First, a little definition – an insurance contract is based on the principle of ‘utmost good faith’ – that is, a person seeking insurance must disclose any information that would constitute a ‘material fact’ or anything that would affect an insurer’s view of the hazard you pose in offering you cover. This can be both physical hazards (such as the construction of the building) but also moral hazards such as criminal convictions.
Non-disclosure of a material fact can lead an insurer to reduce or reject a claim payment, or even cancelling insurance overall.
One of the most common reasons we find insurers reject claims is through non-disclosure of previously liquidated companies or County Court Judgements (CCJs). This falls into the moral hazard category and is often overlooked when insurance is being arranged, as the impact of these aren’t directly obvious.
We have been asked before about why this matters – why should you be penalised for the mistakes of the past? Simply put, an insurance contract is a promise for you to pay your annual premiums in return for insurers to pay your claims. A previous liquidation or CCJ suggests you are a higher moral risk to insurers, and insurers prefer to take the moral high ground – without further information insurers will automatically assume the worst and believe you might renege on your side of the contract.
There are many legitimate reasons why a company may be liquidated, from changing market conditions and consumer demands (such as many high street chains have struggled with over the past few years), to bad debt from their own customers (see Carillion), to even companies never having traded and being closed off. The vast majority of liquidations can be readily explained, and insurers are more than happy to offer cover with a quick explanation of the past.
If you have had any liquidations or CCJs you must let your insurer or broker know to ensure insurers are aware of all the facts. ProAktive have excellent relationships with insurers and will be able to help.
By Sam Harby Dip CII – Commercial Account Handler