## Introduction

The Marine Insurance Act 1906 (MIA 1906) shaped insurance law for over a century by codifying the duty of utmost good faith and imposing a strict pre‑contract duty of disclosure. Under sections 17 and 18, an insured had to disclose all material circumstances judged by what a prudent insurer would want to know. Breach—whether innocent, careless or dishonest—let insurers avoid the policy from the start. Courts applied these rules beyond marine insurance, as seen in cases such as _Lambert v Co‑operative Insurance Society_, and many viewed the regime as harsh and unclear for ordinary buyers of insurance.

From 2012 and 2015, Parliament rebalanced the rules. The Consumer (Disclosures and Representations) Act 2012 (CDRA 2012) now governs consumer insurance, replacing the old duty of disclosure with a duty to take reasonable care not to misrepresent, backed by proportionate remedies. The Insurance Act 2015 (IA 2015) governs business insurance, introducing a duty of fair presentation with clearer disclosure standards and, again, proportionate remedies. IA 2015 also abolishes avoidance for breach of utmost good faith as a standalone remedy.

This guide sets out the old and current rules, key cases, practical steps, and common pitfalls.

## What You'll Learn

- What MIA 1906 said about utmost good faith and disclosure (ss.17–18)
- How “materiality” and inducement work, including _Pan Atlantic v Pine Top_
- How the CDRA 2012 reshaped consumer insurance duties and remedies
- How IA 2015’s duty of fair presentation works for business insurance
- What “reasonable search”, “knowledge” and “clear and accessible” mean in practice
- Key cases: _Carter v Boehm_, _Lambert_, _Pan Atlantic_, _Drake v Provident_
- Practical steps for proposals, renewals, and claims under the modern regime

## Core Concepts

### Utmost Good Faith and the Old Duty of Disclosure

- MIA 1906 s.17 stated that insurance contracts are based on utmost good faith. Section 18 required the insured to disclose all material circumstances known or that ought to be known, judged by the standard of the prudent insurer.
- A circumstance was “material” if it would influence the judgment of a prudent insurer in fixing the premium or deciding whether to take the risk.
- The rule applied to marine and, through case law, non‑marine insurance. In _Lambert v Co‑operative Insurance Society_, the court applied the same strict disclosure duties to a consumer life policy.
- Remedies were blunt: any breach—innocent, careless or fraudulent—could allow the insurer to avoid the policy ab initio. There was no scale of remedies to match the seriousness of the breach.
- The approach was widely criticised, particularly for consumers who had no realistic way to know what a prudent underwriter would have wanted to be told.

### Materiality and Inducement: From Case Law to Statute

- Materiality: Courts interpreted “influence” broadly. It covered facts a prudent insurer would want to know, even if the insurer might still have accepted the risk.
- Inducement: The House of Lords in _Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd_ confirmed that, besides materiality, an insurer must show inducement—that the non‑disclosure or misrepresentation actually played a real and substantial part in the underwriting decision.
- Evidence of inducement matters. In cases such as _Marc Rich & Co AG v Portman_, courts scrutinised insurer testimony closely; weak evidence could defeat avoidance.
- Under the modern Acts, inducement remains relevant. For business insurance, remedies under IA 2015 depend on what the insurer would have done if given a fair presentation. For consumers, CDRA 2012 looks at whether a misrepresentation was careless or deliberate/reckless and then applies proportionate outcomes.

### Consumer Insurance Today: Reasonable Care and Proportionate Remedies (CDRA 2012)

- Scope: Applies where an individual buys insurance wholly or mainly for non‑business purposes.
- Duty: The old duty of disclosure is abolished. The consumer must take reasonable care not to make a misrepresentation. The standard is that of a reasonable consumer in the circumstances, considering the type of policy, how questions were asked, and any guidance from the insurer.
- Qualifying misrepresentations:
  - Deliberate or reckless: the insurer may avoid the policy, keep the premium, and refuse claims.
  - Careless: proportionate remedies apply. If the insurer would have charged more, claims can be reduced proportionately. If the insurer would have imposed a term, the policy is treated as if that term applied. If the insurer would not have entered the contract, it may avoid but must usually return the premium.
  - Innocent/reasonable answers: no remedy.
- The Act discourages vague or confusing proposal questions and places more responsibility on insurers to ask for what they want to know.

