Insurance Act 2015 , Consumer Insurance (Disclosure and Representations Act 2012), Enterprise Act 2016 Flashcards
(104 cards)
1
Q
The Insurance Act 2015 came into force in August 2016. It largely applies only to commercial insurance,
A
True
IA 2015
2
Q
The Insurance Act 2015 does include provisions addressing fraud for both consumer and commercial insurance contracts.
A
True
IA 2015
3
Q
Section 12 of the Act seeks to clarify the insurer’s position.
If a fraudulent claim is made, the Act allows the insurer to treat an insurance contract as terminated from the time of the fraudulent act.
A
True
IA 2015
4
Q
Following termination:
A
- the fraudulent claim and all subsequent legitimate claims will be invalid;
- the insurer may recover any payments in respect of the fraudulent claim(s);
- the insurer will be entitled to retain any premium paid
- the insurer will remain liable for any prior legitimate claims arising before the fraudulent act;.
5
Q
The Act does NOT seek to define what a fraudulent claim is, so there is no distinction between someone who presents a completely fraudulent claim (i.e. for an event which never happened) and someone who suffered a genuine loss but has used a fraudulent device to increase the prospect of payment.
A
True
IA 2015
6
Q
The Act does, however, make a distinction between a ‘fraudulent claim’ and a ‘fraudulent act’; the latter being the behaviour that makes the claim fraudulent.
A
True
IA 2015
7
Q
This is an important distinction since the insurer is entitled to terminate the cover from the date of the ‘fraudulent act’ (not discovery of it) and this may be at a different time from when the claim is submitted.
A
True
IA 2015
8
Q
Many policy fraud conditions state that in the event of fraud ‘all benefit of the policy is forfeited’, which allows insurers to recover past claim payments, even if legitimate.
A
True
IA 2015
9
Q
In contrast, the Act does make it clear that legitimate claims occurring prior to the fraudulent act continue to be payable and so no such right of recovery in respect of previous claims is permitted.
A
True
IA 2015
10
Q
Under section 57 of the Criminal Justice and Courts Act 2015 (CJCA) (which came into force in April 2015) defendants can request that, where part of a personal injury (PI) claim is found to be ‘fundamentally dishonest’, the whole claim be struck out.
A
True
Criminal Justice and Courts Act 2015
11
Q
Why? (CJCA 2015)
A
This is designed to address the situation where a personal injury claimant has significantly exaggerated the extent of their injuries but, even when the dishonesty is discovered, still receives the genuine element of their claim through the courts.
12
Q
What amounts to fundamental dishonesty will not always be completely clear, as the legislation does not include any detailed guidance, and there have been relatively few recorded court cases from which to develop a clear understanding of how the rule operates.
A
True
Criminal Justice and Courts Act 2015
13
Q
Why is this a positive development??
A
It should discourage claimants from exaggerating their personal injury claims.
(CJCA 2015 under section 57)
14
Q
In respect of consumers, ICOBS considers it unreasonable for claims to be refused for?
A
Misrepresentation which is NOT a qualifying misrepresentation under the Consumer Insurance (Disclosure and Representations Act 2012 (CIDRA 2012)
15
Q
In respect of consumers, ICOBS ALSO considers it unreasonable for claims to be refused for?
A
In respect of a general insurance contract, a breach of warranty or condition, unless the circumstances of the claim are connected with the breach.
16
Q
The only exception to this is where there is evidence of fraud.
A
True
ICOBS
17
Q
The insurer must provide reasonable guidance on how to make a claim and give appropriate information on its progress.
A
True
ICOBS
18
Q
Once settlement terms are agreed, the claim should be settled ??
A
Promptly.
19
Q
Firms should retain records for as long as is relevant for the purposes for which they were made and their own business needs.
A
True
ICOBS
20
Q
In deciding how long this should be, ICOBS requires firms to take account of ??
A
What information the FCA might request.
21
Q
They are also required to consider what will be needed to deal with complaints and queries from customers as to how claims have been settled and why.
