This area of law is governed by the Consumer Insurance (Disclosure and Representations) Act 2012 (the CIDRA) and the Insurance Act 2015 (the IA 2015).
The recent case of Jones v Zurich Insurance Plc  EWHC 1320 (Comm) examined when an insurer may avoid an insurance contract (i.e. treat it as effectively cancelled and never having come into existence) following a careless misrepresentation. The case also considered the question of whether, and if so on what terms, the insurer would have entered into the contract had they been aware of the misrepresentation.
Pursuant to section 2(2) of the CIDRA a consumer is under a duty to take reasonable care not to make a misrepresentation to the insurer. Similarly under the IA 2015 the insured is under a duty to fairly present the risk. Importantly, a failure by a consumer to confirm or amend any particulars provided by the insurer, such as in a Statement of Fact or other documentation provided to a consumer, is capable of amounting to a misrepresentation.
The insurer will almost always be able to avoid a contract of insurance and refuse all claims where it can show that there was a misrepresentation as to any facts or circumstances and that they were made deliberately or recklessly. The situation is different where the misrepresentation is merely careless. In those circumstances, it is for the insurer to show that it would not have entered into the contract of insurance at all had the consumer complied with their duty to take reasonable care not to make a misrepresentation to the insurer.
Jones v Zurich Insurance  EWHC 1320 (Comm)
In this case, Mr Jones sought to insure his premium Rolex watch in May 2018. The watch was valued at £190,000. Mr Jones made representations to Zurich, through his insurance broker, that he had not made any other claims in the previous 5 years.
Upon receipt of the Statement of Fact, which reiterated the question as to whether any claims had been made in the previous 5 years, the answer was recorded as “No” and it was not later corrected by Mr Jones.
However, it transpired that Mr Jones had indeed made a previous claim in respect of a diamond ring in 2016 and received an insurance payment of £15,000. Upon Mr Jones losing his Rolex watch during a skiing trip in March 2019, Zurich discovered this previous claim made in 2016 and sought to decline the claim and avoid the insurance policy on the basis that this misrepresentation amounted to a breach of Mr Jones’ duty to take reasonable care under section 2(2) of the CIDRA.
The Judge decided that the misrepresentation was careless, but stated that the burden of proof was on Zurich to establish that it would not have entered into the insurance contract at all had it been aware of the previous claim which was made in 2016.
Although the position is always hypothetical, for this reason the Judge considered expert evidence from underwriters, the Judge concluded that on the balance of probability Zurich would have declined cover for the risk of losing the Rolex had the prior claims history involving the diamond ring been disclosed. For this reason, Zurich was entitled to avoid the insurance contract and refuse the claim, however it was required to return the premium which was paid by Mr Jones.
What might have happened if the Judge had decided the matter differently?
If an insurer is not able to satisfy the Court that it would not have entered into the insurance contract at all, but for the misrepresentation, another possible remedy for the insurer would be to apply different terms to the policy (including charging an additional premium for the policy) and / or proportionality reducing any loss or indemnity which the insured is entitled to, in order to reflect the actual premium paid against the premium which the insurer would otherwise have charged.
For instance, in the case of Mr Jones, the insurance premium reported in the case was said to be £4,249.88. In the event that Zurich was not able to satisfy the Judge that it would not have offered the insurance contract at all, but instead would have, say, doubled the premium (i.e. to £8,499.76) then it would be entitled to only pay out on half of the claim (i.e. to approximately £95,000) on the basis that Mr Jones had only paid for “half” of the insurance policy.
The burden of proof on an insurer to establish that it would not have entered into an insurance contract at all is a high one. Jones v Zurich clarifies the law to demonstrate it is not impossible for insurers to meet that burden through production of suitable expert evidence. In this case, amongst other things, the insurers were able to rely on a spreadsheet assisting the underwriter in the assessment of the risk.
The remedies afforded to insurers under the CIDRA (and now supported by the case law) and the IA 2015, emphasise the importance of policy holders making full and frank representations in insurance contracts and ensuring that all reasonable skill and care is applied when presenting the risk. It is important that documentation such as the Statement of Facts are read carefully and that all of the information contained therein is correct and an accurate reflection of both the risk and your particular circumstances.
Our Dispute Resolution team regularly assist both policy holders and insurers in respect to managing and considering risk presentation and resulting policy disputes. Whether you are an insurer or an insured and you are seeking advice on liability pursuant to an insurance policy, please contact our Dispute Resolution team.