8 June 2016 Insurance

Airmic publishes voluntary clause to protect policyholders

Airmic, an insurance and risk management association, has published a clause, drawn up by law firm Herbert Smith Freehills, to protect policyholders who innocently breach the duty of fair presentation introduced by the Insurance Act.

According to Airmic, one of the headline features of the Act is to replace the all-or-nothing remedy of avoidance, whereby insurers may currently treat a policy as if it never existed in the event of a material non-disclosure or misrepresentation by the insured.

This is being 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.

Airmic’s sample clause can be inserted into policies by mutual agreement, whereby the insured pays the additional premium that would have been charged rather than face a reduction in the claim. The option would not apply where the failure to provide the relevant information had been either deliberate or reckless.

John Hurrell, chief executive officer of Airmic, said: “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 has the potential to significantly strengthen the policyholder's position.”

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