Insuring trust assets series - non-disclosure

Jamie Darwin, Client Director in our Jersey office, presents the first in a series of articles looking at the key areas to consider when insuring trust assets.

As trustees we have a duty to protect the trust fund and as such must take steps to preserve the individual assets held. One of these steps is to insure the assets for any damage which may be caused by a sudden or unexpected event.

There are though specific areas which need to be focussed on when a trustee is arranging insurance. These will vary depending upon the nature, size and location of the asset. However there are a number of common pitfalls to avoid, particularly when insuring residential and commercial property. These common pitfalls typically relate to non-disclosure, underinsurance, the conditions and warranties of the insurance policy and the extent of cover.

So, how can we, as professional trustees, avoid these pitfalls? Over the next few weeks, we’ll have a look at four of the biggest issues. First, it’s non-disclosure.

Make sure you know when to open up

When arranging insurance there is a positive duty placed upon the policyholder to fully declare all material facts – whether requested or not – to the insurer. A material fact is anything that might influence the mind of the reasonable and prudent underwriter in deciding whether or not to accept a risk or the terms to apply to the policy.

A breach of this duty means that the insurer can legitimately decline a claim or void the entire policy, although an insurer will not decline a claim if the non-disclosure relates to something that improves the risk. However, by not disclosing positive risk features such as alarms being in place, the trustee may be missing out on discounts to the premium that is paid.

When does the duty of disclosure arise?

The duty of disclosure does not just arise when requesting cover or making a claim. In practice a trustee is under a duty to disclose all of the time because most policies contain a contractual condition imposing a continuing duty of disclosure.

How much information should be given to an insurer?

The amount of information required varies depending on the type of property to be insured. Typically less information is required for a small residential property and far more information will be required for larger multi-tenure commercial property. A good insurance broker will give the trustee advice on the risk information required.

What does a trustee need to tell insurers about during the life of the policy?

Examples of what a trustee needs to disclose include:

  • when the property is undergoing structural alteration or building works
  • if the property has become unoccupied
  • the alarm system has changed or has been removed
  • there has been a change of tenant or trade.

Next week, we’ll take a look at underinsurance. Come back and visit our media centre for more.

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