ‘responsible for the insured’s insurance’. In the present case that was Mr Tsouris, the NGM Group’s Insurance and Claims manager. However, he did not know about the charges against Mr Bairactaris.

In addition to an insured’s actual knowledge, an insured is required by section 3(4)(a) to disclose every material circumstance which it ought to know. What an insured ought to know is explained by section 4(6) and consists of those matters which ‘should reasonably have been revealed by a reasonable search of information available to the insured’, including by the making of enquiries. There are therefore two matters to be considered in this regard: first, what search should reasonably have been carried out; and second, what should reasonably have been revealed by such a search.

In the present case, if Mr Bairactaris was not part of the insureds’ senior management, the only way in which the charges against him could have been discovered was by asking him a question which would have elicited that information. Accordingly the issues for the judge were what, if any question should reasonably have been asked of Mr Bairactaris and what information should reasonably have been elicited by such a question. Like most issues concerned with what conduct should be regarded as reasonable, these are questions of fact.

Although these are the decisive provisions of the Act in the present case, it is relevant to note that materiality is defined by section 7(3), which provides that:

‘A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.’

The remedies for breach of the duty of fair presentation are set out in section 8:

‘8. Remedies for breach

(1)

The insurer has a remedy against the insured for a breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer—

(a)

would not have entered into the contract of insurance at all, or

(b)

would have done so only on different terms.

(2)

The remedies are set out in Schedule 1.

(3)

A breach for which the insurer has a remedy against the insured is referred to in this Act as a “qualifying breach”.

(4)

A qualifying breach is either—

(a)

deliberate or reckless, or

(b)

neither deliberate nor reckless.

(5)

A qualifying breach is deliberate or reckless if the insured —

(a)

knew that it was in breach of the duty of fair presentation, or

(b)

did not care whether or not it was in breach of that duty.

(6)

It is for the insurer to show that a qualifying breach was deliberate or reckless.’

Subsection (1) gives statutory force to the common law requirement that the breach of the duty of fair presentation must induce the insurer to enter into the contract (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501).

Schedule 1 sets out the remedies for breach of the duty, and represents a significant change from the position at common law. The remedies vary depending on whether the breach is deliberate or reckless. In the present case any breach was found by the judge not to have been deliberate or reckless, so that the remedies available to the insurers were those set out in paragraphs 4 to 6 of Schedule 1:

‘3. Paragraphs 4 to 6 apply if a qualifying breach was neither deliberate nor reckless.

4.

If, in the absence of the qualifying breach, the insurer would not have entered into the contract on any terms, the insurer may avoid the contract and refuse all claims, but must in that event return the premiums paid.

5.

If the insurer would have entered into the contract, but on different terms (other than terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms if the insurer so requires.

6

(1)

In addition, if the insurer would have entered into the contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.

(2)

In sub-paragraph (1), “reduce proportionately” means that the insurer need pay on the claim only X% of what it would otherwise have been under an obligation to pay under the terms of the contract (or, if applicable, under the different terms provided for by virtue of paragraph 5), where—

X = Premium actually charged x 100

Higher premium’