Insurance Act 2015 , Consumer Insurance (Disclosure and Representations Act 2012), Enterprise Act 2016

Question 1

The Insurance Act 2015 came into force in August 2016. It largely applies only to commercial insurance,

Answer 1

True

IA 2015

Question 2

The Insurance Act 2015 does include provisions addressing fraud for both consumer and commercial insurance contracts.

Answer 2

True

IA 2015

Question 3

Section 12 of the Act seeks to clarify the insurer’s position.
If a fraudulent claim is made, the Act allows the insurer to treat an insurance contract as terminated from the time of the fraudulent act.

Answer 3

True

IA 2015

Question 4

Following termination:

Answer 4

• the fraudulent claim and all subsequent legitimate claims will be invalid;
• the insurer may recover any payments in respect of the fraudulent claim(s);
• the insurer will be entitled to retain any premium paid
• the insurer will remain liable for any prior legitimate claims arising before the fraudulent act;.

Question 5

The Act does NOT seek to define what a fraudulent claim is, so there is no distinction between someone who presents a completely fraudulent claim (i.e. for an event which never happened) and someone who suffered a genuine loss but has used a fraudulent device to increase the prospect of payment.

Answer 5

True

IA 2015

Question 6

The Act does, however, make a distinction between a ‘fraudulent claim’ and a ‘fraudulent act’; the latter being the behaviour that makes the claim fraudulent.

Answer 6

True

IA 2015

Question 7

This is an important distinction since the insurer is entitled to terminate the cover from the date of the ‘fraudulent act’ (not discovery of it) and this may be at a different time from when the claim is submitted.

Answer 7

True

IA 2015

Question 8

Many policy fraud conditions state that in the event of fraud ‘all benefit of the policy is forfeited’, which allows insurers to recover past claim payments, even if legitimate.

Answer 8

True

IA 2015

Question 9

In contrast, the Act does make it clear that legitimate claims occurring prior to the fraudulent act continue to be payable and so no such right of recovery in respect of previous claims is permitted.

Answer 9

True

IA 2015

Question 10

Under section 57 of the Criminal Justice and Courts Act 2015 (CJCA) (which came into force in April 2015) defendants can request that, where part of a personal injury (PI) claim is found to be ‘fundamentally dishonest’, the whole claim be struck out.

Answer 10

True

Criminal Justice and Courts Act 2015

Question 11

Why? (CJCA 2015)

Answer 11

This is designed to address the situation where a personal injury claimant has significantly exaggerated the extent of their injuries but, even when the dishonesty is discovered, still receives the genuine element of their claim through the courts.

Question 12

What amounts to fundamental dishonesty will not always be completely clear, as the legislation does not include any detailed guidance, and there have been relatively few recorded court cases from which to develop a clear understanding of how the rule operates.

Answer 12

True

Criminal Justice and Courts Act 2015

Question 13

Why is this a positive development??

Answer 13

It should discourage claimants from exaggerating their personal injury claims.
(CJCA 2015 under section 57)

Question 14

In respect of consumers, ICOBS considers it unreasonable for claims to be refused for?

Answer 14

Misrepresentation which is NOT a qualifying misrepresentation under the Consumer Insurance (Disclosure and Representations Act 2012 (CIDRA 2012)

Question 15

In respect of consumers, ICOBS ALSO considers it unreasonable for claims to be refused for?

Answer 15

In respect of a general insurance contract, a breach of warranty or condition, unless the circumstances of the claim are connected with the breach.

Question 16

The only exception to this is where there is evidence of fraud.

Answer 16

True

ICOBS

Question 17

The insurer must provide reasonable guidance on how to make a claim and give appropriate information on its progress.

Answer 17

True

ICOBS

Question 18

Once settlement terms are agreed, the claim should be settled ??

Answer 18

Promptly.

Question 19

Firms should retain records for as long as is relevant for the purposes for which they were made and their own business needs.

Answer 19

True

ICOBS

Question 20

In deciding how long this should be, ICOBS requires firms to take account of ??

Answer 20

What information the FCA might request.

Question 21

They are also required to consider what will be needed to deal with complaints and queries from customers as to how claims have been settled and why.

Answer 21

True

ICOBS

Question 22

Before the passing of the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), the key piece of insurance legislation was ??

Answer 22

The Marine Insurance Act 1906.