A
True
ICOBS
22
Q
Before the passing of the Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA), the key piece of insurance legislation was ??
A
The Marine Insurance Act 1906.
23
Q
Under this Act of The Marine Insurance Act 1906.
All purchasers and sellers of insurance were obliged to act with utmost good faith and disclose all material facts to one another.
A
True
The Marine Insurance Act 1906
24
Q
Utmost good faith can be defined as the requirement of all parties involved in negotiating an insurance contract to fully disclose all material facts to each other whether they are asked for them or not.
A
True
The Marine Insurance Act 1906
25
Material facts are those that would influence an underwriter as to whether they should or should not accept the risk or impose special terms.
True
| The Marine Insurance Act 1906
26
In practice, this was USUALLY a burden for the policyholder because they were required to appreciate all the facts that an underwriter may want to know.
True
| The Marine Insurance Act 1906
27
There was no duty on the underwriter to ask questions of the policyholder who was taking out a policy of insurance.
True
| The Marine Insurance Act 1906
28
This position was changed by the Consumer Insurance (Disclosure and Representations) Act 2012 .
True
| CIDRA 2012
29
Policyholders are now categorised as ‘consumers’ or ‘commercial customers’ depending upon their status.
True
| CIDRA 2012
30
A ‘consumer’ is defined as ‘the individual who enters into a consumer insurance contract, or proposes to do so.’
True
| CIDRA 2012
31
In the context of a consumer insurance contract, a consumer must be ‘an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession’.
True
| CIDRA 2012
32
Under Consumer Insurance (Disclosure and Representations) Act 2012
It is the duty of consumers to take reasonable care NOT to make misrepresentations to ??
Insurers BEFORE a contract of insurance is entered into.
33
Consumer Insurance (Disclosure and Representations) Act 2012 modifies the previous position of consumers’ duties of utmost good faith by??
Removing the obligation to disclose all material facts.
34
Consumers need now only respond honestly, and with reasonable care, to questions asked of them by insurers.
True
| CIDRA 2012
35
Qualifying misrepresentations :
The Consumer Insurance (Disclosure and Representations) Act 2012
defines a qualifying misrepresentation as either:
* deliberate or reckless: the consumer knew that it was untrue or misleading or knew that it was relevant to the insurer and did not care; or
* careless, i.e. it was not deliberate or reckless
36
The burden of proving that a misrepresentation is qualifying lies with??
The insurer.
37
The responses available to the insurer:
| If the misrepresentations were deliberate or reckless:
The insurer may avoid the contract.
38
If the misrepresentations were careless :
| CIDRA 2012
The remedies are based on what the insurer would have done had the consumer taken care:
* if the insurer would NOT have entered into the contract it can avoid the policy but must return the premium
* if the insurer would have entered the contract on different terms it can treat the contract as if those terms had applied ,
* if the insurer would have entered into the contract but charged a higher premium, the claim amount can be reduced proportionately
39
The Insurance Act 2015 received Royal Assent on 12 February 2015 and came into force on 12 August 2016.
It seeks to extend the reforms made previously to consumer contracts of insurance by the Consumer Insurance (Disclosure and Representations) Act 2012 .
True
| Insurance Act 2015
40
Insurance Act 2015 amends the Marine Insurance Act 1906, which, as we have seen, required proposers of insurance and insurers to act with utmost good faith and disclose all material facts to one another.
True
| Insurance Act 2015
41
The Insurance Act 2015 amends insurance law in three main areas:
* the effect of warranties contained in the policy;
* insurers’ remedies for fraudulent claims; and
* the pre-contractual duty of disclosure and the effect of misrepresentations at that stage.
42
Most of the The Insurance Act 2015 provisions apply to commercial (non-consumer) insurance policies, introducing parallel changes to those already implemented under CIDRA2012 for consumer insurances.
True
| Insurance Act 2015
43
The only changes introduced that apply to both non-consumer and consumer insurances are those??
Concerning insurers’ remedies for fraudulent claims, which were not covered by earlier legislation.
