Chapter 8: Material Circumstances

Question 1

How are material circumstances defined?

Answer 1

Those which would affect the judgement of a prudent insurer.

Question 2

Do spent convictions need to be disclosed?

Answer 2

No. Under the Police, Sentencing and Courts Act 2022 (amended).

Question 3

Sexual offences and terrorist offences do not need to be declared. True or False?

Answer 3

False. They need to be declared as they are never considered ‘spent’ convictions.

Question 4

Which Act covers consumer disclosure?

Answer 4

Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA).

Question 5

What are the remedies available to Insurers under CIDRA?

Answer 5

• If the misrepresentation was honest - must pay the claim
• If it was careless - can act as though the question was answered correctly (i.e. with an exclusion)
• If it was deliberate - treat policy as void and decline claims

Question 6

Which Act governs commercial insureds in terms of disclosure?

Answer 6

Insurance Act 2015.

Question 7

What is the duty on commercial insureds under the Insurance Act?

Answer 7

Duty to make a fair presentation of the risk.

Question 8

When can an insurer seek remedy for breach of fair presentation under the Insurance Act?

Answer 8

When they can show that they:

• Wouldn’t have entered into the contract, or;
• Would have done so, but on different terms.

Question 9

What are the remedies available to commercial insurers in the event of a deliberate breach of fair presentation?

Answer 9

• Avoid the contract and refuse all claims
• Not return any of the premium paid

Question 10

What are the remedies available to commercial insurers in the event of a careless breach of fair presentation?

Answer 10

• Avoid the contract if they wouldn’t have written the risk - must return premium though.
• If they would have charged more - proportionately reduce claims payments
• If the insurer would have entered on different terms, they must subsequently follow these

Question 11

Are basis of contract clauses allowed on proposal forms?

Answer 11

No. Abolished by the IA and CIDRA.

Question 12

What is a peril?

Answer 12

The thing itself that causes a loss e.g. fire.

Question 13

What is a hazard?

Answer 13

The factors that affect the likelihood of a peril occurring e.g. a thatched roof.

Question 14

What is a physical hazard?

Answer 14

The nature of the thing itself being insured. E.g. the speed of a car.

Question 15

What is a moral hazard?

Answer 15

The human aspects which affect the risk. E.g. age or disposition of the person involved.

Question 16

Give some alternative ways of collecting material information other than proposal forms.

Answer 16

• Surveys - used for larger property risks
• Supplementary questionnaires
• Market Reform Contracts (in the case of Lloyd’s)
• Meetings between clients and Brokers