Modified Car Insurance and Non-Disclosure

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There may be a time when a policyholder is genuinely unaware of certain modifications made to their car – possibly carried out before they purchased it. This means they may innocently fail to declare all ‘material’ facts (i.e. modifications) required by insurance providers when they apply for a policy. In all non-disclosure insurance cases, the provider has the legal right to invalidate a policy, but in cases of innocent misrepresentation and non-disclosure, there are certain safeguards in place to protect the policyholder from such an unreasonably harsh outcome.

The Legal Position of Non-Disclosure Insurance Cases

All insurance contracts are deemed a ‘contract of utmost faith’ in which both parties must be completely honest in their dealings with each other. This means as a motorist you have a duty to disclose, in full, any ‘material’ facts about your car (i.e. modifications) when you renew your policy or take out a new one.

‘Material’ facts can influence an insurer when they make the decision to cover you and accept the risk. If you fail to disclose the true nature of your car’s modifications, under the shared agreement of the contract, the insurer has the legal right to void your policy and treat it as if it never existed. If this is the case, they will not pay out on any claim you make under the policy.

Modified Car Insurance from Keith Michaels

Good Industry Practice

If for any reason you innocently fail to declare all of your ‘material’ facts, your insurer could still see that your policy is invalidated. This is an unreasonably harsh outcome for a simple mistake, which is why the Association of British Insurers (ABI) introduced safeguards to protect policyholders who find themselves in this situation.

These safeguards – most commonly known as statements of practice – insist that insurers must ask applicants clear questions about facts they consider material. The applicants are required to answer these questions truthfully, to the best of their knowledge. Therefore, when making the decision on whether to invalidate a policy, insurers must only rely on the answers given or withheld. Invalidation of a policy is only justified if the non-disclosure is reckless or deliberate – not where it it’s innocent.

Although these principles have now been withdrawn – replaced by the Financial Services Authority’s Insurance: Conduct of Business Rules (ICOB) in 2005 – they still remain key examples of good standards of practice for insurance providers in cases of non-disclosure.

To find out more about what modifications influence your insurance costs check out our What Modifications Affect Car Insurance guide.

Financial Ombudsmen Approach to Non-Disclosure Insurance Cases

Under the Financial Ombudsmen, misrepresentation and non-disclosure cases are dealt with in three stages – taking into account the legal position of the insurer and the requirements of good industry practice.

These are as follows:

  • Did the insurer ask the applicant a clear cut question about the matter which is now under dispute?
  • Did the applicant’s answer to that clear question influence the insurer’s decision to enter into a contract, or to do so under terms and conditions that would have otherwise not been accepted?
  • Only if the answers to both questions are ‘yes’ will there be an investigation into whether the applicant’s misrepresentation was an innocent mistake, or a dishonest attempt to mislead. Negligence will also be considered.

Are you aware of what modifications you need to declare to your insurer? Read our page on Declaring Modifications to your Car Insurance Provider to find out.