What are your disclosure obligations when applying for insurance?

My insurers have rejected my claim and I don’t know what to do! This is something we hear from clients all too frequently because they have been informed that there will be no pay out and the insurance has been voided or there is a refusal to pay the claim in full. This is usually because they have failed to comply with consumer disclosure obligations prior to the inception of the policy.

Either way mistakes you make at the outset could costs you thousands of pounds when it comes to you making a claim and your insurers refuse your claim.

It is very important that you are aware of what is expected of you as a consumer when you take out a new insurance policy, renew or vary the terms of an existing one. Your disclosure obligations and the implications of breaching this duty are set out in the Consumer Insurance (Disclosure and Representation) Act 2012 (CIDRA) This Act was introduced as a result of concerns that consumers were unaware of their disclosure duties and to avoid unfair refusal of claims if it is was believed that there had been a reasonable and honest failure to disclose information.

When does CIDRA apply ?

•  This Act applies to all types of consumer insurance contracts entered into after 6 April 2013 by “an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession.”
• This covers all types of insurance when applying in a personal capacity and includes motor, household and life policies. It is also important to note this is an ongoing duty as it applies to a new policy of insurance and also when renewing or varying the terms of an existing policy.

What are your disclosure obligations under CIDRA?

• It is your duty as a consumer to take reasonable care not to make a misrepresentation to the insurer before the contract is taken out or when your policy is renewed or varied. A statement can still be considered to be a misrepresentation if it is true, however incomplete.
• You are no longer required to volunteer information to the insurer, however the onus is on you to respond carefully and honestly to the questions asked whether over the telephone or while completing an online application.
• The duty no longer applies once the insurance contract has been entered into or the policy terms have been renewed, if before that point you realise that the statement of facts you have made is untrue, you are obliged to make reasonable steps to correct it.

What is the definition of reasonable care?

• This can depend on all the relevant circumstances and the factors which may need to be taken into account when considering whether or not you have taken reasonable care can include: The type of policy taken out, any documentation you were given; how clear and specific the questions were; how clear it was made to you that your answers were important; and whether an agent acted on your behalf, like an insurance broker.
• The standard of care required under the Act is that of a reasonable consumer who does not possess any special skills or knowledge.

Reasons why an insurer could reject your claim under CIDRA

• The burden is on the insurer to prove that (1) there has been a breach of the duty of disclosure and show that you did not take reasonable care so as not to make a misrepresentation and (2) in the absence of the misrepresentation the insurer would not have entered into the insurance contract or would have done so only on different terms. This is also known as a “qualifying misrepresentation”
• In a case where the insurance company has established that there has been a misrepresentation the Act goes further by distinguishing between misrepresentations which are “reasonable”, “careless” or “deliberate or reckless”

Although each claim must be considered on its own facts, the insurers will be required to respond to the claim based on the nature of the misrepresentation:

(i) Reasonable misrepresentations: where the misrepresentation is honest and reasonable, your insurer must pay the claim.

(ii) Careless misrepresentations: where the misrepresentation is not deliberate of reckless. If the insurer would not have entered into the contract on any terms, they can avoid the claim and refuse to pay, but must return the premium. If, however they would have entered into the insurance contract on different terms, the policy is treated as though different terms apply and the claim is reduced proportionately.

(iii) Deliberate or reckless misrepresentations means that you either knew that the misrepresentation was untrue or misleading and knew that the matter was relevant to the insurer or did not care whether it was or not. In this case your insurer can reject the claim and retain the premium paid unless it is deemed to be unfair. By way of an example, If you fail to disclose previous claims for high value claims or fail to declare pre-existing medical or health conditions, this will likely constitute a deliberate or reckless misrepresentation.

The courts’ approach to these types of disputes is take into account all of the relevant circumstances as outlined in the Act and consider whether the questions asked pre-contract were clear and specifically phrased. The court will then decide having considered all the circumstances, whether you as a reasonable consumer understood the implications of the questions and in the absence of an explanation to justify an incorrect or incomplete answer, the court will be inclined to conclude the misrepresentation was made deliberately.

Solicitor Annie Rana comments: “You should not just accept the insurer’s decision as being final and seek legal advice as they may have not taken into account all the relevant circumstances which led to the information you gave or withheld prior to the inception of the policy. We can look at documents such as your policy terms and conditions, rejection letter from your insurer and your application form (statement of facts) and advise if you have a valid claim against your insurer pursuant to CIDRA”.

We have a team of experienced solicitors who can advise you on your insurance dispute and we will be happy to have an initial discussion with you.

Contact one of our specialist solicitors today on 0161 399 1231.