Contents
Part 1: Introduction
1. Need for disclosure procedures
2. Marine Insurance Act 1906
3. Law Commission review of insurance contract law
4. Current insurance market practices
Part 2: Disclosure procedures
5. Design of disclosure procedures
6. Material facts and material information
7. Disclosure roles and responsibilities
8. Evaluating existing disclosure procedures
9. Improving disclosure procedures
10. Remedies available in the event of non-disclosure
Appendix A: Checklist for disclosure procedures
Appendix B: Airmic non-disclosure clause
Disclosure of material facts and information in business insurance
Page 1
Part 1: Introduction
The insured is responsible for disclosing all material facts and information about the
business, its activities, products / services, geographical spread, insurance history
and loss experience, so that the insurer can provide policy terms and conditions
1. Need for disclosure procedures
Insurance contract law is governed by the principle of “Uberrima Fides” or utmost good faith.
This principle requires a business buying insurance to (1) disclose all the material facts and
information about the business; (2) not misrepresent the business; and (3) not provide
information that is misleading. This duty applies to all material facts and material information
that the business knows, or should know.
A material fact has been defined in a number of legal cases as “any fact that may influence
the judgment of a prudent insurer in deciding whether to accept a risk and if so, on what
terms and conditions and at what level of premium.”
The law that currently (June 2011) applies to all insurance contracts is the Marine Insurance
Act 1906 (MIA). As the law stands, if a company (the insured) fails to disclose a material
fact and this induces the insurer to accept the proposed risk, the legal remedy available to
the insurer is to avoid the policy “ab initio” or from the beginning. This means the insurer
would be entitled to treat the policy as if it never existed.
Avoidance ab initio is the permitted legal remedy even if (1) the disclosure was innocent or
careless; and (2) the non-disclosed fact was not relevant to the cause of any loss or
associated claim that occurred. It is the opinion of Airmic that it is unfair and
disproportionate that an insurer is legally entitled to avoid all of the terms of an insurance
contact because of any non-disclosure of a material fact or material information.
Accordingly, Airmic has developed a draft clause for inclusion in insurance policies that
would ensure that a proportionate remedy is available to insurers in the event of nondisclosure of material information.
The draft clause has been developed in consultation with Airmic partners, although this does
not guarantee that the clause will automatically be accepted by any individual insurer. Any
company seeking to include the clause in their insurance contract(s) should obtain legal
advice regarding the suitability of the clause for their own particular circumstances.
The guide describes an approach to disclosure processes and so it is wider in scope than
the draft clause. The draft clause is specifically relates to remedies in the event of nondisclosure of material information, whereas the guide is also concerned with actions that can
be taken to reduce the chances of non-disclosure occurring. The advice set out in this guide
is not intended to be prescriptive. There are other equally effective means of ensuring that
suitable and sufficient disclosure procedures have been designed and implemented.
The insured needs to develop suitable and sufficient procedures to facilitate full disclosure of
material facts and information. The primary purpose of these disclosure procedures is to
ensure that an accurate statement of all material facts and information is made. The
disclosure procedures should be fully documented to ensure that evidence exists to prove
that due diligence was applied to discovery and disclosure activities. Many companies will
wish to (1) agree with insurers the definition of material facts and material information; and
(2) obtain approval of the disclosure procedures that will be followed.
Disclosure of material facts and information in business insurance
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2. Marine Insurance Act 1906
The Marine Insurance Act 1906 (MIA) sets the legal framework for the disclosure of material
information in pre-contract negotiations between insurers and insureds (and their agents) for
all classes of insurance (marine and non-marine) in the UK. The Act enables an insurer to
avoid a policy (as if it never existed) if the insurer can show that the insured did not disclose
‘a material fact’ prior to the inception of the contract. The test of materiality is that which a
‘prudent insurer’ would deem to be material to the underwriting of the risk. This judgement
will often, in practice, be exercised only after the occurrence of a claim.
