Chapter 1: Material Information

Question 1

What 3 elements must be present for a contract to be legally binding?

Answer 1

Offer
Acceptance
Consideration

Question 2

What legal principle governs insurance contracts?

Answer 2

Good faith

Previously known as uberrima fides, utmost good faith

Question 3

How does the principle of good faith apply to consumer contracts?

Answer 3

All information given in response to an insurer’s questions, and any volunteered information, must be full and accurate

The consumer must take reasonable care not make a misrepresentation

Question 4

How does the principle of good faith apply to non-consumer contracts?

Answer 4

There must be a fair presentation of the risk including a “reasonable search” of the business in which relevant information is “signposted” to the insurer

Question 5

How did the Marine Insurance Act 1906 define material circumstances?

Answer 5

Every circumstance which would influence the judgement of a prudent underwriter in fixing the premium or determining whether to take the risk

Question 6

How was the definition of material circumstances modified by the Insurance Act 2015?

Answer 6

A material circumstance is substantially correct if the prudent insurer would not consider the difference between what was represented and what is actually correct to be material

Question 7

Give some examples of material circumstances

Answer 7

Reasons for the request for insurance
Facts specific to the class of business
Special or unusual facts relating to the risk

Question 8

What kind of information does not need to be disclosed?

Answer 8

Facts of law
Public knowledge
Information the insurer ought to, should, or does know
Information the insurer has waived it’s right to
Spent convictions
Facts that diminish the risk (normally this would be disclosed as it may lower the premium, but it does not have to be)

Question 9

What statute governs how the principle of good faith applies to consumer insurance contracts?

Answer 9

Consumer Insurance (Disclosures and Representations) Act 2012 (CIDRA)

Question 10

What statute governs how the principle of good faith applies to non-consumer insurance contracts?

Answer 10

Insurance Act 2015

Question 11

What is the main difference between how good faith applies to consumer and non-consumer insurance contracts?

Answer 11

Consumers are only required to answer questions asked by the insurer

Non-consumers still need to disclose material circumstances even if the insurer does not ask

Question 12

What does it mean to contract out of the Insurance Act 2015?

Answer 12

Both parties can agree that the Insurance Act 2015 will not apply and that the previous law on disclosures as set out in the Marine Insurance Act 1906 will apply instead

Question 13

When contracting out of the Insurance Act 2015 what must the insurer do? What are the consequences if they do not do this?

Answer 13

Be transparent in explaining the implications of this. If they do not then the contracting out will have no legal effect and the Insurance Act will still apply

Question 14

When does the duty of disclosure begin and end? How can this be modified?

Answer 14

Begins at the start of negotiations and ends at inception. Can be modified by policy conditions

Question 15

When is the duty of disclosure revived during the policy?

Answer 15

At renewal or in relation to a mid term adjustment. May also be revived in relation to a claim via policy condition

Question 16

How do insurer’s commonly modify the duty of disclosure?

Answer 16

By including a policy condition in the wording that continues the duty of disclosure throughout the policy

Question 17

How is the duty of disclosure typically modified in commercial property insurance?

Answer 17

A policy condition requiring the insured notify the insurer if property is removed to another location or of circumstances that may increase the risk of damage

Question 18

How is the duty of disclosure typically modified in motor/home insurance?

Answer 18

A condition requiring continual disclosure of all material changes

Question 19

How is the duty of disclosure typically modified in public liability insurance?

Answer 19

The business activity of the insured is strictly defined in the policy and all changes must be notified

Question 20

How does the duty of disclosure apply to intermediaries?

Answer 20

They must disclose all information passed to them by the proposer. Practically the duty is the same

Question 21

What is the difference between non-disclosure and misrepresentation?

Answer 21

Non-disclosure is when information is omitted, misrepresentation is when information provided is false

Question 22

When does an insurer have a right of remedy under the Consumer Insurance (Disclosure and Representations) Act?

Answer 22

When the consumer did not take reasonable care and the insurer was induced to enter the contract by the breach

Question 23

What remedy would be available to the insurer if a breach of the duty of disclosure was deliberate or reckless?

Answer 23

The insurer can avoid the policy ab initio, decline any claims, and keep any premiums collected

Question 24

What remedy would be available to the insurer if a consumers breach of the duty of disclosure was careless?

Answer 24

The insurer can impose the terms they would have done if the breach had not occurred or proportionally reduce the pay out for the claim if they would have charged a higher premium

Question 25

What remedy would be available to the insurer if a consumers breach of the duty of disclosure was honest and reasonable?

Answer 25

No remedy is available - the insurer would have to pay the claim in full (providing there is coverage)

Question 26

How are breaches of the duty of disclosure classified under CIDRA?

Answer 26

1. Deliberate or reckless
2. Careless
3. Honest and reasonable

Question 27

When is a remedy available to an insurer under the Insurance Act 2015?

Answer 27

The duty of fair presentation was breached and it resulted in the insurer entering into a contract they would not have done, or under different terms

Question 28

How are breaches of the duty of fair presentation classified under the Insurance Act 2015?

Answer 28

1. Deliberate or reckless
2. Neither deliberate nor reckless

Note: Unlike CIDRA the term careless is not used

Question 29

Under IA 2015 when is a breach deliberate or reckless?

Answer 29

If the proposer knew it was in breach or did not care

Question 30

Under IA 2015 what remedy is available for a deliberate or reckless breach of the duty of fair presentation?

Answer 30

The insurer may avoid the policy, refuse any claims, and keep all collected premiums

Question 31

Under IA 2015 what remedies are available if a breach of the duty fair presentation occurs that is neither deliberate nor reckless?

Answer 31

1. If the insurer can prove they would not have entered into the contract they may avoid it but have to return all premium
2. If they would have imposed different terms they may do so
3. If they would have charged a higher premium the claim may be reduced in proportion

Question 32

What is the most common way of obtaining material information?

Answer 32

Via a proposal form asking questions about information the insurer wishes to know

Question 33

Other than the proposal form how else may material information be obtained?

Answer 33

1. Via a broker + risk register
2. Risk surveys
3. Supplementary questionnaires
4. Meetings with insured
5. Call centres/internet

Question 34

What is a peril and a hazard?

Answer 34

A peril is an event which gives rise to a loss. A hazard is something which influences a peril

Question 35

A non-consumer must ensure that their representation of the risk is what?
What statute governs this?

Answer 35

Clear and accessible

Insurance Act 2015

Question 36

How must consumers answer an insurer’s questions?

Answer 36

Fully and accurately

Question 37

What does CIDRA 2012 say about the insurer’s duty of disclosure at renewal?

Answer 37

They must repeat the answers provided to the insurer’s questions when the first policy was taken out and ask the insured to confirm they are still accurate