Page 85 - CFPA-SCR-Award in General Insurance W01_2018-19_Neat

Chapter 5 Good faith 5/7

Question 5.2
The construction of a building would be a material fact in respect of a fire policy. What other facts might a prudent
insurer consider material to a fire policy on a commercial building?

C2 Material facts in non-life proposals
In general, material facts relate to either physical hazard or moral hazard. Legal cases today rarely
Material facts relate
concern physical hazards, as specific questions to establish this information are included on the to either physical or
proposal form. Moral hazard, however, is less likely to be the subject of specific questions on the moral hazard
proposal form.

C2A Physical hazard
Examples of material facts that concern possible physical hazards in relation to non-life proposals are:
• Fire insurance: construction of the building, nature of use, heating and electrical system.
• Motor insurance: age and type of car, age of driver, whether a full licence is held, previous accidents,
where the vehicle is kept and what the car is used for.
• Theft insurance: nature of stock, its value and any security precautions.
C2B Moral hazard

The following examples of material facts relating to moral hazard apply to general insurance. They relate Chapter
either to the insurance history of the policyholder or to their personal history or attitude:

• Insurance history: previous refusals to insure (declinatures) by other insurers; previous claims history 5
if any indication of suspected fraud or exaggeration.
• Personal history: criminal convictions; a lack of good management of business premises; excessive or
wilful carelessness.
The case of Roselodge v. Castle (1966) examines the nature of moral hazard (personal history) in the
context of an application for insurance. In this case, the insurer’s suggestion that the fact that the
proposer was caught stealing apples at the age of twelve would be material to an application for
insurance many years later was ridiculed.

C3 Facts that do not need to be disclosed
Some things need not be disclosed, even if they are material. They include the following.

Matters of law
Everyone is deemed to know the law.
Factors which lessen the risk
There is no requirement to disclose factors that reduce the risk – i.e. make it better than a normal risk of
its type. For example, the subject matter insured, a yacht, is laid up in a secure area which is guarded by
security personnel.
Example 5.2
Such risk reducing factors might include:
• the installation of an alarm system for a theft risk; or
• automatic sprinklers for a fire risk.

Facts known by the insurers
Rather obviously, there is no duty to tell insurers things that they already know. The information does
not have to come from the proposer. In fact, it does not seem to matter where the information comes
from, provided the source is reliable. IA 2015 sets out the standards used to determine what the insurer
knows in this respect (s.5).

Facts which the insurers ought to know
In some cases the courts take the view that, while the insurers might not have actual knowledge of the
circumstances they have ‘constructive knowledge’, i.e. they ought to know of them. This category covers
a number of situations, including the following:
• Facts which are notorious (i.e. matters of common knowledge).