Insurance NEW

Question 1

What is the difference between assurance and insurance?

Answer 1

• Assurance has a certainty of happening but unsure of when

- Insurance is based on some future event that may or may not happen.

Question 2

Why was the Insurance Act 2015 and the Consumer Insurance (DR) Act 2012 introduced?

Answer 2

• As a means of redressing the existing law which was deemed to be too favourable to insurers.
• The primary aim was to make insurance fairer.

Question 3

What actually is insurance?

Answer 3

A means of anticipating a risk and providing financial protection against such a risk.

Question 4

What is meant by indemnification in insurance law?

Answer 4

• Protection for the insured against financial loss or damage.

Question 5

How would one qualify for indemnity insurance?

Answer 5

• The insured must have some insurable interest at the date of entering the insurance contract and the date of loss.

Question 6

What is insurable interest?

Answer 6

• A term whereby the insured person must have an interest in the subject matter of what is being insured.

Question 7

What is the nature of interest for life assurance policies?

Answer 7

LIFE ASSURANCE - The nature of the interest must be that of a financial or pecuniary interest - e.g. a father has an insurable interest over his father’s life for payment of aliment

INDEMNITY - Must have a legal or equitable interest.

Question 8

What is the nature of interest for indemnity insurance contracts?

Answer 8

INDEMNITY

• Must have a legal or equitable interest.
• Best portrayed in MACAURA V NORTHERN ASSURANCE CO LTD
• Insured was a sole shareholder in limited company.
• In his own name he took out insurance over timber OWNED BY THE COMPANY
• Timber was destroyed in fire
• Insurer refused to indemnify.
• Court ruled that he personally had no legal or equitable interest as that lay with the legal entity company.
• Two separate entities therefore contract void.

Question 9

What is the key purpose of indemnity?

Answer 9

• That an insured person is entitled to indemnification on the occurrence of CERTAIN DEFINED LOSSES (e.g. the cost of rebuilding house)
• The cause of such a loss was the result of CERTAIN DEFINED PERILS (e.g. a fire which burned the house done)

Question 10

EXAMPLE Q.

• Janet owns a painting valued at £1million.
• The painting is damaged after heavy flooding in her area.
• The damage done is valued at £200,000.

Janet currently holds insurance with ripeinsurance. Would she be entitled to claim for the value of the painting?

Answer 10

• Janet is certainly entitled to a claim as she has suffered loss on her insured item.
• Indemnification is designed to reimburse for actual loss suffered.
• Therefore she would not be entitled to full value payments as it was reported that the paining only sustained £200,000 worth of damage.
• She would therefore be entitled to indemnification of of the said amount.

Question 11

What was the law that governed insurance contracts prior to the Consumer Insurance (DR) Act 2012?

Answer 11

Uberrimae fidei - The insured was to act in the utmost good faith to the insurer.

Question 12

What did the common law uberrimae fidei contract impose on an insured person?

Answer 12

Duties to:

• Disclose all material facts that would affect the underwriting of a prudent insurer.
• Not misrepresent the insurer.

Question 13

Why was the uberrimae fidei insurance contract described as problematic?

Answer 13

• Insured’s often did not know what fell within the ‘material’ category, thus failing to disclose some facts.
• If an insured made a genuine mistake when providing information this was taken to be a misrepresentation that could be avoided at all costs by the insurer.

Question 14

Why was the uberrimae fidei contract described as a ‘win-win’ for the insurer?

Answer 14

• Insurer could refuse payout if they deemed the insured to not have disclosed material fact that would have altered their judgement.
• On the other hand if not claim would arise the insurer would enjoy premium payments.
• The insurer could also fine or place sanction on the insured for failing to disclose material facts.

Question 15

Is it fair to say that the duty of disclosure under the uberrimae fidei contract was very much on the insured? If so, why?

Answer 15

YES

• The insured carried the burden of having to disclose everything to the insurer and in most cases unaware of what was important to the insurer.

Question 16

What is no longer required by the 2012 Act?

Answer 16

• For the consumer to volunteer all material facts to the insurer.
• That the insurer must not misrepresent the insurer.

Question 17

What fairer duties has the 2012 Act placed on consumers and insurers?

Answer 17

• Consumer only required to answer questions asked by the insurer - therefore insurer should ensure questions are specific enough to comprehensively gain a material understanding of risk.
• SECTION 2(2) The consumer must now take reasonable care to avoid misrepresenting the insurer - by answering questions as fully and accurately as possible.

Question 18

What has the 2012 Act prevented insurers from doing?

Answer 18

• Avoiding the insurance contract for, in some cases, trivial reasons.
• The burden is now very much on the insurer to ask competent questions of the consumer.

Question 19

The concept of ‘materiality’ was dropped by the 2012 Act. When would an insurer now have a remedy for misrepresentation by a consumer?

