Mrs Patel's forgotten claim and monitored cracking: careless or reckless?
Mrs Patel owns a 1930s semi-detached house in Leicester. Her home policy, incepted online on 12 May 2023, covers buildings of £320,000 and contents of £60,000 for an annual premium of £412.
The online proposal asked: 'Have you or any member of your household made a claim on a home insurance policy in the last five years?' She answered 'No'. In fact a £4,300 escape of water claim was paid in 2021. She believed claims on an old policy with a different company did not count.
The proposal also asked: 'Has the property ever suffered from subsidence, heave or landslip, or has it been the subject of a structural engineer's report?' She answered 'No'. In 2019 a structural engineer had reported on cracking and recommended monitoring, with no remedial works. Mrs Patel filed the report and thought no more about it.
In March 2024 the cracking returned and worsened. The claim for underpinning comes to £48,000. The insurer's subsidence team says the 2019 report would have led it to exclude subsidence; the property would nonetheless have been accepted for other perils at a 12% higher premium.
1. Is each answer a qualifying misrepresentation under the Consumer Insurance (Disclosure and Representations) Act 2012? Apply the reasonable care test.
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Both answers are false statements of fact made before the contract, on which the insurer relied. The disputed question is whether they are qualifying - that is, deliberate or reckless, or careless.
A consumer has no duty to volunteer information; she must only take reasonable care to answer the insurer's questions honestly and accurately (CIDRA 2012, ss.2–5). The reasonable care test looks at how clear and specific the question was, whether she was asked to check or confirm information, whether the information was within her knowledge, and whether the insurer explained the consequences of inaccurate answers.
The claims-history answer was given to a clear yes/no question about claims in the last five years. The £4,300 claim was paid into her own account and is within her knowledge. Reading 'a different company' as meaning it did not count is a misunderstanding of an unambiguous question: careless, not dishonest.
The subsidence answer is more serious but still not reckless. She received and kept the 2019 report and answered 'no' to a question that expressly referred to a structural engineer's report. However, deliberate or reckless conduct requires that she knew the answer was untrue or did not care whether it was true. Forgetfulness, or genuinely believing that 'monitoring only' meant there was no reportable problem, points to carelessness unless there is evidence of conscious concealment.
Conclusion: two careless qualifying misrepresentations. The deliberate/reckless threshold is not met on these facts.
2. What remedy is available for the £48,000 subsidence claim, and how does it differ for the two statements? Show your reasoning.
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For a careless misrepresentation, CIDRA Schedule 1 sets the remedy by asking what the insurer would have done had it known the truth. Avoidance is not automatic and the insurer does not choose.
Subsidence statement. The insurer says it would have excluded subsidence. That triggers the terms remedy: the contract is treated as if subsidence had been excluded from the outset. The claim is not reduced by a percentage; the peril is simply outside cover, so nothing is payable on the £48,000. Buildings cover for fire, flood and other perils continues, and the premium is not returned.
Claims-history statement. This would not have led to a subsidence exclusion, so it does not affect this claim. It would have produced different terms for water damage and a 12% higher premium. Those consequences attach to any future escape of water claim: either the revised excess and conditions apply, or the claim is reduced in the proportion the additional premium bears to the premium charged.
Limits. The insurer cannot cancel ab initio and keep the premium. Avoidance - treating the contract as never made, with the premium returned - is available only where the insurer would not have entered the contract at all. The insurer must also show inducement: that the answer, and not something else, produced these terms.
Finally, the outcome may be tested for fairness. A complaint about a home policy would ordinarily go to the Financial Ombudsman, which can award compensation and often moderates a strict Schedule 1 calculation.