In the intervening century since the enactment of the MIA, insurance buying has changed in
ways that could not have been foreseen in 1906. It is the view of Airmic and its members
that the disclosure obligations of the MIA create unacceptable uncertainties between
insureds and insurers. Additionally, more favourable legal frameworks in competing
jurisdictions create a potential competitive disadvantage for the UK insurance market.
The insured has an obligation to anticipate before the inception of the contract, what
information a ‘prudent insurer’ might consider material at some later date (usually) when a
claim arises. Further, under the MIA, the insured is deemed to have known circumstances
(material facts and material information) which ought to be known as well as those which
were actually known. In order for the remedy of avoidance ab initio to be available, the nondisclosure has to offer “inducement” to the insurer to write the policy.
Under the MIA, the legal remedy available to the insurer in the event of non-disclosure of a
material fact is the avoidance of the policy ab initio. Ab initio is a legal term meaning from
the beginning, so the policy will be treated as if it never existed. This means that, in the
event of non-disclosure being discovered, the premium will be returned and all claims
moneys already paid under the policy will need to be repaid by the insured to the insurer.
The MIA does not consider the nature or circumstances of the non-disclosure. The remedy
of avoidance ab initio is available regardless of whether the non-disclosure was innocent,
careless, negligent, deliberate, reckless or even fraudulent. Also, the MIA does not offer
different remedies depending on whether the information was relevant to the specific loss or
claim that has occurred. In all circumstances of non-disclosure of material information, the
legal remedy of avoiding the policy as if it never existed is available to the insurer.
The remedy of avoidance ab initio is biased in favour of the insurer, to the detriment of the
insured. Therefore, it is the opinion of Airmic that this remedy is unfair and disproportionate,
for a number of reasons:
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The non-disclosed information may not be relevant to the claim that caused the nondisclosure to be discovered
The insurer may have been willing to write the policy on the same terms and
conditions, even if the information was known
The variation in terms and conditions may have been minor, so that the nondisclosure is used as an excuse by the insurer not to pay the claim
The non-disclosure may have been innocent, reasonable or (at worst) careless,
rather than fraudulent or reckless
The non-disclosed information may not have been requested or even discussed at
renewal by the insurer
The insured may not have realised that the information was (in the opinion of the
insurer) material to the placement of the policy
Disclosure of material facts and information in business insurance
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3. Law Commission review of insurance contract law
The Law Commissions in Scotland and in England and Wales (the Law Commission) have
recognised the need for reform of the Marine Insurance Act 1906 and have undertaken
extensive research and market consultation on proposed reform. There have been several
attempts to reform the MIA since it was introduced. The Law Commission recognise that the
single legal remedy of avoidance ab initio is unfair and often disproportionate, depending on
the circumstances of the non-disclosure.
The insurance market has supported the need for reform of consumer (personal lines)
insurance contract law in respect of non-disclosure and a Bill is currently being considered
by the UK Government. Due to the size and scope of the project, the Law Commission
separated pre-contract consumer and business issues and are currently considering their
proposals for business insurance. However, the reform of the legal framework for business
insurance is likely to take longer as the Law Commission will be consulting on their revised
proposals at the end of 2011 or early 2012. The comments below are based on current
understanding of the views of the Law Commission, but are subject to further consultation.
The remedy for non-disclosure and misrepresentation under the Consumer Insurance
(Disclosure and Representations) Bill dealing with consumer insurance law reform, proposes
that the nature of the remedy available to the insurer should depend on the nature of the
representation by the consumer. If a consumer makes a deliberate or reckless
misrepresentation the Bill permits the insurer to treat the contract as if it never existed and
refuse all claims. If it is considered careless, the insurer may have a remedy according to
whether it would have entered into the contract on different terms. The Bill will also take into
account whether the consumer has taken reasonable care.
It is the opinion of Airmic that, for business insurance, non-disclosure should be classified
simply as either (1) fraudulent; or (2) non-fraudulent. Therefore, this guide is concerned with
failure to disclose all material information, in circumstances other than those where the
behaviour of the insured may be considered to be fraudulent.
