Chapter 1: Material Information Flashcards
What 3 elements must be present for a contract to be legally binding?
Offer
Acceptance
Consideration
What legal principle governs insurance contracts?
Good faith
Previously known as uberrima fides, utmost good faith
How does the principle of good faith apply to consumer contracts?
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
How does the principle of good faith apply to non-consumer contracts?
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
How did the Marine Insurance Act 1906 define material circumstances?
Every circumstance which would influence the judgement of a prudent underwriter in fixing the premium or determining whether to take the risk
How was the definition of material circumstances modified by the Insurance Act 2015?
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
Give some examples of material circumstances
Reasons for the request for insurance
Facts specific to the class of business
Special or unusual facts relating to the risk
What kind of information does not need to be disclosed?
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)
What statute governs how the principle of good faith applies to consumer insurance contracts?
Consumer Insurance (Disclosures and Representations) Act 2012 (CIDRA)
What statute governs how the principle of good faith applies to non-consumer insurance contracts?
Insurance Act 2015
What is the main difference between how good faith applies to consumer and non-consumer insurance contracts?
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
What does it mean to contract out of the Insurance Act 2015?
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
When contracting out of the Insurance Act 2015 what must the insurer do? What are the consequences if they do not do this?
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
When does the duty of disclosure begin and end? How can this be modified?
Begins at the start of negotiations and ends at inception. Can be modified by policy conditions
When is the duty of disclosure revived during the policy?
At renewal or in relation to a mid term adjustment. May also be revived in relation to a claim via policy condition
How do insurer’s commonly modify the duty of disclosure?
By including a policy condition in the wording that continues the duty of disclosure throughout the policy
How is the duty of disclosure typically modified in commercial property insurance?
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
How is the duty of disclosure typically modified in motor/home insurance?
A condition requiring continual disclosure of all material changes
How is the duty of disclosure typically modified in public liability insurance?
The business activity of the insured is strictly defined in the policy and all changes must be notified
How does the duty of disclosure apply to intermediaries?
They must disclose all information passed to them by the proposer. Practically the duty is the same
What is the difference between non-disclosure and misrepresentation?
Non-disclosure is when information is omitted, misrepresentation is when information provided is false
When does an insurer have a right of remedy under the Consumer Insurance (Disclosure and Representations) Act?
When the consumer did not take reasonable care and the insurer was induced to enter the contract by the breach
What remedy would be available to the insurer if a breach of the duty of disclosure was deliberate or reckless?
The insurer can avoid the policy ab initio, decline any claims, and keep any premiums collected
What remedy would be available to the insurer if a consumers breach of the duty of disclosure was careless?
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
What remedy would be available to the insurer if a consumers breach of the duty of disclosure was honest and reasonable?
No remedy is available - the insurer would have to pay the claim in full (providing there is coverage)
How are breaches of the duty of disclosure classified under CIDRA?
- Deliberate or reckless
- Careless
- Honest and reasonable
When is a remedy available to an insurer under the Insurance Act 2015?
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
How are breaches of the duty of fair presentation classified under the Insurance Act 2015?
- Deliberate or reckless
- Neither deliberate nor reckless
Note: Unlike CIDRA the term careless is not used
Under IA 2015 when is a breach deliberate or reckless?
If the proposer knew it was in breach or did not care
Under IA 2015 what remedy is available for a deliberate or reckless breach of the duty of fair presentation?
The insurer may avoid the policy, refuse any claims, and keep all collected premiums
Under IA 2015 what remedies are available if a breach of the duty fair presentation occurs that is neither deliberate nor reckless?
- If the insurer can prove they would not have entered into the contract they may avoid it but have to return all premium
- If they would have imposed different terms they may do so
- If they would have charged a higher premium the claim may be reduced in proportion
What is the most common way of obtaining material information?
Via a proposal form asking questions about information the insurer wishes to know
Other than the proposal form how else may material information be obtained?
- Via a broker + risk register
- Risk surveys
- Supplementary questionnaires
- Meetings with insured
- Call centres/internet
What is a peril and a hazard?
A peril is an event which gives rise to a loss. A hazard is something which influences a peril
A non-consumer must ensure that their representation of the risk is what?
What statute governs this?
Clear and accessible
Insurance Act 2015
How must consumers answer an insurer’s questions?
Fully and accurately
What does CIDRA 2012 say about the insurer’s duty of disclosure at renewal?
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
