An application for professional indemnity insurance is normally made through a proposal form and requires full disclosure of all material information. However, this can also include information which may not be requested in the proposal form.
Please read this document carefully as a failure to disclose material information to an insurer can adversely affect the insurance contract.
We recommend this guide is circulated to all Partners, Directors and Senior Managers for risk management purposes (and CPD, if applicable).
- Obligations of the Insured
- Material Information
- When to disclose
- Failure to disclose
- Examples of material information
An application for professional indemnity insurance is normally made with the completion of a proposal form and requires full disclosure of all material information.
In recent years, insurance companies have reduced the amount of information they require for quotation purposes. On the face of it, this seems to benefit the policyholder because it means less form filling, saving valuable time. However, it can in fact create potential non-disclosure problems for the Insured. Just because the proposal form doesn't ask the question, doesn't mean you won't need to tell the Insurer.
This requirement increases the burden on the person in the business responsible for buying this insurance, because material information means 'any information that will influence an underwriters rating or decision on providing cover'. Given that this is open to interpretation, it’s a grey area and a common cause of disputes with Insurers.
An insured should at all times act with utmost good faith towards the insurer. The insured must disclose to insurers all information, facts or circumstances which are, or ought to be known to the insured and which are material to the risk.
When providing information or completing a proposal form the insured should take care that the details provided are complete and accurate. The insured should note that their duty of disclosure is not only confined to the questions listed in the form. All material facts should be disclosed to insurers regardless of whether the insurer has asked for it.
Under English law, every circumstance is material if it would influence the judgement of a prudent insurer in fixing the premium and terms of the insurance, or determining whether to accept the risk. A circumstance may be material even if disclosure would not necessarily have led to an increased premium or declinature of the risk. If the insured is unsure whether a fact is material, our advice is that it should be declared.
An insured’s duty of disclosure applies throughout the negotiation preceding placing of the insurance policy until the insurer has agreed to accept the risk and set the terms, premium and level of participation and the insurance contract finalised. A post-contract duty of disclosure extends to:
- When the insured wishes to vary terms of the original insurance contract so the insurer takes on additional risk.
- When a policy condition requires the insured to advise insurers of specific increase or alteration in risk.
- An extension to the policy period.
Non-disclosure by the insured may allow the insurer to avoid the policy even if the non-disclosure is accidental and irrelevant to a claim. An insurer can also seek recovery of any prior paid claims under the avoided policy.
- Business activities or any changes to business activities
- New companies, acquisitions or disposals
- Additional premises
- Higher than ordinary degree of risk or liability
- Claims or circumstances - this could apply to uninsured as well as insured matters
- Criminal conviction or regulatory investigation or enforcement
- A previous declinature, refusal to renew, imposed terms, restrictions in cover, mid-term cancellations.
This list provides examples only and is not an exhaustive list. If in any doubt, disclose.
This guidance note is intended for information purposes only. It is not and does not purport to be legal or accountancy advice. Whilst all care has been taken to ensure the accuracy of the guidance note it is not to be regarded as a substitute for specific advice. This guidance note shall not be reproduced in any form without our prior permission. © Professional Indemnity Insurance Brokers.