March 2007

Moral hazard and non-disclosure

When is it necessary for a prospective insured to disclose allegations of dishonesty or criminal conduct made against them? This issue was considered in Norwich Union Insurance Limited v Meisels.

Clearly insurers will be interested to learn that a professional has been accused of dishonesty before underwriting a professional indemnity policy. But what if the professional has clear and cogent or even overwhelming evidence that the allegation has no foundation, or the allegation itself is fantastical? What if a multitude of allegations that seem unlikely in isolation are made against the same professional? Obviously there will be occasions where this is an issue of common sense but it can still be difficult in practice to draw the dividing line between what is disclosable and what is not.