Utmost good faith Flashcards
What is CIDRA?
Consumer Insurance (Disclosure and Representations) Act 2012
When did CIDRA come in to force?
6/4/2013
What does CIDRA mean for utmost good faith?
The introduction of CIDRA removed the duty of a domestic policyholder to disclose all material facts a prudent uw would take in to account and replaced it with a duty to take reasonable care not to make a misrepresentation. One of the factors to be taken into account when determining whether or not a consumer has “taken reasonable care” is whether or not the questions asked of them at policy inception were clear and specific.
What is considered misrepresentation?
Can be careless, reckless or deliberate. The insurer
does have a right to impose penalties for the misrepresentation. If the misrepresentation does not fall within these categories, the insurer has no rights to restrict or reject payment in the event of a claim, even if they consider the misrepresentation to be material.
What are the consequences of a Deliberate or Reckless misrepresentation?
Schedule 1 of the Act provides for the following remedies to Insurers:
2:
(a) may avoid the contract and refuse all claims, and
(b) need not return any of the premiums paid, except to the extent (if any) that it would be unfair to the consumer to retain them.
What are the consequences of a Careless misrepresentation?
5 If the insurer would not have entered into the consumer insurance contract on any terms, the insurer may avoid the contract and refuse all claims, but must return the premiums paid.
6 If the insurer would have entered into the consumer insurance contract, but on different terms (excluding terms relating to the premium), the contract is to be treated as if it had been entered into on those different terms if the insurer so requires.
7 In addition, if the insurer would have entered into the consumer insurance contract (whether the terms relating to matters other than the premium would have been the same or different), but would have charged a higher premium, the insurer may reduce proportionately the amount to be paid on a claim.
8 “Reduce proportionately” means that the insurer need pay on the claim only X% of what it would otherwise have been under an obligation to pay under the terms of the contract (or, if applicable, under the different terms provided for by virtue of paragraph:
Premium actually charged DVD BY Higher premium × 100 = x
When did The Insurance Act 2015 come in to force?
12/08/2016
What does The Insurance Act mean for utmost good faith?
The new duty under the Insurance Act 2015 on non-consumers is one of fair presentation by the insured
What is a fair representation of risk as defined under The Insurance Act?
which makes that disclosure in a manner which would be reasonably clear and accessible to a prudent insurer, and
in which every material representation as to a matter of fact is substantially
correct, and every material representation as to a matter of expectation or belief is made in good faith.
disclosure of every material circumstance which the insured knows or ought to know, or
failing that, disclosure which gives the insurer sufficient information to put a
prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.
When is the insured not required to disclose a fact under The Insurance Act?
(5) In the absence of enquiry, subsection (4) does not require the insured to disclose a circumstance if—
(a) it diminishes the risk,
(b) the insurer knows it,
(c) the insurer ought to know it,
(d) the insurer is presumed to know it, or
(e) it is something as to which the insurer waives information.
What happened in Carter VS Boehm in 1766?
Carter was the governor of a fort and he took out insurance with Boehm against it being taken by a foreign enemy. Carter knew the fort was built to withstand attack from natives but not European enemies, and he knew the French were likely to attack. They did attack and were successful, but Boehm refused to pay out. Lord Mansfield held that Carter had a duty to disclose all material facts to the risk.
What is the relevance of The Marine Insurance Act 1906?
The general principle of the duty of utmost good faith is laid out in Section 177 of the Marine Insurance Act 1906, which provides that: ‘A contract of marine insurance is a contract based upon utmost good faith and, if the utmost good faith be not observed by either party, the contract may be avoided by the other party.’
What is utmost good faith?
Utmost good faith can be traced back The Marine Insurance Act 1906, and even as far back as Carter and Boehm 1766.
The Marine Insurance Act 1906 placed a positive duty on the assured to disclose material information to the insurer prior to the contract being concluded. This is a reflection of the asymmetry of information between the insurer and the would-be assured; however, under Section 18(3),8 it is not required to disclose any circumstance:
that diminishes the risk;
that is known or presumed to be known to the insurer;9
in which information is waived by the insurer; and
that it is superfluous to disclose by reason of express or implied warranty.
Carter was the governor of a fort and he took out insurance with Boehm against it being taken by a foreign enemy. Carter knew the fort was built to withstand attack from natives but not European enemies, and he knew the French were likely to attack. They did attack and were successful, but Boehm refused to pay out. Lord Mansfield held that Carter had a duty to disclose all material facts to the risk.
