Chapter 5 - Good Faith and Disclosure

Question 1

Good faith

Answer 1

It means disclosure must be made in a clear and accessible manner, and material representation of fact, expectation or belief must be substantially correct
Proposer has a duty to disclose all material circumstances.
Insurer can’t introduce non-standard terms that weren’t discussed during negotiations.

Question 2

Insured’s duty of disclosure (consumer insurance)

Answer 2

Consumer Insurance (Disclosure and Representations) Act (2012) (CIDRA) removes common law duty for consumers to disclose material information and replaces it with a duty to take reasonable care not to make a representation.
So consumers no longer have to volunteer information, but they need to take reasonable care to answer insurers’ questions fully and accurately.

Question 3

Insured’s duty of disclosure (non-consumer insurance)

Answer 3

Insurance Act (2015) (IA) extends legislation from CIDRA to non-consumer insurance.
Good faith – a party can no longer avoid a contract due to utmost good faith not being observed.
Fair presentation – insured must make a fair presentation of risk to insurer. They must disclose every material circumstance they know or ought to know, in a clear and accessible manner, as to a matter is substantially correct.

Question 4

Measure of the insured’s and insurer’s knowledge

Answer 4

Insured – Knowledge includes things that an insured suspects and they would have actual knowledge, but for deliberately refraining from enquiring.
Insurer – Ought to know something only if an employee or agent of the insurer knows and ought to passed on the information. Is presumed to know things that are common knowledge or would reasonably be expected to know.

Question 5

Agent’s duty

Answer 5

Under CIDRA an intermediary is considered to be the insurer’s agent if:
• Are the appointed representative of the insurer
• Collects information wit authority from the insurer
• Has authority to bind the insurer cover and does so
In all other cases it is presumed the agent is the consumer’s agent.

Question 6

Insurer’s duty of disclosure – non-consumer insurance

Answer 6

Insurer must behave in good faith e.g:
• Notifying an insured of a possible entitlement to a premium discount
• Only taking on risks which the insurer is registered to accept
• Ensuring that statements made are true

Question 7

Disclosure post contract

Answer 7

From inception until renewal negotiations there is no requirement for the insured to declare material circumstances, unless it affects the policy cover.
Once the requirements for disclosure have been met for a long-term contract, the duty of disclosure ceases. Only requirement for policy to continue is that premium is paid.

Question 8

Estoppel

Answer 8

The legal term for a bar or impediment that precludes a person from asserting a fact or a right. Usually arises where one party’s conduct has been relied upon by the other.
The insurer has to be very careful not to lead the insured into a false sense of security concerning to policy validity.

Question 9

Material circumstance

Answer 9

IA 2015 states that ‘a circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take the risk.
They can relate to either physical hazards or moral hazards.

Question 10

Circumstances that do not need to be disclosed

Answer 10

Some circumstances can be considered material but don’t need to be disclosed:
• Information that lessons risk
• Information the insurer knows
• Information the insurer ought to know
• Information the insurer is presumed to know
• Information waived by the insurer

Question 11

Consequences of misrepresenting by consumers

Answer 11

Non-negligent misrepresentation of a material circumstance by a consumer is unreasonable to refuse to pay a claim.
The proposer need only answer to the best of their knowledge or belief.
If the proposer deliberately or recklessly answers wrongly, the insurer is entitled to avoid the policy ab initio. The misrepresentation must be a fact not an opinion.

Question 12

Remedies available to insurers under IA 2015

Answer 12

Insurer has a remedy for breach of duty of fair presentation only if the insurer shows that it would:
• Not have entered into the contact of insurance at all
• Have done so only on different terms
A breach that triggers a remedy is a qualifying breach. The two categories are deliberate or reckless, or neither deliberate nor reckless
The insurer must show that the breach was deliberate or reckless. This means the insured:
• Knew it was a breach of duty of fair presentation or,
• Didn’t care if it was a breach of that duty

Question 13

Original placement

Answer 13

If a breach was deliberate or reckless insurers may avoid the contact, refuse all claims, and not have to return the premium
For breaches that were not deliberate nor reckless the remedy depends on the impact:
• If the insurer wouldn’t enter the contract, they can avoid it and refuse claims, but must return the premium
• If the insurer would enter the contract on different terms, the contract will be treated as if those terms applied unless the insurer chooses not to
If the insurer would enter the contract at a higher premium then claims can be reduced proportionately

Question 14

Breach of warranty

Answer 14

Marine insurance act 1906 provides that a warranty must be exactly complied with whether material to the risk or not