Non-disclosure of financial information means omitting key information to your insurer. It’s tempting not to declare information if you have previously been the director of a company that has become insolvent.
Put simply, not declaring key pieces of information when requested could lead to a policy being voided by your insurer.
Assessing risks
Essentially, insurers need to accurately assess risks before agreeing on the terms of a policy. Even the slightest past financial difficulty suggests a potentially heightened risk, which could concern some insurers.
Brokers must their clients fully disclose their financial status to the insurer. This is important because an insurer must be able to make a fair decision on whether to accept the risk or not. They need the full information in order to make this decision.
For example, an insurer may choose not to insure an individual’s new company is they were previously involved in companies that had become insolvent. If someone omitted that key information, it would be interpreted as being misrepresentation of the risk.
The importance of declaring past insolvencies
It’s likely your insurer will void your policy is you haven’t declared past financial difficulties and you need to make a claim. This is because, had previous insolvencies been disclosed, they would not have accepted the risk at inception.
Policy Wordings should specify exactly what information needs to be declared to an insurer. Sometimes that is not the case and you must take responsibility to check this. If you think any element of your financial history or past directorships could be relevant – even if you haven’t been asked the question specifically – then always declare it. You should also not to be complacent at renewal, too. If anything has changed in your circumstances you should declare it. While an insurance broker (like Club Insure) should alert you to any changes, all businesses need to make a fair presentation of risk. Fully read the Statement of Fact wording and ensure you have declared all relevant information.
Despite having negative connotations, insolvency may not impact your insurance if you explain with justification the reasons why the situation arose. If you declare all incidences of insolvency to your insurer, they may be able to agree cover at normal or amended terms. They won’t be so flexible after a claim has been submitted.
The case of Young V Royal and Sun Alliance Plc 2019 is a good example. Mr Young made an insurance claim following a significant fire. The insurer discovered that Mr Young had not disclosed that he had previously held directorships in companies that had become insolvent. As the insurer could demonstrate it would not have accepted the risk if it has known about Mr Young’s previous directorship, it voided Mr Young’s policy. This meant the multi-million-pound claim was denied.
Find out the full history of each director
Whoever is arranging your business’s insurance, or the person dealing with your business’s broker, might not know the full history of each director. Unfortunately, that’s no excuse. If a director is found to have been involved in a past insolvency, an insurer may still void the policy.
Avoid this by undertaking a reasonable search to establish material information from all directors. For further reading on this, please view case law Inversiones Manria SA v. Sphere Drake Insurance Co. Plc [1989] (The Dora).
County Court Judgements or High Court Judgements
You should also declare County Court Judgements (CCJ) or high court judgements. CCJs occur when someone takes court action against you regarding money you owe them, and you don’t respond. A court will then decide if you owe the money, and provide a deadline for doing so. It is notoriously difficult to have CCJs removed from your record. You must share the information of these judgements with your insurer or broker. Insurers must be able to make an informed decision on whether to accept the risk.
When to declare insolvencies
Questions or statements from insurers can vary. Some may argue that poorly-worded statements can be left open to interpretation but, when in doubt, investigate further. You should never be in danger of non-disclosure of financial information.
An insurance broker can help you to cut through the jargon. They’ll make sure you’ve adequately and fairly presented your risks to an insurer.
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