A Bristol manufacturer suffers a £2.1m fire loss at one of its sites. Six weeks into the claim the insurer’s forensic investigator notes that a previous arson attempt at a sister site three years earlier was never disclosed in the broker’s market presentation. Under the old law, the insurer’s reaction would have been almost mechanical: avoid the policy from inception, refund the premium, refuse the claim in its entirety. Under the Insurance Act 2015 (“the Act”), that reaction is no longer available unless the insurer can prove a great deal more — and even then the remedy must be proportionate to what the insurer would actually have done had it been told the truth.
This article is the sixth in our ten-part series on the Insurance Act 2015. It explains how s.8 and Schedule 1 of the Act replace the all-or-nothing remedy of avoidance with a calibrated set of consequences, and how brokers and insureds should engage with insurers when a “qualifying breach” of the duty of fair presentation is alleged.
1. The pre-Act position: avoidance ab initio
Before the Act came into force on 12 August 2016, the remedy for breach of the duty of utmost good faith was governed by s.17 of the Marine Insurance Act 1906 (which applied to non-marine business by analogy). The position was stark: if the assured failed to disclose a material circumstance, or made a material misrepresentation, the insurer could avoid the contract ab initio. Avoidance meant the contract was treated as if it had never existed. All claims fell away, regardless of whether they had anything to do with the undisclosed fact. The only saving grace was the return of the premium (and even that was lost where the non-disclosure was fraudulent).
The disproportion was notorious. In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501 the House of Lords confirmed that materiality was judged by whether a prudent insurer would have wanted to know the fact — not by whether the fact made any difference to the loss. The result was that a trivial non-disclosure could destroy cover for a catastrophic and entirely unrelated loss. The Law Commission and Scottish Law Commission, in their joint reports culminating in the 2014 draft Bill, described the remedy as “a blunt instrument” that produced “harsh and arbitrary outcomes”. Parliament’s answer was s.8 and Schedule 1.
2. Section 8: the concept of a “qualifying breach”
Section 8(1) of the Act provides that an insurer has a remedy against the insured for breach of the duty of fair presentation only if the insurer shows that, but for the breach, the insurer either:
- would not have entered into the contract of insurance at all (s.8(1)(a)); or
- would have done so only on different terms (s.8(1)(b)).
A breach which meets one of those two limbs is a “qualifying breach” (s.8(2)). A breach that meets neither limb gives rise to no remedy at all — the insurer must pay the claim notwithstanding the breach.
This is the first significant change from the 1906 Act regime. Under s.17 of the 1906 Act, materiality was assessed by reference to a hypothetical prudent underwriter; under s.8 of the 2015 Act, it is assessed by reference to what the actual insurer on risk would have done. The insurer must, in effect, lead evidence of its own underwriting practices and discipline. That evidence is typically given by the underwriter who wrote the risk, supported by underwriting guides, peer reviews and (where the question is one of pricing) actuarial rating sheets.
3. The deliberate/reckless cut-off in s.8(5)
Section 8 sub-divides qualifying breaches into two categories:
- s.8(5) — deliberate or reckless breaches; and
- s.8(4) — neither deliberate nor reckless breaches.
A qualifying breach is deliberate or reckless if the insured (a) knew it was in breach of the duty of fair presentation, or (b) did not care whether or not it was in breach (s.8(5)). Recklessness here carries its ordinary subjective meaning — wilful blindness or indifference — and is not satisfied by mere negligence, however serious.
The burden of proof rests on the insurer (s.8(6)). The insurer must prove on the balance of probabilities both that the breach occurred and that it was deliberate or reckless. Section 8(6) does, however, contain a useful presumption for insurers: it is to be presumed, unless the contrary is shown, that the insured had the knowledge of a reasonable insured (an objective benchmark), and that the insurer had the knowledge of a reasonable insurer. The presumption is rebuttable and does not relieve the insurer of the underlying burden of proving recklessness or knowledge, but it does prevent insureds from hiding behind ignorance that no reasonable commercial insured would plausibly have had.
4. Schedule 1 — the proportionate remedies
The actual menu of remedies sits in Schedule 1 to the Act, which is given effect by s.8(3). The structure is as follows.
4.1 Deliberate or reckless breach — Sch 1 para 2
Where the qualifying breach is deliberate or reckless, the insurer may:
- avoid the contract;
- refuse all claims; and
- retain the premiums paid (Sch 1 para 2(a)–(c)).
This is essentially the old s.17 remedy preserved as a deterrent against dishonesty. There is no proportionality exercise — the contract is voided ab initio and the premium punitively retained.
4.2 Non-deliberate, non-reckless breach — Sch 1 paras 4–6
Where the qualifying breach is neither deliberate nor reckless, the remedy depends on what the insurer would have done had a fair presentation been made:
Sch 1 para 4 — risk not written at all. If the insurer would not have entered into the contract on any terms, the insurer may avoid the contract and refuse all claims, but must return the premiums. This is avoidance without the punitive retention of premium.
