Insurance declarations and non-disclosures

Insurance declarations and non-disclosures

Mistakes in insurance applications could lead to a policy being refused, cancelled or made void - did you know that such errors could stay with you for life?

The law changed in 2013 and put the emphasis on the consumer being honest and careful, rather than 100% accurate

We all make lifelong declarations of some sort - love to a partner, affection for a car badge, or support for a football team - but insurance has commitments set in stone, too.

When making an application for car, home or almost any other sort of insurance, you'll normally be asked if you've ever had a policy refused, or cancelled, or even made void for any reason.

There'll also be questions regarding possible criminal convictions or, for vehicle insurance, driving bans you may have been handed in the past.

Spent convictionsSome alternate text for the umbrella

The difference between the administrative enquiries and the legal ones, however, is time.

The probing over offences is subject to restraints regarding 'spent' convictions, meaning some will not have to be disclosed if a certain length of time has elapsed.

These regulations are governed by the Rehabilitation of Offenders Act (ROA).

But there's usually no such time-frame concerning the questions over previous policy outcomes. That means you're required to refer to all incidents of policy refusals, cancellations, and such like, no matter how long ago they may have occurred.

Circumstances matter

This appears to be an anomaly but the Association of British Insurers (ABI) says it should not worry customers unduly as most insurers will carry our further investigations in response to any basic information provided.

The important thing to remember is that the risk to the insurer depends on the circumstances under which the policy was cancelled
Malcolm Tarling, ABI

"Even if you answer yes to the question, then that would normally trigger your insurer into asking you for further details," said ABI spokesman Malcolm Tarling.

"It is possible that some insurers might have a blanket policy that they would not offer cover to someone who has had a policy declined in the past - but it rather depends on the circumstances.

"If you've had a policy declined, for example, because you didn't meet an insurance underwriter's particular criteria, then that would be completely different - and potentially, much less serious - than if you had a policy voided or a claim declined because of a fraud."

The process of checking on the detail of that cancelled policy may often involve the insurer using a database called Cue (the Claims and Underwriting Exchange database), where information is collectively shared and used by numerous different companies.

Some companies do restrict their questions over previously cancelled policies to a specific time period, but they're generally in the minority.Wallet

"An insurer might impose a time limit by asking if you have ever had a policy cancelled or voided within the last five years, but that would be self-imposed by that particular insurer," said Tarling.

"The important thing to remember is that the risk to the insurer depends on the circumstances under which the policy was cancelled.

"For example, if it was cancelled due to non-disclosure - and the subsequent risk of fraud - that could have a potentially serious impact on any future insurance."

Beware of non-disclosure

This still may seem at odds with the rules governing a spent conviction. For example, a driver who is convicted of speeding could find that after five years their conviction is considered 'spent' and they would not have to declare it to an insurer on an application.

Types of non-disclosure

  • Deliberate
  • Reckless
  • Innocent
  • Inadvertent

But if a driver had a policy cancelled for non-disclosure - for instance, he or she had not informed the insurer about penalty points on a licence, or a change of job - then this cancelled policy would have to be declared, even if it occurred 10 years before.

Some insurers may go on to reject a customer's claim if they believe that such information was not disclosed when the policy was taken out. Others - on insisting they have discovered information they had not been told about - may charge an additional premium to continue the cover.

This could also apply if you try to renew a policy that has recently been cancelled because of a failure to meet the payments.

Categories of non-disclosure

It's worth noting that not declaring some material fact need not necessarily be fraud - although it may still cause a policy to be cancelled.

The Financial Ombudsman Service (FOS) has stated that insurers' questions relating to disclosure must be clear. They also identify four types of non-disclosure - deliberate, reckless, innocent and inadvertent.

The consumer's duty is to take reasonable care not to make a misrepresentation

A deliberate non-disclosure is providing information known to be untrue; a reckless one might be where a customer signs a proposal form but leaves it to someone else to fill out the answers. Both of these would breach the customer's 'duty of good faith'.

But an innocent mistake can occur if a question is unclear or ambiguous, whilst an inadvertent error might be where an answer only provides half the required information but there was no intention to mislead.

The law changed in 2013 to reflect the way in which the FOS had been viewing this area and puts the emphasis on the consumer being honest and careful, rather than 100% accurate.

The Consumer Insurance (Disclosure and Representations) Act 2012 says that the consumer's duty is to "take reasonable care not to make a misrepresentation", replacing the previous duty to disclose all necessary information.

By Graham Thomas