In considering the results of a consultation and discussions with the industry, Airmic
understands that the Law Commission has come to the view that attempts to define “material
information” are not helpful. The Law Commission also (Airmic understands) considers that
defining material information should be left to the common law and existing decided cases.
In addition, Airmic understands that the Law Commission will also be taking into account the
fact that this is part of a two-stage test and that the insurer must also demonstrate that it was
‘induced’ to enter into the contract. The insurer must show that full and accurate disclosure
would have led the underwriter in question not to enter into the policy, either at all or on
different terms.
The Law Commission is currently of the view that where a non-disclosure has taken place,
the insurer should be entitled to an appropriate remedy. Airmic agrees with this opinion, and
that the remedy of avoidance ab initio should only be available (1) in cases of fraudulent
non-disclosure; and (2) in circumstances where the insurer can prove that it would not have
entered the insurance contract if the material information had been disclosed.
In all other circumstances, it is the opinion of Airmic that avoidance ab initio should not be an
available remedy. In simple terms, Airmic has the view that any remedy should be
proportionate to the nature of the non-disclosure and the circumstances that gave rise to that
non-disclosure.
Disclosure of material facts and information in business insurance
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4. Current insurance market practice
It has been suggested by some insurers that the Marine Insurance Act 1906 (MIA) is
adequate and does not need to be reformed, because it is rarely enforced. These insurers
also suggest that any reform of the MIA would cause more confusion. Airmic holds the view
that there is currently significant confusion around the existing requirements, to the extent
that urgent action is required.
The fact that, in many circumstances, insurers follow what appears to be current insurance
market practice by not seeking enforcement of the full provisions of the MIA is not a basis on
which to reject reform. If a case goes to Court, the Courts will be guided by the law and not
historical insurance market practice. The Airmic approach is that business insurance
contracts should be aligned with best practice by including a clause in these contracts that
specifically over-rides the legal framework set out in the MIA.
For many large, complex international companies, the disclosure obligations of the MIA have
become very onerous. Identification, collection and collation of all material information
related to the risk can be a very difficult task that involves multiple sources of information. In
many cases, goodwill on the part of insurers prevails and claims are often settled, even
though the insurer may have been able to challenge the completeness and / or accuracy of
the disclosed information.
However, a recent Airmic survey found that a significant number of members have been
negatively impacted by allegations of non-disclosure in the last five years. It is also the case
that, given the size, nature and complexity of many businesses, it may be very difficult to
discover all material information during disclosure procedures.
It is likely that a large claim will result in a legal opinion being sought within the insurer on the
admissibility of the claim. This internal legal opinion may take into account the disclosure
requirements of the MIA and the legal ability of the insurer to avoid the policy ab initio. To
minimise these difficulties, businesses need robust disclosure procedures, perhaps agreed
in advance with insurers. These procedures need to be combined with an agreement with
insurers on remedies that will apply in the event of non-disclosure of material information.
This guide describes an approach to the development of suitable and sufficient disclosure
procedures. The approach is not intended to be prescriptive, but to act as the basis for the
evaluation and improvement of existing disclosure procedures. A checklist for the
development of suitable and sufficient disclosure procedures is set out in Appendix A.
As well as providing advice to buyers of business insurance on the design of disclosure
procedures, Airmic has also sought the professional support of Herbert Smith in the
production of a non-disclosure clause for inclusion in business insurance contracts. A copy
of the clause is attached to this guide as Appendix B. The purpose of this clause is to
ensure that proportionate remedies are available in circumstances where the non-disclosure
has been other than fraudulent. The proposed non-disclosure clause is discussed further in
section 10 of this guide.