Sch 1 para 5 — different contractual terms. If the insurer would have entered into the contract but on different terms (other than terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms, if the insurer so requires. In practice this can mean inserting an exclusion, a warranty, an additional condition, an increased excess, an aggregate limit or any other underwriting tool that would have applied on fair presentation. The clause is read into the contract retrospectively, with the result that the claim is then assessed against the modified policy wording.
Sch 1 para 6 — higher premium. If the insurer would have charged a higher premium, the claim is reduced proportionately by reference to the formula:
Claim payable = Claim amount × (Premium actually charged / Premium that would have been charged)
The reduction operates as a proportionate reduction of the claim, not as a stand-alone right to claim the additional premium. Where both para 5 (different terms) and para 6 (higher premium) would apply, both operate cumulatively: the policy is first re-read with the different terms, and then any claim payable under those re-read terms is proportionately reduced.
4.3 Future-only termination
Schedule 1 paras 7–9 contain modified rules for variations of existing contracts, distinguishing between qualifying breaches that affect the original contract terms and those that affect only the variation. The detail is beyond this article, but the principle is that proportionate remedies are calibrated to the variation in question, so that an entirely unrelated section of a composite policy is not infected by a localised breach.
5. Burden of proof and “but for” evidence
In every case the insurer must prove:
- that there was a breach of the duty of fair presentation (s.3 of the Act);
- that the breach was “qualifying”, i.e. that but for the breach the insurer would not have written the risk at all or would have written it on different terms (s.8(1)); and
- (for the deliberate/reckless remedy) that the breach was deliberate or reckless (s.8(5)).
In practice the second of these — the counterfactual or “but for” element — is the hardest to satisfy. The insurer must lead evidence from the underwriter who wrote the risk, ideally supported by contemporaneous underwriting documentation. Courts have shown a willingness to scrutinise this evidence carefully and to penalise insurers whose underwriters’ assertions are not supported by their underwriting guides. The High Court in Berkshire Assets (West London) Ltd v AXA Insurance UK Plc [2021] EWHC 2689 (Comm) accepted the insurer’s evidence that it would not have written the risk had it known of an ongoing criminal investigation into a director, but did so on the strength of a clearly articulated underwriting referral policy. Insurers who cannot produce such evidence will find avoidance under Sch 1 para 4 difficult to sustain.
6. The leading case law
A small but growing body of case law illustrates how the courts have approached the new remedies.
6.1 Young v Royal and Sun Alliance Insurance Plc [2019] CSOH 32
The first significant Insurance Act 2015 decision was given by Lord Doherty in the Outer House of the Court of Session. Mr Young had insured commercial premises through a broker. The proposal documentation asked whether any insured had been the subject of insolvency or liquidation events. A “no” answer was given, but in fact a company associated with Mr Young had been the subject of receivership and liquidation. Lord Doherty held that the duty of fair presentation had been breached because the question on the schedule was a clear signpost to a material circumstance. RSA had shown that it would not have written the risk had a fair presentation been made — it was avoidance under Sch 1 para 4 territory — and the policy was duly avoided with return of premium. The case is a useful early illustration that the courts will police s.3 vigorously where insurers have given clear notice through their proposal forms.
6.2 Berkshire Assets (West London) Ltd v AXA Insurance UK Plc [2021] EWHC 2689 (Comm)
A property development company suffered a substantial fire loss. AXA repudiated on the basis that a director had been the subject of fraud charges in Indian criminal proceedings, which had not been disclosed. Cockerill J accepted that the proceedings were a material circumstance, that the duty of fair presentation had been breached, and (critically) that AXA’s underwriting evidence showed it would not have written the risk had disclosure been made. The avoidance was upheld under Sch 1 para 4. The case is the high-water mark for insurers but also a reminder that the underwriting evidence has to be cogent: AXA’s witnesses were credible and their referral policy was clear.
6.3 Jones v Zurich Insurance Plc [2021] EWHC 1320 (Comm)
A claim under a travel policy was defeated by misrepresentations about the insured’s medical history. The court treated the relevant misrepresentation as having been made deliberately or recklessly within the meaning of s.8(5) (and, for consumer purposes, the corresponding provisions of CIDRA), so that avoidance with retention of premium followed. The case is a useful reminder that the deliberate/reckless test, although demanding, is achievable on the right facts and that the courts will not be squeamish about applying the harsher remedy where the evidence supports it.
7. Worked example: all three Schedule 1 outcomes
Assume a Bristol-based logistics company places a £10m property and business interruption programme. The annual premium is £40,000. After a £2m fire loss the insurer discovers that the disclosure made on placement understated the company’s claims history, omitting a £150,000 burglary claim two years earlier. The breach is qualifying — the insurer would have done something differently with the additional information — but is not deliberate or reckless (the loss was overlooked during a transition between brokers).
Three counterfactuals illustrate the menu of remedies under Sch 1.
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Counterfactual A — would not have written the risk at all. The insurer’s underwriting evidence shows that any prior burglary loss in excess of £100,000 would have triggered a referral to the schedule manager, who would have declined the risk on portfolio grounds. Outcome: avoidance under Sch 1 para 4, return of premium £40,000, claim refused in full.
