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IF1 - Insurance, Legal and Regulatory > Chapter 5 - Good Faith & Disclosure > Flashcards

Chapter 5 - Good Faith & Disclosure Flashcards

1
Q

5 - Good Faith & Disclosure

  1. Why are Insurance Contracts treated as contracts of “Utmost Good Faith”?
A

Because they don’t involve the purchase of tangible products.

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2
Q

5 - Good Faith & Disclosure

  1. What does Utmost Good Faith mean in simple terms?
A

The insurer and insured both have a duty to deal honestly and openly during their contractual relationship

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3
Q

A - Principle of Good Faith

  1. Explain Good Faith in more detail.
A

Good faith means disclosure must be made in a reasonably clear and accessible manner, and material representations of fact, expectation or belief must be “substantially correct”.

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4
Q

A - Principle of Good Faith

  1. Must parties to a contract volunteer material information in all negotiations before the contract comes into effect?
A

Yes.

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5
Q

A - Principle of Good Faith

  1. What duty does the proposer have to the insurer.
A

Duty to disclose all material circumstances about the risk.

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6
Q

A - Principle of Good Faith

  1. Can the insurer introduce new non-standard terms into the contract that were not discussed during negotiations?
A

No.

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7
Q

A - Principle of Good Faith

  1. Can the insurer withhold the fact that discounts are available for certain measures that improve a risk?
A

No.

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8
Q

B - Duty to Disclose

  1. What is material information?
A

Every circumstance which would influence the judgement of a prudent insurer in fixing the premium or determining whether they will take on the risk.

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9
Q

B - Duty to Disclose

B1 Insurer’s Duty of Disclosure - Consumer Insurance

  1. What does the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) give consumers a duty to do?
A

Take reasonable care not to make a misrepresentation.

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10
Q

B - Duty to Disclose

B1 Insurer’s Duty of Disclosure - Consumer Insurance

  1. Who does CIDRA apply to?
A

Consumers, not business/commercial insurance.

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11
Q

B - Duty to Disclose

B1 Insurer’s Duty of Disclosure - Consumer Insurance

  1. What safeguards are included in CIDRA?
A

It prevents insurers from including terms which put the insureds in a worse position in respect of pre-contract disclosure and representation.

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12
Q

B - Duty to Disclose

B2 Insurer’s Duty of Disclosure - Non-Consumer Insurance

  1. Which act extended CIDRA legislation to include non-consumer insurance companies?
A

The Insurance Act 2015.

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13
Q

B - Duty to Disclose

B2A Good Faith

  1. What does the Insurance Act 2015 state in regards to a breach of good faith?
A

The absolute remedy of avoidance no longer exists.

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14
Q

B - Duty to Disclose

B2B Duty to make a Fair Presentation

  1. Does the Insurance Act 2015 state that the “insured must make to the insurer a fair presentation of the risk”?
A

Yes.

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15
Q

B - Duty to Disclose

B2B Duty to make a Fair Presentation

  1. What must commercial insureds do to comply with the duty to make a fair representation contained in the IA 2015?
A

Disclose every material circumstance known

Make disclosures clear and accessible to a prudent insurer

Provide the insurer with sufficient information to put a prudent insurer on notice that it needs to make further enquiries into those material circumstances.

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16
Q

B - Duty to Disclose

B2B Duty to make a Fair Presentation

  1. Who does the IA 2015 shift the onus to make a fair representation on to?
A

Shifts the onus from the insured to the insurer.

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17
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What should be known to an Individual Insured?
A

What is known to them as an Individual.

What is known to the Individuals responsible for their Insurance.

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18
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What should a “Non-Individual” Insured know?
A

What is known to the Individuals who are part of the senior management.

What is known to the Individuals responsible for the Insureds Insurance.

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19
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. Is an Insured deemed to know confidential information known to an Individual employed by their agent, where the information has been obtained by the individual from a source unconnected with the insurance in question?
A

No.

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20
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What is the measure of what the Insured ought to know?
A

What should have been revealed by a reasonable search of information available to the Insured.

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21
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. Who can hold information on an Insured Individual?
A

The insured’s organization or by any other person such as an agent.

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22
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. Does knowledge include those things than an Insured suspects and about which they would have had actual knowledge, but for deliberately refraining from confirming/enquiring about the information? What implication does this have for the Insured.
A

Yes.

They should not turn a blind eye to issues they have suspicions about.

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23
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What does the Insurer only know?
A

An insurer only knows something if it is known to one or more individuals who participate on behalf of the insurer in the decision whether to take the risk.

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24
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What can be said to be things the Insurer ought to know?
A

If an employee/agent of the insurer knows it and ought reasonably to have passed on the information to the risk decision makers.