Question 23

Under this Act of The Marine Insurance Act 1906.
All purchasers and sellers of insurance were obliged to act with utmost good faith and disclose all material facts to one another.

Answer 23

True

The Marine Insurance Act 1906

Question 24

Utmost good faith can be defined as the requirement of all parties involved in negotiating an insurance contract to fully disclose all material facts to each other whether they are asked for them or not.

Answer 24

True

The Marine Insurance Act 1906

Question 25

Material facts are those that would influence an underwriter as to whether they should or should not accept the risk or impose special terms.

Answer 25

True

The Marine Insurance Act 1906

Question 26

In practice, this was USUALLY a burden for the policyholder because they were required to appreciate all the facts that an underwriter may want to know.

Answer 26

True

The Marine Insurance Act 1906

Question 27

There was no duty on the underwriter to ask questions of the policyholder who was taking out a policy of insurance.

Answer 27

True

The Marine Insurance Act 1906

Question 28

This position was changed by the Consumer Insurance (Disclosure and Representations) Act 2012 .

Answer 28

True

CIDRA 2012

Question 29

Policyholders are now categorised as ‘consumers’ or ‘commercial customers’ depending upon their status.

Answer 29

True

CIDRA 2012

Question 30

A ‘consumer’ is defined as ‘the individual who enters into a consumer insurance contract, or proposes to do so.’

Answer 30

True

CIDRA 2012

Question 31

In the context of a consumer insurance contract, a consumer must be ‘an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession’.

Answer 31

True

CIDRA 2012

Question 32

Under Consumer Insurance (Disclosure and Representations) Act 2012

It is the duty of consumers to take reasonable care NOT to make misrepresentations to ??

Answer 32

Insurers BEFORE a contract of insurance is entered into.

Question 33

Consumer Insurance (Disclosure and Representations) Act 2012 modifies the previous position of consumers’ duties of utmost good faith by??

Answer 33

Removing the obligation to disclose all material facts.

Question 34

Consumers need now only respond honestly, and with reasonable care, to questions asked of them by insurers.

Answer 34

True

CIDRA 2012

Question 35

Qualifying misrepresentations :
The Consumer Insurance (Disclosure and Representations) Act 2012
defines a qualifying misrepresentation as either:

Answer 35

• deliberate or reckless: the consumer knew that it was untrue or misleading or knew that it was relevant to the insurer and did not care; or
• careless, i.e. it was not deliberate or reckless

Question 36

The burden of proving that a misrepresentation is qualifying lies with??

Answer 36

The insurer.

Question 37

The responses available to the insurer:

If the misrepresentations were deliberate or reckless:

Answer 37

The insurer may avoid the contract.

Question 38

If the misrepresentations were careless :

CIDRA 2012

Answer 38

The remedies are based on what the insurer would have done had the consumer taken care:

• if the insurer would NOT have entered into the contract it can avoid the policy but must return the premium
• if the insurer would have entered the contract on different terms it can treat the contract as if those terms had applied ,
• if the insurer would have entered into the contract but charged a higher premium, the claim amount can be reduced proportionately

Question 39

The Insurance Act 2015 received Royal Assent on 12 February 2015 and came into force on 12 August 2016.

It seeks to extend the reforms made previously to consumer contracts of insurance by the Consumer Insurance (Disclosure and Representations) Act 2012 .

Answer 39

True

Insurance Act 2015

Question 40

Insurance Act 2015 amends the Marine Insurance Act 1906, which, as we have seen, required proposers of insurance and insurers to act with utmost good faith and disclose all material facts to one another.

Answer 40

True

Insurance Act 2015

Question 41

The Insurance Act 2015 amends insurance law in three main areas:

Answer 41

• the effect of warranties contained in the policy;
• insurers’ remedies for fraudulent claims; and
• the pre-contractual duty of disclosure and the effect of misrepresentations at that stage.

Question 42

Most of the The Insurance Act 2015 provisions apply to commercial (non-consumer) insurance policies, introducing parallel changes to those already implemented under CIDRA2012 for consumer insurances.

Answer 42

True

Insurance Act 2015

Question 43

The only changes introduced that apply to both non-consumer and consumer insurances are those??

Answer 43

Concerning insurers’ remedies for fraudulent claims, which were not covered by earlier legislation.

Question 44

Were fraudulent claims covered by the earlier legislation?

