Chapter 5 - The principle of utmost good faith

Question 1

Who does the principle of utmost good faith apply to?

Answer 1

Both the insurer and the proposer

Question 2

What is the principle of utmost good faith?

Answer 2

That both the proposer and insurer must volunteer all material information in all negotiations before the contract comes into effect.

Question 3

What is the definition of utmost good faith?

Answer 3

The definition is taken from the Marine Insurance Act 1906: Every circumstance is material which would influence the judgement of a prudent insurer in fixing or the premium or determining if he will take the risk.

Question 4

Why it is important that the insured discloses all material information?

Answer 4

In the event of a loss it is covered by the terms of the policy and the claim is paid in full.

Question 5

What is the duty of disclosure for the insurer? (3)

Answer 5

• That they notify the insured if they are entitles to a possible premium discount.
• They only take on risks they are registered to accept.
• That all facts are true.

Question 6

What act states that the insured must make a fair representation of the risk to the insurer?

Answer 6

Insurance Act 2015

Question 7

What should an insurer know or expect to know in regards to a risk?

Answer 7

• Things which are common knowledge,

- Things which an insurer offering insurance of the activity would want to know.

Question 8

What does CIDRA stand for?

Answer 8

Consumer Insurance Disclosure and Representation

Question 9

Under CIDRA, an intermediary is to be considered to be the insurers agent if the intermediary:

Answer 9

• Is the appointed representative of the insurer,
• Collects information from the consumer with express authority to do so from the insurer,
• Has authority to bind the insurer to cover and does so.

Question 10

In Contract law what is a warranty?

1

Answer 10

A warranty has different meanings but generally it means: A guarantee or promise to provide assurance by one party from another.

Question 11

When does the duty of disclosure exist? (1)

Answer 11

From negotiations of the policy until the inception of the policy.

Question 12

When does the insurer have the right to avoid the policy? (1)

Answer 12

When there has been a breach of the duty of utmost good faith.

Question 13

Material facts can be divided into two sectors?

Answer 13

Physical or Moral Hazards.

Question 14

Physical hazards in relation to Fire Insurance?

3

Answer 14

1. )Construction of the building,
2. )Nature of use.
3. )Heating and electrical system.

Question 15

Physical hazards in relation to motor insurance? (3)

Answer 15

1. )Age of car
2. )Age of driver
3. )Previous Accidents

Question 16

Physical hazards in relation to theft insurance? (2)

Answer 16

1. )Nature of stock

2. )Security precautions in place

Question 17

Moral hazards in relation to insurance history?(2)

Answer 17

1. )Previous refusals of insurance

2. )History of claims if exaggerated or fraud

Question 18

Moral hazards in relation to personal history? (2)

Answer 18

1. ) Criminal convictions

2. )Lack of good business management.

Question 19

Roselodge V Castle?

Answer 19

Uses the example of; the proposer stole apples when he was 12. In which if it would be material to an application of insurance many years later. As it would be a moral hazard.