Chapter 5 Flashcards
What is ‘utmost good faith’?
a positive duty to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not.
Who does this apply to?
Both the proposer and insurer.
What is the proposers duty?
To disclose all material facts about the risk to the insurer.
What is the insurers duty?
Must be open with the insured. Cannot introduce new non-standard terms into the contract that were not discussed during negotiations. They cannot withhold the fact that discounts are available for certain measures that improve a risk.
Duty of disclosure
It is important to disclose material facts at the proposal stage before the contract comes into existence.
When is the duty of disclosure revived?
At each renewal date.
What is material fact?
Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk.
FCA rules
Require insurers and intermediaries to provide sufficient information about the contract before its conclusion so that a prospective customer can make an informed decision about whether to enjoy it or not.
Does CIDRA stand for?
Consumer Insurance Disclosure and Representations Act 2012
What is CIDRA?
Replaces the duty on consumers to volunteer information before taking out insurance, with a duty to take reasonable care to answer insurers’ questions fully and accurately.
What is the insurer responsible for?
An insurer who fails to further investigate unanswered questions or inadequate or unclear information is deemed to have waived their right to it and cannot subsequently claim non-disclosure
Where is the definition of material fact contained?
Marine Insurance Act 1906
What is the definition of material fact?
Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk
Examples of physical hazard
Fire insurance, motor insurance, theft insurance
Examples of moral hazard
Insurance history, personal history
Name a case which examines the nature of moral hazard
Roselodge v Castle (1966)
List the facts that do not need to be disclosed
Facts of law, public knowledge, lessen the risk, where the insurer has waived its right to the information, that a survey should have revealed, that the insured does not know, outside the scope of specific question, covered by policy terms,.
What happens in the case of non-disclosure?
If the insured is in breach of the duty of disclosure, the insurer may avoid the contract entirely from the beginning.
What happens in the case of a fraudulent non-disclosure?
The insurer may keep the premium and sue for damages. They cannot refuse the payment of a particular claim and leave the policy in force for the future. They have the right to ignore the breach, but in this case they must pay the claim and leave the policy in force.
What does the ICOBS stand for?
Insurance: Conduct of Business Sourcebook
What does FOD stand for?
Financial Ombudsman Service
What is 3 step approach?
Was there a clear question and was it answered correctly? Was the insurer induced? What kind of non-disclosure was it?
Misrepresentation
Where a prosper deliberately or recklessly answers wrongly, the insurer will be entitled to avoid the policy. Misrepresentation must concern a fact not an opinion.
When referring to misrepresentation how does the CIDRA protect the consumer?
The CIDRA replaces the duty on the consumers to volunteer the information before taking out insurance , with a duty to take reasonable care to answer insurer’s questions fully and accurately.
What happens if the misrepresentation was a reasonable mistake?
The insurer may have to pay a claim
What qualifies as misrepresentation?
The insured knew that is was untrue or misleading
What is the consequence of misrepresentation?
May avoid contact and refuse all claims, keep any premiums paid
What is careless misrepresentation?
The consumer failed to take sufficient care to understand what the insurer wanted to know or check the facts
What could careless misrepresentation lead to ?
Compensatory remedy?
What is compensatory remedy?
The is based on what the insurer would have done if it had known correct information such as applying relevant exclusions or increased premiums.
In non-consumer terms when do insurers have remedy for breach of duty?
If the insurer can show that it would not have entered into the contract of insurance at all, it would have done so only on different terms.
A breach that triggers a remedy is called a what?
Qualifying breach
When are different remedies available?
- The original placement 2. Variations of contract 3.Breach of warranty
What does it mean to reduce proportionately?
The insurer need only to pay on the claim only % of what it would otherwise have been under an obligation to pay under the terms of the contract
What is the equation for reduce proportionately?
x = premium actually charged/higher claim x 100
Variations of contracts
If breach was not deliberate/reckless
What is the equation to reduce proportionately when the misrepresentation is not deliberate?
P=total premium actually charged/P x 100. P is the premium the insurer would have charged or the amount the premium should have been drecied to
Breach of warranty - Marine Insurance Act 1906
Insurers liability is only suspended from the time of the breach. The insurer will have no liability for losses occurring after a breach has been remedied.
What insurance is required by statute?
Motor insurance