Answer 44

The Insurance Act 2015 under section 12 introduced Fraudulent claims brought by policyholders and the remedies for insurers.

Question 45

Non-consumers are defined as policyholders who enter into insurance contracts wholly or mainly for the purposes of their trade, business or profession.

Answer 45

True

Insurance Act 2015

Question 46

The Insurance Act 2015 makes wide-ranging reforms to the law relating to non-consumer insurance contracts which, among other things, will make it harder for insurers to refuse claims as a result of technical breaches by the insured.

Answer 46

True

Insurance Act 2015

Question 47

The duty to volunteer information is being retained (unlike the position for consumer insurances) and the commercial proposer has to make a fair presentation of the risk.

Answer 47

True

Insurance Act 2015

Question 48

Section 3 of the Insurance Act 2015 modifies the duty of utmost good faith that underlies insurance contracts by introducing the new duty of ‘fair presentation’.

Answer 48

True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)

Question 49

This (Section 3 of the IA2015) means that proposers must either:

Answer 49

• disclose to insurers ‘every material circumstance’ which the insured knows or ought to know; or
• provide the insurer with ‘sufficient information’ to put a prudent insurer on notice that they need to make further enquiries into those ‘material circumstances’.

Question 50

The disclosure must be made in a manner that ‘would be reasonably clear and accessible to a prudent underwriter’. IA 2015
– it is not acceptable to simply ‘dump’ undigested and disordered data on the insurer relating to the risk presented.

Answer 50

True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)

Question 51

In addition, the disclosure should be one in which ‘every material representation as to a matter of fact is substantially correct and every material representation as to a matter of belief is made in good faith’.

Answer 51

True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)

Question 52

The Insurance Act 2015 set out in some detail provisions explaining what exactly is meant by ‘knowledge’ of material circumstances.

Answer 52

True

Insurance Act 2015, Sections, 4 , 5 , 6

Question 53

These differ according to whether the insured is an individual or organisation, as is shown in the table…..

Answer 53

True

Insurance Act 2015, “Knowledge” Sections, 4 , 5 , 6

Question 54

Note that it is NOT just Actual Knowledge, but ALSO Constructive Knowledge that is assumed by the proposer,

Answer 54

i.e. information that they ought to know, having made a reasonable effort to find it out.

Question 55

Individual:
Knowledge is not limited to the insured’s own knowledge, but is deemed to include anything known by a person who is ‘responsible for the insured’s insurance’. This could include??

Answer 55

The insured’s insurance broker.

Question 56

Organisation Knowledge :
Relevant knowledge is that of anyone who is part of the insured’s ‘senior management’ or who is ‘responsible for the insured’s insurance’. For example:

Answer 56

A risk manager.

Question 57

The insured is NOT required to disclose a circumstance if the insurer knows it.

Answer 57

True

Insurance Act 2015

Question 58

For this purpose, the insurer knows something if it is known to one or more of ‘the individuals who participate on behalf of the insurer in the decision whether to take the risk, and if so on what terms’.

Answer 58

True

Insurance Act 2015

Question 59

In practice, this is MOST (deciding to take the risk) likely to be the underwriter, but may also include:

Answer 59

Claims personnel.

Question 60

The Insurance Act 2015 provides that an insurer ‘ought to know’ and insurer ‘presumed to know’ anything which:

Answer 60

An insurer is ought to know, anything which:

• an employee or agent of the insurer knows and ought reasonably to have passed on to the underwriter; or
• where the relevant information is held by the insurer and is readily available to the individual.

An insurer is ‘presumed to know’:
• things which are common knowledge; and

• things which an insurer offering insurance of the class in question to insureds in the field of activity in question would reasonably be expected to know in the ordinary course of business.

Question 61

These changes by The Insurance Act 2015 mark a shift in??

Answer 61

English insurance law.

Question 62

These changes by The Insurance Act 2015 will justify insurers taking a more active approach to assessing the risks they underwrite, rather than a passive role in relying on the insured and their broker to provide all relevant information.

Answer 62

True

Insurance Act 2015= Fair Presentation of the risk

Question 63

PRIOR to the implementation of the Insurance Act 2015, an insurer would be entitled to avoid the whole contract where the proposer had failed to disclose all material information.

Answer 63

True

Remedies for non-disclosure

Question 64

The undisclosed information did not need to relate to a loss; instead, the insurer simply had to show that it was unknown to the insurer and was material to the risk.

