Basis Clauses

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“The Law Commission recommends the abolition of basis clauses in business insurance, which position Airmic unequivocally supports.”

Basis clauses in insurance contracts may enable insurers to disclaim liability under a policy where there is any inaccuracy in a proposal form or other underwriting information, no matter how trivial. As the inaccuracy will usually arise prior to the inception of the policy, in practical terms, the result may be that cover never attaches so that insurers are never on risk. Such clauses give insurers significant additional protection over and above the duty of disclosure owed by insureds. Although the effect of basis clauses can be very harsh, they are often not well understood by policyholders.

The Law Commission recommends the abolition of basis clauses in business insurance, which position Airmic unequivocally supports. However, given that a change in the law is still (as at April 2013) probably some years away, this guide assists members to identify and understand the effects of basis clauses, and explains why members should act now to remove them from their policies.

This guide builds on work undertaken by Airmic in 2011 and 2012 preparing guidance to assist members in complying with the duty of disclosure imposed on proposers in the context of insurance contracts. Together with the results of that work contained in the Airmic guide to Disclosure of Material Facts and Information in Business Insurance, this guide will assist members in complying with their disclosure obligations and mitigating the harshness of the law.

This guide has been produced with the assistance of Herbert Smith Freehills LLP as a preferred service provider to Airmic. The content of the guide relates to the position under English law and does not constitute legal advice. Members are advised to consult their lawyers should they require advice on any matter the subject of this guide.