IF3.1 Material Information Flashcards
For a contract to be legally binding it must contain
offer
acceptance
consideration
Consideration
a benefit received by one party in return for a promise of the performance of an act by another party.
Caveat Emptor
Buyer beware
Why do insurance contracts not under Buyer beware
They are based on a promise to do something in the even that a certain set of circumstances occurs in exchange for payment of the premium.
I.e. the promise is not tangible until the loss occurs.
What legal principle are insurance contracts governed under?
Good faith
consumer Insurance (Disclosure and representation) Act 2012 (CIDRA)
Consumers are only obliged to answer questions asked of them by insurers in the proposal form, but they must take care to answer those questions fully and accurately
Material Circumstance
it would influence the judgment of the underwriter in determining whether to take the risk and if so on what terms.
Facts which do not need to be disclosed (Insurance Act 2015)
- facts of law
-facts of public knowledge - spent convictions
- facts that lessen the risk
- facts where the insurer has waived its right to certain information
- facts that a survey should’ve revealed
- facts the insured did not know
- facts covered by the policy terms
- facts the insurer already knows
How must insurers assess whether a consumer has taken reasonable care?
- type of insurance
- explanatory material
- clarity of the insurers questions
- how clearly the insurer communicated the importance of the questions
- how clearly the insurer communicated the consequences of failing to answer their questions
- whether an agent was acting for the consumer
Vulnerable Customer
Someone who due to their personal circumstances is especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care.
Guidance for firms dealing with vulnerable customers
- understanding the needs of vulnerable customers
- the skills and capabilities of staff
- action they can take to improve service
Fair presentation of the risk
- the proposer must disclose every material circumstance it knows
- the proposer must ensure its representation is clear and accessible.
- All material circumstances should be correct and made in good faith.
when do duties of fair presentation lie
when negotiations start until the contract is made.
When is duty of fair presentation revived
- alteration of the risk
- claims are made
- at renewal.
Non-disclosure
The proposer simply fails to tell the insurer something the know, and it is something that would have made the insurer either not enter the contract or do so on different terms.
Misrepresentation
This where the statement is substantially false, relates to the subject matter or the proposal and has induced the insurer to enter the contract.
Qualifying breach
A breach where the consumer did not take reasonable care and led the insurer to enter the contract when they otherwise wouldn’t
Consumer Remedy: breach was honest and reasonable
(Consumer Insurance (Disclosure and representations) Act 2012)
Insurer may have to pay the claim
Consumer Remedy: breach was Careless
The insurer will give a proportional payout to the claim depending on the premium if the insured had answered the questions properly
Consumer Remedy: breach was Deliberate or reckless
Insurer may treat the policy as if it never existed and decline all claims.
Non-consumer remedy: breach was deliberate or reckless
(if the insured knew about the breach and/or they did not care)
The insurer can avoid the policy and keep any premiums that have been paid.
Non-consumer remedy: breach was no deliberate or reckless
if the insurer can prove they wouldn’t have written the policy: Insurer can avoid the policy but has to return premiums.
If the insurer would’ve accepted risk on different terms: the contract is treated as it if included those terms.
if the insurer would have entered the contract but charged a higher premium: The insurer may proportionately reduce the amount paid for the claim.
If the breach is fraudulent what is the remedy
policy is voidable
the insurer can keep the premiums and sue for damages
hazard
that which influences the operation of the peril
peril
that which gives rise to a loss
Most common way for the underwriter to obtain information regarding the risk
proposal form
Methods of the underwriter obtaining material information
- proposal form
- brokers
- risk surveyors
- Supplementary questionnaires
- meeting with clients
- call centres
- internet
what do Risk registers store
individual exposures and claims experience, site inspection reports and preparation of health and safety reports.
What is a risk register
a fact finding tool that a broker uses when talking to clients
When are Risk surveys used
used to obtain information where the risk is large and or complex
Where would supplementary questionnaires be used?
when dealing with particular aspects of the risk e.g.
- money risks involving high value transactions
- fire risks in respect for old obsolete buildings
- public liability risks involving hairdressing where use of certain tool/chemicals needs further investigation.
What do risk surveys include
- full description of the risk
- an assessment of the level of the risk
- measure of the estimated maximum loss (EML) which is the maximum the surveyor believes will be the subject of a loss.
Good faith in consumer contracts
answer questions an underwriter asks fully and accurately (take reasonable care not to misrepresent)
Good faith in non consumer contracts
give a fair presentation of risk & a reasonable search has been carried out
Examples of material circumstances
- special or unusual facts
- any particular concerns which are leading to the request of insurance
- facts that are specific to the class of business
How do insurers assess whether a consumer has taken reasonable care
- the type of insurance and the customer it is aimed at
- explanatory material
- clarity of the insurers questions
- how clearly the insurer communicated the importance & consequences of failing to answer the questions
- whether an agent was acting on behalf of the consumer
duty of disclosure through the contract for property
- removal to another location (stock)
- circumstances that increase the risk of damage
Exception to duty of disclose for motor and home insurance
- often have an ongoing condition requiring all material information
Exception to duty of disclose for public liability insurance
- extension of activities
Does a broker have a duty of disclosure?
yes, they need to pass all the information between the underwriter and the consumer.
If a proposer is unsure is a fact is material or not
- they should ask the insurer
- enter it anyway
Disclosure of an Intermediary
- all the facts communicated by the proposer
- any other information they are aware of
