IF1.5 Good Faith and disclosure Flashcards
Define Good faith
Disclosure must be made in a reasonably clear and accessible manner.
Material representations of fact, expectation & belief must be correct (as far as you know)
Material circumstances
circumstances that underwriters need to know before accepting a particular risk
Why does good faith matter in insurance?
Insurance is intangible.
We have to trust the underwriter & the underwriter has to trust us.
Duties of the insurer when disclosing information
- only take risks they’re authorised to accept
- don’t withhold information about available discounts
- Ensure statements made regarding policy cover are true
Consumer Insurance (Disclosure and Representations) CIDRA 2012
In personal insurance, when disclosing facts you cannot misrepresent them. To do this underwriters must ask relevant questions (normally a generic set).
Marine Insurance Act 1906 (MIA 1906)
Customers must disclose all material information
Who does Consumer Insurance (Disclosure and Representations) CIDRA apply to?
Consumers, not Commercial
Consumer
Someone who takes out insurance for personal reasons
Insurance Act 2015 (IA 2015)
For commercial clients there are no standard set of questions. They have a duty to make fair presentation of any non-standard material circumstances.
Fair Presentation
- disclose every material circumstance which the insured knows or ought to know
- disclose in a clear manner
- every material representation is correct
An insured individual should know
- what they know
- what is know to the individuals responsible for their insurance
An insurer should know
- what the employees/agents know
- the information held by the insurer
- common knowledge
- the area the they are offering insurance in
In common law a personal is responsible for the acts of…
their agent. Hence, a careless misrepresentation by an agent is treated as if it had been made by the principle.
An agent is defaultly an agent of the…
consumer.
What makes an agent, an agent of the insurer?
- they are the AR of the insurer
- they collect information from the consumer with express authority from the consumer to do so
- they have authority to bind the insurer to cover.
According to the FCA the insurers must make it clear that the insured should not…
misrepresent
In common law, the duty of disclosure starts when negotiations begin and ends when…
the contract is formed (inception)
define inception
when the contract is formed.
When is the exception to:
“from the point of inception until the renewal negotiations take place there is no requirement for the insured to declare material information”
unless they effect the policy cover (effect the insurable item directly)
What are the points at which material information must be disclosed to the insurer?
- inception
- alteration
- renewal
- Ongoing is there are continuing requirements
when is the insureds duty of disclosure revived in general insurance policies?
at renewal
What is a continuing requirement?
Under contract law insurers are ensuring that the insured must update them of any material information that doesn’t directly relate to the risk.
Example of continuing requirement clauses:
- circumstances that increase the risk of damage
- removal of the insured object to another location
- extension of activities for liability
What happens if the insurer doesn’t ask a certain question
they have waived their right to know this information. (insurers can’t use this against you in the event of a claim)
personal insurance only
What happens if the consumer only provides a partial answer to a question
if the insurer does not seek further details, they have waived their rights to know this information. (insurers can’t use this against you in the event of a claim)
examples of material information
- special or unusual information relevant to the risk
- particular concerns which lead the insured to take out insurance
duty of disclosure is required by
all parties
Example of a physical hazard for material circumstances
Motor insurance: age & type of car, age of driver, lisce held, previous accidents, area where vehicle is kept.
Example of a moral hazard for material circumstances
Insurance history & personal history e.g. refusals to insure, claims history, criminal convictions & excessive carelessness.
Information the insured does not have to disclose
- Information that reduces the risk
- Information the insurer is presumed or ought to know (e.g. Law, public knowledge)
- Information waived by the insurer (outside the scope of the questions with personal insurance)
- information the insured does not know
- information covered by policy terms
- facts a survey should have revealed (where applicable)
Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)
outline rehabilitation periods. once a conviction is spend you don’t have to declare it
rehabilitation periods. sentence length 0-6months
spent after: sentence length + 2 years
rehabilitation periods. sentence length 6-30 months
spent after: sentence length + 4 years
rehabilitation periods. sentence length 30 months - 4years
spent after: 7 years
rehabilitation periods. sentence length over 4 years
Never spent
rehabilitation periods. Fines, community order & youth rehabilitation
1 year.
2 ways of qualifying misrepresentation
- careless
- deliberate or reckless
Define Non disclosure
- within knowledge of 1st party
- not known to 2nd party
- used to induce 2nd party to enter a contract
Remedy: reasonable mistake
insurer may pay claim
How you determine what type of misrepresentation occured?
- the type of consumer insurance
- any relevant explanatory material
- how clear & specific the questions were
- How clearly was the importance of the question communicated
- whether or not an agent was acting for a customer
Remedy: Reckless or deliberate
insurers may void the contract, refuse to pay claims and can keep any premiums paid
Remedy: Careless (if insurer would have entered the contract originally)
the contract will be treated as if the correct terms applied unless chosen not to by the insurer.
if a higher premium would have been paid claims are reduced accordingly. They pay x% of what they would’ve paid:
x = premium actually charged / higher premium x100
How is reckless and deliberate defined
- consumers knew that it was untrue or misleading
- knew that or didn’t care that the information was relevant to the insurer
Remedy: Careless (if insurer wouldn’t have entered the contract originally)
void the contract and refuse all claims but must return the premium.
qualifying breach
a breach that triggers a remedy
If the insured performs part of the contract differently to what the insurer expected then…
the same remedies applied as with misrepresentation.
what does breach of warranty result in?
contract suspension from the time of breach until the breach is fixed. The insured will be liable for any losses during the breach.
define warranty
condition on the insurance policy which must be exactly followed
What is the most common example of compulsory insurance?
Third party motor
What is a motor insurance is voided due to misrepsentation but there are third part liability claims?
The insurer must pay out the liability claims on the grounds of good faith but then has a right of recovery from the insured.
When did the duty of disclose apply for private medical insurance?
continuously
According to ICOBS with joint policies who should information about an insurance policy be sent to?
the first named party only
How long must firms keep generic files?
5 years
Which statute allows for a third party, who is a named beneficiary under an insurance policy, to enforce the policy against the insurer?
Contracts(Rights of Third Parties) Act 1999
Insurers duty of disclosure to the insured
- let them know if discounts available
- only take risks they’re registered to accept.
- do not mislead
FCA requires firms to make the following clear (in order for customers to know the importance of discolsure)
- explaining to consumer the responsibility of consumers to take reasonable care when answering questions
- explaining to commercial customer the importance of making a fair presentation
- ensuring questions asked are clear and specific
formula for claim if the insurer would have charged a higher premium due to a misrep or non-disclosure
x = premium charged / higher premium x claim