Disclosure of material facts and information in business insurance
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Part 2: Disclosure procedures
The duty of disclosure applies to submission of written risk exposure information,
during discussions with insurers prior to issue of the policy and (depending on the
policy terms and conditions) throughout the period of insurance, as well as at renewal
5. Design of disclosure procedures
Disclosure procedures should be proportionate to the size, nature and complexity of the
business. For many companies, the disclosure procedures will be simple and will merely
involve completion of a proposal form by an authorised person. However, for large complex
businesses, formal disclosure procedures are likely to be required. Disclosure procedures
should include identification of the various disclosure roles and responsibilities.
Key roles and responsibilities need to be allocated, as follows: (1) knowledgeable person (or
persons); (2) responsible person; and (3) authorised person. A knowledgeable person is a
person who holds or has access to the material information that is required to be disclosed.
The responsible person has the task of compiling all material information and ensuring that it
is presented in a way that does not misrepresent the risk, or is misleading in any way.
The authorised person will sign-off the information as full and accurate and seek assurance
that the disclosure procedures are suitable and sufficient. The authorised person will also
need assurance that adequate disclosure controls in place. Additionally, assurance will be
required that the procedures were diligently followed. It is possible that two (or even all three
in a small business) of these roles may be allocated to the same person, or that the roles will
vary with different classes of business.
For example, the risk manager may be the authorised person who is able to approve the
final underwriting submission for property insurance, with the insurance broker acting as the
responsible person collecting the exposure information. However, for Directors and Officers
Liability Insurance (D&O), the risk manager may be the responsible person - with the chief
executive acting as authorised person. When designing and implementing disclosure
procedures, the business should ask the following questions:
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Who is responsible for developing and implementing the disclosure procedures and
have the procedures been documented for approval within the business
Has due regard been paid to existing disclosure procedures and has an evaluation
been undertaken of the effectiveness of the procedures
Are the appropriate protocols, skills, understanding and resources available to fully
implement the disclosure procedures
Are the disclosure procedures detailed and comprehensive, as well as being
consistent with other activities in the business
Do the disclosure controls and procedures ensure timely collection, collation,
validation and disclosure of material information
Has the scope of information that is required been clearly defined and is there ready
access to the required data and information
Have validation checks been put in place for checking the information and do these
validation checks also evaluate the disclosure controls
Have decisions been taken on how the information will be presented to the insurance
market, including a description of the report format that will be used
Do the procedures include review and feedback so that performance of the
procedures can be evaluated and further improvements implemented, as required
Disclosure of material facts and information in business insurance
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6. Material facts and material information
In order to achieve full disclosure of material facts, a company needs to identify the nature of
the material facts and material information. It may be appropriate to agree descriptions and
definitions with the insurer in advance, so that there is a clear understanding of the extent of
the information that is required to be disclosed.
Although there is no definitive legal definition, there have been many decided cases on the
definition of material information. Material facts and material information will depend on the
class of insurance, but will normally include the following:
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Business sector and activities, including processes, products and geographical areas
of business activities
Changes to business activities, acquisitions or disposals in relation to products,
markets, locations or supply chain
Additional premises, risks, insurable items, especially in high risk geographical,
geological or metrological areas
Higher than ordinary degree of risk, especially in relation to high value or very fragile
(for example) goods
Greater liability than normal or expected, possibly because of specific (industry)
contract terms of trade
Restricted rights of subrogation associated with claims or losses because of the
business sector or specific products
Previous claims history / experience of the business, especially in relation to
historical, emerging or other unexpected risks
Previous policy cancellation / refusal of insurance / special restrictions or conditions
applied to insurance contracts
Details of the trading profitability and financial status of the business, including
finance, insolvency or liquidation concerns
Status, reputation, length of service, qualifications and experience of board
members, as well as details of any criminal convictions
The Marine Insurance Act also sets out certain circumstances that need not be disclosed by
an insured and which would not be considered material, such as any circumstance that
diminishes the risk; facts within the knowledge of the insurer (such as – in the words of the
MIA – matters of “common notoriety”); any circumstances as to which information is waived
by the insurer or the insurer may be held by its conduct to have waived disclosure (such as
express or implied warranty). The exact nature of the circumstances that need not be
disclosed will always depend on the facts and circumstances of the case and may also be
covered by the common law.
