Handwritten Insurance Claim Form with pen and calculator

Airmic has published a sample clause to be inserted into insurance policies which it claims will protect customers who innocently breach the duty of fair presentation introduced by the Insurance Act.

One of the key parts of the Act is to replace the all-or-nothing remedy of avoidance.

This is where insurers may currently treat a policy as if it never existed in the event of a material non-disclosure or misrepresentation by the policyholder.

From August this will be replaced with a series of ‘proportionate remedies’.

Under the Act, where an underwriter can show that it would have charged a higher premium had it received a fair presentation of the risk, the insurer can proportionately reduce the claims payment made to the policyholder.

The new sample clause that has been drawn up by law firm Herbert Smith Freehills can be inserted into policies by mutual agreement between the insurer and policyholder.

It would enable the policyholder to pay the additional premium that would have been charged rather than face a reduction in the claim.

The option will not apply where the failure to provide the relevant information had been either deliberate or reckless.

Airmic chief executive: “Whilst we strongly support the Insurance Act, many of our members have found the ‘fair presentation’ aspects challenging as they are inevitably open to interpretation.

“This clause drawn up by Herbert Smith Freehills LLP has the potential to significantly strengthen the policyholder’s position.”