The forgotten escape-of-water claim
Priya, a 42-year-old teacher, arranged buildings and contents cover with Northgate Insurance for her three-bedroom semi-detached house online in March. The proposal asked a clear, specific question: 'Has any insurer declined, cancelled or refused to renew your home insurance in the last five years?' She answered 'No'. In fact, in 2021 she had claimed £2,800 for escape of water and her then insurer had not invited renewal. She mentioned neither matter. The premium charged was £310. Northgate's underwriting guide shows that a prior escape-of-water claim within five years attracts a premium of £420 and a £250 policy excess. In January a pipe behind the kitchen units burst, causing £12,000 of damage. The loss adjuster found the 2021 claim on a shared claims database. Northgate has paid nothing and is considering its position. Priya says she believed the question concerned only applications that had been declined outright, not non-renewals, and that she had forgotten the claim.
1. Is there a qualifying misrepresentation under the Consumer Insurance (Disclosure and Representations) Act 2012, and is it likely to be deliberate or reckless, or careless? Explain the test and the evidence you would rely on.
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Framework. A consumer insurance contract is governed by CIDRA 2012. The consumer owes a duty to take reasonable care not to make a misrepresentation (s.2). A misrepresentation is qualifying if it is a misrepresentation of fact, the consumer breached the duty, and the insurer would not have entered into the contract on those terms, or at all, had it known the truth.
Applying it.
- The statement that no insurer had declined, cancelled or refused to renew was inaccurate. The 2021 non-renewal falls within the natural meaning of 'refused to renew', although the wording is not perfectly clear.
- The question was clear and specific, which makes it harder for Priya to show she took reasonable care. The FOS/court will also consider the explanatory material, the target market and Priya's characteristics. Forgetting a claim is not generally an excuse: reasonable care requires checking records.
- Deliberate or reckless requires that Priya knew the true position (or did not care whether it was true). Her explanation is plausible enough that Northgate may struggle to prove this without evidence that she remembered the claim or the non-renewal.
- The more likely finding is careless: an inaccurate answer given without reasonable care, but not dishonestly.
Inducement. Northgate must show it would not have written on the same terms. Its underwriting guide (higher premium and an excess) is evidence of that. If it would have written on the same terms, there is no qualifying misrepresentation and the claim stands.
2. Assuming the misrepresentation was careless, calculate the amount Northgate may pay and show your working. What may the insurer do if it would not have offered cover at all?
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Remedy for a careless qualifying misrepresentation. Schedule 1 to CIDRA 2012 gives proportionate remedies designed to put the insurer in the position it would have occupied had the truth been told.
Northgate would have charged £420 rather than £310 and would have applied a £250 excess. Applying both:
- Deduct the excess Northgate would have imposed: £12,000 − £250 = £11,750.
- Reduce the claim in the proportion of premium paid to premium that would have been charged: £11,750 × (310 ÷ 420) = £11,750 × 0.738095 = £8,672.62 (approximately £8,673).
Reasoning point. The order of applying the two remedies can be argued, but the principle is that Northgate should end up as if the true risk had been rated. If only the premium point were taken, the figure would be £12,000 × (310 ÷ 420) = £8,857.14. Northgate should document its chosen method and apply it consistently.
If cover would not have been offered at all. Northgate may avoid the contract and refuse all claims, but must return the £310 premium (Sch 1, para 2). It cannot both avoid and retain the premium unless the misrepresentation was deliberate or reckless, in which case it may avoid, refuse all claims and keep the premium (Sch 1, para 1).
3. Would your answer differ if this had been a commercial policy governed by the Insurance Act 2015? Explain the differences in the duty and in the remedies.
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Duty. The Insurance Act 2015 replaces CIDRA's consumer duty with the duty of fair presentation (s.3). A commercial insured must disclose every material circumstance it knows or ought to know, or give the insurer sufficient information to put a prudent insurer on notice that it needs to make further enquiries. The insured's knowledge includes that of senior management and the person responsible for arranging insurance (ss.5–6). There is no protection equivalent to CIDRA's focus on the 'reasonable consumer' and the clarity of the question.
Breach. Northgate would need to show a qualifying misrepresentation (s.7): a misrepresentation, a breach of the duty, and inducement. Priya's explanation about misreading the question would carry much less weight; the focus would be on what Kelso-type senior managers knew or ought to have known, including the prior claim and non-renewal. A broker's knowledge may be attributed to the insured.
Remedies. Section 8 and Schedule 1 mirror the CIDRA structure but draw the line differently:
- Deliberate or reckless breach: avoid, refuse all claims, keep the premium.
- Any other breach: proportionate remedies - avoidance with return of premium if the insurer would not have written at all; different terms if it would have written on different terms; or a reduced claim if it would have charged more.
There is no separate 'careless' label; anything short of deliberate or reckless attracts proportionate remedies. The calculation on these facts would be similar, but the evidential burden on the insured is higher and the 'reasonable search' for information is central.