Policy Avoidance Disputes: The Role of an Underwriting Expert

Many of the legal disputes that I see between insurer and insured relate to the that area of insurance which is commonly identified as policy avoidance due to non-disclosure or misrepresentation.

This arises from an alleged failure by an insured or its representative to disclose or properly represent information material to the risk during the pre-bind stage of the underwriting process.

Policy avoidance on the part of an insurer is often considered to be a very serious matter as it not only involves denial of the claim in question, but it is a process which denies an insured of all of its policy rights. In effect, an insurer, in such circumstances, is seeking to treat the policy as void ab initio. In practical terms, the policy is void from inception and never existed.

The area of policy avoidance due to non-disclosure or misrepresentation is often governed by a state’s legal regime, whether this be statute or by case-law. The current applicable law in the UK is the Insurance Act 2015. This statute amended the Marine Insurance Act 1906 as well as all corresponding case law on the subject.

Under the Insurance Act 2015, an insured has a duty of Fair Presentation of Risk. On the other hand, for an insurer to succeed, a disclosure and or misrepresentation must be material and unlike the prior regime, an insurer does not earn the automatic right to avoid the policy, particularly in cases where an insurer was put on notice to make further enquiries.

The drafters of the Act acknowledge that, in recent decades, an insurer has generally become well positioned to access underwriting information that was not readily available, say, earlier in the 1900s. The era of the internet is a prime example of access to significant resources and consequently, an underwriter cannot sit back and expect to be told everything about a particular risk if he has been given information to conduct further enquiries. He is required to do so.

Another change introduced by the 2015 Act is that an insurer is not entitled to avoid the policy solely on the grounds that he would have charged a higher premium or imposed different terms (such as a higher deductible) if he had been advised of certain material information.

How can an underwriting expert assist the court or tribunal?

An underwriting expert can and does assist in many ways. An underwriting expert is often a former underwriter in a specific class of business who will draw on his knowledge and experience of custom, usage and practice in the industry with regard to answering such questions as: What would a prudent underwriter consider to be material information? If a prudent underwriter had been aware of the information, what premium would he have charged and what terms would he have imposed? Would a prudent underwriter have avoided the policy in such circumstances? What enquiries would a prudent underwriter have made if he was put on notice of certain information? What was the underwriting process in a given case?

If your client requires assistance on such matters, please contact me at alan@pennineit-demo4.co.uk for a free one hour consultation to explain the circumstances of your case.