In previous issues of Cover to Cover we provided an overview of the key changes in the Contracts of Insurance Act (Act). Ahead of the Act’s commencement,[1] we are taking a deep dive into these key changes in a three-part series.

This, the first instalment, delves into the duty owed by policyholders of non-consumer insurance contracts to give “a fair presentation of the risk”. 

Helpfully, the same standard has been in place in the United Kingdom since August 2016, under the Insurance Act 2015 (UK Act). Since then, aspects of the duty have been clarified through a number of cases. We look at three of these cases and discuss the guidance they provide as we move towards the commencement of our new legislative scheme.

Recap of the duty in the Act

A key feature of the Act is the new distinction between consumer and non-consumer insurance contacts. This distinction focuses on the purpose of the contract. A non-consumer insurance contract is defined by reference to what it is not. It is not a contract of insurance ordinarily entered into by a policyholder wholly or predominantly for personal, domestic, or household purposes.

Regulations may deem certain contracts of insurance consumer or non-consumer insurance contracts, but this has not yet occurred. Most non-consumer insurance contracts will be those entered into with companies for business purposes.

Section 29 of the Act sets out the disclosure obligation on policyholders of non-consumer insurance contracts. It requires them to make “a fair presentation of the risk” before entry into or variation of the insurance contract.

The Act describes a “fair presentation of the risk” as:

• containing every material circumstance the policyholder knows or ought to know or providing sufficient information to put an insurer on notice to make further inquiries to reveal those material circumstances (s 31(1)) – knowledge is addressed in ss 36 to 39 and constructive knowledge in s 40;
• not requiring a policyholder to disclose a circumstance if (s 31(2)):
  • it diminishes the risk;
  • the insurer knows it;
  • the insurer is presumed to know it;
  •  it is something as to which the insurer waives information;
• where:
  • "circumstance” includes any communication made to, or information received by, the policyholder (s 31(3);
  • “material” means something that would influence the judgment of a prudent insurer in determining whether to take the risk and. if so, on what terms, and may include:
    • special or unusual facts relating to the risk;
    • any particular concerns that led the policyholder to seek insurance cover for the risk;
    • anything that those concerned with the class of insurance and field of activity in question would generally understand as being something that should be dealt with in a fair presentation of the risks of the type in question;
• reasonably clear and accessible to a prudent insurer (s 30);
• every material representation as to a matter of fact is substantially correct (s 30);
• every material representation as to a matter of expectation or belief is made in good faith (s 30).

Guidance from the application of the UK Act

These sections of the Act borrow heavily from the UK Act. Sections 3 to 8 and Schedule 1 of the UK Act impose
a near-identical duty for policyholders of non-consumer insurance contracts to make a fair presentation of the risk to insurers prior to entering into the insurance contract or before a variation to it. Given the concurrency of the statutory frameworks, recent UK cases addressing the scope of this duty provide useful guidance.

We look at three recent cases below in which the courts were required to consider the scope and application of
the fair presentation duty. Specifically, the materiality of the non-disclosure, inducement of the insurer, knowledge of the matter failed to be disclosed and waiver of the duty. Each case involves a failure to disclose a “moral hazard”.

Case study 1

Berkshire Assets (West London) Ltd v AXA Insurance UK Plc[2]

Berkshire sought an indemnity under its business interruption and contractors’ all risks policies with AXA. 

Berkshire was a joint venture developing a residential complex. Mr Sherwood, a director of Berkshire, invested in the proposed joint venture following his retirement from the partnership of Goldman Sachs. Mr Garside was the other director and he largely conducted the day-to-day management of Berkshire.

Mr Sherwood was the subject of criminal charges in Malaysia relating to his position as director of a number of Goldman Sachs companies in and around that jurisdiction. Between approximately 2009 and 2014, Roger Ng, and certain co-conspirators, of Malaysia laundered billions of dollars and fraudulently diverted funds raised in 2012 and 2013 through three bond transactions that his company, 1MBD, executed with Goldman Sachs. The schemes involved the payment of more than $1 billion in bribes to 12 government officials in Malaysia and the United Arab Emirates to obtain and retain lucrative business for Goldman Sachs, including the bond deals. The charges against Mr Sherwood were later dropped.

However, Goldman Sachs entered into an agreement settling claims relating to the bond scheme and a former managing director of the Goldman Sachs Group Inc, and former Southeast Asia Chairman was sentenced to 10 years in prison for his role in the scheme.

The 2019 renewal documentation for the business interruption cover included a term requiring that Berkshire make a fair presentation of the risk to be insured. Additionally, AXA’s quote for the 2019 renewal schedule was expressed as subject to Berkshire confirming the information in the quote summary was correct
and required Berkshire to disclose any information that could influence AXA’s renewal offer. It made clear that if Berkshire was unsure if something was important, it should advise its insurance adviser. At its 2019 insurance renewal, Berkshire failed to disclose that Mr Sherwood was subject to criminal charges in Malaysia.

In January 2020, water damage caused physical and business interruption losses at the residential complex and Berkshire made claims under its BI and CAR policies.

