1 - Material Information

Question 1

What 3 elements must be present for a contract to be legally binding?

Answer 1

An offer
An acceptance
A consideration

Question 2

What legal principle governs insurance contracts?

Answer 2

Good faith

Previously known as uberrima fides, utmost good faith

Question 3

How does the principle of good faith apply to the consumer contracts?

Answer 3

All information given in response to an insurer’s questions, and any volunteered information, must be full and accurate

The consumer must take reasonable care not make a misrepresentation

Question 4

How does the principle of good faith apply to non-consumer contracts?

Answer 4

There must be a fair presentation to the insurer and including a “reasonable search” of the proposer’s business, and that important information has been “signposted” to the insurer.

Question 5

How did the Marine Insurance Act 1906 define material fact (rather than material information or circumstance)?

Answer 5

Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether to take the risk

Question 6

How was the definition of material circumstances modified by the Insurance Act 2015?

Answer 6

A material circumstance is substantially correct if the prudent insurer would not consider the difference between what was represented and what is actually correct to be material

Question 7

Give some examples of material circumstances

Answer 7

Reasons for the request for insurance (any particular concerns which are leading to the request for insurance)
Facts specific to the class of business
Special or unusual facts relating to the risk

Question 8

What kind of information does not need to be disclosed?

Answer 8

Facts of law
Public knowledge
Information the insurer ought to, should, or does know
Information the insurer has waived it’s right to
Spent convictions
Facts that diminish the risk (normally this would be disclosed as it may lower the premium, but it does not have to be)

Question 9

What statute governs how the principle of good faith applies to consumer insurance contracts?

Answer 9

Consumer Insurance (Disclosures and Representations) Act 2012 (CIDRA)

Question 10

What statute governs how the principle of good faith applies to non-consumer insurance contracts?

Answer 10

Insurance Act 2015

Question 11

What is the main difference between how good faith applies to consumer and non-consumer insurance contracts?

Answer 11

Consumers are only required to answer questions asked by the insurer

Non-consumers still need to disclose material circumstances even if the insurer does not ask

Question 12

What does it mean to contract out of the Insurance Act 2015?

Answer 12

Both parties can agree that the Insurance Act 2015 will not apply and that the previous law on disclosures as set out in the Marine Insurance Act 1906 will apply instead

Question 13

When contracting out of the Insurance Act 2015 what must the insurer do? What are the consequences if they do not do this?

Answer 13

If the parties agree that the provisions of the Insurance Act 2015 will not apply then the PREVIOUS LAW ON DISCLOSURE WOULD APPLY.

Both the proposer and the insurer must agree to contract out; one can’t do so without the express of the other.

Be transparent in explaining the implications of this. If they do not then the contracting out will have no legal effect and the Insurance Act will still apply

Question 14

When does the duty of disclosure begin and end? How can this be modified?

Answer 14

Begins at the start of negotiations and ends at inception (when the contract is formed). Can be modified by policy conditions

Question 15

When is the duty of disclosure reviewed during the policy?

Answer 15

At renewal or in relation to a mid term adjustment. May also be reviewed in relation to a claim via policy condition (when the claim is made)

Question 16

How do insurer’s commonly modify the duty of disclosure?

Answer 16

By including a policy condition in the wording that continues the duty of disclosure throughout the policy

Question 17

How is the duty of disclosure typically modified in commercial property insurance?

Answer 17

A policy condition requiring the insured notify the insurer if property is removed to another location or of circumstances that may increase the risk of damage

Question 18

How is the duty of disclosure typically modified in motor/home insurance?

Answer 18

A condition requiring continual disclosure of all material changes

Question 19

How is the duty of disclosure typically modified in public liability insurance?

Answer 19

The business activity of the insured is strictly defined in the policy and all changes must be notified

Question 20

How does the duty of disclosure apply to intermediaries?

Answer 20

They must disclose all information passed to them by the proposer. Practically the duty is the same

Question 21

What is the difference between non-disclosure and misrepresentation?

