Your client may have information relevant to their coverage, but they’re not always obligated to share it - and, according to two top lawyers, that can lead to issues down the line.
“Just because the matter is relevant to the insurer, doesn’t automatically mean that it must be disclosed by a prospective insured,” said Dan Robinson, a senior associate with Clyde & Co. “The insured either has to know the information is relevant or it has to be determined that a hypothetical reasonable insured would expect it to be relevant.”
Robinson’s comments come after the NSW Court of Appeal handed down a unanimous decision on the issue of non-disclosure, forcing one insurer to cover the cost of an explosion at a service station.
The court ruled that, although the operators of a service station had two separate reports identifying a plume of dissolved petroleum hydrocarbons in groundwater beneath the business, they were not bound by the general duty of disclosure to share that information because pollution is considered a common risk within the industry and the insurer should have asked specifically about the topic if they required further information.
“The courts seem to be saying that if there are no specific requests for information that seem obvious about the risk, then a reasonable insured wouldn’t expect that they’d have to disclose that obvious information,” said Robinson.
“They’re also saying that if you are going to underwrite a service station, as in this case, then you need to think about the types of common risks and ask questions about them - otherwise there’s a risk that you might be assumed to know certain risks might eventuate.”
While the decision has a significant impact on underwriters and should shape the way they craft policy proposals, Clyde & Co partner Gareth Horne says brokers can also take something away from the case.
“The brokers comes out of this well because the courts have very much gone against the insurer - but what can’t be ignored is the fact that, even where that’s the case, the broker would still get joined to that dispute,” he told Insurance Business.
“Whether it’s just a dispute that they have to get involved in or whether it’s a dispute that becomes litigated, you would generally expect pressure to be placed on the broker. So even if the broker is found not to be responsible, as it was in this particular case, they will still get caught up and undoubtedly incur costs in the process of having to deal with these issues.”
As a result, the pair – who both specialise in insurance and reinsurance litigation – have encouraged brokers to bridge the gap between insurers and consumers so everyone’s on the same page.
“Prevention is always better than cure and the cost of litigation in this would have been quite large for everybody involved so the more clarity there is at the outset about what the underwriter requires to assess the risk then the less chance there might be a dispute later on,” said Robinson.
“For brokers, I think where they are provided with a proposal form which is particularly bare, it might be worth asking the insurer whether there is any further information or reports they would normally expect to see or require as regards to the type of risk that they’re proposing to underwrite.
“The risk, of course, is that you then have to hand over more information that potentially makes obtaining cover more difficult or more costly - but that’s ultimately because it’s a fairer representation of the risk.”
