CH 5- GOOD FAITH Flashcards
What is utmost good faith
This is a positive duty to voluntarily disclose, accurate and fully all facts material to the risk being proposed,whether requested or not
who does the principle of utmost good faith apply to
It applies to both insurer and proposer
How does the principal of utmost good faith apply differently to the proposer than the insurer
The proposer has the duty to disclose all material facts about the risk to the insrer
How does the principal of utmost good faith apply differently to the insurer than the proposer
The insurer can’t introduce new non- standard terms into the contract that were not discussed during negotiations, the insurer can’t withhold the fact that discounts are available for certain measures that improve risk
Material Facts is defined by which act
The Marine Insurance Act 1906
What are material facts
Every circumstance is material which would influence the judgment of a prudent insurer in fixing premium or agreeing whether to take the risk
Which case explained the duty of disclosure in insurance contracts
carter v Boehm (1766)
Misleading an insured about a policy cover is a breach of utmost good faith, shown in which case
kettlewell vs Refuge Assurance Company
According to the FCA rules,which element of information should insurers disclose to the clients/perspective client
They should disclose a statement of their demand and needs. Submission of this statement shows that there is a comprehensive fact gathering exercise that must be undertaken
What is CIDRA
The Consumer Insurance(Disclosure and representation) Act 2012 came into force 6/04/2013
What does the Consumer Insurance(Disclosure and representation) Act 2012 stae
It states that all consumers have a duty to take reasonable care not to make misrepresentation
Which common law duty did the Consumer Insurance(Disclosure and misrepresentation) Act 2012 remove
It removed the duty on consumers to disclose any facts that a prudent underwriter would consider material
Consumer Insurance (Disclosure and Representation)Act applies to consumers, what is its definition of consumers
This is someone who takes out insurance wholly or mainly for purposes unrelated to individual’s trade, b’ness or profession
Which clause did the CIDRA 2012 ban
It ban the basis of contract clauses
What type of change to insurers and intermediaries did the CIDRA bring about
- Insurers and intermediaries have had to change their documentation,websites and ways of working
- Insurers have to make sure they ask specific questions to their policyholders
- Intermediaries have had to amend their terms of business agreement
The Insurance Act 2015
This Act came into force 16/08/2016, it extends much of the legislation set out in CIDRA to non-consumers insurance contracts
What is the effect of the Insurance Act on Good Faith
The concept of good faith continues but the absolute remedy of avoidance in case of breach no longer exists
How did the Insurance Act 2015 changed the obligations on the parties during placement
They introduced a new duty of fair presentation applying to non- consumer cotnracts
What did the Insurance Act 2015 state about Fair Presentation
The insured must make to the insurer a fair presentation of the risk
When does the new duty of fair presentation apply
It applies before the contract of insurance is entered, and continues through the life of the contract
According to the Insurance Act 2015, the insured is only required to know
- what is known to them as a individual
2. what is known to one or more of the individuals who are responsible for their insurance
What does a non- individual insured know
They only know what is known to one or more of the individuals who are
- part of the senior management
- responsible for the insured’s insurance
What Knowledge does the Insurance Act 2015 specifically include
Knowledge of those things that an insured suspects and about which they would have had actual knowledge but for deliberately refraining from confirming/inquiring about the information
According to the Insurance Act 2015 and Insurer ought to know something only if
- an employee/agent of the insurer knows it and ought to have passed it to the individual making decision of whether to take the risk or not
- the relevant information is held by the insurer, and is readily available to the underwriter
According to the Insurance Act 2015 what is the insurer presumed to know
- Things that are common knowledge
2. Things that they are expected to know as an insurer offering insurance in the class in question
Which Principle is maintained in Consumer Insurance by CIDRA and non-consumer insurance contract in IA 2015
The principle that every person(insurer or Insured) is responsible for the act and so careless or reckless misrepresentation by agent is treated as if it had been made by the principal
Under CIDRA an intermediary is stated to be an insurer’s agent when if
- the intermediary is an AR of the insurer
- collects information from the consumer with an express authority from the insurer
- has the authority to bind insurer to cover and does so
In general,What are warranties
This is a guarantee or promise that gives assurance by one party to the other that specific acts or conditions are true
An example a Warranty
An example is Basis of Contract, have been outlawed by IA 2015
Under the IA 2015 Contracting out is possible
Yes it is possible, provided the insurer can show that the terms included i the contracts were explained to the insured
When is contracting out more possible
It’s more possible in group policies where the benefiting parties are non-consumers
In order for duty of disclosure material facts to continue through out the policy, what must be in place
It must be stated specifically and clearly in the policy condition
By law when is duty of disclosure is revived
It it revived at renewals automatically.