If the relevant information is held by the insurer and is readily available to the risk decision makers.

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25
Q

B - Duty to Disclose

B2C Measure of the Insured’s and Insurer’s Knowledge

  1. What is an Insurer presumed to know?
A

Things that are common sense.

Things the insurer would reasonable be expected to ask.

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26
Q

B - Duty to Disclose

B2D Agent’s Duty

  1. How is a careless or reckless misrepresentation by an agent treated?
A

As if it had been made by the principal, as the principal is responsible for the actions of their agent.

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27
Q

B - Duty to Disclose

B3 Insurer’s Duty of Disclosure - Non-Consumer Insurance

  1. Who does the Insurer have a duty of disclosure to?
A

The insured.

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28
Q

B - Duty to Disclose

B3 Insurer’s Duty of Disclosure - Non-Consumer Insurance

  1. How must the Insurer behave?
A

With good faith.

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29
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. Why do FCA rules require insurers and intermediaries to provide sufficient information about the contract before its conclusion?
A

So customers can make informed decisions about whether to buy.

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30
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. What is the Statement of Demands and Needs?
A

One element of the info that must be disclosed to a client.

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31
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. What does fulfilling the requirements of the Statement of Demands and Needs imply?
A

There is a comprehensive fact gathering exercise.

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32
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. What does the Statement of Demands and Needs place upon the adviser?
A

Onus for establishing the facts.

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33
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. Are there restrictions on rejecting claims where consumers have failed to disclose information or misrepresented facts? Who imposes them?
A

Yes, imposed by the FCA.

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34
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. List the steps the FCA requires of firms to ensure customers are aware of what they must disclose.
A

Explain to customers their responsibility to take reasonable care not to make a misrepresentation, and the consequences of failing.

Explain to commercial customers their duty to disclose all material circumstances, what needs to be disclosed, and the consequences of failing.

Ensure commercial customers are asked clear questions about material matter.

Ask customers clear and specific questions about relevant information.

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35
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. Who are the FCA rules on a firms duty to ensure customers know what to disclose more onerous on?
A

Insurers of personal and private policies.

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36
Q

B - Duty to Disclose

B4 Effect of FCA Rules

  1. Do Commercial insurers have an obligation to comply with FCA rules on Duty of Disclosure?
A

No, provided they can demonstrate they are treating their customers fairly.

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37
Q

B - Duty to Disclose

B5A At Inception

  1. Under Common Law, when does the duty to disclose start and end?
A

When negotiations begin.
When the contract is formed.

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38
Q

B - Duty to Disclose

B5A At Inception

  1. Once the contract is formed is there a requirement to declare material circumstances?
A

No, not unless it affects the policy cover e.g. property value increase or car sold

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39
Q

B - Duty to Disclose

B5A At Inception

  1. Does conviction of fraud need to be disclosed immediately?
A

No, not until renewal.

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40
Q

B - Duty to Disclose

B5B At Renewal

  1. What happens to the insured’s duty to disclose at renewal?
A

It is revived.

41
Q

B - Duty to Disclose

B5B At Renewal

  1. What rule applies to the duty to disclose when it comes to long term policies like life insurance and pensions?
A

Once the policy is in force the duty to disclose ceases.

42
Q

B - Duty to Disclose

B5C Continuing Requirement

  1. How do Commercial Property Insurances deal with disclosure of mid-term changes?
A

A policy condition requires continuing disclosure of circumstances that increase the risk of damage.

43
Q

B - Duty to Disclose

B5C Continuing Requirement

  1. How do Motor Insurances deal with disclosure of mid-term changes?
A

Usually an onerous policy condition that requires continuing disclosure of all material changes during the policy period.

44
Q

B - Duty to Disclose

B5C Continuing Requirement

  1. How do Public Liability Insurances deal with disclosure of mid-term changes?
A

The continuing requirement for disclosure arises from the tight definition of “the business”. Any extension of activities must be notified.

45
Q

B - Duty to Disclose

B5D On Alteration

  1. What happens to the duty of disclosure where a change results in the need for an endorsement to the policy?
A

It is revived.

46
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. What applies if a specific question is not asked about relevant material information? When does it not apply?
A

The duty of disclosure means the proposer must still disclose the material information.

Unless they are a “consumer” as defined under CIDRA.

47
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. What does the IA 2015 say about non-consumer Duty to Disclose?
A

Non-consumer customers need only make a fair representation of the risk.

48
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. What happens if a question is asked, but the proposed only provides partial information and the insurer does not seek further details?
A

The insurer is deemed to have waived its rights regarding this information.

49
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. What happens if the insurer defines what they mean by “material disclosure” but the proposer doesn’t provide all details and the insurers accepts the risk.
A

The insurer can’t then claim they required wider or further disclosure at a later date.

