Following the introduction of the ‘Fair Presentation of Risk’ requirement of the Insurance Act 2015 (replacing the ‘Duty of Disclosure’ condition applicable under the former Marine Insurance Act 1906), clients are now starting to query why they must make a disclosure of incidents without claim (i.e. those events where no actual claim was made against an insurance policy, even though a valid policy was in force at the time or could’ve been in force but wasn’t (for whatever reason)).
Disclosure of incidents without claim depends on the specific questioning by the insurer, with the actual question varying from insurer to insurer, but reads something along the following lines:
“Has the proposer, any director or partner of the business or its subsidiary companies to be included in this insurance, in any business capacity, made any insurance claim, been claimed against or suffered any event or loss which may lead to a claim for any of the covers provided by this policy (whether previously insured or not) in the last 5 years?”
Now… you may say that the question doesn’t specifically ask about incidents without claim – but when you read this question more closely it is actually asking you to disclose any event that has happened in the past (“…suffered any event or loss…”) if it could lead to a claim in the future (“…which may lead to a claim for any of the covers provided by this policy (whether previously insured or not)”).
For example, if you’re requesting that your policy includes Flood cover, and you have previously had a Flood incident (whether claimed for or not), any future Flood incident “may lead to a claim”. So you would answer this question YES, even if you didn’t make a Flood claim as a result of a Flood event.
For the sake argument, here are two examples of why an insurer needs to known about past incidents:
1. Let’s say that your premises are burgled on multiple occasions over the last 5 years, but nothing was stolen and repairing the damage cost you less than your policy excess, so you did not make a claim for each event. Do you declare these incidents? The answer is YES.
These multiple incidents show an insurer that, whilst you have cost your insurer/s nothing over that period, your business is/premises are potentially at a greater risk of future burglaries turning into an actual Theft claim, and the insurer requires this information in order to accurately calculate the Theft cover premium and apply appropriate Theft conditions to the offered policy.
Therefore, you may have obtained a less-onerous policy at a premium below what should be expected for a business/property that is at higher risk of Theft/Attempted Theft.
2. You use heat (flame or spark creating equipment) as part of your duties, and caused a couple of fires whilst working at various customers’ premises. The fires were only small, so you paid for the repairs yourself.
Again, whilst you have cost your insurer nothing in claims costs, they still need to know about the incidents as a prudent insurer may determine that you may have issues with fire safety, requiring a more specific policy condition regarding the precautions to be taken whilst using heat, or that a higher premium needs to be charged to reflect the frequency with which fire incidents could potentially occur.
Therefore, you may have obtained a less-onerous policy at a premium below what should be expected for a business that is at higher risk of causing Third Party Property Damage or Bodily Injury through the use of heat.
In both examples above, once the non-disclosure of past events comes to light, an insurer would be within its legal rights to reject any claim and treat the policy as void (meaning cancellation from commencement, and forfeiture of all premiums paid).
In the end ‘disclosure of incidents without claim’ is necessary, as it is for the insurer to decide if they want to provide the cover being requested and to determine the premium relevant to the ‘risk’ proposed. If you do not provide all the necessary information regarding past events, an insurer could be offering something that they would have otherwise declined to offer.
In closing…if in doubt, ask the question “do I need to tell you about … ?”