Answer 21

Non-disclosure is when information is omitted, misrepresentation is when information provided is false

Question 22

When does an insurer have a right of remedy under the Consumer Insurance (Disclosure and Representations) Act?

Answer 22

When the consumer did not take reasonable care and the insurer was induced to enter the contract by the breach

Question 23

What remedy would be available to the insurer if a breach of the duty of disclosure was deliberate or reckless?

Answer 23

The insurer can avoid the policy ab initio, decline any claims, and keep any premiums collected

Question 24

What remedy would be available to the insurer if a consumers breach of the duty of disclosure was careless?

Answer 24

• The insurer can impose the terms they would have done if the breach had not occurred or
• proportionally reduce the pay out for the claim if they would have charged a higher premium

Question 25

What remedy would be available to the insurer if a consumers breach of the duty of disclosure was honest and reasonable?

Answer 25

No remedy is available - the insurer would have to pay the claim in full (providing there is coverage)

Question 26

How are breaches of the duty of disclosure classified under CIDRA?

Answer 26

1. Deliberate or reckless
2. Careless
3. Honest and reasonable

Question 27

When is a remedy available to an insurer under the Insurance Act 2015?

Answer 27

The duty of fair presentation was breached and it resulted in the insurer entering into a contract they would not have done, or under different terms

Question 28

How are breaches of the duty of fair presentation classified under the Insurance Act 2015?

Answer 28

1. Deliberate or reckless
2. Neither deliberate nor reckless

Note: Unlike CIDRA the term careless is not used

Question 29

Under IA 2015 when is a breach deliberate or reckless?

Answer 29

If the proposer knew it was in breach or did not care

Question 30

Under IA 2015 what remedy is available for a deliberate or reckless breach of the duty of fair presentation?

Answer 30

The insurer may avoid the policy, refuse any claims, and keep all collected premiums

Question 31

Under IA 2015 what remedies are available if a breach of the duty fair presentation occurs that is neither deliberate nor reckless?

Answer 31

1. If the insurer can prove they would not have entered into the contract they may avoid it but have to return all premium
2. If they would have imposed different terms they may do so
3. If they would have charged a higher premium the claim may be reduced in proportion

Question 32

What is the most common way of obtaining material information?

Answer 32

1. Via a proposal form asking questions about information the insurer wishes to know.
2. Statement of facts (Statements of fact which detail the information, but that do not require a formal signature, have replaced proposal forms in respect of many personal insurance contracts and simple commercial insurance contracts.)

Question 33

Other than the proposal form how else may material information be obtained?

Answer 33

1. Via a broker + risk register
2. Risk surveys
3. Supplementary questionnaires
4. Meetings with insured
5. Call centers/internet

Question 34

What is a peril and a hazard?

Answer 34

A peril is an event which gives rise to a loss.
A hazard is something which influences a peril

Question 35

A non-consumer must ensure that their representation of the risk is what?
What statute governs this?

Answer 35

Clear and accessible

Insurance Act 2015

Question 36

How must consumers answer an insurer’s questions?

Answer 36

Fully and accurately

Question 37

What does CIDRA 2012 say about the insurer’s duty of disclosure at renewal?

Answer 37

They must repeat the answers provided to the insurer’s questions when the first policy was taken out and ask the insured to confirm they are still accurate

Question 38

Do you think the caveat emptor (let the buyer beware) principle applies to insurance contracts?

Answer 38

No.
Insurance contracts are different, as they are based on a promise to do something in the event that a certain set of circumstances occurs, in exchange for payment of the premium.
But, because in the case of insurance, the promise is not tangible until a loss occurs, contracts are governed by a different legal principle, known as good faith.
This was formerly known by a Latin term, uberrima fides, or utmost good faith.

Question 39

Kim’s house has been burgled twice in the last six months. She deliberately fails to declare this when applying for contents insurance. In the event of a claim, do you think her insurer will be prohibited from avoiding her policy under the Consumer Insurance (Disclosure and Representations) Act 2012?