### Business Insurance Today: Fair Presentation and Remedies (IA 2015)

- Scope: Applies to non‑consumer insurance, including marine and commercial risks. It supplements (and, in places, overrides) MIA 1906.
- Duty of fair presentation (s.3):
  - Disclose every material circumstance known or that ought to be known, or provide enough information to put a prudent insurer on notice to ask more questions.
  - Present information in a manner that is reasonably clear and accessible (avoid data dumps).
  - Ensure representations of fact are substantially correct; those of expectation or belief are made in good faith.
- Knowledge and reasonable search:
  - “Known” includes what senior management and the insurance team know, and what would be revealed by a reasonable search of information available to the insured (including group, agents and brokers).
  - What counts as a reasonable search depends on the size, complexity and nature of the business and risk.
- Remedies (s.8 and Schedule 1):
  - Deliberate or reckless breach: insurer may avoid, keep the premium.
  - Careless breach: proportionate remedies based on what the insurer would have done (apply different terms, reduce claim, or avoid with return of premium).
- Utmost good faith remedy abolished: IA 2015 removes any rule allowing avoidance purely for lack of utmost good faith. Remedies now follow the Act’s proportionate scheme.

### Why the law now splits consumer and business insurance

- Consumer insurance is mass‑market, typically bought through standardised questions. It is fairer to place the onus on insurers to ask clear questions and on consumers to answer them carefully.
- Business insurance is varied and often bespoke. Businesses (and their brokers) are better placed to know their risks and gather information across departments, so a fair presentation duty with a defined “reasonable search” is more workable.
- The Financial Ombudsman Service (FOS) approach already leaned towards protecting consumers where insurers failed to ask clear questions. The statutes align the law with market practice.
- The split also reflects the use of intermediaries in commercial placements and the practical need for insurers to be put “on notice” to enquire further about complex risks.

### Ongoing issues and common grey areas

- “Business” is not defined in IA 2015. Micro‑enterprises and sole traders fall under the business regime, even though they may look like consumers in practice.
- Fair presentation can be contested: what is “reasonably clear and accessible”? When is a data room a helpful resource and when is it an unhelpful dump?
- Reasonable search is fact‑sensitive. Insureds should document who was asked, what was checked, and what sources were used.
- Contracting out: Insurers can contract out of parts of IA 2015 for non‑consumers if terms are clear and the insured’s attention is drawn to them. Buyers should watch for these clauses.
- Early case law under IA 2015 and CDRA 2012 is still developing, so parties should expect closer scrutiny of process and evidence.

## Key Examples or Case Studies

### Carter v Boehm (1766)

- Context: Fortification insurance where the insured knew of vulnerabilities.
- What it shows: Lord Mansfield articulated utmost good faith—insurance relies on full candour about matters material to the risk.
- Application: The historic root of disclosure duties. Today, the remedy for lack of good faith is governed by statute, not automatic avoidance.

### Lambert v Co‑operative Insurance Society [1975]

- Context: Consumer failed to disclose husband’s past convictions; proposal form did not clearly ask about them.
- What it shows: Courts applied MIA 1906 disclosure duties beyond marine insurance, producing harsh results for consumers.
- Application: Highlights why CDRA 2012 removed the general consumer disclosure duty and introduced proportionate remedies.

### Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501

- Context: Reinsurance dispute over non‑disclosure.
- What it shows: Two‑stage approach—materiality plus inducement. A fact is material if it would influence a prudent insurer; the insurer must also prove it was actually influenced.
- Application: Inducement remains central when applying IA 2015 remedies to careless breaches.

