7. Principle of Good Faith Flashcards
What is the definition of good faith?
disclosure must be made in a reasonably clear and accessible manner, and material representation of fact, expectation or belief must be ‘substantially correct’
Who does the principle apply to?
Equally to proposer and insurer but applies differently
What was the historical position for good faith?
Duty to disclose all material circumstances but law modified to reflect different levels of knowledge and balance of bargaining powers
What is the insurer’s duty of disclose for non consumer?
Duty of disclosure to insured and behave with good faith eg notifying of possible premium discount
What is the insured’s duty for consumer insurance?
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
What is the definition of a consumer?
Takes out insurance wholly or mainly for purposes unrelated to their trade, business or profession
What is the insured’s duty of non consumer?
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
What is classed as within an insured’s knowledge?
- 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
What should an insurer ought to know?
- Employee / agent knows and should have passed on info
- Relevant info held and readily available
What is an insurer presumed to know?
- Common knowledge
- Reasonably expected to know in course of business they are offering insurance for
Includes what suspect or would know if enquired
What is fair presentation?
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
What is the duty of disclosure post contract - inception?
Duty of disclosure starts when negotiations begin and ends at inception
From inception to renewal no requirement declare material circumstances unless affect policy cover
What is the duty of disclosure post contract - renewal?
Insured duty of disclosure revived for general insurance policies
What is the duty of disclosure post contract - continuing requirement?
Policy conditions or tight definitions can be used to get around the lack of requirement to advise of mid term material changes
What is the duty of disclosure post contract - on alteration?
Change to terms may be necessary, where need new endorsement duty is revived
What is the definition of material circumstances?
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
What is the test to see if a circumstance is material?
Courts look at it from insurer’s point of view
What is the intention for a proposal form?
Draw out all the relevant information
What are the insurer’s rights to information?
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
How can an insurer’s conduct prevent them from claiming a breach?
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
When is disclosure of material circumstances not needed?
IA 2015 S3(5)
- 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
When do spent convictions need to be disclosed?
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
How is non-negligent misrepresentation determined?
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
What does CIDRA do regarding misrepresentation?
Sets out proportionate remedies for qualifying misrepresentation (deliberate, reckless or careless)
When is a qualifying misrepresentation deemed deliberate or reckless?
- Insured knew untrue or misleading or did not care
- Insured knew was related to something relevant or did not care
What are the remedies for insurers when misrepresentation deliberate or reckless?
- Avoid contract and refuse all claims
- Keep premiums
When is a qualifying misrepresentation careless?
If not deliberate or reckless - failed to take sufficient care to understand what insurer wanted to know or check the facts
Compensatory remedy available
How does insurer get remedy under IA 2015 for breach of fair presentation?
Have to show
- Would not have entered contract or
- Would have on different terms
What are the 2 categories of qualifying breach of fair presentation?
- Deliberate or reckless (insurer has to show was this)
- Neither deliberate or reckless
What is a qualifying breach of fair presentation?
One that triggers a remedy
What remedies are available for breach of fair presentation?
Depends on when the breach occurred
What happens if the breach of fair presentation occurred during the original placement?
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
What happens if the breach of fair presentation happens on variation of contract?
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
What is the definition of a warranty?
Marine Insurance Act 1906 = warranty must be exactly complied with regardless if material
What happens on a breach of warranty?
IA 2015 no longer automatically terminate
Instead liability suspended from time of breach
What impact does the RTA 1998 have?
Prohibits insurer from avoiding liability on grounds of certain breaches of good faith
