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Chapter 8 Legal issues relating to reinsurance 8/3

A1 Principles of insurance
Reinsurance contracts are subject to the following principles governing insurance contracts:

Principles governing insurance contracts

utmost good faith indemnity insurable interest form

A1A Utmost good faith

Reinsurance contracts, as insurance contracts and most other contracts of a fiduciary nature, are based
Reinsurance
on the principle of uberrima fides (the utmost good faith). This remains enshrined in section 17 contracts are based
of the Marine Insurance Act 1906, as amended by the Insurance Act 2015 which came into force on on the principle of
utmost good faith
12 August 2016.
Under the Insurance Act, there is no express statutory remedy for a breach of that duty, the former
remedy of avoidance having been repealed. Nonetheless, the parties to reinsurance contracts are
obliged to be open, honest and fair in their dealings with each other.

A1B Fair presentation
For reinsurance contracts, the basic rule is that the reinsured has a statutory duty to make a fair
presentation of the risk to the reinsurer before the contract is entered into.
Obligation
Under the Insurance Act 2015:
3(3) A fair presentation of the risk is one:
a. which makes the disclosure required by subsection (4) of the Act (see below);
b. which makes that disclosure in a manner which would be reasonably clear and accessible to a
prudent insurer; and Reference copy for CII Face to Face Training
c. in which every material representation as to a matter of fact is substantially correct, and every
material representation as to a matter of expectation or belief is made in good faith.
Disclosure
There are two aspects to this duty of disclosure and they are set out below:

3(4) The disclosure required is as follows, except as provided in subsection (5):
a. disclosure of every material circumstance which the insured knows or ought to know; or
b. failing that, disclosure which gives the insurer sufficient information to put a prudent insurer on
notice that it needs to make further enquiries for the purpose of revealing those material
circumstances.
The first aspect requires the ‘disclosure of every material circumstance which the (re)insured knows or Chapter
ought to know’.

• Section 7(3) states that ‘a circumstance or representation is material if it would influence the judgment 8
of a prudent insurer in determining whether to take the risk and, if so, on what terms’. The section
continues with examples of things which may be material circumstances, that is, special or unusual
facts relating to the risk, and any particular concerns which led the insured to seek insurance cover for
the risk.