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Counterfactual B — would have written on different terms. The underwriting guide shows that a prior burglary loss would have triggered a £50,000 burglary excess (the fire claim is not affected) and a 24-month BI indemnity limit instead of 36 months. Outcome: under Sch 1 para 5 the policy is read as if the burglary excess and shorter BI limit applied. The fire claim is paid in full because the additional terms relate to perils that are not in issue.
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Counterfactual C — would have charged a higher premium. The actuarial rating sheet shows that the rating factor for the prior burglary loss would have produced a premium of £50,000 (not £40,000). Outcome: under Sch 1 para 6 the claim is reduced by 40,000/50,000 = 0.8, so the £2m claim becomes £1.6m. The £400,000 reduction is the price of the under-disclosure.
The example also shows why brokers need to interrogate insurer “but-for” evidence carefully: the difference between A, B and C can be the difference between zero, £1.6m and £2m.
8. Practical guidance for brokers and insureds
- Demand the underwriting evidence. Where an insurer alleges a qualifying breach, the broker should require sight of the underwriting submissions and rating sheets the insurer relies on for its “but for” position. The insurer carries the burden under s.8 and Schedule 1 paragraphs 4–6; vague assertions by claims handlers are not enough.
- Test the counterfactual. It is not unusual for an insurer’s first position (we would not have written the risk) to soften under scrutiny into a Sch 1 para 5 or para 6 outcome. The proportionate remedies are precisely intended to enable that recalibration.
- Document the placement. The single best protection against a s.8 dispute is a contemporaneous file showing the placement strategy, the questions asked, the answers given and the underwriter’s response. Brokers should keep a clear audit trail of every “signposting” question raised by the market.
- Engage early. Once an insurer raises a fair presentation issue, the proportionate remedies regime gives the insured a real interest in negotiating. The shape of the available remedy may depend on the strength of the insurer’s underwriting evidence and the broker’s ability to put that evidence under pressure.
- Beware contracting out. As we explain in our companion article on Part 5 of the Act, insurers can in some cases contract out of the proportionate remedies regime. Brokers should scrutinise policy wordings and market reform contract clauses for any such opt-outs and flag them in writing.
Frequently Asked Questions
1. What is a “qualifying breach” under the Insurance Act 2015? A qualifying breach is a breach of the duty of fair presentation where, but for that breach, the insurer would not have entered into the contract at all or would have done so on different terms (s.8(1)). Only qualifying breaches give rise to any remedy at all.
2. Can an insurer still avoid a commercial policy under the Insurance Act 2015? Yes, but only in two situations: where the breach was deliberate or reckless (Sch 1 para 2), in which case avoidance is with retention of premium; or where the breach was neither deliberate nor reckless but the insurer would not have written the risk at all (Sch 1 para 4), in which case avoidance is with return of premium.
3. How is the proportionate reduction of a claim calculated? Where the insurer would have charged a higher premium, the claim is reduced by multiplying the claim amount by (premium actually charged / premium that would have been charged): Sch 1 para 6.
4. Who bears the burden of proving a qualifying breach? The insurer. It must prove both that there was a breach of the duty of fair presentation and that the breach was qualifying. For the deliberate/reckless remedy, the insurer must also prove the requisite state of mind (s.8(6)).
5. What evidence does an insurer need to satisfy the “but for” test? Typically witness evidence from the underwriter who wrote the risk, supported by underwriting guides, referral protocols, rating sheets and (in larger placements) peer review notes. Berkshire Assets v AXA shows that cogent and documented underwriting evidence is essential.
6. Does the Insurance Act 2015 apply to consumer insurance? No. Consumer insurance is governed by the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), which has its own remedies regime broadly parallel to Schedule 1 of the 2015 Act.
7. Can the parties agree a different remedies regime in the contract? Yes, but only in non-consumer contracts and only if the transparency requirements in s.16 of the Act are met. See our companion article on contracting out for the detail.
8. What is the practical effect of the deliberate/reckless cut-off in s.8(5)? It allows insurers to retain the full draconian remedy — avoidance and retained premium — only where the insured has acted dishonestly or with wilful indifference. In all other cases the remedy is calibrated to what the insurer would have done with full information.
Related articles in this series
- An Overview of the Insurance Act 2015 — A Broker’s View
- The Duty of Fair Presentation under the Insurance Act 2015
- The Material Circumstance Test under the Insurance Act 2015
- Warranties: How the Insurance Act 2015 Changed the Rules
- Terms Not Relevant to the Actual Loss
- Remedies for Breach of the Fair Presentation Duty (this article)
- Contracting Out of the Insurance Act 2015
- Condition Precedent vs Warranty after the Insurance Act 2015
- Late Payment of Claims under the Insurance Act 2015
- The Insurance Act 2015’s Impact on Professional Indemnity Claims
Reviewed by the Apex Insurance Brokers technical team, May 2026. Apex Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority (firm reference 724952) and is registered in England and Wales (Companies House 07014570). This article is general guidance and is not legal advice; insureds should take advice on specific facts.