Answer 64

True

Remedies for non-disclosure

Question 65

The Insurance Act 2015 still preserves the insurer’s right to avoid a policy where fraud is involved.

Answer 65

True

Remedies for non-disclosure

Question 66

However, apart from circumstances involving fraud, the Act distinguishes between breaches of duty that are deliberate or reckless and those that are innocent or negligent:

Answer 66

True

Remedies for non-disclosure= Insurance Act 2015

Question 67

Deliberate or reckless ??

IA2015

Answer 67

An insurer will only be entitled to avoid a policy entirely where the breach of duty of fair presentation is ‘deliberate or reckless,’ and where the insurer can show that they would not have entered into the contract had they known the information or would only have done so on different terms.

Question 68

The insurer may also retain any premiums paid.

Answer 68

True

Remedies for non-disclosure= Insurance Act 2015

Question 69

Innocent or negligent ??

IA2015

Answer 69

Where the breach is neither reckless or deliberate, the remedies provided in the Act are less severe.

Question 70

They are intended to be proportionate and to reflect what the insurer would have done if they had known of the undisclosed information before entering into the contract.

Answer 70

True

Remedies for non-disclosure= Insurance Act 2015

Question 71

So, an insurer can only repudiate a claim and avoid a policy entirely where they can show that they would not have written the policy at all.

Answer 71

True

Remedies for non-disclosure= Insurance Act 2015

Question 72

However, should an insurer wish to do this, the onus is on it to prove that the breach was deliberate or reckless and this could be very difficult to prove.

Answer 72

True

Remedies for non-disclosure= Insurance Act 2015

Question 73

Case law will need to be developed over the years to give clarification to the question of what a deliberate or reckless breach entails.

Answer 73

True

Question 74

Where the insurer would have accepted the risk subject to additional terms, exclusions or excesses, the contract is treated as having been entered into on those terms.

Answer 74

True

Remedies for non-disclosure= Insurance Act 2015

Question 75

Where the insurer would have accepted the risk, subject to an increased premium, the Act allows the insurer to reduce claim payments in proportion to the actual premium paid, relative to the premium which should have been paid.

Answer 75

(Remedies for non-disclosure= Insurance Act 2015)

Question 76

Case law has established that a breach of warranty automatically terminates cover from the date of breach and effectively cancels the insurance.

Answer 76

True

Warranties

Question 77

This is regardless of whether the breach was material or related to the loss.

Answer 77

True

Warranties

Question 78

In addition, subsequent remedying of the breach still renders the policy terminated from the date of the breach, unless or until the insurers convey that they are not relying on the breach.

Answer 78

True

Warranties

Question 79

Sections 9 to 11 of the Insurance Act make the effect of a breach of warranty less severe.

Answer 79

True

Warranties= Insurance Act 2015 = Section 9-11

Question 80

Breach of warranty Under the Act, a breach of warranty simply suspends (rather than completely terminates) the insurer’s liability under the contract until such time as the breach is remedied.

Answer 80

True

Warranties= Insurance Act 2015 = Section 9-11

Question 81

The insurer has no liability for any claim under the policy whilst cover is suspended, but once the breach is remedied, full cover under the policy is resumed.

Answer 81

True

Warranties= Insurance Act 2015 = Section 9-11

Question 82

In the context of commercial motor insurance, a haulier who failed to comply with a warranty that their vehicle be securely locked and immobilised when left unattended would effectively have no cover under their insurance, even after returning to their vehicle.
When was this?

Answer 82

Position PRIOR to Insurance Act 2015

Question 83

In the same circumstances, the haulier breaching the warranty whilst the vehicle was left unattended would not be covered under the policy whilst the warranty is being breached, since cover is suspended. However, on return to the vehicle full cover automatically resumes.??

Answer 83

Position AFTER Insurance Act 2015

Question 84

The Act also prohibits ‘basis of the contract’ clauses (as is already the practice for consumer contracts). It is not possible for business insurers to contract out of this change.

Answer 84

True

Insurance Act 2015=Basis of contract clauses

Question 85

Such clauses had the effect of converting pre-contractual representations in a proposal form into warranties.

Answer 85

True

Insurance Act 2015=Basis of contract clauses

Question 86

Meaning that the insurer could be discharged from liability if the proposal form contained any statement that was inaccurate, even where it was immaterial to the loss and in no way induced the insurer to enter the contract.