Although it is not always required, there is sometimes a need to notify changes during the
term of the policy. If this is the case, the same disclosure procedures are likely to be used.
Any requirement to notify changes to exposure information during the terms of the policy
should be explicitly set out in the policy terms and conditions of the insurance contract.
Disclosure of material facts and information in business insurance
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7. Disclosure roles and responsibilities
Because of the importance of defining disclosure roles and responsibilities when developing
suitable and sufficient disclosure procedures, it is worth exploring this topic in more detail.
The insured will need to identify at least three roles, although more than one role may be
assigned to the same person. These three roles are related to the supply, collection and
approval of the information submitted to insurers. These roles can be summarised as:
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Knowledgeable person or persons who has knowledge of material facts / material
information and is used by the responsible person as a source of information
Responsible person who is in charge of administering the disclosure procedures and
compiling the consolidated disclosure report
Authorised person who is a senior officer of the insured and has the authority to signoff the consolidated information as complete and accurate
Existing disclosure procedures and activities will imply roles and responsibilities and these
should be evaluated as a means of checking and evaluating the existing procedures. When
establishing responsibilities for the disclosure procedures, it is important to have these
responsibilities fully documented. Recognition of the skills required and the scope of
information that should be collected will also need to be specified.
The sources of the information and the ease of access to the data should be considered.
The responsible person should evaluate the need for training and / or instruction for
knowledgeable persons, so that they understand their responsibilities and the importance of
the role that they fulfill. The authorised person may also need to be provided with additional
details of their disclosure responsibilities.
The style of presentation of the data in the final report will also need to be considered and
responsibility for formatting the disclosure document may need to be allocated. Many
businesses produce reports that provide underwriting information in a well formatted and
professional manner, rather than as a collection of spreadsheets.
The procedures described in this guide are most applicable to large corporate buyers of
insurance, but smaller businesses need to consider their disclosure procedures and scale
the advice provided in this guide so that it is appropriate for the size, nature and complexity
of the business.
For example, many large corporates are subject to the requirements of the Sarbanes Oxley
Act (SOX) and will have established a Disclosures Committee. SME’s are unlikely to be
subject to SOX and will not have such a committee. Nevertheless, the task of evaluating
information and ensuring that it is validated and signed-off by a senior executive will still
need to be allocated and diligently undertaken.
Disclosure of material facts and information in business insurance
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8. Evaluating existing disclosure procedures
All companies will have existing disclosure procedures for the collection, collation, validation
and presentation of underwriting information. Disclosure procedures are required for all
classes of insurance and they should include the following:
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Evaluation of information and assessment of materiality
Collection of relevant information from across the company
Production of timely, accurate and reliable information reports
Validation, so that the report can be signed-off by the authorised person
Production of an auditable trail of information collection and validation
Evaluation of the disclosure controls and their effectiveness
A review of the current status of the disclosure procedures should start by evaluating the
existing procedures and disclosure controls. If the controls are inadequate (depending on all
the facts and circumstances) the disclosure is likely to be considered by insurers as (at best)
careless. The role of any existing disclosures committee will need to be decided. The
following steps are a useful guide to suitable and sufficient disclosure procedures:
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Identify sources of material information for the insurance submission. These sources
might include business units and corporate specialist functions like property, finance,
accounting, treasury, legal and human resources.
Distribute a due diligence checklist describing the roles and responsibilities and the
nature of the disclosure requirements. The checklist should include a definition /
description of material information.
Larger companies may send detailed checklists and questionnaires to business units
describing the scope of information that is required. The need for detailed
instructions and / or training should be considered.
The existing disclosure procedures and controls should be evaluated. Appropriate
attention needs to be paid to all parts of the business to ensure that high risk
activities in smaller subsidiaries are not omitted.