AXA sought to avoid the policy upon discovering that Mr Sherwood had been charged in Malaysia over fraudulent bond dealings. The charges related to an alleged fraudulent scheme that Goldman Sach’s entities, including some of which Mr Sherwood was a director, were allegedly involved. There was no suggestion that
Mr Sherwood was personally aware of the alleged fraudulent scheme.

AXA considered that Berkshire’s failure to disclose this information breached its duty to make a fair presentation of the risk. Berkshire challenged this finding, arguing that the charges were unrelated to its business and unknown to the (different) director who was involved in Berkshire’s insurance.

At issue was:

• whether Mr Sherwood’s criminal charge was a material circumstance for the purposes of the duty of fair presentation; and
• whether the non-disclosure had induced AXA to enter into the insurance contracts. 

When looking at the materiality of the nondisclosure, the Court applied the following principles from the common law:

• Materiality is a factual question that must be assessed based on the specific circumstances of each case.
• Materiality is judged at the time of placement, not in hindsight or by reference to subsequent events.
• Facts that raise doubts about the risk are considered material, even if they do not ultimately affect the risk.
• The ‘prudent insurer’ test means that materiality and fair presentation are assessed primarily from the insurer’s perspective, focusing on what a hypothetical prudent insurer would consider relevant.
• A circumstance does not need to be decisive for a prudent insurer in determining whether to accept the risk or on what terms. It is sufficient that the information could influence the insurer’s decision.

Following evaluation of the above principles, the Court held that Mr Sherwood’s criminal charges were a material circumstance. The Court cited with approval an earlier case regarding failure to disclose offences: “When accepting a risk underwriters are properly influenced not merely by facts which, with hindsight can be shown to be have actually affected the risk, but with facts that raise doubts about the risk” [3]. Materiality was assessed at the time of placement and judged from the perspective of a prudent insurer. The charges, involving dishonesty and fraud, raised doubts about the risk and should have been disclosed—even if ultimately irrelevant to Berkshire’s operations.

Inducement

On whether AXA would have insured Berkshire had the charges been disclosed, the Court found it would not have. AXA’s internal underwriting guidance explicitly excluded risks involving criminal allegations. Berkshire’s arguments about broker relationships and Mr Sherwood’s reputation were rejected. The Court upheld AXA’s right to avoid the policy due to breach of the duty of fair presentation.

Case study 2

Delos Shipholding SA v Allianz Global Corporate and Specialty SE[4]

Delos Shipholding was a case that concerned a failure to disclose that the sole director of the insured special purpose vehicle, Mr Bairactaris, faced criminal charges in Greece. The charges related to the detention of a ship called the NOOR 1 on arrival from the UAE in what was apparently one of the largest ever intercepted heroin shipments to Europe.

In this case, the claim arose when a bulk carrier, WIN WIN, was unexpectedly detained by Indonesian authorities for anchoring without permission. The insurers accepted that the detainment would give rise to a constructive total loss under the war risks policy, under which a payment of USD37.5 million would be required.

However, it sought to avoid cover on the basis that the insured breached its duty of fair presentation by failing to disclose the criminal charges prior to the entry into the insurance contract.

Mr Bairactaris was a solicitor of a maritime law firm in Greece which acted for the family business that owned the ship and effectively controlled the relevant SPV and other ship-holding SPVs. He denied the charges, had not been found guilty of any offence, and remained a registered member of the Piraeus Bar Association “with an
apparently thriving practice”.

The High Court held that there was no breach of the duty of fair presentation, so insurers were not entitled to avoid the policy. It found that:

1. No actual knowledge: The insured SPV did not have knowledge of the criminal charges at the time of entry into the policy and was not required to disclose that which it did not know. The High Court considered the attribution provisions in the UK Act, which provide that an insured who is not an individual knows only that which is known to one or more individuals who are part of the insured’s senior management or responsible for the insured’s insurance. The High Court found that Mr Bairactaris was neither, despite being the sole director of the insured SPV. The Court clarified that it was the substance of Mr Bairactaris’ role rather than his title that mattered and he did not play any real role in the day to operations of the SPV or the ship it owned nor of the broader group and its insurance. Mr Bairactaris was appointed a nominee director for convenience, so that he would be available to sign transactional documents quickly as and when required. The legislation was concerned with the organisation of the activities of a company, not its paperwork.
2. No constructive knowledge: The insured SPV also did not have constructive knowledge for the purpose of the UK Act. The High Court accepted that the test, which was whether the information should have been revealed by a reasonable search of information available to an insured (the equivalent of s 40(1) of the Act), was an extension of the previous common law duty of disclosure. However, it said that what is reasonable must depend on the context and the type of business which the insured is conducting. The Court found, including by reference to what other shipping groups did, that it was not reasonable for the insured SPV to make the enquiries of Mr Bairactaris that would have elicited the criminal charges. Therefore, the information would not and should not have been revealed by reasonable searches.
3. Not material: Materiality under the UK Act was “substantively the same” as under the common law. Where the argument is that information should have been disclosed, the Court is assessing a hypothetical. It is therefore legitimate for the Court to consider other exculpatory information that the insured would have provided to the insurer together with the disclosure. In this instance, the Court found that in the hypothetical circumstance in which the position had been disclosed, the insured would have disclosed Mr Bairactaris’ firm belief that the charges were without foundation and his position as a nominee director with no role in the running of the business or operation of the ship, among other things. The Court was satisfied that a prudent underwriter would have dismissed the charges as having no relevance to the assessment of the risk in that context. The criminal charges could not plausibly have increased the risk of detention of the ship nor of the risk of a fraudulent or inflated claim given Mr Bairactaris played no part in the insured’s insurance.
4. Finally, although the comment was made obiter, the Court was not impressed by the insurers’ evidence that had the criminal charges been disclosed, they would have declined to provide cover. There was an air of unreality about the evidence presented and a suggestion from the Court that, having put their stake in the sand, insurers’ witnesses had convinced themselves retrospectively of the steps they would have taken in the hypothetical.