50
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. What will the insurer generally have a right to do if there has been a breach of duty of good faith by the insured?
A

Avoid the policy.

51
Q

B - Duty to Disclose

B5E Limitation of an Insurer’s Right to Information

  1. If the insurer has the right to avoid the policy but chooses to waive its right to invoke it, what is the status of the policy?
A

The policy is treated as remaining in force.

52
Q

C - Material Circumstances

  1. According to the IA 2015, what is a material circumstance?
A

A circumstance is material if it would influence the judgement of a prudent insurer in determining whether to take the risk and, if so, on what terms.

53
Q

C - Material Circumstances

  1. Give examples of Material circumstances.
A

Special or Unusual information

Concerns which have lead the insured to feel they need insurance to cover the risk

54
Q

C - Material Circumstances

C1 Features of Material Circumstances

  1. What perspective do courts use when considering whether a circumstance is material?
A

Consider the risk by looking at it from a prudent insurer’s point of view.

55
Q

C - Material Circumstances

C1 Features of Material Circumstances

  1. Do courts consider the insured’s point of view or that of the particular insurer involved?
A

No, they consider from a prudent insurers point of view.

56
Q

C - Material Circumstances

C1 Material Circumstances in Non-Life Proposals

  1. In general, what do material circumstances relate to?
A

Physical hazards

Moral hazards

57
Q

C - Material Circumstances

C1A Physical Hazards

  1. Give examples of material circumstances that concern physical hazards in relation to Fire Insurance.
A

Construction of the building
Nature of use
Heating and electrical system

58
Q

C - Material Circumstances

C1A Physical Hazards

  1. Give examples of material circumstances that concern physical hazards in relation to Motor Insurance.
A

Age and type of car
Age of driver
Previous accidents

59
Q

C - Material Circumstances

C1A Physical Hazards

  1. Give examples of material circumstances that concern physical hazards in relation to Theft Insurance.
A

Nature of stock
Value of stock
Nature of security precautions

60
Q

C - Material Circumstances

C1B Moral Hazards

  1. Give examples of material circumstances that concern moral hazards.
A

Insurance history

Personal history

61
Q

D - Circumstances that do not need to be Disclosed

  1. In basic terms, when would the material circumstances of a non-consumer risk NOT need to be disclosed?
A

When the insurer ought to know them or could find them out.

62
Q

D - Circumstances that do not need to be Disclosed

  1. Is it usual to advise the insurer of circumstances that lessen the risk.
A

No. While they would usually lower the premium or create better cover, there is no duty to disclose such facts.

63
Q

D - Circumstances that do not need to be Disclosed

D1 Spent Convictions

  1. Under the Legal Aid, Sentencing and Punishment of Offenders Act 2012, rehabilitation periods for community orders and custodial sentences comprise of what?
A

The period of the sentence plus an additional specified “buffer” period.

64
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Custodial sentence of length 0 - 6 months?
A

2 years.

65
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Custodial sentence of length 6 - 30 months?
A

4 years.

66
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Custodial sentence of length 30 months - 4 years?
A

7 years.

67
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Custodial sentence of length over 4 years?
A

Never “spent”.

68
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Non-Custodial sentence of community order or youth rehab order
A

1 year.

69
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Non-Custodial sentence of a fine?
A

1 year from date of conviction.

70
Q

D - Circumstances that do not need to be Disclosed

  1. What is the Rehabilitation Period (sentence + buffer) of a Non-Custodial sentence of conditional discharge or referral order?
A

Period of order

71
Q

E - Consequences of Misrepresentation by Consumers

  1. How is non-negligent misrepresentation of a material circumstance by a consumer treated in regards to claims payment?
A

Considered unreasonable grounds for refusing to pay a claim.

72
Q

E - Consequences of Misrepresentation by Consumers

  1. What is the test for establishing whether misrepresentation by a consumer should affects claims?
A

Whether the consumer acted reasonably in providing information.

73
Q

E - Consequences of Misrepresentation by Consumers

  1. What is the insurer entitled to do if the proposer misrepresents deliberately or recklessly and/or withholds information?
A

Avoid the policy ab initio.

74
Q

E - Consequences of Misrepresentation by Consumers

  1. Can misrepresentations be made of opinions?
A

No, misrepresentations must concern a fact.

75
Q

E - Consequences of Misrepresentation by Consumers

  1. Give examples of misrepresentation in insurance.
A

A proposer for theft insurance says the premises are protected by a burglar alarm when they are not.

A proposer for motor insurance says their car has not been modified when it has.

A proposer for appliance insurance says declared that the appliance is under five years old when it is not.

76
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. CIDRA replaces the duty on consumers to volunteer information with what duty?
A

A duty to take reasonable care to answer insurers questions fully and accurately.