The importance of understanding the concept of material facts and material
information needs to be emphasized. Business units should be given support and
advice to eliminate subjective interpretation.
The collection of material facts and information should not be treated as an annual
administrative task. The activity should not be viewed as something to be completed
with minimum effort based simply on repeating the information from last time.
After the information has collected, either (1) the disclosures committee; (2) an existing
committee (such as the Finance Committee); (3) a specifically established small committee;
or (4) a more informal group can be gathered to oversee the production of the final
underwriting submission. If a formal disclosures committee is not involved, it may also be
wise to engage with various specialist functions within of the company, possibly by
circulation of the completed underwriting submission.
Disclosure of material facts and information in business insurance
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9. Improving disclosure procedures
The collected data needs to be communicated so that timely decisions can be taken on
required disclosure information. There is a need for collection, validation, review,
compilation and authorisation of the material information. Very often, the authorised person
will be the chief executive, although the authorised person may be the risk manager in
certain circumstances and for certain classes of insurance.
Appendix A provides a checklist for the preparation of material information for submission to
insurers. In addition to the development and implementation of formal procedures, attention
should also be paid to the informal and less structured means of disclosing additional
information and / or providing amended or updated information to potential insurers:
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It is sometimes the case that information is collected by sending questionnaires to
the knowledgeable persons. The information collected in this way is part of the
material information and the originals of these questionnaires should be retained.
One of the more recent means of disclosing information to insurers is by the use of
data rooms, with access provided by supply of passwords. Visits to the data room by
(potential) insurers can then be tracked.
Sometimes, clarification of supplied information will be provided by e-mail or other
informal communication. The disclosure procedures should facilitate storage of
these more informal communications.
All sources of disclosed information that have been utilized should be evaluated and
the fact that these sources have been referenced should be recorded. This may
include reference to material information about the company on its website.
A record should be kept when insurers have been directed towards additional
sources of information, for example, the annual report and accounts. In this case, it
may be necessary to direct the insurer towards specific relevant pages.
Due diligence at all stages of the disclosure procedures is required. Appendix A provides a
checklist of actions involved in the collection, collation and validation of material facts and
material information for disclosure to the insurer. The following factors are important:
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Start by evaluation of the current disclosure procedures and the mechanisms for
good communications between all parties
Build on the existing disclosure procedures and evaluate existing policy and
procedures manuals for disclosure concerns
Identify the sources of information for a particular class of insurance and distribute a
due diligence checklist to each knowledgeable person
Establish the timetable for the collection, analysis, collation, validation and
submission of material information
Review the preparation and review draft disclosure reports and refer to finance, legal
and other specialist functions, as necessary
Avoid statements that cannot be fully substantiated, as these may misrepresent the
risk, or otherwise prove to be misleading
Disclosure procedures do not need to be complex to be effective, but the role and
responsibilities of appointed persons need to be fully understood and accepted
The disclosure procedures need to involve people of the required seniority, who are
given timely access to all relevant information for review
Insurance disclosures must be full and accurate and consistent with other information
about the business in the public domain
Disclosure of material facts and information in business insurance
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10. Remedies available in the event of non-disclosure
Appendix B sets out the Airmic clause describing the remedies available to the insurer in the
event of non-disclosure of material information. The Airmic clause is not intended to apply to
fraudulent non-disclosure of material facts. It is, therefore, only intended to apply in
circumstances where the non-disclosure was innocent or careless.
Assuming that the non-disclosure was not fraudulent, the suggested remedies set out in the
draft clause relate to the rights of the insurer to retrospectively amend the terms and
conditions of the insurance policy. The clause is intended to put both parties in the same
position as if the non-disclosure had not occurred. The clause is intended to apply to all
classes of insurance, although it may (at least initially) be most readily applied to the
property and casualty classes of insurance.
