Pre-Contractual Information Duty

Question 1

What type of contract is a contract of utmost good faith?

Answer 1

An Insurance Contract

Question 2

Under MIA1906 what did it previous extend contracts of utmost good faith to?

Answer 2

To pre-contractual information too

Question 3

Previously, what was the remedy under the MIA1906 for a precontractual breach of utmost good faith?

Answer 3

the policy was avoided.

Question 4

What acts changed the MIA1906 precontractural utmost good faith?

Answer 4

CIDRA2012 for all consumer insurance
IA2015 for all non consumer insurance

Question 5

What did the CIDRA2012 abolish and what was it replaced with?

Answer 5

Abolished pre-contractual duty of disclosure and replaced it with a duty to take reasonable care to not make a misrepresentation.

Question 6

What are the two definitions of a consumer insurance contract?

Answer 6

A contract between:

1.an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession; and

2. an individual who carries on the business of insurance and who becomes a party to the contract by way of that business

Question 7

What did the IA2015 abolish and what was it replaced with?

Answer 7

It replaced the insured pre-contractual information duty for non-consumers with the duty of fair presentation of the risk.

Question 8

What can the duty of fair presentation of the risk be broken down further into?

Answer 8

1. a duty not to misrepresent any matter relating to the insurance – i.e. a duty to tell the
   truth; and
2. a duty to disclose all material facts relating to the contract – i.e. a duty not to conceal
   anything that is relevant.

Question 9

What is a misrepresentation?

Answer 9

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

Question 10

In general law, what three ways can you misrepresent something?

Answer 10

Fraudulent
Negligent
Innocent

Question 11

In non-consumer insurance, on what basis of misrepresentation can the insurer seek a remedy?

Answer 11

Any misrepresentation regardless of where it is fraudulent, negligent or innocent

Question 12

In consumer insurance, on what basis of misrepresentation can the insurer seek a remedy?

Answer 12

Any negligent or fraudulent misrepresentation but not an innocent one.

Question 13

In both consumer and non-consumer insurance, when a misrepresentaion is fraudulent, what can the innocent party do?

Answer 13

They have a right to claim for damages (in the tort of deceit) and if it is an insurer that has been mislead, they can retain any premiums paid.

Question 14

What does caveat emptor mean?

Answer 14

Let the buyer beware

Question 15

Contracts of sales of good are subject to the doctrine caveat emptor, why is this?

Answer 15

Good are tangible. Provided no party deliberatly misleads the other, the buyer can avoid a contract just because they feel they have made a poor decision/bad bargain as they were able to tangibly see the goods in advance.

Question 16

In a contract of sales of good, what information must both parties provide?

Answer 16

Neither party is required to disclose information not asked for however any information given must be correct.

Question 17

As insurance is non tangible what does this mean in terms of the duty of discloser?

Answer 17

There must be a positive duty of disclose as insurance in non-tangible and cant be tested in advance.

Question 18

What must the insured and the insurer trust from the other party?

Answer 18

The insured must trust that the insurer will pay out any claims and they wont be aware of any details of the cover untill the insurer makes them avalible.

The insured is the only one who knows all the details of the subject matter of the insurance.

Therefore the insurer must trust that the insured has disclosed every material circumstance which the insured knows or ought to know.

Question 19

How is the knowledge of the insured judged?

Answer 19

By what the person or persons responsible for the insured insurance know.

Question 20

What is a material circumstance?

Answer 20

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

Question 21

What was material circumstance called in old law?

Answer 21

Material Fact

Question 22

What is a prudent insurer?

Answer 22

Reasonable insurer

Question 23

What is the test for a prudent insurer?

Answer 23

An objective one known as “the actual inducement test”

What influenced the judgment is assess to see if a reasonable insurer would have done things differently if they has known all the facts.

Question 24

What act as the actual inducement test been codified into?

Answer 24

The Statutory test of inducement under the The Insurance Act 2015

Question 25

What does nexus mean

Answer 25

Is does not depend upon there being any connection = nexus

Question 26

Does a non-disclosure or misrepresentation have to have a connection to the circumstances of the loss for the right to avoid a contact?

Answer 26

No

Question 27

What is the test for non-disclosure or misrepresentation within consumer insurance?

Answer 27

Whether the consumer has acted with “reasonable care” as opposed to the objective test of materiality that we use for non-consumers.

Question 28

What duty of disclouse does non-consumers have to reveal?

Answer 28

Positive duty of disclosure

Question 29

What circumstances would be deemed to be material?

Answer 29

.Any special or unusual facts
.Any particular concerns of the insured that led them to purchase the cover
.Anything which people in that field would deem something that should be included in a fair representation?

