Chapter 1 Flashcards
What are the three essential elements of a contract?
Offer, Acceptance and Consideration.
What information needs to be provided to insurers?
Consumers only need to respond to questions asked by the insurer on the proposal form. Non-consumers must disclose all material circumstances. In both cases the information must be full and accurate.
From an insurer’s point of view, what is meant by material information and material circumstances?
A material fact or circumstance is a fact which would influence an underwriter in deciding whether to accept a risk or not, and if accepted, on what terms.
Give four examples of types of facts that do not need to be disclosed.
Facts that do not need to be disclosed include:
• facts of law;
• facts of public knowledge;
• ‘spent’ convictions;
• facts that improve the risk;
• facts where the insurer has waived its rights to certain information;
• facts that a survey should have revealed;
• facts an insured did not know;
• facts covered by the policy terms; and
• facts that the insurer already knows, including those that its employee(s) know.
What are the three key elements of a non-consumer proposer’s duty to make a fair presentation of the risk?
The proposer must:
• disclose every material circumstance it knows and ought to know, or must notify the insurer that it needs to make further enquiries;
• ensure that its representation of the risk is clear and accessible; and
• ensure that all material circumstances represented are substantially correct and made in good faith.
What is misrepresentation?
Misrepresentation is a false statement relating to the subject matter of a proposal and which leads an insurer to enter into a contract.
Under common law, when does the duty of disclosure start and end?
Under common law, the duty of disclosure begins when negotiations begin and ends when the policy starts. The duty would only be revived at renewal.
Under what two broad circumstances may a breach of the duty of disclosure arise?
A breach of the duty of disclosure may arise by either:
• misrepresentation; or
• non-disclosure.
Explain the relationship between a peril and a hazard.
A peril is what gives rise to a loss, while hazard actually influences the peril itself.
What are the most common methods by which an underwriter can obtain material information in respect of a risk?
The various sources from which an underwriter will obtain material information, depending on the class of business and details of the risk are as follows: • the proposal form; • brokers; • risk surveys; • supplementary questionnaires; • meeting with clients; • call centres; and • the internet.