It is the opinion of the Airmic that the remedy of avoidance ab initio is only appropriate if (1)
the non-disclosure has been fraudulent; or (2) the insurer would not have written the
business on any terms had the information been disclosed earlier. The Airmic clause
recognises two possible circumstances related to non-disclosure of material facts or material
information (including misrepresentation and / or provision of misleading information).
1. The insurer would have written the insurance on different terms only as to premium.
In these circumstances, the insured will be liable to pay the additional premium that
would have been charged if the material information had been disclosed.
2. The insurer would have written the insurance on different terms in any respect other
than in relation to premium. The insurer will (in addition to any additional premium)
be entitled to impose such terms on the insurance as would have been imposed at
inception, if the material information had been disclosed.
In applying any additional terms and conditions under condition 2 above, the insurer may
pay due regard to and impose the following:
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Exclusions and revised definitions
Changes to overall limit(s) of indemnity
Adjustment of deductibles
Application of limits and / or sub-limits
It is the view of Airmic that if a claim is not related to a non-disclosure of material information,
the claim should be paid in full, albeit after any additional premium has been paid. The
Airmic clause relates to the more specific circumstance that the insurer would only be
entitled to avoid the policy ab initio where the insurer can demonstrate that the nondisclosure was fraudulent and / or the insurer would not have written the insurance on any
terms, if the information had been disclosed.
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Appendix A: Checklist for disclosure procedures
1.
Provide a definition / description of the nature of the material facts and material information that need to be
disclosed by the company. Agree definitions / description with insurers, including definition of material change to be
notified during the policy period, if relevant to the policy terms and conditions.
2.
Review terms of reference of any existing disclosures committee, such as one set up for the Sarbanes Oxley Act (if
applicable). If there is no existing disclosures committee, responsibility for the disclosure procedures should be
allocated to another (existing) committee, such as finance committee, or a new informal group should be set up.
3.
Identify the roles and responsibilities of appointed persons, such as (1) knowledgeable person(s); (2) responsible
person; and (3) authorised person. Also, define the roles and responsibilities of external persons, including the
insurance broker and other third parties involved in preparation of the final underwriting submission.
4.
Establish the detailed disclosure procedures and agree with stakeholders, including insurers and insurance brokers.
These procedures should be developed after consideration of any other disclosure procedures in place in the
business and they should be consistent with other business activities.
5.
Identify the sources of information that will be used to collect the information and identify the knowledgeable
person(s) likely to hold the required information. Analyse the means by which this information can be accessed,
collected, analysed and validated.
6.
Define the mechanisms that will be used to collect the information, such as questionnaires or gaining access to
existing databases of relevant information. The timetable for undertaking the disclosure activities also needs to be
established and agreed.
7.
The information, instruction, advice and (perhaps) training needs of knowledgeable persons (and others) should be
identified. Define mechanisms for collection of information, the scope and nature of enquiries that will be made of
the knowledgeable person(s) by the responsible person.
8.
Collect, analyse and collate information from the knowledgeable persons, perhaps using the format of the insurance
proposal form, if provided. Define the mechanisms for consolidating information into an underwriting submission
and agree the format (and ownership) of the final submission.
9.
Analyse, validate and test the data to ensure the overall effectiveness of the disclosure procedures. This will
include retaining minutes of meetings of the disclosures committee, as appropriate, so that a robust due diligence
system for disclosure has been established.
10.
Signing-off the final report by the authorised person, including records of the means by which assurance has been
provided to the authorised person that the data is correct. Ensure there is adequate time for the sign-off procedures
and include a disclosures declaration from authorised person, as necessary.
11.
Material change may need to be part of the disclosure procedures, so the means of compiling and reporting
updated information during the year will need to be established. Ensure that the disclosures procedures have
provision for other changes, such as change of insurer requirements and / or change of insurance broker.
12.
Review the disclosure procedures on a regular basis and check validity of the procedures, so that any weaknesses
are identified. Involvement of Internal Audit Department in this review process may be helpful, as they will have
knowledge and experience of other disclosure activities in the company.