44
Were fraudulent claims covered by the earlier legislation?
The Insurance Act 2015 under section 12 introduced Fraudulent claims brought by policyholders and the remedies for insurers.
45
Non-consumers are defined as policyholders who enter into insurance contracts wholly or mainly for the purposes of their trade, business or profession.
True
| Insurance Act 2015
46
The Insurance Act 2015 makes wide-ranging reforms to the law relating to non-consumer insurance contracts which, among other things, will make it harder for insurers to refuse claims as a result of technical breaches by the insured.
True
| Insurance Act 2015
47
The duty to volunteer information is being retained (unlike the position for consumer insurances) and the commercial proposer has to make a fair presentation of the risk.
True
| Insurance Act 2015
48
Section 3 of the Insurance Act 2015 modifies the duty of utmost good faith that underlies insurance contracts by introducing the new duty of ‘fair presentation’.
True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)
49
This (Section 3 of the IA2015) means that proposers must either:
* disclose to insurers ‘every material circumstance’ which the insured knows or ought to know; or
* provide the insurer with ‘sufficient information’ to put a prudent insurer on notice that they need to make further enquiries into those ‘material circumstances’.
50
The disclosure must be made in a manner that ‘would be reasonably clear and accessible to a prudent underwriter’. IA 2015
– it is not acceptable to simply ‘dump’ undigested and disordered data on the insurer relating to the risk presented.
True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)
51
In addition, the disclosure should be one in which ‘every material representation as to a matter of fact is substantially correct and every material representation as to a matter of belief is made in good faith’.
True
(Duty to make a fair presentation of the risk,
Insurance Act 2015, Section 3)
52
The Insurance Act 2015 set out in some detail provisions explaining what exactly is meant by ‘knowledge’ of material circumstances.
True
| Insurance Act 2015, Sections, 4 , 5 , 6
53
These differ according to whether the insured is an individual or organisation, as is shown in the table.....
True
| Insurance Act 2015, "Knowledge" Sections, 4 , 5 , 6
54
Note that it is NOT just Actual Knowledge, but ALSO Constructive Knowledge that is assumed by the proposer,
i.e. information that they ought to know, having made a reasonable effort to find it out.
55
Individual:
Knowledge is not limited to the insured’s own knowledge, but is deemed to include anything known by a person who is ‘responsible for the insured’s insurance’. This could include??
The insured’s insurance broker.
56
Organisation Knowledge :
Relevant knowledge is that of anyone who is part of the insured’s ‘senior management’ or who is ‘responsible for the insured’s insurance’. For example:
A risk manager.
57
The insured is NOT required to disclose a circumstance if the insurer knows it.
True
| Insurance Act 2015
58
For this purpose, the insurer knows something if it is known to one or more of ‘the individuals who participate on behalf of the insurer in the decision whether to take the risk, and if so on what terms’.
True
| Insurance Act 2015
59
In practice, this is MOST (deciding to take the risk) likely to be the underwriter, but may also include:
Claims personnel.
60
The Insurance Act 2015 provides that an insurer ‘ought to know’ and insurer ‘presumed to know’ anything which:
An insurer is ought to know, anything which:
* an employee or agent of the insurer knows and ought reasonably to have passed on to the underwriter; or
* where the relevant information is held by the insurer and is readily available to the individual.
An insurer is ‘presumed to know’:
• things which are common knowledge; and
• things which an insurer offering insurance of the class in question to insureds in the field of activity in question would reasonably be expected to know in the ordinary course of business.
61
These changes by The Insurance Act 2015 mark a shift in??
English insurance law.
62
These changes by The Insurance Act 2015 will justify insurers taking a more active approach to assessing the risks they underwrite, rather than a passive role in relying on the insured and their broker to provide all relevant information.
True
| Insurance Act 2015= Fair Presentation of the risk
63
PRIOR to the implementation of the Insurance Act 2015, an insurer would be entitled to avoid the whole contract where the proposer had failed to disclose all material information.