77
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. What is the consequence of consumers having a duty to take reasonable care to answer insurers’ questions fully and accurately?
A

It is the duty of the consumer to take reasonable care to not make a misrepresentation.

78
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. If a misrepresentation is reasonable, may the insurer have to pay a claim?
A

Yes.

79
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. List examples of things that will need to be taken into account when determining whether the consumer took reasonable steps to avoid making a misrepresentation.
A

The type of insurance contract.

Any relevant explanatory material produced or authorised by the insurer.

How clear and specific the insurers questions were.

How clearly the insurer communicated the importance of answering the questions.

80
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. What is a qualifying misrepresentation?
A

Deliberate, reckless or careless.

81
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. What may the insurer do if a qualifying misrepresentation is found to be deliberate or reckless?
A

Avoid the contract and refuse all claims.

Keep any premiums paid, unless it would be unfair to the consumer to retain them.

82
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. When is a qualifying misrepresentation careless?
A

When it is not deliberate or reckless.

83
Q

E - Consequences of Misrepresentation by Consumers

E1 Remedies available to Insurers under CIDRA

  1. What can the insurer do if there was a careless misrepresentation?
A

Apply a compensatory remedy.

This would be based on what the insurer would have done if it had known the correct information, such as applying a relevant exclusion, refuse to offer terms, etc.

84
Q

F - Consequences of a Breach of the Duty of Fair Representation

  1. For non-consumer contracts, when can the insurer avoid a policy?
A

The insurer will only be able to avoid a policy if the insured has made a deliberate or reckless breach,

unless they have contracted out the duty to make a fair representation of the risk.

85
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1 Remedies available to Insurers under IA 2015

  1. For non-consumer contracts, when does the insurer have a remedy for breach of duty of fair representation?
A

If they can show that without the breach:

It wouldn’t have entered into the contract at all, or

It would have done so on different terms

86
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1 Remedies available to Insurers under IA 2015

  1. For non-consumer contracts, what is a breach that triggers a remedy called?
A

A qualifying breach.

87
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1 Remedies available to Insurers under IA 2015

  1. For non-consumer contracts, what are the two categories of breach?
A

Deliberate or reckless

Neither deliberate nor reckless

88
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1 Remedies available to Insurers under IA 2015

  1. What must the insurer show for a breach to considered deliberate or reckless?
A

The proposer knew it was in breach of the duty of fair representation.

The proposer did not care that it was a breach of that duty.

89
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1A Original Placement

  1. The breach was not deliberate or reckless but the insurer wouldn’t have entered into the policy if they had known, what is the remedy?
A

The insurer can avoid and refuse claims, but they must return the premium.

90
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1A Original Placement

  1. If the breach was not deliberate or reckless but the insurer would have entered on different terms had they know, what is the remedy?
A

The contract is treated on those different terms.

91
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1A Original Placement

  1. If the breach was not deliberate or reckless but the insurer would have charged a higher premium had they known, what is the remedy? How is it remedied?
A

Claims can be reduced proportionately

X = (Premium actually charged / Higher Premium) x 100%

92
Q

F - Consequences of a Breach of the Duty of Fair Representation

F1B Variations of Contracts

  1. Do the same rules apply to mid-term variations?
A

Yes.

93
Q

F - Consequences of a Breach of the Duty of Fair Representation

F2 Breach of Warranty

  1. Under IA 2015, do breaches of warranty automatically terminate the contract?
A

No.

94
Q

F - Consequences of a Breach of the Duty of Fair Representation

F2 Breach of Warranty

  1. What happens if there is a breach of warranty?
A

The insurers liability is suspended from the time of breach.

95
Q

F - Consequences of a Breach of the Duty of Fair Representation

F2 Breach of Warranty

  1. What happens if the insured can show that non-compliance with a warranty did not increase the risk of the actual loss?
A

The insurer cannot rely on non-compliance to exclude, limit or remove liability.

96
Q

F - Consequences of a Breach of the Duty of Fair Representation

F2 Breach of Warranty

  1. Why do warranties put the insured in a better position than an insurance contract?
A

Because they add a materiality link (must prove non-compliance increased the risk)

97
Q

G - Compulsory Insurances and Disclosures

  1. Can the insurer avoid compulsory insurance like motor insurance on the grounds of a breach of good faith?
A

No.

98
Q

G - Compulsory Insurances and Disclosures

  1. With compulsory insurances, what is the law primarily concerned with?
A

Compensating innocent victims.

99
Q

G - Compulsory Insurances and Disclosures

  1. With compulsory insurances, what right do insurers have if there is a breach?
A

They have a right of recovery against the insured.

IF1 - Insurance, Legal and Regulatory (9 decks)

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