Answer 86

True

Insurance Act 2015=Basis of contract clauses

Question 87

Similar considerations will also apply to conditions precedent or exclusion clauses, provided that they relate to a particular type of loss or the risk of loss at a particular location or time.

Answer 87

True

Insurance Act 2015=Irrelevant warranties

Question 88

The Act establishes that insurers should not be entitled to avoid a claim where the insured’s breach did not relate to the loss.

Answer 88

True

Insurance Act 2015=Irrelevant warranties

Question 89

Where an insured does not comply with a warranty or other term that relates to a particular type of loss, or the risk of loss at a particular location or time, the insurer may NOT rely on non-compliance with that contractual term by the insured.

Answer 89

True

Insurance Act 2015=Irrelevant warranties

Question 90

This is so long as the insured is able to show that non-compliance with the term could NOT have increased the risk of loss that actually occurred.

Answer 90

True

Insurance Act 2015=Irrelevant warranties

Question 91

Consequently, there must be some relationship between the breach of a term of the insurance contract and the actual loss in question.

Answer 91

True

Insurance Act 2015=Irrelevant warranties

Question 92

However, a direct causal link between the breach of the term or warranty and the loss is NOT required.

Answer 92

True

Insurance Act 2015=Irrelevant warranties

Question 93

Different provisions as to contracting out apply depending upon whether the insured is a consumer or non-consumer:

Answer 93

True

Contracting out and transparency requirements,

Question 94

For Consumers??

Answer 94

The Act applies in relation to the provisions on fraudulent claims, and Clause 15 operates to prohibit contracting out so as to place a consumer in a worse position than would have been the case under the Act.

Question 95

For Non-consumers ??

Answer 95

The Act allows commercial parties to contract out of the new provisions by agreeing alternative terms, with the exception of basis of contract clauses which will remain ineffective.

Question 96

To successfully contract out, what does the insurer need to satisfy?

Answer 96

Certain transparency requirements.

Question 97

Insurers must ensure that any terms that would put the insured in a worse position than before the Act, are clear and unambiguous as to their effect, and sufficiently drawn to the insured’s attention before the policy is entered into.

Answer 97

True

Insurance Act 2015= Contracting out and transparency requirements

Question 98

In determining whether this requirement has been met, the insured’s characteristics and the circumstances of the transaction will be taken into account.

Answer 98

True

Insurance Act 2015= Contracting out and transparency requirements

Question 99

The Act (Insurance Act 2015)
came into effect on 12 August 2016
and made a number of significant changes to the previous law regime:

Answer 99

• allows the insured to challenge an insurer’s defence of breach of warranty by showing that the breach could NOT have increased the risk of the loss in question occurring.
• gives the insured the opportunity to remedy a breach of warranty by resuming compliance;
• introduces proportionate remedies for non-disclosure;
• transfers some of the responsibility of disclosure from the insured by imposing a duty of enquiry on the insurer.

Question 100

Whilst the Act does allow the parties to opt out of most of these new rules, any opt-out must satisfy the transparency requirements and may therefore be challenged on those grounds.

Answer 100

True

Insurance Act 2015= Contracting out and transparency requirements

Question 101

Which Act amends the Insurance Act 2015 by adding in provisions relating to compensation for late payment of claims?

Answer 101

The Enterprise Act 2016

Question 102

The Enterprise Act 2016 key provisions are:

Answer 102

• breach of the term will result in the insurer paying damages to the insured, as well as the original indemnity payment and interest.
• it is an implied term of every insurance contract that sums due must be paid in a reasonable time;
• the insurer will not breach the implied term by disputing the claim provided the dispute was genuine; and
• reasonable time includes time to investigate and assess the claim;
• what is reasonable depends on all the circumstances, but includes the type of insurance; the size and complexity of the claim; compliance with regulation; factors outside the insurer’s control (such as delay by the policyholder);

Question 103

The ‘late payment’ term applies to all policies incepted, renewed or amended from May 2017.
This includes contracts caught by CIDRA 2012.

Answer 103

True

The Enterprise Act 2016= Late payments

Question 104

Whilst this is an amendment to the Insurance Act 2015, previously seen ONLY affects commercial contracts, but the Enterprise Act will apply to??

Answer 104

All insurance contracts, so including those currently caught by CIDRA 2012.