True
| Remedies for non-disclosure
64
The undisclosed information did not need to relate to a loss; instead, the insurer simply had to show that it was unknown to the insurer and was material to the risk.
True
| Remedies for non-disclosure
65
The Insurance Act 2015 still preserves the insurer’s right to avoid a policy where fraud is involved.
True
| Remedies for non-disclosure
66
However, apart from circumstances involving fraud, the Act distinguishes between breaches of duty that are deliberate or reckless and those that are innocent or negligent:
True
| Remedies for non-disclosure= Insurance Act 2015
67
Deliberate or reckless ??
| IA2015
An insurer will only be entitled to avoid a policy entirely where the breach of duty of fair presentation is ‘deliberate or reckless,’ and where the insurer can show that they would not have entered into the contract had they known the information or would only have done so on different terms.
68
The insurer may also retain any premiums paid.
True
| Remedies for non-disclosure= Insurance Act 2015
69
Innocent or negligent ??
| IA2015
Where the breach is neither reckless or deliberate, the remedies provided in the Act are less severe.
70
They are intended to be proportionate and to reflect what the insurer would have done if they had known of the undisclosed information before entering into the contract.
True
| Remedies for non-disclosure= Insurance Act 2015
71
So, an insurer can only repudiate a claim and avoid a policy entirely where they can show that they would not have written the policy at all.
True
| Remedies for non-disclosure= Insurance Act 2015
72
However, should an insurer wish to do this, the onus is on it to prove that the breach was deliberate or reckless and this could be very difficult to prove.
True
| Remedies for non-disclosure= Insurance Act 2015
73
Case law will need to be developed over the years to give clarification to the question of what a deliberate or reckless breach entails.
True
74
Where the insurer would have accepted the risk subject to additional terms, exclusions or excesses, the contract is treated as having been entered into on those terms.
True
| Remedies for non-disclosure= Insurance Act 2015
75
Where the insurer would have accepted the risk, subject to an increased premium, the Act allows the insurer to reduce claim payments in proportion to the actual premium paid, relative to the premium which should have been paid.
(Remedies for non-disclosure= Insurance Act 2015)
76
Case law has established that a breach of warranty automatically terminates cover from the date of breach and effectively cancels the insurance.
True
| Warranties
77
This is regardless of whether the breach was material or related to the loss.
True
| Warranties
78
In addition, subsequent remedying of the breach still renders the policy terminated from the date of the breach, unless or until the insurers convey that they are not relying on the breach.
True
| Warranties
79
Sections 9 to 11 of the Insurance Act make the effect of a breach of warranty less severe.
True
| Warranties= Insurance Act 2015 = Section 9-11
80
Breach of warranty Under the Act, a breach of warranty simply suspends (rather than completely terminates) the insurer’s liability under the contract until such time as the breach is remedied.
True
| Warranties= Insurance Act 2015 = Section 9-11
81
The insurer has no liability for any claim under the policy whilst cover is suspended, but once the breach is remedied, full cover under the policy is resumed.
True
| Warranties= Insurance Act 2015 = Section 9-11
82
In the context of commercial motor insurance, a haulier who failed to comply with a warranty that their vehicle be securely locked and immobilised when left unattended would effectively have no cover under their insurance, even after returning to their vehicle.
When was this?
Position PRIOR to Insurance Act 2015
83
In the same circumstances, the haulier breaching the warranty whilst the vehicle was left unattended would not be covered under the policy whilst the warranty is being breached, since cover is suspended. However, on return to the vehicle full cover automatically resumes.??
Position AFTER Insurance Act 2015
84
The Act also prohibits ‘basis of the contract’ clauses (as is already the practice for consumer contracts). It is not possible for business insurers to contract out of this change.
True
| Insurance Act 2015=Basis of contract clauses
85
Such clauses had the effect of converting pre-contractual representations in a proposal form into warranties.
True
| Insurance Act 2015=Basis of contract clauses
86
Meaning that the insurer could be discharged from liability if the proposal form contained any statement that was inaccurate, even where it was immaterial to the loss and in no way induced the insurer to enter the contract.
