What will non-consumer policyholders’ new duty to make a “fair presentation of the risk” require once the Contracts of Insurance Act 2024 (CoIA) comes into effect?
A recent decision of the High Court of England and Wales provides an indication of how the New Zealand courts may approach this question. It is a relatively rare example of a decision in which an insurer was successful on this issue.
What happened?
Cometsambre, a scrap metal trader, experienced five fires (three on chartered vessels and two on the quayside) in an 18-month period between 2020 and 2021, but no material loss had resulted from them. Its broker had obtained Charterer’s Liability insurance via a cover-holder, Antwerp Insurance Claims Associates NV (AMICA), which wrote the risk on behalf of Lloyd’s Syndicate HIG 5321. When renewing in 2022, Cometsambre did not disclose the fires.
A sixth fire followed, which resulted in substantial charterparty claims. When Cometsambre sought indemnity for its defence costs, the insurer purported to avoid the policy for breach of the duty of fair presentation. Cometsambre argued that there was no breach on the basis that the fires were not material, insurers were on notice to enquire, and alternatively that disclosure had been waived.
The Commercial Court rejected these arguments and held that the insurer was entitled to avoid the policy and decline the claim.
Were the fires material?
The first question was whether the five fires that had not generated claims amount to material circumstances requiring disclosure. Butcher J held that they did.
Under section 3(4)(a) of the UK Insurance Act 2015 (UKIA), mirrored in s 31(1)(a) of the CoIA, a non-consumer insured must disclose every material circumstance it knows or ought to know. A circumstance is “material” if it would influence a prudent insurer’s judgement in deciding whether to accept the risk and on what terms (s 7(3) UKIA / s 32(1) CoIA).
Applying the test in Delos Shipholding SA v Allianz Global [2024] EWHC 719 (Comm), Butcher J confirmed that an insurer need not show that the undisclosed facts would have been decisive, but only that a prudent underwriter would have wanted to take them into account.
His Honour rejected the argument that an insurer should wait for a claim arising from an event before viewing it as material. Five fires within 18 months pointed to a significant change in risk profile, particularly when there had been no fires in the previous 12 years, so that the insurer had reasonably viewed the risk of fire as low. Indeed, fires were held to be a “paradigm example of an incident which can give rise to liability”. Furthermore, the absence of an identified single cause only heightened relevance. The decision underscores that information explaining the nature, frequency or evolution of a risk is likely material, even where consequences have not fully crystallised.
Was the insurer on notice to enquire?
Cometsambre argued that the insurer knew it shipped shredded steel scrap and had never requested updated risk information, so it was on notice to enquire about incidents that had not triggered claims. Butcher J rejected this as impermissibly reversing the burden of fair presentation, which rests on the insured. After many years in which there were no fires, insurers were not on notice of the need to enquire as to a change in their incidence.
Was the insurer presumed to have had knowledge?
For reasons overlapping with the above reasoning, AMICA was not presumed to know that fires had occurred, let alone that five fires had broken out in 18 months after a long incident-free period.
Had the insurer waived disclosure?
Cometsambre argued that the insurer’s conduct amounted to a waiver of disclosure under s 3(5)(e) UKIA (reflected in s 31(2) CoIA). It pointed to the fact that it was asked only for claims history at inception, was never sent a renewal questionnaire, and that renewal discussions referenced claims ratios rather than incidents.
Butcher J applied a test referred to in McGillivray on Insurance Law (16th ed) 16-086 and Young v Royal and Sun Alliance Plc [2019] SLT 622: would a reasonable observer have understood underwriters to have limited their concerns to claims alone? They would not. The initial liability questionnaire was prepared by Cometsambre’s broker, not AMICA. In any event, the absence of renewal questionnaires was standard market practice. A request for a “claims record” could not reasonably indicate indifference to multiple fire incidents since inception even though they had not resulted in claims.
Inducement
Cometsambre argued that AMICA would have written the risk on the same terms regardless. Butcher J, noting the risk that honest underwriters may convince themselves they would have declined under a counterfactual such as this when in fact they might have accepted the risk, nevertheless disagreed. Inducement is judged on factual, not expert evidence, but the insurer’s factual evidence was supported by expert evidence. Here, the repeated fires raised concerns that the risk insured may no longer have matched the risk originally presented. Given the prospect of substantial losses relative to the premium, a prudent underwriter would have wanted to assess whether changes in cargo profile or other risk factors had increased exposure.
The Court accepted that a prudent underwriter would not have wished to face the risk of another fire at all after the first five fires in which loss was avoided. The pattern of five fires in quick succession indicated that there was a potential change or quality issue with the cargo, suggesting a change in the risk profile. The Court found that AMICA would not have accepted the risk at all had the fires been disclosed. It would not have accepted the risk on different terms. It was therefore entitled to avoid the policy and decline the claim.
The New Zealand position
The duty of fair presentation under the CoIA is substantially the same as that under the UKIA. Sections 29–33 of the CoIA require disclosure of every material circumstance known or reasonably discoverable, presented clearly and accessibly, with representations of fact being substantially correct. The same carve-outs apply: no need to disclose what diminishes the risk, what the insurer already knows, or what it has waived.
The proportionate remedies regime in Schedule 2 mirrors the United Kingdom approach: avoidance and premium retention for deliberate/reckless breaches and limited remedies (contract variation, premium adjustment, proportionate claims reduction) where the breach is not innocent or negligent. Cometsambre will likely guide how New Zealand courts interpret these provisions.
Practical takeaways for insurers
- The materiality bar is low: Courts will not require insurers to prove that undisclosed facts would have been decisive in their underwriting decisions. It is enough that a prudent underwriter would have wanted to “take them into account”, or as Butcher J noted, if they give an overall picture of the risk. Incidents that could generate claims are material, whether or not they resulted in claims.
- Silence is not a waiver: Not sending a renewal questionnaire, not asking follow-up questions, and focusing on claims ratios will not constitute waivers under s 3(5)(e) UKIA / s 31(2) CoIA. Insurers need not chase information to preserve their rights.
- The burden to present the risk fairly is on the insured: Attempts to reframe the duty as requiring insurers to ask the right questions will likely be resisted.
- Patterns matter: Repeated incidents within a short period may be particularly material, as they can indicate deficiencies in the insured’s prevention measures and provide insight into the nature and extent of the risk being underwritten.
- Document underwriting rationale: Insurers who can demonstrate, with evidence, what they would have done differently in a counterfactual, such as declining cover, re-pricing or imposing conditions, will be best positioned to invoke the proportionate remedies under Schedule 2 of the CoIA.
This article was co-authored by Leticia Alvarez, a Solicitor in our Litigation team.
