Chapter 1 - Material Information

Question 1

Good Faith

Answer 1

For a legally binding contract there must be an offer, acceptance and consideration (a benefit received by one party in return for a promise of the performance of an act by another party).
In consumer contracts they must ensure all information provided is full and accurate.
In non-consumer contracts they must ensure that there has been a fair presentation to the insurer.

Question 2

Material Information

Answer 2

From CIDRA 2012 consumers are only obliged to answer questions asked by insurers fully and accurately, and don’t have to disclose all material facts.
For non-consumers the IA 2015 defined material circumstance as ‘a circumstance or representation is material if it would influence the judgment of a prudent insurer in determining whether to take the risk and on what terms.’
For non-consumers IA 2015 does not require the insured to disclose material circumstance if:
• It diminishes the risk
• The insurer knows, ought to know, or is presumed to know it
• It is something as to which the insurer waives information

Question 3

Vulnerable customers

Answer 3

Defined as ‘someone who, due to their personal circumstance, is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.’
FCA issued guidance in 2021 which focuses on:
• Understanding the needs of vulnerable customers
• The skills and capabilities of staff
• How firms can take practical action

Question 4

Contracting Out

Answer 4

It is possible that the parties of an insurance contract agree that provisions of the IA 2015 don’t apply, and therefore the previous law on disclosures would apply. This reverts back to the Marine Insurance Act 1906 where proposers have to disclose every circumstance a prudent insurer may deem material.

Question 5

Consumers and Remedies

Answer 5

If the consumer took reasonable care not to breach their duty, to insurer has no remedy.
If the breach of duty did not include the insurer to enter the contract of insurance, they have no remedy.
If the breach was careless the insurer could, deal with the risk in the same way they would have done had there been no breach, or proportionally reduce the amount paid for a claim if they would have charged a higher premium.
If the breach was deliberate or reckless, the insurer could avoid the policy.

Question 6

Non-Consumers and Remedies

Answer 6

Insurers only have a remedy where the insured has breached their duty of fair presentation, and the insurer can show that the breach resulted in their entering into the contract, or entering on terms they would not have done.
If the breach is deliberate or reckless, the insurer may void the policy and refuse claims.
If breach is neither deliberate nor reckless, the insurer can:
• If the insurer would not have entered the contract, they may void the policy and refuse claims.
• If the insurer would have entered on different terms, they may deal with the risk as if there had been no breach
• If the insurer would have charged a higher premium, they may proportionally reduce the amount paid for a claim

Question 7

Fraudulent Breach of Duty

Answer 7

If the non-disclosure or misrepresentation is fraudulent:
• The policy is voidable
• The insurer can keep the premium and sue for damages
• The insurer can ignore the breach of good faith, in which case the policy continues and the insurer would have to pay the claim