Answer 19

SECTION 4(1)(a) and (b)

• That they were induced by the misrepresentation
• That the reasonable consumer would not have made it.

Question 20

The 2012 Act states that the consumer must take “reasonable care” not to misrepresent the insurer.
What will be taken in to consideration to determine whether reasonable care was or was not taken?

Answer 20

s.3(2) of the 2012 Act details when reasonable car will, or will not have been taken.

Question 21

How has the reasonable care standard made insurance law fairer for the consumer?

Answer 21

• Combined with the fact consumers no longer have to provide all material information
• The reasonable care standard ensures that insurers will not ask confusing or open minded questions as it may likely be taken in to account when deciding whether the consumer took reasonable care.
• insurers usually make questions specific and to the point.

Question 22

What is misrepresentation?

Answer 22

COMMON LAW

- A representation that is either inaccurate or misleadingly incompetent.

Question 23

Can a misrepresentation be caused by an omission?

Answer 23

YES

• Deliberately omitting certain information would constitute a misrepresentation.
• EXCEPT, where the insurer was aware of omission and accepted proposal regardless.

Question 24

What must the insurer show to have a remedy for a misrepresentation by the consumer?

Answer 24

SECTION 4

• That the consumer made a misrepresentation in breach of the reasonable care standard (s.2(2))
• That the insurer would not have entered in to the contract but for the misrepresentation, or would have entered it on different terms.

Question 25

Under what circumstances would a DELIBERATE OR RECKLESS misrepresentation occur?

Answer 25

SECTION 5

• If the consumer intentionally makes a false or misleading statement it is DELIBERATE
• If the consumer does not care whether their statement is true or misleading it is reckless.
• The consumer must also be aware that the misrepresentation is relevant to the insurer or did not care if it was relevant.

Question 26

When does a CARELESS misrepresentation occur?

Answer 26

• If it is not deliberate or reckless

- Usually where the consumer makes a genuine mistake with no malicious intent.

Question 27

Give an example of a:

(a) Deliberate misrepresentation
(b) Reckless misrepresentation
(c) Careless misrepresentation.

Answer 27

(a) If a motorist lies on their application for insurance stating they have no points on their license when they do - this qualifies as it is blatantly untrue and the consumer is aware it will affect price of premiums
(b) Reckless misrepresentation may be if another person fills in the consumer’s insurance application and the consumer submits it without checking for mistakes or untrue information - this is misrepresentation because the consumer does not care whether information is not true and does not care whether it is relevant to insurer.
(c) Careless misrepresentation may selecting the wrong month or year when stating birth date - this is not deliberate (unless with the intention to affect cost), nor is it reckless.

Question 28

What are the presumption of answers given by a consumer in relation to section 5 of the 2012 Act?

Answer 28

• That the consumer has knowledge of a reasonable consumer.

- That the consumer was aware the specific question asked was relevant to the insurer .

Question 29

What remedy is available for deliberate and reckless misrepresentation?

Answer 29

SCHEDULE 1, PT.1(2)

• The insurer is entitled to treat the contract as though it never existed - allows insurer to avoid all claims
• The insurer may retain all premiums paid.

Question 30

How are remedies determined for careless misrepresentation determined?

Answer 30

On what the insurer would have done but for the misrepresentation.

Question 31

In respect of CARELESS misrepresentation what remedy is available to an insurer who would not have entered the contract on any different terms?

Answer 31

SCHEDULE 1, PT.1(5)

• May avoid the contract and refuse claims.
• Contrasting D and R the insurer must repay all premiums to the consumer.

Question 32

In respect of CARELESS misrepresentation, if the consumer was willing to enter the contract on different terms (unrelated to the premium) what will happen?

Answer 32

SCH.1, Pt.1(6)

• If the insurer would have entered the contract on alternative terms e.g. certain exclusions may apply which would result in a claim not being paid out for certain circumstances then the contract will be taken to have included those terms from the date of agreement.

Question 33

In respect of CARELESS misrepresentation what remedy is available to the insurer who would have charged a higher premium but for the misrepresentation?

Answer 33

SCH.1, PT.1(7) and (8)

• May reduce proportionately an amount from any subsequent claim of the insured to settle the amount that would have been paid on top of the premium.

Question 34

What was the law relating to non-consumer insurance contract prior to the Insurance Act 2015?

Answer 34

• Insured’s were obligated to disclose all material information and circumstances that would affect the underwriting judgement of a prudent insurer.
• The non-consumer insured also had a duty not to any misrepresentations to the insurer.

Question 35

How has the 2015 Act altered the responsibilities owed by a non-consumer insured?

Answer 35

SECTION 3 of 2015 Act

• The consumer must now make a “fair presentation of the risk” to the insurer

Question 36

What does “fair presentation of risk” entail?

