Section 4: Knowledge of insured
50.Section 4 defines what the insured “knows” and “ought to know” for the purposes of the duty of disclosure in section 3. It is based on the insured’s duty under section 18 of the 1906 Act to disclose every material circumstance known to them, including everything which “in the ordinary course of business, ought to be known” to them.
51.Section 4(2) addresses the position of an insured who is an individual (such as a sole trader or practitioner). As well as their own knowledge, the insured will be taken to “know” anything which is known by an individual who is “responsible for the insured’s insurance”.
52.Section 4(3) sets out the individuals whose knowledge will be directly attributed to the insured where the insured is not an individual (such as a company). They are the insured’s senior management and the person or people responsible for the insured’s insurance. These categories reflect important decisions on the common law rules of attribution in the insurance context. However, the intended effect of the phrase “knows only” is that the common law on attribution of knowledge to the insured is replaced by the terms of the Act.
53.Section 4(8)(b) defines who is “responsible for the insured’s insurance”. It is expected to catch, for example, the insured’s risk manager if they have one, and any employee who assists in the collection of data or negotiates the terms of the insurance. It may also include an individual acting as the insured’s broker.
54.Section 4(8)(c) defines “senior management”. It captures those individuals who play significant roles in the making of decisions about how the insured’s activities are to be managed or organised. In a corporate context, this is likely to include members of the board of directors but may extend beyond this, depending on the structure and management arrangements of the insured.
55.Because the knowledge of the senior management and those individuals responsible for the insurance is directly imputed to the insured for the purposes of the duty of fair presentation, those categories of person are expected to be construed relatively narrowly, but are capable of being applied flexibly. The knowledge of those individuals who do not fall within the category of senior management, yet who perform management roles or otherwise possess relevant information or knowledge about the risk to be insured, may be captured by the “reasonable search” referred to in section 4(6).
56.Section 4(6) defines what an insured “ought to know” by reference to information that could reasonably be expected to be revealed by a reasonable search of available information. It largely codifies principles derived from some case law,(14) namely that insureds should seek out information about their business by undertaking a reasonable search, which may include making enquiries of their staff and agents (such as their insurance broker). Section 4(7) makes clear that relevant information subject to the reasonable search may be held by persons other than the insured itself. Taken together with section 4(6), this means that the reasonable search may extend beyond the insured itself to other persons, where such a search would be reasonable in the circumstances and where information is available the insured. The scope of the phrase “information held ... by any other person” in this context is intended to be flexible.
57.Future interpretation of sections 4(6) and 4(7) is likely to be guided by existing case law. For example, a search may not be expected to evince an admission by a servant of their own negligence.(15) In contrast, the knowledge of an “agent to know”, who has a duty to communicate the relevant information to their employer or principal, may well be included.(16)
58.Unlike section 19 of the 1906 Act (which the Act repeals), the Act does not include a separate duty on the agent to disclose information to the insurer. The agent’s knowledge or other information held by the agent may be caught under section 4 as discussed above.
59.Section 4(4) makes further provision about the knowledge of an individual acting as an agent of the insured. Where such an individual acquired confidential information through a business relationship with someone other than the insured or any other person connected with the insurance being placed, that information will not be attributed to the insured. This provision is expected to be particularly relevant to the insured’s broker who is likely to hold confidential information on behalf of many unconnected clients..
See, for example, Aiken v Stewart Wrightson Members Agency Ltd [1995] 3 All ER 449.
See, for example, Australia & New Zealand Bank Ltd v Colonial & Eagle Wharves Ltd [1960] 2 Lloyd’s Rep 241.
See, for example, Proudfoot v Montefiore (1867) LR 2 QB 511.
