7. Principle of Good Faith

Question 1

What is the definition of good faith?

Answer 1

disclosure must be made in a reasonably clear and accessible manner, and material representation of fact, expectation or belief must be ‘substantially correct’

Question 2

Who does the principle apply to?

Answer 2

Equally to proposer and insurer but applies differently

Question 3

What was the historical position for good faith?

Answer 3

Duty to disclose all material circumstances but law modified to reflect different levels of knowledge and balance of bargaining powers

Question 4

What is the insurer’s duty of disclose for non consumer?

Answer 4

Duty of disclosure to insured and behave with good faith eg notifying of possible premium discount

Question 5

What is the insured’s duty for consumer insurance?

Answer 5

Consumer Insurance (Disclosure and Representations) Act 2012 CIDRA removes common law requirement disclose any material info
Replaces with duty to take reasonable care not to make a misrepresentation

Question 6

What is the definition of a consumer?

Answer 6

Takes out insurance wholly or mainly for purposes unrelated to their trade, business or profession

Question 7

What is the insured’s duty of non consumer?

Answer 7

Insurance Act 2015 - into effect Aug 2012 extends CIDRA
- Concept of good faith continues but absolute remedy of avoidance for breach doesn’t
- New duty to make fair presentation of the risk
- Sets our what insured or insurer should or is expected to know

Question 8

What is classed as within an insured’s knowledge?

Answer 8

• Individual: what is known by them or person responsible for insurance
• Non individual - what is know by senior management or responsible for insurance

Should have been released by reasonable search of info available - including would have known if not deliberately refrained from enquiring

Question 9

What should an insurer ought to know?

Answer 9

• Employee / agent knows and should have passed on info
• Relevant info held and readily available

Question 10

What is an insurer presumed to know?

Answer 10

• Common knowledge
• Reasonably expected to know in course of business they are offering insurance for
  Includes what suspect or would know if enquired

Question 11

What is fair presentation?

Answer 11

Disclosure of every material circumstance insured knows or ought to know or disclosure giving sufficient info to put prudent insurer on notice that it needs to make further enquiries
Onus shifts to insurer

Question 12

What is the duty of disclosure post contract - inception?

Answer 12

Duty of disclosure starts when negotiations begin and ends at inception
From inception to renewal no requirement declare material circumstances unless affect policy cover

Question 13

What is the duty of disclosure post contract - renewal?

Answer 13

Insured duty of disclosure revived for general insurance policies

Question 14

What is the duty of disclosure post contract - continuing requirement?

Answer 14

Policy conditions or tight definitions can be used to get around the lack of requirement to advise of mid term material changes

Question 15

What is the duty of disclosure post contract - on alteration?

Answer 15

Change to terms may be necessary, where need new endorsement duty is revived

Question 16

What is the definition of material circumstances?

Answer 16

IA 2015 = circumstance or representation is material if ti would influence the judgement of a prudent insurer in determining whether to take the risk and terms to be applied

Question 17

What is the test to see if a circumstance is material?

Answer 17

Courts look at it from insurer’s point of view

Question 18

What is the intention for a proposal form?

Answer 18

Draw out all the relevant information

Question 19

What are the insurer’s rights to information?

Answer 19

Question asked and only partial info provided and insurer doesn’t seek further details then waived right to this info and can’t then claim non-disclosure
Also applies to questions left blank on prop

Question 20

How can an insurer’s conduct prevent them from claiming a breach?

Answer 20

Insurer would be able to avoid ab initio but if act in a way suggesting waived this right such as issuing 7 day cancellation clause, have estopped from avoiding policy as shows they have accepted cover is in force

Question 21

When is disclosure of material circumstances not needed?
IA 2015 S3(5)

Answer 21

• Lessens the risk
• Insurer knows or ought to know
• Identified in reasonable surgery but surveyor missed something
• Facts outside knowledge of insured
• Facts covered by policy terms or know in that class
• Facts of public knowledge
• Facts of law
• Waved right to that info
• Facts outside scope of specific questions

Question 22

When do spent convictions need to be disclosed?

Answer 22

LASPO 2012 amends Rehabilitation of Offenders Act 1974 - rehabilitation periods for community orders and custodial sentences are now sentence period plus buffer period rather than starting from date of conviction
Periods are halved for U18s

Question 23

How is non-negligent misrepresentation determined?

Answer 23

Seen as unreasonable to refuse claim
Test = whether consumer acted reasonability in providing info, only need to answer to best of their knowledge
Deliberate or reckless then can be avoided ab initio

Question 24

What does CIDRA do regarding misrepresentation?

Answer 24

Sets out proportionate remedies for qualifying misrepresentation (deliberate, reckless or careless)

Question 25

When is a qualifying misrepresentation deemed deliberate or reckless?

Answer 25

• Insured knew untrue or misleading or did not care
• Insured knew was related to something relevant or did not care

Question 26

What are the remedies for insurers when misrepresentation deliberate or reckless?

Answer 26

• Avoid contract and refuse all claims
• Keep premiums

Question 27

When is a qualifying misrepresentation careless?

Answer 27

If not deliberate or reckless - failed to take sufficient care to understand what insurer wanted to know or check the facts
Compensatory remedy available

Question 28

How does insurer get remedy under IA 2015 for breach of fair presentation?

Answer 28

Have to show
- Would not have entered contract or
- Would have on different terms

Question 29

What are the 2 categories of qualifying breach of fair presentation?

Answer 29

• Deliberate or reckless (insurer has to show was this)
• Neither deliberate or reckless

Question 30

What is a qualifying breach of fair presentation?

Answer 30

One that triggers a remedy

Question 31

What remedies are available for breach of fair presentation?

Answer 31

Depends on when the breach occurred

Question 32

What happens if the breach of fair presentation occurred during the original placement?

Answer 32

D or R can avoid contract and refuse all claims
Other breaches, remedy depends on impact
- Not enter contract - can avoid and refuse claims but return premium
- Different terms can apply those
- Charge higher premium then reduce claims proportionately
x = (premium actually charged / higher premium) x 100

Question 33

What happens if the breach of fair presentation happens on variation of contract?

Answer 33

D or R can tell insured contract treated as terminated from time variation made and keep premium
Other breaches and premium same or increase:
- Not agree variation treat as that but return premium
- Agree variation but different terms then apply them
- Charge higher premium then reduce claims proportionately
Remedies can be applied retrospectively

Question 34

What is the definition of a warranty?

Answer 34

Marine Insurance Act 1906 = warranty must be exactly complied with regardless if material

Question 35

What happens on a breach of warranty?

Answer 35

IA 2015 no longer automatically terminate
Instead liability suspended from time of breach

Question 36

What impact does the RTA 1998 have?

Answer 36

Prohibits insurer from avoiding liability on grounds of certain breaches of good faith