Section 8 of the Insurance Act 2015 governs what an insurer may do when a firm breaches the duty of fair presentation. It replaced the old all-or-nothing rule, under which any material non-disclosure let the insurer avoid the whole policy, with a graduated set of remedies keyed to how serious the breach was.
An insurer has a remedy only for a qualifying breach: one where, but for the breach, the insurer would not have entered the contract at all, or would have done so only on different terms. If the insurer would have written the same cover regardless, there is no remedy. This causal test protects firms from technical points that made no difference to underwriting.
Schedule 1 sets the remedies. Where the breach was deliberate or reckless, meaning the firm knew it was in breach or did not care, the insurer may avoid the contract, refuse all claims and retain the premium. This is the most serious outcome and is reserved for dishonest or cavalier presentations.
Where the breach was neither deliberate nor reckless, the remedy is proportionate to what the insurer would have done. If the insurer would not have written the risk at all, it may avoid, but must return the premium. If it would have imposed different terms, the contract is treated as including those terms. If it would have charged a higher premium, the claim is reduced proportionately: the insurer pays the fraction that the premium actually charged bears to the premium it would have charged.
The proportionate regime means an honest mistake in a proposal no longer automatically destroys cover. An accountant or financial adviser who carelessly understated fee income may find a claim scaled back rather than refused outright. The accountants' PI guide and the IFAs' PI guide explain why accurate income and work-type figures matter at proposal stage.
Section 8 rewards firms that present carefully and can evidence their reasonable search under section 4. Apex documents presentations so that, if a question ever arises, the firm can show the breach, if any, was innocent rather than reckless, which is the difference between a reduced claim and none at all.
Proportionate reduction is most easily understood with figures. Suppose a firm carelessly understated its fee income, and the insurer charged a premium of 8,000 pounds when, on the correct figures, it would have charged 10,000 pounds. The insurer would have written the risk, just at a higher price. Under Schedule 1 the claim is reduced to the proportion the premium paid bears to the premium that should have been charged, that is 8,000 divided by 10,000, or 80 per cent. A 200,000 pound claim would be met at 160,000 pounds. The firm is not left with nothing, but it does bear a share, which is why accurate figures matter.
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.