The UK Insurance Act 2015: Duty of Fair Presentation, Proportionate Remedies, and What Policyholders Must Know

The Insurance Act 2015, which came into force on 12 August 2016, represents the most significant reform of English insurance contract law in over a century. The Act replaced core provisions of the Marine Insurance Act 1906 that had governed the relationship between insurers and policyholders for more than a hundred years. For businesses purchasing commercial insurance in the United Kingdom, understanding the Act's requirements is not optional. A failure to comply with the duty of fair presentation can result in an insurer refusing to pay a claim, reducing the payout, or avoiding the policy altogether.

This article sets out the principal obligations that the Act places on policyholders, explains the proportionate remedies regime that replaced the old "all or nothing" approach to non-disclosure, and offers practical guidance for businesses seeking to ensure their insurance arrangements are sound.

The Old Law: Why Reform Was Needed

Under the Marine Insurance Act 1906, a policyholder was required to disclose "every material circumstance" known to it before entering into a contract of insurance. The duty was absolute: it did not matter whether the policyholder thought the information was relevant, or whether the insurer could have obtained the information through its own enquiries. If a material fact was not disclosed, the insurer could avoid the policy from inception, regardless of whether the non-disclosure was deliberate, negligent, or entirely innocent.

This produced outcomes that many considered unjust. A business that inadvertently failed to disclose a minor matter could find its entire insurance cover invalidated after a major loss. The Law Commission of England and Wales and the Scottish Law Commission jointly reviewed the law over a period of several years and recommended substantial reform. The result was the Insurance Act 2015.

The Duty of Fair Presentation: Section 3

Section 3 of the Act introduces the "duty of fair presentation." Before a contract of insurance is entered into, the insured must make to the insurer a fair presentation of the risk. This duty replaces the old duty of disclosure under the 1906 Act but retains the basic principle that the policyholder must be open with the insurer about the risk to be insured.

A fair presentation requires the insured to disclose every material circumstance that it knows or ought to know. A circumstance is "material" if it would influence the judgment of a prudent insurer in deciding whether to take on the risk and, if so, on what terms. This is an objective test: it does not depend on what the particular insurer in question would have wanted to know, but on what a hypothetical prudent insurer would consider relevant.

If the insured cannot disclose every material circumstance, the Act provides an alternative: the insured must give the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries. This is sometimes described as the "signposting" obligation. A policyholder who cannot provide complete data about a particular risk can discharge its duty by flagging the issue clearly enough that the insurer knows to ask follow-up questions.

The Act also specifies what the insured "knows or ought to know." This includes information known to the insured's senior management and information held by individuals responsible for arranging the insurance. It also extends to information that would have been revealed by a reasonable search of information available to the insured. This means businesses cannot avoid the duty by failing to look into matters that a reasonable organisation in their position would have investigated.

What Counts as a Material Circumstance

The concept of materiality under the Act is broad. It includes any fact or circumstance that would influence the judgment of a prudent insurer. In practice, this covers the nature and condition of the insured property, the claims history of the insured, the financial position of the business, any previous refusals or cancellations of insurance, criminal convictions of directors or key personnel, and any other matter bearing on the likelihood or severity of a claim.

Case law since the Act came into force has provided further guidance. In the 2020 decision of Ristorante Ltd t/a Bar Massimo v Zurich Insurance plc, the court considered whether a failure to disclose a previous fire at a restaurant constituted a breach of the duty of fair presentation. The court held that it did: the previous fire was plainly a material circumstance that would have influenced a prudent insurer, and the policyholder's failure to disclose it entitled the insurer to avoid the policy.

Proportionate Remedies: The End of "All or Nothing"

The most celebrated reform introduced by the Insurance Act 2015 is the proportionate remedies regime set out in Schedule 1. Under the old law, any material non-disclosure or misrepresentation, however innocent, gave the insurer the right to avoid the entire policy and refuse all claims. The Act replaces this with a graduated system of remedies that depends on the nature of the breach.

The Act distinguishes between three categories of breach: deliberate, reckless, and neither deliberate nor reckless.

If the breach is deliberate or reckless, the insurer may avoid the contract, refuse all claims, and retain the premium. This is the harshest remedy and mirrors the old law, but it applies only where the policyholder has acted dishonestly or with conscious disregard for the truth. A breach is "deliberate" if the insured knew that the matter was material and chose not to disclose it. A breach is "reckless" if the insured did not care whether the matter was material or whether its presentation was fair. The burden of proving that a breach was deliberate or reckless lies with the insurer.

