Section 3 of the Insurance Act 2015 sets out the statutory duty of fair presentation of the risk. It applies to non-consumer insurance contracts entered into, varied or renewed on or after 12 August 2016, which covers the professional indemnity policies arranged for solicitors, accountants, architects, surveyors, IFAs and the wider professional services market. It replaced the older common-law duty of utmost good faith on the disclosure side, and it changed the consequences of getting disclosure wrong.
Section 3(3) defines fair presentation by reference to three cumulative requirements. A presentation only qualifies as fair if all three are satisfied.
Section 3(4) gives the insured a choice. Either disclose every material circumstance which the insured knows or ought to know, or disclose sufficient information to put a prudent insurer on notice that further enquiries are needed to reveal those circumstances. A circumstance or representation is material under section 7(3) if it would influence the judgement of a prudent insurer in deciding whether to take the risk and, if so, on what terms.
Section 3(3)(b) requires the disclosure to be made in a manner reasonably clear and accessible to a prudent insurer. A long data-room dump with the material circumstances buried in an appendix is unlikely to satisfy this limb. The information must be presented in a way an underwriter can navigate.
Section 3(3)(c) requires every material representation as to a matter of fact to be substantially correct, and every material representation as to expectation or belief to be made in good faith. Staff numbers, fee income, fields of work and historic claims are matters of fact. A view on future workload or risk appetite is a matter of expectation or belief.
Section 3 cannot be read on its own. Section 4 defines what the insured knows or ought to know. For a corporate insured, that is the knowledge of senior management and of anyone responsible for arranging the insurance, plus the knowledge that should reasonably have been revealed by a reasonable search of information available to the firm. The firm must run that search; waiting for material to surface is not enough. It reaches across the partnership, the matter-management system, the complaints log, the conflicts register and the file review process.
Before the Act, non-disclosure or misrepresentation gave the insurer a single remedy: avoidance from inception, with the premium returned. The outcome was binary and often disproportionate. Sections 8 and 9 replace that with a graduated framework. A breach of the duty is a qualifying breach under section 8 only if the insurer would not have entered the contract at all, or would have done so on different terms, had the presentation been fair. The remedies under section 9 and Schedule 1 are then matched to what the insurer would actually have done — avoidance only where the insurer would not have written the risk at all and the breach was deliberate or reckless; otherwise contractual rewriting, proportionate reduction of any claim, or a higher premium applied retrospectively.
Illustrative scenario, not a real client matter. A mid-size firm is completing its renewal proposal. A partner is aware that a client has written threatening a complaint over a missed limitation date. The matter has not been escalated to the complaints partner and no formal notification has been made. Under section 3, the firm has a choice. It can disclose the threatened complaint and the underlying facts as a material circumstance, or it can disclose sufficient information — for example, the existence of correspondence raising a service concern on a matter where limitation has expired — to put the insurer on enquiry. Saying nothing is a qualifying breach under section 8. If the insurer would have charged a higher premium or written the risk with an exclusion, section 9 allows it to apply that outcome retrospectively. The firm has lost the cover position it thought it had bought.
Apex arranges PI cover for a range of regulated professions, and fair presentation is a frequent point at which renewals go wrong. Sector-specific guidance is set out in the solicitors' PI guide, the accountants' PI guide, the architects' PI guide and the surveyors' PI guide. For a non-statutory explanation of the duty, see the cluster entry on the fair presentation duty.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.