Pre Contractual Information Duty

Question 1

Marine Insurance Act 1906- Precontractual information duty

Answer 1

Insurance contracts are contracts of utmost good faith- the insurer and the insured have a duty to deal honestly and openly during their contractual relationship.

Under the MIA 1906, the duty of utmost good faith used to extend to the insured’s pre-contractual information duty too. The remedy for breach of the pre-contractual information duty (pre-contractual duty of good faith) was avoidance of the contract only.

Question 2

Consumer Insurance (Disclosure and Representations) Act 2012 in consumer insurance and the Insurance Act 2015 non consumer - Precontractual information duty

Answer 2

CIDRA
The 2012 Act abolished the pre-contractual duty of disclosure for consumers and replaces this with the duty to take reasonable care not to make a misrepresentation.

IA
The IA 2015, which came into force in August 2016, replaces the insured’s pre-contractual information duty which applied to non-consumers with the duty of fair presentation of the risk – a less significant change than for consumers but one which was designed to modernise the law for commercial insurance contracts. This new duty effectively imposes two duties on the parties to the contract:

a duty not to misrepresent any matter relating to the insurance – i.e. a duty to tell the truth; and
a duty to disclose all material facts relating to the contract – i.e. a duty not to conceal anything that is relevant.
The IA 2015 also reformed the remedy for breach of the duty of fair presentation of the risk and separated it from the duty of utmost good faith

Question 3

misrepresentation is a false statement of fact that induces the other party to enter into the contract.

To affect the validity of the agreement, the false statementmust:

Answer 3

be one of fact (rather than a statement of law, or of opinion or belief);
be made by a party to the contract;
be material (i.e. something which would influence a reasonable person in deciding whether to enter into the agreement);
induce the contract (i.e. be something that the other party relied upon in deciding to enter into the agreement); and
cause some loss or disadvantage to the person who relied upon it.

Question 4

test of ‘materiality’ in insurance.

Answer 4

A material fact in insurance is defined according to what a ‘prudent underwriter’ would deem material rather than the opinion of a reasonable person.

Question 5

Innocent, negligent Vs fraudulent misrepresentation

Answer 5

when a person makes a false statement with the deliberate intention of misleading another and putting them at a disadvantage this may be regarded as fraudulent misrepresentation (but the insurer will have to prove fraud)

Negligent misrepresentation occurs where the statement is false because the person making it did not take sufficient care to check that it was correct.

If the statement is false but there is no intention to mislead the other party, it can be described either as negligent or an innocent misrepresentation.

Question 6

Seeking remedy of misrepresentation under non consumer and consumer business

Answer 6

In non-consumer (business) insurance, an insurer may seek remedy on the grounds of misrepresentation regardless of whether the misrepresentation is fraudulent, negligent or innocent.

In consumer insurance, the insurer may only seek remedy for a misrepresentation which is negligent or fraudulent. This is because the 2012 Act imposes the duty to take reasonable care not to misrepresent material facts.

Where the misrepresentation is fraudulent, the innocent party may have the right to claim damages (in the tort of deceit) and an insurer which has been misled may keep any premium that has been paid.

Question 7

Duty of disclosure - non consumer biz

Answer 7

non-consumer (business) insurance only, there is a positive duty of disclosure going beyond a mere duty not to misrepresent what is in fact disclosed.

Question 8

Material facts

Answer 8

every circumstance is material…

if it would influence the judgment of a prudent insurer in determining whether to take the risk and, if so, on what terms.

Question 9

Test of inducement s

Answer 9

statutory test for a remedy for breach of the duty of fair presentation of the risk.

With regards to non-disclosure- ‘what would the insurer have done if the true position had been disclosed to him prior to the conclusion of the contract?’
With regards to misrepresentation-what would the insurer have done if there had been no misrepresentation?’

Question 10

At common law, matters requiring disclosure can be dividedinto:

Answer 10

those that relate to the physical characteristics of the risk-physical hazard;

those which relate to the character and behaviour of the insured- moral hazard.

Question 11

In non-consumer (business) insurance, some things need NOT be disclosed even if they are material. These include:

Answer 11

-matters of law;
-factors which lessen the risk e.g sprinklers
-facts known by the insurers and those which the insurers ought to know;
-information that is waived by the insurers;
-facts which the proposer does not know and ought not to know; and
convictions that are ‘spent’ under the Rehabilitation of Offenders Act 1974, as amended by the Legal Aid, Sentencing and Punishment of Offenders Act, 2012.

Question 12

Duration of duty of disclosure

Answer 12

At common law, the duty of disclosure begins at the commencement of negotiations for an insurance contract and ends when the contract is formed.

It is formed at the point where there is an offer and unqualified acceptance. There is no general duty to disclose new material facts that arise during the currency of the contract.

Question 13

Continuing duty of disclosure

Answer 13

a duty to disclose new material facts affecting the risk during the currency of the contract. The duty to disclose material facts which emerged after the contract was made arises only if the contract expressly provides that it will do so

1. Increase of risk clause
2. Changes in the contract

Question 14

Remedies for breach of the duty of fair presentation of the risk by the insured (business insurance)- deliberate

Answer 14

• Right to avoid the policy as awhole
• Right to keep the premium aswell
• Right to ignore the breach and allow the policy to stand- in theory
• Right to refuse a particular claim but allow the policy to stand- in theory

Question 15

Remedies for breach of the duty of fair presentation of the risk by the insured (business insurance)- innocent

Answer 15

• Right to avoid the policy as awhole if insurer proves they would not have entered contract if there was fair representation.
• Right to ignore the breach and allow the policy to stand
• Right to refuse a particular claim but allow the policy to stand

Proportionate remedy was introduced by schedule 1, part 1 of the Act for (qualifying) careless or innocent breaches.

Question 16

Remedies for breach of duty of fair presentation by insurer

Answer 16

will be determined by common law in reference to s.17 of the MIA 1906.

Question 17

Remedies for breach consumer

Answer 17

Remedy is available only ifthe misrepresentation is a qualifying misrepresentation under s.4.

Remedy depends on whether themisrepresentation is deliberate, reckless or careless:

The insurer can avoid the policy only ifthe (qualifying) misrepresentation is deliberate or reckless.
Proportionate remedy was introduced by Schedule 1, Part 1 of the Act for (qualifying) careless misrepresentation.