Chapter 5

Question 1

What is ‘utmost good faith’?

Answer 1

a positive duty to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not.

Question 2

Who does this apply to?

Answer 2

Both the proposer and insurer.

Question 3

What is the proposers duty?

Answer 3

To disclose all material facts about the risk to the insurer.

Question 4

What is the insurers duty?

Answer 4

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.

Question 5

Duty of disclosure

Answer 5

It is important to disclose material facts at the proposal stage before the contract comes into existence.

Question 6

When is the duty of disclosure revived?

Answer 6

At each renewal date.

Question 7

What is material fact?

Answer 7

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.

Question 8

FCA rules

Answer 8

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.

Question 9

Does CIDRA stand for?

Answer 9

Consumer Insurance Disclosure and Representations Act 2012

Question 10

What is CIDRA?

Answer 10

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.

Question 11

What is the insurer responsible for?

Answer 11

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

Question 12

Where is the definition of material fact contained?

Answer 12

Marine Insurance Act 1906

Question 13

What is the definition of material fact?

Answer 13

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

Question 14

Examples of physical hazard

Answer 14

Fire insurance, motor insurance, theft insurance

Question 15

Examples of moral hazard

Answer 15

Insurance history, personal history

Question 16

Name a case which examines the nature of moral hazard

Answer 16

Roselodge v Castle (1966)

Question 17

List the facts that do not need to be disclosed

Answer 17

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,.

Question 18

What happens in the case of non-disclosure?

Answer 18

If the insured is in breach of the duty of disclosure, the insurer may avoid the contract entirely from the beginning.

Question 19

What happens in the case of a fraudulent non-disclosure?

Answer 19

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.

Question 20

What does the ICOBS stand for?

Answer 20

Insurance: Conduct of Business Sourcebook

Question 21

What does FOD stand for?

Answer 21

Financial Ombudsman Service

Question 22

What is 3 step approach?

Answer 22

Was there a clear question and was it answered correctly? Was the insurer induced? What kind of non-disclosure was it?

Question 23

Misrepresentation

Answer 23

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.

Question 24

When referring to misrepresentation how does the CIDRA protect the consumer?

Answer 24

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.

Question 25

What happens if the misrepresentation was a reasonable mistake?

Answer 25

The insurer may have to pay a claim

Question 26

What qualifies as misrepresentation?

Answer 26

The insured knew that is was untrue or misleading

Question 27

What is the consequence of misrepresentation?

Answer 27

May avoid contact and refuse all claims, keep any premiums paid

Question 28

What is careless misrepresentation?

Answer 28

The consumer failed to take sufficient care to understand what the insurer wanted to know or check the facts

Question 29

What could careless misrepresentation lead to ?

Answer 29

Compensatory remedy?

Question 30

What is compensatory remedy?

Answer 30

The is based on what the insurer would have done if it had known correct information such as applying relevant exclusions or increased premiums.

Question 31

In non-consumer terms when do insurers have remedy for breach of duty?

Answer 31

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.

Question 32

A breach that triggers a remedy is called a what?

Answer 32

Qualifying breach

Question 33

When are different remedies available?

Answer 33

1. The original placement 2. Variations of contract 3.Breach of warranty

Question 34

What does it mean to reduce proportionately?

Answer 34

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

Question 35

What is the equation for reduce proportionately?

Answer 35

x = premium actually charged/higher claim x 100

Question 36

Variations of contracts

Answer 36

If breach was not deliberate/reckless

Question 37

What is the equation to reduce proportionately when the misrepresentation is not deliberate?

Answer 37

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

Question 38

Breach of warranty - Marine Insurance Act 1906

Answer 38

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.

Question 39

What insurance is required by statute?

Answer 39

Motor insurance