Answer 39

No.
The Act states that where a breach is deliberate, the insurer can avoid the policy. Therefore, Kim’s insurer will be able to avoid her policy and not pay out in the event of any claim.

Question 40

What is a qualifying breach on the consumer contract?

Answer 40

A breach is qualifying under the Act if the consumer did not take reasonable care, and if any breach led the insurer to enter the contract.

Question 41

Peter makes a claim on his motor policy. The insurer discovers Peter failed to disclose that his wife Jane had an unspent conviction for shoplifting. The insurer’s application form only requested information on previous motoring convictions. Which of the following statements is true?
A) The insurer can void Peter’s policy from the outset
B) The insurer will have to meet any claim in full
C) The insurer can keep Peter’s premiums and sue for damages

Answer 41

B
Because Peter is a consumer in this scenario he only needs to answer questions asked by the insurer.
As the insurer did not ask whether Peter’s wife had any convictions other than for motoring offences, Peter was under no obligation to disclose her conviction for shoplifting.

Question 42

The Consumer Insurance [Disclosure and Representations] Act 2012 means that consumers must:
a. disclose facts to an underwriter if they are in any doubt as to their relevance.
b. take reasonable steps to just answer the questions asked, even if this means not disclosing information known to them.
c. take reasonable care not to make a misrepresentation to the insurer.
d. disclose all material facts.

Answer 42

c. take reasonable care not to make a misrepresentation to the insurer.

Question 43

Why is the Insurance Act 2015 important within commercial insurance?
a. It introduced standard policy cover and conditions.
b. It reduces an insurer’s ability to claim non-disclosure or misrepresentation and refuse a claim.
c. It increases the responsibility on those proposing for insurance to disclose all material information.
d. It introduced a ‘price cap’ on premiums for particular types of risks.

Answer 43

b. It reduces an insurer’s ability to claim non-disclosure or misrepresentation and refuse a claim.

Question 44

If a consumer takes reasonable care not to breach their duty of disclosure under an insurance policy, what action can the insurer take if they discover a breach of this duty?
a. Void the policy ab initio with no refund of premium.
b. Void the policy ab initio and record the consumer’s details on the Claims and Underwriting Exchange.
c. Void the policy ab initio and give a full refund of premium.
d. Insurer has no remedy and is unable to take any action.

Answer 44

d. Insurer has no remedy and is unable to take any action.

Question 45

When does the duty of fair presentation start and end?
a. Starts when negotiations begin and lasts throughout the life of a policy.
b. Starts at renewal of the policy and ends when the premium is paid.
c. Starts when negotiation begins and it is an ongoing warranty under the policy wording.
d. Starts at policy issue stage and ends when policy comes up for renewal.

Answer 45

a. Starts when negotiations begin and lasts throughout the life of a policy.

Question 46

Under the Consumer Insurance [Disclosure and Representations] Act 2012, what action are insurers required to take when renewing an insurance policy?
a. Insurers must offer a premium discount based on how long the insurance has been in force.
b. Insurers must ask the insured to confirm that the information provided when the policy was set up is still accurate.
c. Insurers must tell the insured that they should shop around before accepting the renewal premium.
d. Insurers must ask the insured to confirm they still understand the key terms of the policy.

Answer 46

b. Insurers must ask the insured to confirm that the information provided when the policy was set up is still accurate.

Question 47

What core change was made to the duty of disclosure by the introduction of the Consumer Insurance [Disclosure and Representations] Act 2012?
a. It abolished the duty of businesses to volunteer material facts to insurers.
b. It abolished the duty on insurers to disclose material facts to consumers.
c. It abolished the duty on brokers to disclose material facts to consumers.
d. It abolished the duty on consumers to volunteer material facts to insurers.

Answer 47

d. It abolished the duty on consumers to volunteer material facts to insurers.