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Insurance Law (M05) > Chapter 6: Pre-Contractural Information Duty > Flashcards

Chapter 6: Pre-Contractural Information Duty Flashcards

1
Q

Under the 1906 Marine Insurance Act, what used to be the remedy for breach of pre-contractual information?

A

Contract avoidance

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2
Q

What did the 2012 Consumer Insurance (Disclosure and Representations) Act abolish?

A

The pre-contractural duty of disclosure and replaces it with the duty to take reasonable care not to make a misrepresentation.

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3
Q

Is it CIDRA or the IA that is concerned with consumer contracts?

A

CIDRA.

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4
Q

Define Misrepresentation:

A

A false statement of fact that induces the other party to enter into the contract.

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5
Q

What must a false statement be to affect the validity of a contract?

A
  1. One of fact (rather than an opinion / belief)
  2. One made by a party to the contract
  3. Material (i.e. something that would be of influence to the risk / contract)
  4. Induce the Contract (i.e. be relied upon to decide to enter a contract)
  5. Cause loss or damage (to the person who relied on it)
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6
Q

Define Material Fact:

A

What a prudent underwriter would deem material rather than the opinion of a reasonable person.

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7
Q

What is the difference between Fraudulent and Innocent Misrepresentation?

A

F: A statement is made with deliberate intention of misleading another

I: A statement is false but there is no intention to mislead the party

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8
Q

What is Negligent Misrepresentation?

A

Where a statement is false because the person making it did not take sufficient care to check that it was correct.

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9
Q

Can an insurer seek remedy under all types of misrepresentation under a business contract?

A

Yes.

It is only in consumer contracts where they can only remedy in the case of negligent or fraudulent misrepresentation as the Act imposes the duty to take reasonable care not to misrepresent facts.

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10
Q

Which tort can you claim remedy under for misrepresentation?

A

The innocent party can claim under the tort of deceit.

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11
Q

What legal case explains the positive duty of disclosure under a business insurance contract?

A

1928 Rozanes v Bowen.

The man knows everything about the item to be insured and it is thus his duty to make a full disclosure to the underwriter about all material circumstances.

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12
Q

“The agent is presumed to be that of the consumer unless the consumer proves otherwise”. Discuss.

A

Person liable under common law for the acts of their agent.

A careless or reckless misrepresentation by an agent is treated as if it had been made by the principal.

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13
Q

Define “Material Fact”:

A

If it would influence the judgement of a prudent insurer in determining whether to accept a risk.

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14
Q

What is the “Actual Inducement Test”?

A

Introduces a strong subjective element.

What happens if the (undisclosed / misrepresented) fact was material but would have made no difference to whether or not terms would have been offered?

Inducement now a test to see if remedy is owed for a breach of the duty of fair presentation.

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15
Q

Is inducement different in the cases of non-disclosure and misrepresentation?

A

Yes.

ND: What would the insurer have done if the true position was disclosed?

M: What would the insurer have done if there was no misrepresentation?

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16
Q

Does the right to avoid a contract depend on the connection between non disclosure and a claim?

A

No. It’s to do with the relevance of a particular fact to the risk as a whole rather than a claim.

If the insurer discovers a breach, they don’t have to wait for a claim to occur for them to seek remedy.

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17
Q

What is considered to determine if a consumer has taken reasonable care not to make a misrepresentation?

A
  1. Type of consumer insurance.
  2. How clear insurer’s questions were - and how important it was they were answered.
  3. Whether an agent was acting for the consumer.
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18
Q

Does the Insured have to disclose everything?

A

They have a duty to disclose every material circumstance which they know or ought to know.

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19
Q

What might be a material circumstance?

A
  1. Special or unusual facts relating to the risk.
  2. Any particular concerns which led the insured to get insurance for the risk.
  3. Anything that could be deemed as a fair presentation.
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20
Q

What are the two types of hazards?

A

Physical - relating to the physical characteristics of the risk

Moral - relating to the character and behaviour of the insured

21
Q

What are some examples of physical hazards?

A

Building construction
Type of vehicle
Security / Fire protection

22
Q

Are insurers allowed to consider gender when pricing insurance policies?

A

No. European court ruling (Test Achats 2011) put an end to this, meaning from 21 December 2012, this was no longer able to occur.

23
Q

Why is it important for criminal convictions to be disclosed when applying for insurance?

A

Because any criminal offence of dishonesty is relevant to a contract which requires honest dealing by the party / proposer.

24
Q

List three types of moral hazards:

A
  1. Criminal convictions
  2. Previous losses / claims
  3. Adverse insurance history (i.e. special terms or refusal of insurance)
25
Q

When is there no duty to disclose a risk that has previously been refused?

A

In the case of marine insurance.

The marine rule: it would be unreasonable for a broker in the Lloyd’s marine market to remember and disclose details of each individual underwriter who had declined the risk.

26
Q

What is contribution?

A

Where two policies are in force so they would share the loss between them.

27
Q

What matters do not need to be disclosed?