If the breach is neither deliberate nor reckless, the remedy depends on what the insurer would have done had it received a fair presentation. If the insurer would not have entered into the contract at all, it may avoid the policy and must return the premium. If the insurer would have entered into the contract but on different terms (for example, with a higher excess or an exclusion clause), the contract is treated as though those terms had been included. If the insurer would have charged a higher premium, the claim is reduced proportionately. For instance, if the insurer would have charged double the premium, the claim is paid at 50 per cent.

This proportionate approach is a significant improvement for policyholders. It means that an honest but careless failure to disclose a material fact will not necessarily result in the total loss of cover. The policyholder may still receive a payout, albeit a reduced one.

The Insurer's Duty to Ask Questions

The Act also places obligations on insurers. Section 3(4) provides that a fair presentation must be made "in a manner which would be reasonably clear and accessible to a prudent insurer." But it also provides that a disclosure does not need to include information that "diminishes the risk," that the insurer already knows, that the insurer ought to know, or that the insurer is "presumed to know." An insurer is presumed to know matters that are common knowledge and matters that an insurer offering insurance of the kind in question would reasonably be expected to know.

Furthermore, the Act expressly provides that a policyholder cannot be penalised for failing to disclose information that the insurer waived. If an insurer asks no questions, or asks only limited questions, and the policyholder answers those questions honestly, the insurer may find it difficult to argue that there has been a breach of the duty of fair presentation.

Warranties and Basis Clauses: Sections 9 to 11

The Act also reformed the law on warranties. Under the old law, a breach of warranty automatically discharged the insurer from liability from the date of breach, even if the breach was later remedied and even if the breach had no connection to the loss. Section 10 of the Insurance Act 2015 changes this: if a warranty is breached but subsequently remedied, the insurer's liability resumes. The insurer is only discharged from liability for losses occurring during the period of the breach, not for losses occurring after the breach has been put right.

Section 11 goes further. It provides that where an insured has breached a term of the policy (whether a warranty or otherwise), the insurer may not rely on the breach to refuse a claim if the insured can show that the non-compliance could not have increased the risk of the loss that actually occurred. This prevents insurers from relying on technical breaches unrelated to the claim.

Section 9 abolishes "basis clauses," which were contract terms converting every statement in the proposal form into a warranty. These clauses were widely regarded as unfair, and their abolition was one of the most popular features of the reform.

Fraudulent Claims: Section 12

Section 12 of the Act codifies the common law position on fraudulent claims. If a policyholder makes a fraudulent claim, the insurer is not liable to pay any part of the fraudulent claim. The insurer may also recover any sums already paid in respect of the fraudulent claim. In addition, the insurer may treat the contract as terminated from the time of the fraudulent act, meaning that it need not pay any claims arising after that date. However, the insurer remains liable for legitimate claims arising before the fraud.

Practical Steps for Policyholders

Businesses seeking to comply with the duty of fair presentation should, at a minimum, take the following steps. First, identify all individuals within the organisation who are responsible for arranging insurance and ensure they understand their obligations under the Act. Second, conduct a reasonable search of information available to the business before each renewal. This includes claims records, incident reports, financial statements, and any other documents that a prudent insurer might consider relevant. Third, present the information to the insurer in a clear and organised manner. The Act specifically refers to "data dumping" as a potential breach: a policyholder who buries material information in a mass of irrelevant documents may not satisfy the duty even if the information was technically disclosed.

Fourth, maintain records of what was disclosed and when. In the event of a dispute, the policyholder will need to demonstrate that it made a fair presentation of the risk. Fifth, review policy terms carefully and take legal advice before accepting warranties or other restrictive conditions that could jeopardise cover in the event of a claim.

Conclusion

The Insurance Act 2015 achieved a better balance between insurers and policyholders than the law that preceded it. The proportionate remedies regime is fairer than the old "all or nothing" approach, the abolition of basis clauses removes a persistent source of injustice, and the reformed warranty provisions prevent insurers from relying on unrelated technical breaches to refuse claims. But the Act also requires policyholders to take their disclosure obligations seriously. A fair presentation means active, organised, and honest disclosure. Businesses that treat the renewal process as a formality do so at their own risk.