The Court of Appeal declined AXA’s appeal.

Neither the High Court nor Court of Appeal appears to have been referred to the Berkshire decision discussed
above regarding materiality. However, a key distinguishing factor in Delos was the substance of the role played by Mr Bairactaris compared with Mr Sherwood, the fact that the charges against Mr Bairactaris appeared shaky at best, and the lack of clear underwriting evidence in Delos when compared with the evidence in Berkshire.

Case study 3

Young v Royal and Sun Alliance Insurance Plc[5]

The case of Young considered as a preliminary question whether the duty of fair presentation had been waived in respect of Mr Young’s ties to insolvent companies. Section 3(5)(e) of the UK Act provides that a policyholder is not required to disclose a circumstance if it is something about which the insurer waives information. Section 21(2)(e) of the Act is in the same terms.

Mr Young sought GBP7.2 million from Royal and Sun Alliance following a fire that allegedly destroyed premises relating to a property development. Royal and Sun Alliance purported to avoid the policy on the basis that in breach of the duty to make a fair presentation of the risk, Mr Young had
failed to disclose that he had previously been a director of four companies that were insolvent at the time of entry into the policy. The companies were not related to the insured property development entity.

The market presentation prepared by Mr Young’s brokers included a question “Select any of the following that may apply to any proposer, director or partner of the trade or business for its subsidiary companies if they have ever, either personally or in any business capacity”. The broker’s software then provided seven possible responses, one of which was “Been declared bankrupt or insolvent or have been the subject of bankruptcy proceedings or insolvency proceedings”. The response “None” had been selected from the list. The presentation as given to Royal and Sun Alliance included only the question, followed by “None”; it did not show the list of options given to the insured.

The lower court found for the insurer, but Mr Young appealed, arguing that the insurer had waived its right to this information by responding to a market presentation with terms that he misunderstood as only applying to the current company.

Mr Young alleged that Royal and Sun Alliance had waived its right to disclosure of his ties with the insolvent companies because:

• the questions put to and answered by Mr Young in the proposal form prepared by his brokers limited the information considered material and that was accepted by insurers; and
• insurers’ email containing an offer of insurance was insufficient to elicit the information from Mr Young.

The Court acknowledged that the common law of waiver in the insurance context applied equally to the new
statutory duty requiring fair presentation of the risk. It would therefore be possible for an insurer to waive their right to certain information that would otherwise require disclosure pursuant to the duty.

The most common form of waiver was implicit waiver through the limited nature of an insurer’s enquiries, usually through a proposal form. For example, if a proposal form specifically asked about any motor vehicle accidents that had occurred in the last five years, the intended insured may be justified in not disclosing an accident that occurred 7 years previously.

Whether waiver has occurred depends on a true construction of the proposal form in context. The test is whether a reasonable person reading the proposal form would be justified in thinking that the insurer had restricted his right to receive all material information, and consented to the omission of the particular information in issue. Further, if an insured provides information that would prompt a reasonably careful insurer to make further enquiries and they fail to do so, waiver may arise to the benefit of the insured. Although this would likely also be addressed on the basis that there has been no breach of the duty to make a fair presentation, which requires that the policyholder provide disclosure of sufficient information to put a prudent insurer on notice to make further enquiries (s 31(1)(b) of the Act and s 3(4)(b) of the UK Act).

The Court found there was no waiver in this case. The insurer had not prepared the insurance presentation and did not know what options were available on that form for the insured to select. Further, the insurer’s email offer of cover included preconditions to cover, including that the insured had never been declared bankrupt
or insolvent or had a liquidator appointed. It did not purport to limit the extent of what was material.

Key takeaways

This article was co-authored by Raksha Tiwari and Sione Roberts, a solicitors in our Litigation team. 

Footnotes:
[1] 15 November 2027 at the latest, or earlier by Order in Council.
[2] [2021] EWHC 2689 (Comm)
[3] Brotherton v Aseguradors Colseguros (No. 2) [2003] EWCA Civ 705.
[4] [2024] EWHC 719. See also the appeal decision: Delos Shipholding SA v Allianz Global Corporate and Specialty SE [2025] EWCA Civ 1019 upholding the High Court’s decision.
[5] [2019] CSOH 32. See also the decision on appeal: Young v Royal Sun and Alliance Insurance Plc [2020] S.C. 567 (2020).