Chapter 6

Question 1

Insurance contract are contracts of utmost good faith under which insurance act?

Answer 1

Marine Insurance Act 1906

Question 2

What does the utmost of good faith mean?

Answer 2

legally obliging all parties entering into a contact to act honestly, not mislead, or withhold critical information from one another

Question 3

Which act abolished the duty of good faith for consumers and replaced It with the duty to take reasonable care to not misrepresent?

Answer 3

Consumer Insurance Act 2012

Question 4

Which act replaced non consumer duty of good faith to the duty of fair presentation?

Answer 4

Insurance Act 2015

Question 5

What is a misrepresentation?

Answer 5

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

Question 6

What is a material fact defined as?

Answer 6

to what ‘prudent’ insurer would deem material rather than the opinion of a reasonable person.

Question 7

When is it fraudulent misrepresentation?

Answer 7

When there is deliberate intention to mislead

Question 8

When is it negligent misrepresentation?

Answer 8

When the statement is false out of not taking sufficient care to check it

Question 9

Insurer remedy for misrepresentation in Consumer vs Non consumer

Answer 9

Consumer: 2012 act online negligent or fraudulant (not innocent)
non-consume: all
They can avoid the contract and keep the premium

Question 10

Contracts for sale of goods are subject to the doctrine of “Caveat Emptor” what does it mean?

Answer 10

Let the buyer beware

Question 11

What is an agents role in breaching fair presentation duty?

Answer 11

The insurer can seek remedy for the breach (Section 4 of the IA 2015 regulates this)

Question 12

Example cases where misrepresentation has influenced the judgement of underwriters?

Answer 12

Container transport international Oceanus mutual uw- UW just has to prove a prudent uw would not have written

Question 13

What is an example of inducement with misrepresentation?

Answer 13

If a lead underwriter was induced into a contract (misrepresentation material) the following markets that trusted the leader were also induced.

Question 14

Example things which may be material facts?

Answer 14

• special or unusual facts
• ## concerns which led the insured to seek coverage

Question 14

Physical vs moral hazard

Answer 14

Physical:
- adequate description of the insureds subject matter
- details of unusual features
(eg.. fire insurance (construct of building, nature of its use, fire detection and fire fighting equipment)
Moral:
- character and behaviour of the insured itself
-

Question 14

Which act removed the legislation that outlawed discrimination?

Answer 14

Equality Act 2010

Question 14

What is the strongest indication of a moral hazard?

Answer 14

Criminal activity

Question 15

What are protected characteristics?

Answer 15

Age
Disability
Gender reassignment
marriage and civil partnerships
pregnancy and maternity
race
religion
sex sexual orientation

Question 15

In what line of insurance is there no duty to disclose that a risk has previously refused by underwriters?

Answer 15

Marine insurance

Question 15

What matters do not need to be disclosed?

Answer 15

Matters of law
Factors which lessen the risk
facts known by the insurers
facts which the insurer ought to know
information that is waived by the insurers
Facts that outside the scope of specific questions
Facts which an inspection of the risk should have revealed
Facts which the proposer does not know
Convictions that are spent (Rehabilitation of Offenders act 1974

Question 15

What is the duration of the duty for fair presentation?

Answer 15

Under CIDRA 2012 and IA 2015 the duty of fair presentation is at the beginning of commencement of negotiations and ends when the contract is formed.

Duty is revived at renewal
or during changes in the contract

Question 15

FCA Duty has principle 12 to “act to deliver good outcomes for retail customers” what are the three rules for how firms deliver good outcomes for retail customers?

Answer 15

act in good faith towards retail customers
avoid causing foreseeable harm to retail customers
enable and support retail customers to pursue their financial objectives.

Question 16

What does the Star Sea case show about the duty of good faith during the claims process?

Answer 16

vessel went to sea unseaworthy - break duty of good faith. Owner did not disclose this had also happened two times before.

Claim process.

Question 17

What is the remedy for fraudulent claims?

Answer 17

IA 2015 codifies the remedy.

Insurer is not liable for the claim
Insurer may recover an sums paid
treat the contract as being terminated (claims prior to fraud are still valid)

Question 18

Do pre contractual duties (good faith and misrepresentation) apply to compulsory insurance?

Answer 18

yes employers liability Motor insurance - insurers cannot avoid a policy after the event has occurred, but they can for misrepresentation before

Question 19

In non-consumer business how can a breach of fair presentation take form?

Answer 19

Mis representation Non-disclosure It can be innocent, negligent or fraudulent Remedy is proportionate to the seriousness of the breach.

Question 20

What is an insurers remedy when non-consumers breach fair presentation?

Answer 20

If they can prove: 1- They would not have entered into the contract 2- They would have entered on different terms The remedies are: 1- avoid the contract, and if reckless, keep the premium 2- avoid the contract, and if accidental, return the premium. 3- For fraudulent misrepresentation, the insurer can claim damages (under Tort) 4- waive the right to withdraw and see the policy out (silence, can be construed as a waiver) OR, proportionate remedies: 1-if they would have entered on different terms, the contract can be treated on those terms 2- if they would have charged higher, claims can be reduced proportionally (premium charged/ higher premium * 100)

Question 21

When you can contract out of the IA 2015 misrepresentation term?

Answer 21

In non-consumer insurance to the detriment of the Insured. BUT transparency must be met

Question 22

Where does the burden of truth lie for misrepresentation?

Answer 22

The insurer

Question 23

Does the duty on pre contractual information apply to the insured or the insurer?

Answer 23

The insured only. If the Insured breaches this is under the Marine Insurance Act 1906

Question 24

What two duties does the duty of fair presentation of the risk in non-consumer insurance impose on the insured?

Answer 24

A duty not to misrepresent material facts A duty to disclose all material facts

Question 25

Distinguish between innocent and deliberate or reckless misrepresentation

Answer 25

If false, but not intentional - this is innocent Deliberately saying something so the other is at a disadvantage is fraudulent

Question 26

What is meant when it is said 'a contract of insurance is a contract based upon utmost good faith'

Answer 26

The duty to act honestly and in far dealing throughout contractual relationship

Question 27

How does the law define a material fact in non-consumer business insurance?

Answer 27

s.7(3)IA 2015 A circumstance or representation is material if it would influence the judgement of a prudent insurer in determining whether to take on the risk

Question 28

In non-consumer insurance, if the insured fails to disclose a material fact, and subsequently a loss occurs. Do the insurers have to prove there is a connection between non-disclosure and the loss to seek remedy?

Answer 28

No - they only need to establish that the non-disclose was material to the risk generally

Question 29

In non-consumer, what two cases might there be a continuing duty of disclosure under a general insurance policy?

Answer 29

Agreed change in contract Change in risk or increase in risk clause in the wording

Question 30

In non consumer, can insurers avoid the policy for breach of duty of fair presentation of the risk in the case of compulsory employers liability insurance?

Answer 30

Yes

Question 31

In non consumer insurance can insurers reject a claim but allow the policy to stand when there is a breach of fair presentation?

Answer 31

Yes - IA 2015 proportional remedy higher premium/ different terms

Question 32

In non-consumer how do the remedies for breach of the duty for fair presentation vary according to deliberate/reckless/innocent?

Answer 32

If deliberate or reckless, they can avoid the risk and keep the premium. Otherwise avoid and return the premium

Question 33

Explain the circumstances under which an insurer can avoid the policy taken out by a consumer insured?

Answer 33

If a qualifying misrepresentation was deliberate of reckless.