A
  1. Matters of the law: everyone is deemed to know the law.
  2. Factors which lessen the risk
  3. Facts known to the insurers / what the insurer ought to know
  4. Information that is waived by the insurer
  5. Facts that are outside the scope of questioning
  6. Facts that a survey / inspection should have revealed
  7. Facts that the proposer did not know
  8. Spent convictions
28
Q

What facts should the insurer ought to know?

A
  1. Facts which are notorious (common knowledge)
  2. Facts that are in the public domain
  3. Facts about the trade which they insure and the usual risks associated with them
29
Q

What is constructive knowledge?

A

Things a proposer ought to know in the ordinary course of their business.

30
Q

What is the difference in remedy between Good Faith and Fair Presentation?

A

GF: predominately avoidance of contract
FP: up to the court to determine a fair remedy

31
Q

Explain the Manifest Shipping Co v Uni-Polaris Shipping Co (2001) case:

A

2001.

The Star Sea (boat) was unseaworthy and there was a fire claim on board.
Insured had already lost two other vessels to fires and reports had been done on them. These reports were not disclosed and the insurers argued breach of duty of good faith.

Breach not agreed as insurers couldn’t prove that the Insured knew about the unseaworthiness.

32
Q

What was the effect of The Star Sea case?

A

To confirm the existence of a general duty on those party to an insurance contract, to act in good faith throughout the policy period.

33
Q

Explain the Galloway v Guardian Royal Exchange (UK) Ltd (1999) case:

A

Theft claim for GBP 16,000. Only GBP 14,000 was actually valid.

Whole claim was forfeited even though only GBP 2,000 was fraudulently mis-stated. This is because the remedy for making a fraudulent claim is the forfeiture of the entire claim.

34
Q

What impact has the Criminal Justice and Courts Act 2015 had on injury claims?

A

A claim for personal injury will fail where the claimant is found to have been fundamentally dishonest in relation to part of the claim, even if part of the claim is genuine.

35
Q

How did the introduction of the IA 2015 change the remedy for breach of duty of fair presentation?

A

It introduced that the remedy should be proportionate to the seriousness of the breach.

36
Q

When is a breach of the duty of fair presentation a “qualifying breach”?

A

If the insurer would:

  • not have entered into the contract of insurance at all, or
  • have but only on different terms
37
Q

When does the insurer have to return premiums payable for a “qualifying breach”?

A

Only if the breach is neither deliberate or reckless - they can avoid the contract and need to refund the money.

If the breach is deliberate and reckless, the insurer can avoid the contract but doesn’t have to refund the premiums paid.

38
Q

“If the insurer would have entered into a contract on different terms, the contract is to be treated as if it had been entered into on those different terms”. Discuss.

A

Occurs when the insurer can’t avoid the contract as can’t show that it would not have entered into a contract.

39
Q

What is the formula to calculate the % to reduce proportionally the amount to be paid on a claim?

A

(Premium actually charged / higher premium) x 100

40
Q

When can an insurer claim damages as well as avoiding a policy?

A

In the case of fraudulent misrepresentation.

Under the Misrepresentation Act 1967.

41
Q

When can an insurer claim for damages rather than just avoiding a policy?

A

If the misrepresentation is negligent.

42
Q

Can an insurer waive their rights to avoid the contract and allow a policy to stand following a reckless breach?

A

Yes. But why would they?

43
Q

Why shouldn’t an insurer stay inactive / quiet for a long time following the discovery of a breach?

A

Because it could be interpreted as a waiver of the breach and allowing the policy to continue / stand.

44
Q

What is a “Disadvantageous Term”?

A

Where the parties to a non-consumer insurance contract, contract out of the IA 2015 to the detriment of the insured.

Can only be done if the transparency requirement is met - term must be clear and unambiguous and can’t be just hiding under lots of other text.

45
Q

When does “Disadvantageous Term” not apply under a consumer insurance contract?

A

Where the term of a contract would put someone who is the ultimate beneficiary of a policy in a worse position that they would have been had they had a policy in their own name.

IE: EL -> real beneficiary is the employees/consumers who would be protected as a result of the effect of contracting out.

46
Q

How does the 2012 Act class “deliberate or reckless” under a consumer contract?

A

If the customer know it was untrue or misleading or it did not care either way.

If it knew the matter to which the misrepresentation related was relevant to the insurer or did not care either way.

47
Q

Under a Consumer contract, who has the burden of proof to show if a QB was deliberate or reckless?

A

Burden rests with the insurer. If they can’t prove it, they can’t avoid the contract.

48
Q

What are the two recent cases that showed the burden of proof to prove a deliberate and reckless misstatement rests on the insurer in the case of Consumer contracts?

A
  1. Southern Rock Insurance Co Ltd v Hafeez (2017)
  2. Ageas Insurance Ltd v Stoodley (2019)

Courts found that whilst they were careless, they were not deliberate or reckless in breaching their duty.

Insurance Law (M05) (6 decks)

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