Question 30

What is a physical hazard and what is a moral hazard?

Answer 30

Physical Hazard : subject matter of the risk usually
Moral Hazard - insureds own legal and financial risks

Question 31

What physical hazards needs to be disclosed?

Answer 31

An adequate description of the subject matter
Details of unusual features of the subject matter such as non standard construction in a buildings policy (anything that makes the risk WORSE)

Question 32

What is the purpose of assessing a moral hazard?

Answer 32

Asses the risk the insured offers.

Question 33

When assessing the identity of the insured what cant the insurer use to negatively rate the insured?

Answer 33

Under the Equality Act 2010 the insurer cant discrimitate on things like race and gender.

Question 34

Under common law, when does duty of disclosure start and end?

Answer 34

Starts when negotiations begin, ends when the contract has been agreed/finalised.

Question 35

Under contract law, specifically an insurance contract, when does duty of disclosure start and end?

Answer 35

If an insurance contract as a clause which stipulates a continuing duty of discloser, this must be adhered to.

Question 36

If an insured offers/invites a renewal, what does this mean in terms of duty of disclosure?

Answer 36

IT restarts

Question 37

What is the exception to the duty of disclosure restarting a renewal?

Answer 37

Long term policies such as life insurance as the risk is not rerated, the premium is often just paid annually.

Question 38

Parties to insurance contracts still need to act with good faith throughout the currency of the policy. What would a fraudulent claim mean ?

Answer 38

The duty to act in good faith has been broken.

Question 39

Do the precontractual information duties apply to compulsory insurances such as employers liability?

Answer 39

It applies to compulsory insurance in the same way it applies to all classes of insurance.

Question 40

Are there any special rules for employers liability insurance and motor insurance?

Answer 40

EL no
Motor - the insurer cant avoid or cancel the policy after a road traffic accident has occurred but they may still avoid the contract before an event takes place.

Question 41

How is a breach for non-consumer/commercial insurance breach of fair presentation assesed?

Answer 41

IA2015

Question 42

If a breach for non-consumer/commercial insurance was deliberate/reckless ie fraud - what will the insurer do?

Answer 42

Regardless of if the insured knew this was a break or didn’t care that it was a breach the insurer will avoid the policy and keep any premiums paid

Question 43

If a breach for non-consumer/commercial insurance was non-deliberate ie careless - what will the insurer do?

Answer 43

If the insurer can prove they wouldnt have written the policy then they can avoid the policy but must return any premiums paid.

If the insurer would have accepted the policy under different terms then the policy will be treated as if those different terms were there from inception.

If the insurer would have charged a higher premium they may proportionately reduce the amount paid in a claim.

Question 44

How is the reduced amount paid for a claim following a breach where the insurer would have charged a higher premium?

Answer 44

Premium actually charged / higher premium * 100

Question 45

Can insurers waive there wright to avoid a contract?

Answer 45

Yes and therefore may affirm a breach and allow the policy to stand.

Question 46

Does the duty of fair presentation apply to variations (MTAs) of a contace?

Answer 46

Yes and therefore an insurer may terminate a contract from the time where the variation was made.

Question 47

Can parties contract outside the IA15?

Answer 47

Yes provided that a transparency requirement is met.

Question 48

If insurers are in breach of the fair presentation of the risk how are they analyzed?

Answer 48

Under the Marine Insurance Act 1906 and any remedies are determined under common law.

Question 49

Under CIDRA what is a qualifying misrepresentation for consumers?

Answer 49

Where the consumer has failed to exercise reasonable care and the insurer can show that without the mis-representation they would not have entered into the contract OR would have done so under different terms.

Question 50

Under CIDRA if a consumer had made an honest and reasonable mis-representation - is the insurer likely to pay out on a claim?

Answer 50

YES

Question 51

Under CIDRA if a consumer had made a CARELESS mis-representation - is the insurer likely to pay out on a claim?

Answer 51

Insurer is likely to adopt a compensatory remedy based on what they would have done had the insured taken the care to answer the questions correctly.

Question 52

Under CIDRA if a consumer had made deliberate and reckless mis-representation - is the insurer likely to pay out on a claim?

Answer 52

Insurers will treat the contract/policy as if it never existed and decline all claims.

Question 53

Where are the provisions relating to the duty to take reasonable care not to make a mis-representation contained?

Answer 53

In the ICOBS - Insurance Conduct of Business Source Book

Question 54

How is a consumer defined?

Answer 54

Any person acting outside of their business trade or profession

Question 55

How long is a conviction un-spend?

Answer 55

Conviction + 4 years
If the conviction was longer that 4 years = never spent
Fine = 1 year