Chapter 5: Good Faith and Disclosure Flashcards
Define the principle of good faith, also called utmost good faith
The disclosure must be made clearly and accessibly, and material representations of fact, expectation, or belief must be “substantially correct”
Who does the duty of disclosure apply to?
Both proposers and insurers
How does good faith apply to insurers?
Cannot introduce non standard terms without negotiation
Cannot not declare that discounts are available under certain circumstances (eg for installing home security)
What is a material circumstance?
Everything which would influence the judgement of a prudent insurer in fixing the premium or determining whether to take the risk
(Marine Insurance Act 1906)
What is the legal duty of a proposer?
To take reasonable care not to make a misrepresentation. Information provided must be true to the best of their knowledge
What acts set out the duties of consumers and business/commercial?
Consumers - Consumer Insurance (Disclosure and Representation) Act 2012
Commercial - Insurance Act 2015
Are proposers legally bound by the principle of good faith?
No, this was abolished under CIDRA 2012 for consumers and Insurance Act 2015 for commercial. The principle continues but insurers can no longer avoid contracts ab initio in the event of a breach
What does the Consumer Insurance (Disclosure and Representation) Act 2012 set out for consumers?
Consumers have a duty to take reasonable care not to make a misrepresentation. They must answer insurer’s questions wholly and accurately but do not have to volunteer information not asked for
What does the Insurance Act 2015 set out for commercial insurance?
Extends the duty of consumers from CIDRA 2012 to business/commercial insurance, namely a duty to take reasonable care not to make a misrepresentation
They also have a duty to “make a fair presentation of the risk”
How does the duty of disclosure apply to the insurer?
Notify insureds of entitlements to discounts
Only taking on risks the insurer is registered for
Ensuring statements are true + not misleading about coverage
When does the duty of disclosure exist?
It starts when negotiations start and ends when the contract is formed (inception). It begins again when renewal negotiations take place. During the policy there is no duty of disclosure unless the circumstances effect the policy cover. EG for motor insurance if you change your car you must declare it, but you do not have to declare a conviction for fraud until renewal
What do insurers do about disclosure mid-policy?
They may introduce policy conditions requiring continual disclosure. These differ depending on line of business but for example in liability the business of the insured is strictly defined in the policy and will not cover any activities not declared
What happens with disclosure if a mid term adjustment/endorsement is required?
The duty of disclosure is revived in relation to the change
What happens if a proposer does not answer, or fully answer, a question asked by the insurer but the insurer does not seek further details?
The insurer is deemed to have waived their right to the information and misrepresentation has not occurred - the onus is on the insurer to ask follow up questions
What material circumstances need to be disclosed?
Physical and moral hazards
What information does not need to be disclosed?
Information that lessens the risk (eg security) - you normally would because it may lower premiums but is not required
Information which the insurer is presumed, ought to, or does know
Information the insurer has waived it’s right to
When are remedies available to insurers for consumer policies under CIDRA?
When a qualifying misrepresentation has occurred that was deliberate, reckless, or careless
What remedy is available under CIDRA if a misrepresentation was deliberate or reckless?
Avoid the contract ab initio and refuse all claims
Keep any premiums paid
What remedy is available under CIDRA if a misrepresentation was careless?
The insurer can apply a remedy based on what they would have done if it had known the correct information. For example:
Applying a relevant exclusion
Applying an increased premium (claim is reduced in proportion)
Refusing to offer terms at all
Under CIDRA, when is a misrepresentation deliberate or reckless?
When the consumer knew it was untrue or misleading, or did not care
Under CIDRA, when is a misrepresentation careless?
When it is not deliberate or reckless. The consumer did not take sufficient care to understand what the insurer wanted or to check the facts
When are remedies available to the insurer under IA 2015?
When the duty of fair presentation is breached and the insurer can show that if not for the breach they would have entered into the contract under different terms or not at all
Under the IA what are the two categories of breach of the duty of fair presentation?
- Deliberate or reckless
2. Neither deliberate nor reckless
Under IA when is a breach of fair presentation deliberate or reckless?
When the insured knew it was in breach or did not care if it was in breach