Chapter 1 Flashcards
What 3 things are needed in order for a contract to be considered legally binding?
1) An offer
2) Acceptance
3) Consideration
What is “the offer” in an insurance contract?
The quote to the insured
What is “the acceptance” in an insurance contract?
The insured accepting the quote
What is the “consideration” in an insurance contract? - for both the insured and insurer
Consideration for the insured is the premium. Consideration for the insurer is the promise to indemnify the insured.
What is caveat emptor and what does it mean/do?
It means “buyer beware” and gives extra protection to consumers against unfair practices.
What does uberrima fides mean and why does it apply to insurance contracts?
It means good faith and applies to insurance because we sell intangible products. (Things that can’t be seen until a loss occurs.)
Does the principle of utmost faith still apply?
No - it’s now just called “good faith” to reflect legislation changes.
What duty does the principle of good faith impose on consumer contracts?
All information provided must be full and accurate to any questions asked and all information they choose to volunteer.
What duty does the principle of good faith impose on non-consumer contracts?
To ensure there has been a fair presentation of the risk. And any information which is material is highlighted for the insurer.
Why is the proposer no longer bound to disclose all information a prudent insurer may wish to know?
Because it proved difficult for the average consumer.
What act defined a material fact?
Marine Insurance Act 1906
How is a material fact defined?
A circumstance which would influence a prudent insurer in fixing the premium or deciding whether or not to take the risk.
Name some reasons why the definition of material fact was debated/changed?
1) It put insurers in a more advantageous position (there was an imbalance between insurer and insured)
2) Issues were only usually identified in the event of a claim
Who does material circumstances apply to and which act defined it?
Non-consumers. Insurance Act 2015.
How is material circumstance defined?
A material representation would influence the judgment of a prudent insurer to take the risk and if so, on what terms.
How are material facts and material circumstances any different?
Material circumstances limits the insurers ability to rely on misrepresentation or non-disclosure. Further protecting customers.
What are some things proposers don’t need to disclose?
1) facts of law
2) facts of public knowledge
3) spent convictions
4) facts that improve the risk
5) facts where insurer have waived its right to know
6) facts a survey should have revealed
7) facts an insured did not know
8) facts covered by policy terms
9) facts an insurer already knows
What is a consumer?
An individual who purchases an insurance policy for their private needs not related to their trade or business.
Does information that consumers volunteer have to be accurate?
Yes. Accurate and full.
Must consumers answer all insurers questions?
Yes - fully and accurately. Being careful not make misrepresentation.
Do consumers have to consider what a prudent insurer would deem prudent and volunteer this information?
No. This duty was abolished in 2012.
Would the Consumer Duty act protect a customer who intentionally deceived insurers?
No as dishonestly is always taken to show a lack of reasonable care.
What is a vulnerable customer?
A customer that is more susceptible to harm. This could be because of poor health or life events. We need to ensure they are treated fairly.
What act does the insurance act 2015 replace?
Marine Insurance Act
What type of customer does the insurance act of 2015 affect?
Non-Consumer - commercial etc…
Non-consumers have to make a fair presentation of the risk - what does this mean?
1) They must disclose every material circumstance.
2) The presentation of the risk must be clear and accessible.
3) It must be substantially correct and made in good faith - even future events.
What is the main difference between the consumer and non-consumer act?
Non-consumers still need to disclose relevant information even if the insurer doesn’t ask for it. (This is because non-consumer policies tend to be transacted through brokers)
What is the main difference between the consumer and non-consumer act?
Non-consumers still need to disclose relevant information even if the insurer doesn’t ask for it. (This is because non-consumer policies tend to be transacted through brokers)
Why do non-consumers still have to disclose all relevant information, even if insurers don’t ask for it?
Because most businesses is transacted via brokers who are paid a fee to help the insured know what information insurers will need.
What is “contracting out” and can it be done without the other party knowing?
It is where both parties of the insurance contract agree that previous laws on disclose will apply but they cannot do so without the express agreement of the other.
When does the duty of fair presentation start/how long does it continue for non-consumers? What happens with an MTA?
When negotiations begin and throughout the lifetime of the policy. The duty is revived at any MTA if there is an alteration in the risk.
Name 3 types of policies which might require continuous disclosure?
1) Commercial Property Insurance
2) Motor and home insurance
3) PL
When does the duty of fair presentation end for quotes?
Once the quotation expires - after a certain period of validity.
Does a renewal require duty of fair presentation?
Yes - it is best to treat each renewal as if it is its own contract.
Does the duty of fair presentation apply for claims?
Yes - it is closely linked to the potential for exaggeration.
Does the duty of fair presentation apply for brokers?
Yes it applies for all intermediaries. They must disclosure all facts communicated by the proposer to them and anything additional they may be aware of.
What is the difference between non-disclosure and misrepresentation?
Non-disclosure is where an insured has failed to tell the insurer something which may have affected their decision. Misrepresentation is where their statements are substantially false.
What can insurers do when an insured has deliberately or recklessly not-disclosed or misrepresented facts?
They can decline all claims and treat the policy as if it never existed.
What can insurers do when an insured has carelessly misrepresented or didn’t disclosed facts? (It wasn’t deliberate.)
They can offer a remedy based upon what they would have done if the insured had taken care to answer the question accurately. E.g. change in terms or applying average to the claim.
Do insurers have to offer remedies for breaches of duty of fair presentation to non-consumers?
No!
What is concealment and how can insurers handle it?
It’s a fraudulent breach of the duty of fair presentation. They can void the policy, keep the premium and sue for damages.
What is a peril and give 1 example of a peril.
It is what gives rise to the loss e.g. a fire.
What is a hazard and give one example of a hazard.
It is something which influences the peril e.g. a thatched roof.
What are the 2 main types of hazard?
Moral and physical.
Name the 6 main ways an insurer can obtain information regarding the risk?
1) Brokers
2) Risk Surveys
3) Supplementary Questionnaires
4) Meetings with Clients
5) Call Centres
6) The Internet
