Page 91 - W01TB8_2017-18_[low-res]_F2F_Neat

Chapter 5 Good faith 5/13

Key points

The main ideas covered by this chapter can be summarised as follows:
Principle of utmost good faith
• Utmost good faith is a positive duty to disclose, accurately and fully, all facts material to the risk being proposed,
whether requested or not.
Duty of disclosure
• Under the Insurance Act 2015:
– business customers must make a ‘fair presentation’ of the risk to the insurer;
– the presentation must be made in a reasonably clear and accessible manner;
–a circumstance or representation is material if it would influence the judgment of a prudent insurer in
determining whether to take the risk and, if so, on what terms.
• Under the Consumer Insurance (Disclosure and Representations) Act 2012:
– consumers must take reasonable care not to make a misrepresentation to their insurers;
– the pre-contractual duty of disclosure for consumers was abolished.
• The insurer also has a duty of disclosure to the proposer.
• Policy wordings can modify the duty of disclosure, making it a continuing one.
• The duty of disclosure revives at renewal automatically, regardless of any policy provision.
• An insurer who fails to further investigate unanswered questions or inadequate or unclear information is deemed to
have waived their right to it and cannot subsequently claim non-disclosure. Chapter
Material facts
• A material fact is one which would influence the judgment of a prudent insurer in fixing the premium or determining 5
whether they will take the risk.
• Certain facts, though material, do not need to be disclosed, either because the insurer ought to know them or could
find them out.
Consequences of non-disclosure and misrepresentation Reference copy for CII Face to Face Training
• Non-disclosure gives grounds for avoidance by the insurer where a fact is within the knowledge of the proposer, is
not known by the insurer and would have caused the insurer to impose better terms or to have not entered into the
contract at all.
• In non-consumer (business) insurance, an insurer may seek remedy for misrepresentation regardless of whether
the misrepresentation is fraudulent, negligent or completely innocent.
• In consumer insurance, the insurer:
– may only seek remedy for a misrepresentation which is negligent or fraudulent; and
– will only be entitled to avoid a policy entirely where the breach of duty of fair presentation is deliberate or
reckless.
Compulsory insurances
• Motor insurance (third-party personal injury and property damage) legislation usually prevents an insurer from
avoiding liability for breaches of utmost good faith.