Under common law, when does duty of disclosure start and end
It starts when negotiations begin and end when contract is formed
When is there no requirement of disclosure
After the inception of the policy until the renewal, unless the material fact will affect the policy cover
Give an example of when material fact will need to be disclosed before the renewal
When the value of property increases, or a vehicle is sold as the policy will require a specific endorsement to accommodate the change in risk
Which material fact does the policyholder need not to disclose until the following renewal
Any disclosure of conviction or fraud does not need to be revealed until the following renewal
Which policies, do the duty of disclosure only apply during negotiations leading up to the inception, and ceases completely
Long-Term Contracts i.e Life and Pensions Policies. The only requirement for the policy to continue, is that the insured pays the premiums when they fall due
Which continuing requirement can some insurers adopt for commercial property insurance
This policy requires a continuing disclosure of removal to another location/ circumstances that increase the risk of damage
Which continuing requirement can some insurers adopt for Motor Insurance
A onerous policy condition that requires continuing disclosure of all material changes by the insured, during the currency of the policy
Which continuing requirement can some insurers adopt for Public Liability Insurance
The insured tightly define the business of the insured in the policy, thus insured must notify any extension of activities for cover to apply, this can be coupled with ongoing disclosure of material fact
If a question is asked, but the proposer only answers partial information in response and the insurer doesn’t seek further details
Then the insurer is deemed to have waived its rights regarding this information, and the proposer is not considered to have failed to disclose a material fact
How do the court test whether the fact is a material
They contest by looking at it from a prudent’s insurer’s point of view
Material Facts relate to which hazards
They relate to moral and physical hazard, however Moral Hazard are more common in cases
Material facts relating to moral hazard apply to non life insurance can either be
They can relate to insurance history of the insured or their personal history or attitude
Material representation is deemed substantially correct if
The prudent insurer would not consider the difference between what is represented and what is actually correct to be material
Which facts do not need to be disclosed
- facts of law
- facts of public knowledge-e.g area subject to natural catastrophes/hurricane
- fact that lessen the risk-e.g installing a fire alarm/theft alarm
- facts where the insurer has waived its right to the information
- Facts that a survey should have revealed
- Facts that the insured does not know
- Facts outside the scope of specific questions
- Facts covered by policy terms
- Spent Conviction
What is LAPSO
Legal Aid, Sentencing and Punishment of Offenders Act 2012 came into force in England and Wales
The Legal Aid, Sentencing and Punishment of Offenders Act 2012 amended which act
It amended the Rehabilitation of Offenders Act 1974
What change did the The Legal Aid, Sentencing and Punishment of Offenders Act 2012
The rehabilitation period for community orders and custodial sentences comprises of the sentence plus additional specified buffer period which applies from the end of the sentence
What was the rehabilitation period on the Rehabilitation of Offenders Act 1974
All rehabilitation period started from the date of conviction
According to the FCA, Insurance Act 2015 and the CIDTA Act 2012, if the insured is in breach of the duty of disclosure, what must the insurer do
The insurer may avoid the contract ab initio, no claims are payable
According to the FCA, Insurance Act 2015 and the CIDRA Act 2012, if the insured is in breach of the duty of fraudulent disclosure, what must the insurer do
The insurer can avoid contract ab initio, keep the premium and sue for damages
What can the insurer not do, if the insured is in breach of duty of disclosure
They can’t refuse to pay a particular claim, but leave the policy in force for the future.However the insurer can ignore the breach, pay the claim and leave the policy in force
The Legal rule is that non-disclosure arises and gives opportunity for the insurer to avoid the contract where a fact is
- within the knowledge of the insured
- not known to the insurer
- calculated, if disclosed, will lead to the insurer entering the contract with terms they consider better or not enter at all
What is the Financial Ombudsman Services’s long-standing approach on non disclosure complaints
- was there a clear question and was it answered correctly
- Was the insurer induced(convinced)
- What kind of non-disclosure was it
Apart from avoiding contract and refusing to pay the claim,what other fairer approach can the insurer use
They can charge a retrospective additional premium if the insurer would have accept the risk but on different terms
Misrepresentation
This is when a fact is stated wrongly or exaggerated .It must concern a fact not an opinion
A non-negligent misrepresentation of a material fact by consumer
Will be considered unreasonable grounds for refusing to pay a claim
Prior to the CIDRA 2012, what was the consumer duty on disclosure
The duty on consumers was to volunteer the information before taking put insurance
What does a dishonest misrepresentation show
It shows lack of reasonable care
What are the features of a qualifying misrepresentation
It’s either deliberate/reckless or careless
A qualifying misrepresentation is deliberate or reckless if the consumer
- Knew that it was untrue or misleading, did not take care for
- Did not care that the matter to which the misrepresentation related was relevant to the insurer
If a qualifying misrepresentation is said to be deliberate or reckless then the insurer ca,
Avoid contract and refuse all claims and keep any premium paid, unless it would be unfair to the consumer to retain them
For a non-consumer contract, the insurer will only be able to avoid the contract
If the insured has made a deliberate or reckless breach
An insurer has a remedy for a breach of duty of fair presentation only if the insurer shows that but for the breach of duty
- It would not have entered into the contract of insurance at all
- It would have done so on different terms
What is a breach that triggers
It is called a qualifying breach
What are the two categories of a breach
- deliberate reckless
2. neither deliberate nor reckless
A deliberate or reckless breach means that the insured
- Knew that it was in breach of duty of fair presentation
2. did not care that it was in breach of duty
Different remedies for breach of fair presentation are available depending on
When the breach occured
If breach was deliberate/reckless what options do insurers have
They may avoid contract, refuse all claims and do not have to return the premium
Remedies for breaches that were not reckless/deliberate the remedy if the insurer would not have entered the contract at all
they can refuse all claims and return the premium.
Remedies for breaches that were not reckless/deliberate the remedy if the insurer would have entered into the contract, but on different terms
Then the contract will be treated as if those terms applied unless the insurer chooses not to apply them
If the insurer would have entered into a contract even after a breach and charged a higher premium
Claims can be reduced proportionately, this is similar to averaging,calculation ins made on premium received as contrasted to the premium which should have been charged
What is the formula for reduce propotionately
premium actually charged/higher premium *100% . The insurer need pay on the claim only X% of what it would otherwise have been under an obligation to pay under the terms of the contract
If the breach was not deliberate or reckless but the premium went down as a result of variation, what is the formula
=total premium actually charged/P x 100
p can either be the original premium or total premium the insurer would have charged
The Insurance Act 2015 refers to material terms as being terms of the contract, which if complied withm would tend to reduce the risk of one or more of
- particular kind of loss
- losses at a particular location
- losses at a particular time
