Section 9 of the Insurance Act 2015 removed one of the harshest features of the pre-reform insurance landscape. Before the Act came into force on 12 August 2016, most commercial proposal forms contained a short declaration at the foot of the page stating that the answers given formed the ‘basis of the contract’ between the proposer and the insurer. The legal effect of that phrase was to convert every pre-contractual answer — however trivial, however innocently given — into a contractual warranty. Breach of a warranty at inception discharged the insurer from all liability, so an inaccuracy on a proposal form could vitiate the policy from inception even where the point in question was immaterial and the mistake honestly made.
The device worked in two moves. First, the proposer signed a declaration in the following (or very similar) form: ‘I/We warrant that the answers given above are true and complete and agree that this proposal and declaration shall form the basis of the contract between me/us and the insurer.’ Second, the common law then treated every answer as a warranty of its own truth. There was no requirement of materiality and no requirement that the insurer had actually relied on the answer.
The foundational unhappy example is Dawsons Ltd v Bonnin [1922] 2 AC 413. A Glasgow haulage company insured a lorry and, on the proposal form, gave the address at which the vehicle was ordinarily garaged as its registered office in central Glasgow. In fact the lorry was kept at a yard on the outskirts of the city. The error was innocent and, on the evidence, immaterial to the risk. The lorry was destroyed by fire. The House of Lords held that the basis-of-contract declaration had turned the address answer into a warranty, that the warranty had been breached, and that the insurer was accordingly not liable. The policyholder lost the claim on a point that had nothing to do with the loss.
The Law Commission and Scottish Law Commission characterised this state of affairs, in Consultation Paper 204 (2012), as a ‘legal trap’ that operated harshly against commercial insureds and undermined contract certainty. The consultation paper recommended abolition of the device outright, and Parliament accepted the recommendation.
Section 9(1) provides that a representation made by an insured in connection with a proposed non-consumer insurance contract, or a proposed variation, is not capable of being converted into a warranty by means of any provision of the contract or of any other contract. Section 9(2) provides that this section applies notwithstanding any contract term to the contrary. The provision therefore has effect regardless of what the parties’ drafting purports to achieve. The equivalent provision for consumer insurance is section 6 of the Consumer Insurance (Disclosure and Representations) Act 2012. Between the two Acts, basis-of-contract clauses have no legal effect in any UK insurance contract, consumer or commercial.
The pre-contractual answers a commercial client gives on a proposal form are now governed by the duty of fair presentation in section 3 of the Insurance Act 2015. A commercial insured must disclose every material circumstance which the insured knows or ought to know, or, failing that, sufficient information to put a prudent insurer on notice that further enquiries are needed. The manner of disclosure must be reasonably clear and accessible to a prudent insurer, and representations of fact must be substantially correct.
Where the duty is breached, the insurer’s remedies are the proportionate remedies in section 8 and Schedule 1 — not automatic avoidance. Innocent inaccuracies attract no remedy against the insured beyond the position the insurer would have taken had the truth been known.
Insurers have, on the whole, revised their proposal forms to remove basis-of-contract declarations. Occasional legacy wordings still appear, particularly on renewal forms that have not been refreshed. Where such a clause is encountered, section 9 renders it of no effect — but the safer course is to raise the point with the insurer and have the wording corrected. Apex Insurance Brokers reviews proposal forms as part of the standard renewal workflow and flags any residual basis-clause language.
Worked example (illustrative only). A solicitor firm completes its 2018 professional indemnity renewal proposal form. The form contains, inherited from an earlier template, a basis-of-contract declaration. In answering the claims-experience section the firm inadvertently understates a minor circumstance figure. Under the pre-2016 law, the insurer would have been entitled to avoid the policy from inception on the strength of the basis clause, irrespective of materiality. Under section 9, that basis clause has no legal effect. The insurer’s remedies are governed by section 8 of the Insurance Act 2015. On an innocent misrepresentation, and provided the insurer would still have written the risk, the policy stands; the insurer may seek a premium adjustment or apply an additional exclusion consistent with the terms it would have imposed had the full picture been known.
See the companion entry on the Insurance Act 2015 warranties reform for the parallel changes to warranty law under sections 10 and 11. Sector guidance on the duty of fair presentation is set out in the Apex solicitors’ PI, accountants’ PI and IFA PI pillar guides.
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.