Page 81 - W01TB8_2017-18_[low-res]_F2F_Neat

Chapter 5 Good faith 5/3

A Principle of utmost good faith

‘Utmost good faith’ can be defined as:
a positive duty voluntarily to disclose, accurately and fully, all facts material to the risk being proposed,
whether requested or not.

As stated in the introduction, the pre-contractual information duty has changed as a result of the
Proposer has duty to
Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA) in consumer insurance and the disclose all material
Insurance Act 2015 (IA 2015) in non-consumer insurance. facts about the risk
The principle does, however, continue to apply equally to both the proposer and the insurer
throughout the contract relationship, in the form of the duty to act openly, honestly and in fair dealing
(see section D3 for more detail on how this affects the duty of the insurer).

B Duty of disclosure

It is useful to compare insurance contracts with contracts for the sale of goods.
Contracts for the sale of goods are subject to the doctrine of ‘caveat emptor’ (let the buyer beware).

Although the buyer of goods is given considerable protection by statutes such as the Sale of Goods Act
1979 and the Unfair Contract Terms Act 1977 (which applies to commercial contracts generally but not to
insurance), the basic responsibility of each party is still to make sure that they make a good bargain.
This is largely because the buyer is able to examine the goods, assess their quality, and judge for Chapter
themselves whether the price is fair. Therefore, so long as neither party deliberately misleads the other,
and any questions are answered truthfully, the contract cannot be avoided simply because one party 5
finds that they have made a poor bargain. In particular, neither party is required to disclose information
that is not requested.
Example 5.1
This means, for example, that if you are selling a car you are under no positive duty to disclose anything about it to
the buyer (although, of course, if you do give information it must be correct). Reference copy for CII Face to Face Training

B1 Proposer’s duty of disclosure in non-consumer (business) insurance

In business insurance there is a positive duty of disclosure going beyond a mere duty not to
misrepresent matters which are, in fact, disclosed.

The Insurance Act 2015 modified the duty of utmost good faith that underlies insurance contracts by
introducing the new duty of ‘fair presentation’. The duty to volunteer information is retained and a
commercial proposer must either:
• disclose to insurers ‘every material circumstance’ which the proposer knows or ought to know; or
• provide the insurer with sufficient information to show a prudent insurer that it needs to make further
enquiries into those ‘material circumstances’.
The disclosure should be in a matter which would be reasonably clear and accessible to a prudent
IA 2015 introduced
insurer, and material representations relating to fact should be substantially correct and those relating new duty of ‘fair
presentation’
to a matter of expectation or belief should be made in good faith.
The key changes are that:
• the proposer cannot ‘data dump’ on the insurer – the presentation must be reasonably clear and
accessible; and
• the insurer has to consider whether the presentation invites further questions to be asked, and it has
the burden to make sure those questions are asked if needed.
The Act also sets out what the measure of the proposer’s actual or imputed knowledge is, and it will
include matters known by senior management in an organisation as well as those responsible for the
organisation’s insurances (including the brokers) – although this does not include any confidential
information which might be held by their broker, for example, which they did not obtain from their
clients.