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Appendix B: Airmic non-disclosure clause
[Draft] Non-Disclosure/Misrepresentation Clause
1. In the event that the Insured or its agent to insure fails to disclose or misrepresents a
material fact prior to inception of this insurance and the Insurer would be entitled to
avoid this insurance, this clause shall apply except where any non-disclosure or
misrepresentation by the Insured or its agent to insure is proven by the Insurer to be:
(1) fraudulent; or
(2) of such other nature that, if the material fact had been disclosed or had not
been misrepresented, the insurer would not have underwritten this insurance.
2. The burden shall be on the Insurer to prove all matters set out in this clause. For the
purposes of this clause the acts, omissions or knowledge of one Insured shall not be
imputed to any other Insured.
3. If the Insurer would have underwritten this insurance on different terms (as to
premium and/or otherwise) had the material fact been disclosed or not
misrepresented, the Insurer shall not be entitled to avoid this insurance but:
(1) in the event the Insurer would have underwritten this insurance on different
terms as to the premium, the Insured shall be liable for such additional
premium as would have been charged had the material fact been disclosed
or not been misrepresented;
(2) in the event that the Insurer would have underwritten this insurance on
different terms in any respect other than in relation to the premium, the
Insurer shall, in addition to any premium adjustment pursuant to sub-clause
3(1), be entitled to impose such terms on this insurance as would have been
imposed at inception of this insurance if the material fact had been disclosed
or had not been misrepresented by giving written notice of the term to the
Insured. Subject to sub-clauses 3(3) and 3(4), any additional term so notified
shall take effect as if imposed from inception1;
(3) any additional term imposed pursuant to sub-clause 3(2) shall not apply to
any claim which has been finally agreed by the Insurer (whether paid or not)
prior to the date of the Insurer’s written notification to the Insured of the
additional term2;
1
This would mean that if the term imposed from inception did not concern the claim which was the occasion for
the non-disclosure or misrepresentation to be discovered, the claim itself would remain payable i.e. imposition
of an exclusion in respect of an unrelated issue. Conversely, if the term would affect the claim (an adjusted
deductible, sub-limit, the imposition of a new exception or a condition precedent to liability) then the indemnity
would be adjusted accordingly or the claim be not payable altogether.
2
This means that agreed claims should not be reopened in the interests of certainty. Of course the Insured may
be said to have a “windfall” as a result, but that, it is suggested, is better than seeking to reopen claims which
could include third party liability claims which might affect innocent third parties.
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(4) for any additional term imposed pursuant to sub-clause 3(2) which would
have the effect, if breached, of coverage under this insurance never
attaching, being suspended or being discharged (whether at the election of
the Insurer or otherwise), the Insurer agrees in each such case to vary the
remedy for breach of the term so that the Insurer shall be entitled only to
decline any claim that does not fall within 3(3). In the event that the Insured
does not comply with any additional term imposed and falling within this subclause within [30/60] days of receipt of the Insurer's written notification
imposing the additional term, the Insurer shall be entitled after the expiry of
the specified time period to impose with prospective effect only the remedy to
which it would have been entitled but for this clause3.
4. The Insurer agrees that no representation by the Insured or by any agent of the
Insured (including an agent to insure) shall be a term of any sort of this contract of
insurance and that any provision in any other document to the effect that a statement
or statements made by or on behalf of the insured in such document form part of or
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are the basis of the contract of insurance shall be of no effect .
3
For any warranty or suspensory condition imposed, the Insurer agrees to vary the remedy to declinature of any
claim not finally agreed provided the Insured complies with the new warranty or suspensory condition within
the specified time period. If the Insured fails to do so, the Insurer is then entitled to revert to the original remedy
going forwards which could have included the Insurer being discharged from liability but without reopening any
finally agreed claims.
4
This sub-clause is necessary to avoid the effect of the clause overall being removed by an insurer arguing that
a representation made during placement becomes a term of the contract giving the insurer a remedy in damages
in the event of breach.
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