One of the driving forces behind the Insurance Act 2015 was to modernise the law to achieve a better balance, as the Law Commission and Parliament saw it, between the interests of the insured and the insurer.
One of the key areas in which the new legislation seeks to achieve this objective is in relation to the insured’s pre-contractual duty to make a ‘fair presentation’ of the risk at placement. Not only is there now greater flexibility in how that duty may be discharged, there is also, crucially, a new set of remedies which should be proportionate to the severity of the breach and which are intended to put the parties in the position that they would have been in had a fair presentation been made at the outset. The Law Commission, Parliament and indeed the courts over the years, had all criticised the all or nothing remedy of avoidance of the contract, which was seen as disproportionately harsh in the case of an innocent breach of duty by the insured.
In light of the extensive publicity given to the new remedies, it can be easy to forget that IA15 still gives the insurer the right to avoid the contract if the underwriter can prove that he would not have written the risk at all had a fair presentation been made. This is illustrated by a recent decision of the Commercial Court in Dalecroft Properties Limited v Underwriters.
Dalecroft was the owner of a mixed commercial and residential property in Margate, including a hostel and amusement arcade. The property was insured by a number of syndicates at Lloyd’s. In 2009 a fire caused severe damage to the property, leaving it in such a state that it needed to be demolished and rebuilt. Dalecroft made a claim but the insurers sought to avoid the policy, arguing that Dalecroft had made a number of misrepresentations and/or non-disclosures principally relating to the description and condition of the property. The events which led to the claim took place between 2007 and 2009, well before IA15 came into effect, and so the applicable law was the Marine Insurance Act 1906. On the facts the Court held that a number of the insurers’ allegations were made out and that they were, therefore, entitled to avoid the policy from inception. Interestingly, the Judge went on to note, however, that he would have come to the same conclusion had IA15 applied. The evidence, he said, satisfied him that Dalecroft had made no real effort to make a fair presentation of the risk (as defined in IA15) to the insurers. He was also satisfied that the insurers would have declined the risk – i.e. would not have entered into the contract on any terms – had a fair presentation been made. It followed, then, that even under IA15 the insurers would have been entitled to avoid the policy in order to put them in the position they would have been in had a fair presentation been made.