The duty of fair presentation under section 3 of the Insurance Act 2015 sits at the heart of any commercial professional indemnity placement. Section 7 answers the question section 3 leaves open: when the insured is a partnership, an LLP or a company, whose knowledge counts? The answer shapes how a firm prepares for renewal and how the broker structures the disclosure exercise.
In short, the insured is presumed to know what its senior management knows, what those responsible for arranging the insurance know, and what a reasonable search of information available within the organisation would reveal. The provision sits in section 7 and is read with the definition of senior management in section 4(8).
Section 4(8) defines senior management as those individuals who play significant roles in decisions about how the insured's activities are managed or organised. Job titles do not settle the question. A managing partner, a finance director, a head of risk, the controlling director of a small consultancy — each may fall within the definition depending on the role they play in practice.
For a small firm the population is obvious. In a larger partnership the courts look at decision-making in the round rather than at the organogram. The Scottish authority in Young v Royal & Sun Alliance Insurance plc [2019] CSIH 32 considered how the Act's attribution rules apply where a director's prior bankruptcy was not disclosed; the Inner House confirmed that the test is functional and that an insurer is entitled to expect material facts about senior decision-makers to be put before it.
Section 7(3) extends the net to anyone responsible for the insured's insurance. That is usually the partner or director who liaises with the broker, signs the proposal and approves the cover. It can also include an in-house risk or compliance manager who runs the renewal process. Their knowledge — including knowledge they ought to have gathered — is attributed to the firm.
Section 3(5) requires the insured to disclose what it knows or ought to know. Section 7 makes clear that what the firm ought to know includes information a reasonable search would reveal. The search must extend across the organisation, not only within the team handling the renewal.
The search has to be proportionate to the size and complexity of the firm. A sole practitioner's reasonable search looks very different from that of a 200-partner accountancy practice. The principle is the same: a firm cannot ring-fence inconvenient knowledge in a department and claim ignorance at renewal.
This is an illustrative scenario, not a real matter. Imagine a 40-partner law firm. The managing partner arranges the PI renewal each year and signs the proposal. Six months before renewal, a conveyancing partner receives a serious written complaint alleging negligent advice on a £4m commercial purchase. The complaint is logged with the compliance officer but no one tells the managing partner.
At renewal the proposal asks about circumstances which may give rise to a claim. The managing partner answers honestly on the basis of what he personally knows — and the complaint is not disclosed.
Under section 7 the firm is still treated as knowing about it. The conveyancing partner counts as senior management because partners share in the management of the firm. The compliance officer holds the record. A reasonable search — a circular to partners and a check of the complaints register — would have surfaced the matter. The non-disclosure is a qualifying breach under section 3, with remedies under schedule 1 ranging from proportionate reduction to avoidance if the breach is deliberate or reckless.
Large firms cannot quarantine knowledge in one department and rely on the renewal team's ignorance. The Act assumes joined-up information flow. For sector-specific guidance, Apex publishes pillar resources for solicitors, accountants, architects and surveyors, each of which sets out the renewal disclosure exercise in more detail.
The discipline Apex encourages is simple. Identify the senior management population. Identify those responsible for the insurance. Run a documented reasonable search across the firm. Record what was asked, who responded, and what was found.
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.