### Drake Insurance plc v Provident Insurance plc [2003] EWCA Civ 1834

- Context: Motor insurance; alleged non‑disclosure/misrepresentation.
- What it shows: Inducement is tested carefully; insurers can fail if evidence shows they would have acted the same way.
- Application: The proportionate remedy model adopts this thinking—outcomes turn on what the insurer would have done.

## Practical Applications

- For consumers
  - Answer every question truthfully and to the best of your knowledge. If unsure, say so and explain why.
  - Read proposal forms carefully; ask for clarification if a question is ambiguous.
  - Keep notes of conversations and copies of forms. Evidence helps if a dispute reaches the FOS.
  - Update your insurer at renewal and when circumstances change if the policy requires it.

- For businesses (and brokers)
  - Plan the reasonable search:
    - Identify who counts as senior management and who arranges insurance.
    - Speak to operational teams, finance, HR, IT, health and safety, and others with relevant knowledge.
    - Review incident logs, loss runs, maintenance records, product data, and contractual commitments.
    - Include group companies and agents where relevant.
  - Present clearly and accessibly:
    - Use a summary of key risks, with signposts to supporting documents.
    - Highlight unusual or heightened exposures.
    - Avoid unfiltered data dumps; explain what matters and why.
  - Record the process:
    - Keep an audit trail of who was asked, what was checked, and when.
    - Note any queries raised with underwriters and their responses.
  - Watch the wording:
    - Look for any contracting‑out clauses and seek advice before agreeing.
    - Be aware that “basis of contract” clauses are abolished—warranties cannot be created by turning answers into warranties automatically.
  - At claims stage:
    - If a disclosure issue arises, assess what the insurer would have done with a fair presentation; this drives the remedy.
    - Engage early with insurers to explore proportionate outcomes.

- For insurers and underwriters
  - Ask clear, targeted questions—especially in consumer contexts.
  - For business risks, probe further when put on notice; record follow‑up enquiries.
  - Document underwriting decisions to evidence inducement if disputes arise.
  - Train teams on IA 2015 and CDRA 2012 remedy frameworks.

## Summary Checklist

- Know the old rule: MIA 1906 required disclosure of all material circumstances to a prudent insurer; avoidance ab initio was the standard remedy.
- Apply the right regime:
  - Consumers: CDRA 2012 duty to take reasonable care not to misrepresent, with proportionate remedies.
  - Businesses: IA 2015 duty of fair presentation, including reasonable search, clear presentation, and proportionate remedies.
- Remember materiality and inducement: influence on a prudent insurer plus actual inducement are still central.
- Avoid data dumps: present risk information in a clear, accessible way and flag unusual features.
- Keep records: searches, sources, queries, decisions, and renewals.
- Check policy terms: contracting‑out clauses for business insurance, warranties, and any disclosure wording.
- Use proportionate remedies: match the remedy to what would have happened with correct information.

## Quick Reference

| Concept                      | Authority                     | Key takeaway                                                                     |
| ---------------------------- | ----------------------------- | -------------------------------------------------------------------------------- |
| Utmost good faith (remedy)   | IA 2015 s.14                  | Avoidance for lack of good faith as a standalone remedy is abolished             |
| Consumer misrepresentation   | CDRA 2012                     | No general disclosure duty; reasonable care standard with proportionate remedies |
| Fair presentation (business) | IA 2015 s.3–s.5, Sch 1        | Disclose or put insurer on notice; clear presentation; proportionate remedies    |
| Materiality and inducement   | MIA 1906 s.18; _Pan Atlantic_ | Material = influence on a prudent insurer; insurer must show inducement          |
| Basis of contract clauses    | IA 2015 s.9                   | Clauses turning answers into warranties are of no effect                         |


Marine Insurance Act 1906: Duties, Disclosure and Modern Reforms