Answer 36

SECTION 3(4)

Non-consumer must:

• Disclose of every material circumstance that the insured knows or ought to know; OR
• Disclose sufficient information to put the prudent insurer on equiry

Question 37

When will disclosure be deemed to be “fair” by the non-consumer under the 2015 Act?

Answer 37

SECTION 3(3)

• if it is made in a manner that is reasonably clear and accessible to the prudent insurer i.e. no large data dump on the insurer.
• The facts as represented are “substantially” correct and the representations as to expectation or belief are made in good faith.

Question 38

If the insured is an individual what is his scope of knowledge expected to entail?

Answer 38

SECTION 4(2)

1. what he himself knows; and
2. what individuals who are responsible for his insurance (e.g. his broker) know.

Question 39

If the insured is a company what is it’s scope of knowledge expected to entail?

Answer 39

• If it is a company, it knows only what is known to individuals who are part of the company’s senior management or
• those who are responsible for its insurance (including, for example, employees of the insured’s agent or broker).

Question 40

What is the scope of the insurer’s knowledge in the insurance contract?

Answer 40

An insurer ought to know anything which:

1. an employee or agent knows or could reasonably have passed on that relevant information to the individuals deciding on underwriting the risk; or
2. the insurer held the relevant information and it would have been readily available to the individuals deciding on underwriting the risk.

Question 41

When would a deliberate or reckless breach occur?

Answer 41

SECTION 8(5)

• If the insured knew, or did not care that they were in breach of the fair presentation risk principle

Question 42

What other qualifying breach is there other than deliberate and reckless?

Answer 42

Non-deliberate and non-reckless

Question 43

Where in the 2015 Act can details on remedies for breaches be found?

Answer 43

SCHEDULE 1, PART 1

Question 44

What is a warranty?

Answer 44

Warranties are pre-contractual promises that the insured gives to the insurer in order to keep their insurance policy valid.

Question 45

What was the law relating to warranties prior to the 2015 Act?

Answer 45

• Allowed the insurer to terminate cover as at the date of breach
• regardless of whether the breach was relevant to the likelihood of the loss occurring.

Question 46

What is the law relating to warranties after the 2015 Act was implemented?

Answer 46

• The rule that a breach of a warranty could result in an insurer’s liability being discharged will be abolished entirely
• The insurer’s liability for cover is suspended only from date of breach until the breach is remedied

Question 47

What are the two types of warranty?

Answer 47

• Past/Present Fact only Warranty, this will stipulate the insured to make some sort of undertaking by a specific time
• Pro missory warranty: A continuing undertaking that a state of affairs will prevail through the duration of the policy which must be compiled with

Question 48

Give an example of a past/present fact only warranty and when it would be remedied.

Answer 48

• The insured owns a warehouse which stores expensive electrical equipment.
• The warranty in the insurance contract stipulates that by March 6th, the insured will have a burglar alarm fitted.
• The alarm is not fitted until 10th May
• On 15th May there is a break in and large amounts of equipment is stolen.
• The loss would be covered by the insurer as the insured had remedied the original breach prior to the loss.

Question 49

Give an example of a promissory warranty and when the insured would be liable.

Answer 49

• A warehouse with large amounts of electrical equipment is the subject of an insurance contract.
• A warranty relating to the contract stipulates that a burglar alarm will be fitted and maintained and kept for the duration of the policy.
• Stock is stolen and the alarm is not triggered because of lack of maintenance
• The insurer is not liable because the insured breached the warranty by not keeping up with maintenance and repairs.

Question 50

EXAMPLE

• The insured’s warehouse which stores electrical goods has insurance for loss or damage to the goods.
• A warranty stipulates that a burglar alarm must be fitted and maintained to a standard where it is fit for purpose.
• The insured discovers the alarm to be malfunctioning and has it repaired.
• Two nights later the insured’s warehouse is broken in to and £7000 worth of goods are stolen.

Would the insured be able to make a claim considering his alarm was in breach of warranty?

Answer 50

YES

The insurer would be liable to pay out as despite the insured being in a breach, this was remedied prior to any loss and therefore the insurer cannot avoid the contract.

Question 51

What are the effects on reform for: INSURERS?

Answer 51

• Insurers will need to be certain that they have a sufficient understanding of the risks being underwritten (if they are put “on notice” of the need to make further enquiries).
• # Insurers will need to revisit their internal information sharing procedures and recordkeeping rules to understand what knowledge they “ought” to have on particular risks (and staff may need to receive adequate training).

Question 52

What are the effects on reform for: INSUREDS

Answer 52

• Insureds will need to consider how to present circumstances to insurers in a systematic matter.
• insureds will need to look not only at what information they are likely to hold during the course of their business but also what further reasonable checks they can make to uncover material circumstances which insurers need to be made aware of.