True
| Insurance Act 2015=Basis of contract clauses
87
Similar considerations will also apply to conditions precedent or exclusion clauses, provided that they relate to a particular type of loss or the risk of loss at a particular location or time.
True
| Insurance Act 2015=Irrelevant warranties
88
The Act establishes that insurers should not be entitled to avoid a claim where the insured’s breach did not relate to the loss.
True
| Insurance Act 2015=Irrelevant warranties
89
Where an insured does not comply with a warranty or other term that relates to a particular type of loss, or the risk of loss at a particular location or time, the insurer may NOT rely on non-compliance with that contractual term by the insured.
True
| Insurance Act 2015=Irrelevant warranties
90
This is so long as the insured is able to show that non-compliance with the term could NOT have increased the risk of loss that actually occurred.
True
| Insurance Act 2015=Irrelevant warranties
91
Consequently, there must be some relationship between the breach of a term of the insurance contract and the actual loss in question.
True
| Insurance Act 2015=Irrelevant warranties
92
However, a direct causal link between the breach of the term or warranty and the loss is NOT required.
True
| Insurance Act 2015=Irrelevant warranties
93
Different provisions as to contracting out apply depending upon whether the insured is a consumer or non-consumer:
True
| Contracting out and transparency requirements,
94
For Consumers??
The Act applies in relation to the provisions on fraudulent claims, and Clause 15 operates to prohibit contracting out so as to place a consumer in a worse position than would have been the case under the Act.
95
For Non-consumers ??
The Act allows commercial parties to contract out of the new provisions by agreeing alternative terms, with the exception of basis of contract clauses which will remain ineffective.
96
To successfully contract out, what does the insurer need to satisfy?
Certain transparency requirements.
97
Insurers must ensure that any terms that would put the insured in a worse position than before the Act, are clear and unambiguous as to their effect, and sufficiently drawn to the insured’s attention before the policy is entered into.
True
| Insurance Act 2015= Contracting out and transparency requirements
98
In determining whether this requirement has been met, the insured’s characteristics and the circumstances of the transaction will be taken into account.
True
| Insurance Act 2015= Contracting out and transparency requirements
99
```
The Act (Insurance Act 2015)
came into effect on 12 August 2016
and made a number of significant changes to the previous law regime:
```
* allows the insured to challenge an insurer’s defence of breach of warranty by showing that the breach could NOT have increased the risk of the loss in question occurring.
* gives the insured the opportunity to remedy a breach of warranty by resuming compliance;
* introduces proportionate remedies for non-disclosure;
* transfers some of the responsibility of disclosure from the insured by imposing a duty of enquiry on the insurer.
100
Whilst the Act does allow the parties to opt out of most of these new rules, any opt-out must satisfy the transparency requirements and may therefore be challenged on those grounds.
True
| Insurance Act 2015= Contracting out and transparency requirements
101
Which Act amends the Insurance Act 2015 by adding in provisions relating to compensation for late payment of claims?
The Enterprise Act 2016
102
The Enterprise Act 2016 key provisions are:
* breach of the term will result in the insurer paying damages to the insured, as well as the original indemnity payment and interest.
* it is an implied term of every insurance contract that sums due must be paid in a reasonable time;
* the insurer will not breach the implied term by disputing the claim provided the dispute was genuine; and
* reasonable time includes time to investigate and assess the claim;
* what is reasonable depends on all the circumstances, but includes the type of insurance; the size and complexity of the claim; compliance with regulation; factors outside the insurer’s control (such as delay by the policyholder);
103
The ‘late payment’ term applies to all policies incepted, renewed or amended from May 2017.
This includes contracts caught by CIDRA 2012.
True
| The Enterprise Act 2016= Late payments
104
Whilst this is an amendment to the Insurance Act 2015, previously seen ONLY affects commercial contracts, but the Enterprise Act will apply to??
All insurance contracts, so including those currently caught by CIDRA 2012.
