6 - Pre-contractual Information Duty Flashcards
What must misrepresentation be to affect the validity of an agreement?
A material fact made by a party to the contract that induces the other into the agreement and causes them some loss or disadvantage
What is a material fact?
Something which would influence a prudent and reasonable underwriter in deciding whether to accept a risk, and on what terms
When can an insurer seek a remedy when a consumer makes a misrepresentation?
When the misrepresentation is negligent or fraudulent
There is no remedy for innocent misrepresentation
How does the sale of insurance differ from the sale of goods?
The sale of goods is governed by the doctrine of “caveat emptor” - let the buyer beware. Neither party can mislead the other, but they do not have to give information they are not asked for.
In insurance there is a positive duty of disclosure - this is because it involves the sale of an intangible product and relies on both parties being truthful
Who is responsible for an agent breaching the duty of disclosure/fair presentation?
The principal
What was the affect of Pan Atlantic Insurance Co v Pine Top Insurance Co (1994) on non-disclosure?
The “actual inducement test” - an Insurer can only seek a remedy due to non-disclosure if they can prove:
a) the non-disclosure was material
AND
b) the non-disclosure induced them into the contract
The non-disclosure may be presumed in certain cases
What is meant by “the nexus question”?
Connection between the non-disclosure/misrepresentation and the circumstances of the loss?
A proposer fails to disclose several previous burglaries when applying for household insurance. Following a fire, the policyholder makes a claim and during the investigation the Insurers discover the previous burglaries. Are they entitled to seek remedy?
Yes
The burglaries may not be connected to the fire, but if the Insurers had known about them they may have entered the contract on different terms, or not at all. The relevance of the non-disclosure to the circumstances of the claim is not the issue, it is the relevance to the risk as a whole
What test is applied when the Insurer seeks remedy for misrepresentation in consumer insurance?
Whether the consumer took “reasonable care” not to make a misrepresentation
What are the two categories of material facts?
Physical hazards - relate to the characteristics of the risk itself
Moral hazards - relate to the characteristics and behaviour of the Insured/proposer
What information does not need to be disclosed?
Facts which lessen the risk (although they often will be)
Facts of law
Facts which the Insurer ought to, or does, know
Information waived by the Insurer
Spent convictions
Under law, when does a duty of disclosure/fair presentation exist?
At the proposal stage, in relation to an MTA, and at renewal
Does the duty of disclosure/fair presentation exist during the lifetime of a policy?
Under law no, but some policies contain a condition requiring ongoing disclosure of alteration to the risk
What is the remedy for a fraudulent claim?
The whole claim is forfeited, even if a loss did occur but the Insured exaggerated the amount of the loss.
The Insurer may also avoid the entire policy if they wish
What forms may a breach of pre-contractual information duty by the insured take in commercial insurance?
- Misrepresentation (innocent or fraudulent)
2. Non-disclosure (innocent or fraudulent)
In commercial insurance, what must an Insurer show in order to seek a remedy for an Insured’s innocent breach of the duty of fair presentation?
They would have entered into the contract on different terms, or not at all
If an Insurer can show they would not have entered into a contract but for a qualifying breach of the duty of presentation, what remedy is available?
If the breach was deliberate or reckless they can avoid the policy and keep all premiums collected
If the beach was not deliberate or reckless they can avoid the policy but must return all premiums collected
If the Insurer cannot show that they would not have entered into the contract, what remedy is available?
If they would have applied different terms, the contract will be treated as if those terms apply
If they would have charged a higher premium, they can proportionately reduce the claim
For consumer insurance, what is a qualifying misrepresentation?
The consumer did not take reasonable care and the Insurer can show that without the breach it would not have entered into the contract, or would have done so on different terms
In consumer insurance what are the categories of misrepresentation?
Deliberate or reckless (the consumer knew it was untrue or misleading, or did not care)
Careless (not deliberate or reckless)
In consumer insurance, what is the remedy for a deliberate or reckless qualifying misrepresentation?
The Insurer may avoid the contract and keep all paid premiums
In consumer insurance, what remedies are available for a careless qualifying misrepresentation?
If the Insurer would not have entered into the contract, they may avoid the contract and return all premium
If the Insurer would have entered on different terms, the contract may be treated as if those terms applied.
If the Insurer would have charged a higher premium, they may proportionately reduce claims
What formula may be used to proportionately reduce claims following a qualifying breach which would have caused the Insurer to otherwise charge a higher premiumM
x = (Actual charged premium / Higher premium) * 100
This gives the percentage of the claim that the Insurer may pay
What is chapter 8 of ICOBS?
Claims handling
Is the Insurer breaches the duty of fair presentation, what will the remedy be based upon?
Common law / Marine Insurance Act 1906
