Café chain renewal: fair presentation and the Insurance Act 2015
Northgate Coffee Co runs four cafés in Bristol. Its commercial combined policy (material damage, business interruption, public liability) renews on 1 March with a £1,000,000 sum insured and a £250 policy excess. The proposal asks: 'In the last five years, has the business or any director had a fire, flood, escape of water or theft claim, or any conviction?' The finance director answers 'no'. In fact, a kitchen fire at the smallest branch 14 months earlier caused £6,800 of damage and was settled by the previous insurer through its delegated authority. The company has also just obtained a late-night licence and expects turnover to rise by 40%; nobody tells the insurer. In August a deep-fat fryer fire destroys the kitchen of the largest branch. The claim, including business interruption, is £214,000. The underwriter says that, had it known of the fire claim, it would have charged an extra £3,900 premium, imposed a £2,500 excess and required a kitchen extraction inspection within 30 days. That inspection would have found the blocked extraction duct that caused the fire.
1. Advise the insurer whether Northgate breached its duty of fair presentation, and which remedy under the Insurance Act 2015 is available.
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Start with the statutory test rather than the older language of 'duty to disclose'. Section 3 of the Insurance Act 2015 requires a fair presentation: disclosure of every material circumstance the insured knows or ought to know, and representations that are substantially correct and not misleading. Northgate's knowledge includes what its finance director knows, and the proposal question could not have been clearer. Answering 'no' when a £6,800 fire claim had been settled 14 months earlier is a misrepresentation. The 40% turnover increase and the late-night licence are separately material because they change fire loading, occupancy patterns and business interruption exposure.
The remedy turns on culpability. Nothing here suggests the company knew the answer mattered and gambled on it, so this is not deliberate or reckless conduct. Avoidance is therefore unavailable, and the insurer is confined to the alternative-terms remedy: treat the contract as though it contained what the underwriter would actually have imposed (the £2,500 excess and the inspection condition) and reduce any claim proportionately to the premium shortfall.
The insurer must prove what it would have done. Referral notes, rating guides and the underwriter's authority levels written at the time carry far more weight than a statement produced after the fire. Note too that a 40% turnover increase may leave the £1,000,000 sum insured inadequate, which is an underinsurance question, not a disclosure one.
2. The inspection condition would have identified the blocked extraction duct that caused the fire. Explain how the insurer should use that point and the risks in doing so.
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This is the decisive point in the claim. Under Schedule 1 to the 2015 Act, where the insurer would have included a term which, had it been included and complied with, would have excluded the loss, the insurer may rely on that term as though it were in the policy. If the inspection would have happened and would have found the blocked duct, the insurer can treat the loss as excluded rather than merely reduced.
The argument must be built, not asserted. First, show the term really would have been imposed on this risk by this underwriter, using contemporaneous evidence. Second, show the sequence would have worked: the insured would have instructed a contractor, received a report and acted on it before August. If the insured can show it would have cleared the duct anyway, or that the operative cause was something else (a thermostat failure, for instance), the exclusion falls away and only the premium-proportion reduction remains. Third, do not double-count: if the loss is excluded, there is no additional proportional reduction. Fourth, apply the £2,500 excess only if some part of the claim is otherwise payable.
Practical approach: present the alternative-terms case to the insured with the supporting evidence and reasons, hold the proportionate outcome as a fallback, and record the reasoning. A bare declinature on a condition the insured never saw will not survive scrutiny by the Financial Ombudsman Service or a court.