2. CHAPTER 5 UTMOST GOOD FAITH
11% OF THE EXAM

3. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

4. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

5. UTMOST GOOD FAITH
“The positive duty to voluntarily disclose, accurately and fully, all facts material to the risk being proposed, whether requested or not.”

6. Defined under the Marine Insurance Act 1906.
Material Fact
“Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk.”
Defined under the Marine Insurance Act 1906.

7. Duties
Insured
Make a full and complete disclosure of all material facts
Insurer
Must also disclose all material facts. Examples include:
Inform insured about possible premium discounts
Accept only those risks they are authorised to underwrite
Untrue or misleading statements are a breach of utmost good faith

8. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

9. 1 2 THE EFFECT OF FINANCIAL CONDUCT AUTHORITY RULES
It is deemed ‘unreasonable’ to reject a claim if: 1
Ways of ensuring customers understand what must be disclosed: 2

10. Consumer Insurance (Disclosure and Representations) Act 2012
Replaces insured’s duty to volunteer all material information with a to take reasonable care to answer insurer’s questions correctly
Consumer Insurance (Disclosure and Representations) Act 2012

11. Applies to non-consumer insurances
Concept of utmost good faith continues
Insured now has a duty of ‘Fair Representation’
Absolute remedy of avoidance replaced with proportionate remedies

12. FAIR PRESENTATION DEFINED AS:
Disclosure of material circumstance which insured ought to know
gives insurers sufficient information to put a prudent insurer on notice
Disclosure in a manner that is clear and accessible to the insurer
Every material fact is substantially correct and is made in good faith

13. DUTY TO MAKE A FAIR PRESENTATION
Shifts the onus from Insured to Insurer to ask questions and probe for information?
Applies pre-contract
Can be extend throughout the lifecycle of the policy
DUTY TO MAKE A FAIR PRESENTATION

14. Insured: MEASURE OF INSURED’S KNOWLEDGE
Individual insured = Knows what is known to them or what is known by an individual or individuals responsible for their insurance
Non-individual insured = What is known by 1 or more senior managers, or 1 or more people responsible for their insurance
MEASURE OF INSURED’S KNOWLEDGE

15. MEASURE OF INSURERS KNOWLEDGE
An employee/agent of the insurer knows it and ought to have passed the information onto the underwriter
The relevant information is held by the insurer and is readily available to the underwriter making the decisions
It is common knowledge (presumed knowledge)
It is something that an insurer offering the class of insurance in question ought to know (presumed knowledge)
Insurer ought to know something only if:
MEASURE OF INSURERS KNOWLEDGE

16. What is know by the Insured includes…’What is known by someone responsible for their insurance’.
The Insurance Act does not impose duties on brokers, however, what is known by the broker is imputed back to the insured.
AGENT’s DUTY

17. WARRANTIES
A warranty is a guarantee or promise made by the insured normally designed to control an specific element of the risk.
The Insurance Act abolishes situations where pre-contractual warranties are created off the back of representations made by the insured
– Basis of the Contract’ clauses

18. Can contract out of duty of fair representation
Onus on insurer to explain consequences or contracting out will not be effective
Insurer must take sufficient steps to highlight the disadvantageous term to the insured’s attention.
The term is clear and unambiguous.
In determining the above, the insured’s characteristics should be taken into account
The insured cannot rely on the insurer to notify them of the disadvantages of the term if they already knew this
CONTRACTING OUT

19. MODIFICATION BY POLICY WORDING Policy Condition Rules
Common Law Rules
There is a need for the customer to be honest during the negotiation stage, at any mid term adjustments and again at the renewal stage.
Policy Condition Rules
Insurers write a condition into the policy which means the customer must now advise the insurer of any material changes.
This is referred to as the continuing requirement.

20. LIMITATION OF AN INSURERS RIGHT TO INFORMATION
Estoppel: Legal term used for a bar or impediment that precludes a person from asserting a fact or a right. It usually arises where one party’s conduct has been relied upon by the other.
Example: Customer returns a proposal without completing a question and the insurer sets up the policy without asking for the information – estoppel by waiver

21. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

22. MATERIAL FACTS
When an insurer gathers material facts it enables the insurer to assess the physical and moral hazard the risk / proposer brings to them.
Physical hazards relate to the physical characteristics of the risk
Construction of the building, age of driver, nature of security precautions.
Moral hazards relate to human element such as attitude and behaviour i.e.
Previous refusals to insure (declinature) by other insurers; previous claims history, criminal convictions.

23. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

24. NO NEED TO DISCLOSE Facts of law Facts of public knowledge
Facts that lessen the risk
Facts where the insurer has waived its right to information
Facts that a survey should have revealed
Facts that the insured does not know
Facts outside of the scope of specific questions
Facts covered by policy terms
See also Insurance Act 2015
See also spent convictions – Legal Aid Sentencing and Punishment of Offenders Act 2012 (LASPO)

25. Insurance Act 2015 – no need to disclose if:
It diminishes the risk
The insurer knows it
The insurer ought to know it
The insurer is presumed to know it
It is something to which the insurer waived information

26. LASPO – Rehabilitation – Custodial Sentences
Buffer period
0 – 6 months
2 years
6 – 30 months
4 years
30 months – 4 years
7 years
Over 4 years
Never Spent
Halved for minors

27. LASPO – Rehabilitation – Non Custodial Sentences
Buffer period
Community order
1 year
Youth rehabilitation order
Fine
Conditional discharge, referral order, etc.
Period of the order
Halved for minors

28. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

29. Historically, who was subject to the principle of utmost good faith in insurance contracts?
Both the proposer and the insurer
Interested third parties
The insurer only
The proposer only

30. Historically, who was subject to the principle of utmost good faith in insurance contracts?
Both the proposer and the insurer
Interested third parties
The insurer only
The proposer only

31. Which of these facts is a proposer for insurance required to disclose?
Facts about claims history
Facts about spent convictions
Facts that lessen the risk
Facts that a survey should have revealed

32. Mr Jenkins wishes to get a quotation for motor insurance
Mr Jenkins wishes to get a quotation for motor insurance. He had an insurance claim for an accident he was involved in 3 years ago, when he was only 17. He was also sent to prison for 3 months because he assaulted the other driver. His vehicle has performance enhancing modifications and he sometimes uses it for business. Which of the following will Mr Jenkins NOT have to disclose to his insurer?
His claim
His conviction
The type of business use
The vehicle modifications

33. Which Act of Parliament replaces the duty of a proposer for a personal insurance to volunteer all material information with a duty to take reasonable care to answer insurer’s questions correctly?
Consumer Insurance (Disclosure and Representations) Act 2012
Insurance Act 2015
Marine Insurance Act 1906
Misrepresentation Act 2012

34. As a result of the Insurance Act 2015, what is the new duty of disclosure imposed on commercial clients proposing for insurance?
A duty of fair representation
A duty to answer all questions correctly
A duty to take reasonable care to answer questions correctly
The duty of utmost good faith

35. What is a positive hazard?
One that can be mitigated by positive action
One that has been positively disclosed by the policyholder
One that improves the risk
One that increases the risk

36. What is an example of a physical hazard?
A cyclist who ignores red traffic lights
A fast driver
A high performance vehicle
A history of motoring convictions

37. What is seen to be evidence of a moral hazard?
A busy road
A high performance vehicle
A history of motoring convictions
Living in a high crime area

38. What is an example of a positive physical hazard?
A bonfire and fireworks party
A burglar alarm
A history of claims
Living in a high crime neighbourhood

39. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

40. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

41. CONSEQUENCES OF NON DISCLOSURE
Insurer can:
Void ab initio (from the beginning)
If fraudulent they can keep the premium and sue for damages
They could chose to ignore it. If they leave the policy running they must pay any valid claims.
CONSEQUENCES OF NON DISCLOSURE
Considerations:
Is it within the knowledge of the insured?
Is it known to the insurer?
Did it induce the contract?

42. FOS – Three stage approach
Was there a clear question and was it answered correctly?
Was the insurer induced?
What kind of non disclosure was it

43. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

44. CONSEQUENCES OF MISREPRESENTATION
Deliberate – Insured knew their statement was misleading or false
Reckless – Insured did not care if their statement was misleading or false
Careless – Insured failed to check the facts given to ensure validity

45. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

46. CONSEQUENCES OF BREACH OF DUTY OF FAIR PRESENTATION
DELIBERATE + RECKLESS
ANY OTHER BREACH
Void ab initio
Repudiate any claims
Void ab initio + repudiate any claim
Additional premium
Add any outstanding terms to the policy
Two categories of qualifying breach:
Deliberate or Reckless
Neither Deliberate or Reckless

47. CONSEQUENCES OF BREACH OF WARRANTY
Breach of warranty no longer means automatic voidance.
Liability is suspended until the warranty is further complied with.
Once the warranty is complied with, liability starts again for the insurer.

48. COMPULSORY INSURANCE Motor Employers liability Professional Indemnity
Examples:
Motor
Employers liability
Professional Indemnity
Innocent 3rd parties are always paid out when involved, regardless of breach of non disclosure or misrepresentation.
COMPULSORY INSURANCE

49. Principle of utmost good faith
Duty of disclosure
Material facts
Facts that do not need to be disclosed
Consequences of non-disclosure
Misrepresentation
Breach of the duty of fair representation

50. CHAPTER 5 UTMOST GOOD FAITH
11% OF THE EXAM