chapter 6

Question 1

When is an insurance contract formed?

Answer 1

A: When an offer is unconditionally accepted.

Question 2

What is an invitation to treat in insurance?

Answer 2

A: A brochure or website inviting negotiation, not a true offer.

Question 3

What happens during policy renewal?

Answer 3

A: A new contract is formed, often by the insured paying the premium.

Question 4

When does risk begin under an insurance contract?

Answer 4

A: Usually when the contract starts or premium is paid, as agreed.

Question 5

What is consideration in an insurance contract?

Answer 5

A: The premium (by insured) and the promise to cover losses (by insurer).

Question 6

Can an insurer refund the premium?

Answer 6

A: Yes, but usually only if no risk started or if stated in the contract.

Question 7

Why is insurable interest required?

Answer 7

A: To avoid moral hazard and gambling.

Question 8

Can you insure something you don’t own?

Answer 8

A: Yes, if you have a legal or financial interest (e.g. tenant, bailee).

Question 9

an multiple people have insurable interest in one property?

Answer 9

A: Yes – e.g. mortgagor, mortgagee, landlord, tenant.

Question 10

What are the five elements needed for misrepresentation to affect a contract?

Answer 10

A:

Must be a false statement of fact

Made by a party to the contract

Material (influences a prudent insurer)

Induces the contract

Causes loss/disadvantage

Question 11

What is the difference in the test of materiality in insurance contracts?

Answer 11

A: Materiality is judged by what a prudent insurer would consider material—not a reasonable person.

Question 12

What are the three types of misrepresentation?

Answer 12

Fraudulent – Intentional and deceitful

Negligent – Carelessly made false statement

Innocent – False but made without negligence

Question 13

What does the IA 2015 require the insured to disclose?

Answer 13

A: Every material circumstance they know or ought to know, or enough information to put the insurer on notice.

Question 14

What is a material circumstance under IA 2015 s.7?

Answer 14

A: One that would influence the judgment of a prudent insurer in determining whether to take the risk and on what terms.

Question 15

What does ‘actual inducement’ mean?

Answer 15

A: The insurer must have been influenced by the misrepresentation or non-disclosure when deciding to enter the contract.

Question 16

Does a material fact need to relate to the actual claim (‘nexus’)?

Answer 16

A: No – the insurer can seek remedy even if the non-disclosure had no connection to the specific claim.

Question 17

What is the ‘blind-eye’ test in IA 2015?

Answer 17

A: If the insured suspects something is true and avoids confirming it, they are treated as if they knew.

Question 18

When is an insurer bound by a broker’s knowledge?

Answer 18

A: When the broker is the insurer’s agent (e.g., appointed rep, authorised to bind the insurer).

Question 19

Whose knowledge is attributed to the insured in business insurance?

Answer 19

A: The insured’s senior management or person responsible for the insurance (e.g., risk manager).

Question 20

Give an example of moral hazard.

Answer 20

A: A proposer with a past conviction for dishonesty.

Question 21

Give an example of physical hazard.

Answer 21

A: A building made with combustible materials.

Question 22

List five things that need not be disclosed under IA 2015.

Answer 22

Law

Facts that reduce the risk

Facts the insurer already knows

Facts the insurer ought to know (e.g., common knowledge)

Spent convictions under the Rehabilitation of Offenders Act

Question 23

What is waiver of disclosure?

Answer 23

A: When the insurer chooses not to follow up on a disclosure ‘signpost’ or asks limited questions (implied waiver).

Question 24

What duty does a consumer have under the CIA 2012?

Answer 24

A: To take reasonable care not to make a misrepresentation.

Question 25

What is the test of materiality in insurance contracts?

Answer 25

A: Based on what a prudent insurer would deem material—not a reasonable person.

Question 26

When can an insurer seek remedy in consumer insurance under CIDRA 2012?

Answer 26

A: Only for negligent or fraudulent misrepresentations where inducement is proven.

Question 27

When does the duty of fair presentation of the risk apply?

Answer 27

A: From the start of negotiations to the point the insurance contract is formed.

Question 28

Does the duty to disclose continue during the policy term?

Answer 28

A: No, unless the policy includes an express term requiring post-contractual disclosure.

Question 29

What is a 'prudent insurer'?

Answer 29

A: A hypothetical insurer who considers all material facts before accepting a risk.

Question 30

What is the 'actual inducement' test in non-disclosure or misrepresentation?

Answer 30

A: Insurers must show they were actually influenced into entering the contract on the given terms.

Question 31

Can a proposer write 'see your records' and rely on that?

Answer 31

A: Yes, if the insurer does not follow up, they may be seen to have waived their right to full info.

Question 32

Do representations from a previous policy apply automatically at renewal?

Answer 32

A: No, a new fair presentation must be made.

Question 33

What is the effect of fraud in group insurance under IA 2015 s.13?

Answer 33

A: Only the fraudulent individual loses benefit; the policy continues for others.

Question 34

When can an insurer seek a remedy for breach of the fair presentation duty under the IA 2015?

Answer 34

A: Only if there is a qualifying breach—i.e., the insurer can prove it would not have entered into the contract or would have done so on different terms.

Question 35

What if the insurer would have charged a higher premium had there been fair presentation?

Answer 35

A: The claim may be proportionately reduced using the formula: Claim × (Premium paid / Premium that would have been charged).

Question 36

What happens if the insurer would have included an exclusion clause had there been full disclosure?

Answer 36

A: The contract is treated as if that exclusion clause was included.

Question 37

What is required for an insurer to contract out of the IA 2015 in non-consumer insurance?

Answer 37

A: The disadvantageous term must meet the transparency requirement—clear, unambiguous, and drawn to the insured’s attention.

Question 38

Under IA 2015, what protection is given to consumer beneficiaries in group insurance?

Answer 38

A: A term that puts a consumer C in a worse position is of no effect.

Question 39

Under CIDRA 2012, what is the burden of proof for a deliberate or reckless misrepresentation?

Answer 39

A: It is on the insurer to prove that the consumer either knew or didn’t care that their statement was untrue or relevant.

Question 40

How are false statements by a third party treated under a life policy on another person’s life?

Answer 40

A: Statements by the life assured are treated as if made by the policyholder themselves.

Question 41

What do sections 89 and 90 of the Financial Services Act 2012 prohibit?

Answer 41

A: Making false or misleading statements or creating a misleading market impression with intent to induce insurance contracts.

Question 42

What is the purpose of ICOBS 8.1.1 and 8.1.2 rules?

Answer 42

A: To prevent insurers from unreasonably rejecting claims, especially for non-negligent misrepresentation or facts a consumer could not be expected to disclose.