On 8 October 2021, the High Court handed down judgment on the duty of fair presentation under the Insurance Act 2015 (the Act). The Court considered whether the claimant, Berkshire Assets (West London) Limited (Berkshire) had made a fair presentation pursuant to Section 3 of the Act, and whether such information is considered material circumstances.
In 2018, Berkshire had a Contractors’ All Risk and Business Interruption policy (the Policy) with AXA Insurance UK (AXA). The insurance quote contained a provision under the “Fair presentation of risk” section, which stipulated that the insured or any of its directors must not have “been convicted of a criminal offence or charged with a criminal offence”. The Policy was renewed in November 2019.
In January 2020, a water leak at the development caused damage and business interruption losses. Berkshire claimed under the Policy, but was rejected on the basis that Berkshire had not made a fair presentation of the risk to AXA pursuant to s.3 of the Act.
Berkshire informed AXA that they had been advised that a director, Michael Sherwood, had in fact been charged for criminal convictions in Malaysia. On 9 August 2019, Michael Sherwood was charged with fraud for his involvement in a scheme to defraud the Government of Malaysia during his time as a director at Goldman Sachs.
Issues for the Court
There were two main issues:
- was the fact that Michael Sherwood had been charged a material circumstance for the purposes of the duty of fair presentation? (Materiality)
- if it was, and if it had been adequately disclosed, would AXA have agreed to insure Berkshire in respect of business interruption, or at all, under the renewed Policy? (Inducement)
The Court concluded that existing principles of materiality from previous case law remain applicable, such that:
- materiality of a particular fact is a question of fact and is to be determined by the circumstances of each case
- materiality is to be tested at the time of placement and not by reference to subsequent events (Versloot Dredging v HDI Gerling Industrie Versicherung)
- facts raising doubts as to the risk are sufficient to be material. It is not necessary for the facts to be shown, with hindsight, to have actually affected the risk (The Dora 1989)
- the “Prudent insurer” test – has there been a fair presentation of the risk – this is assessed principally from the perspective of an insurer
- a circumstance need not be decisive for the hypothetical prudent insurer in determining whether to take the risk or on what terms, it is enough that the circumstance is one which the prudent insurer would rightly take into account as a factor in making his decision.
In this case, the Court confirmed that materiality is tested at the date of placement, therefore any facts that raise doubt as to the risk are sufficient to be material. As such, the Court held that the criminal charges of the relevant director was considered material circumstances.
Berkshire argued that AXA could not prove that had it not been for the non-disclosure, it would not have entered into the Policy at all. This was rejected as the fact that AXA had declined the risk when the charges had finally been referred to it, implied that AXA would have declined the Policy initially.
An important factor to AXA’s argument is the existence of an AXA Practice Note, which made it clear that underwriting risks in circumstances where there were criminal allegations was outside its underwriting procedure.
This case is an important reminder that the duty of fair presentation must be complied with by policyholders and that questions regarding criminal conduct and charges, whether proven or otherwise, are likely to be material under the meaning of the Act.
This case is also a useful reminder that it is for the insurer to show, but for the breach of the duty of fair presentation, the insurer would not have entered into the contract of insurance at all or would have done so only on different terms. This is a subjective test for insurers to assess what they would have done had the material information been disclosed to them. Therefore, insurers should assess their underwriting guidelines and processes, to be able to justify and explain how a decision would have been made.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at December 2021.