5 - Utmost Good Faith

Facts that do not need disclosing

1) Fact of law 2) Facts of public knowledge 3) Facts that lessen the risk 4) Facts where the insurer have waived its right to the information 5) Facts that a survey should have revealed 6) Facts that the insured does not know 7) Fact covered by policy terms 8) Spent convictions

Financial Ombudsman Service's Approach

1) Was there a clear question and was it answered correctly? 2) Was the insurer induced? 3) what kind of non-disclosure was it?

FCA Rules on Duty of Disclosure

1. Note insurers must not unreasonably reject a claim due to accidental non-disclosure or non-negligent misrepresentation 2. Insured must be provided with a statement of their demands and needs 3. Insured must be provided with a summary of policy cover e.g. a 'Key Facts' document.

Insurer's Duty of Disclosure

1. Telling the insured of a possible entitlement to a premium discount resulting from a good previous insurance history 2. Only taking in risks which the insurer is registered to accept 3. Ensuring that statements made are true: misleading an insured about policy cover is a breach of utmost good faith

Kettlewell v. Refuge Assurance (1909)

A case study which shows misleading an insured about policy cover is a breach of utmost good faith.

Custodial Sentence

A judicial sentence imposing a punishment consisting of mandatory custody of the convict, either in prison or in some therapeutic or educational institution.

Estoppel

A legal term used for a bar or impediment that precludes a person from asserting a fact or right. It usually arises where one party's conduct has been relied upon by the other.

Utmost Good Faith

A positive duty to disclose, fully and accurately, all facts material to the risk being proposed, whether requested or not.

Physical hazards: Motor insurance

Age and type of car, age of driver, whether full license held, previous accidents, where the vehicle is kept and use to which it is put.

Non-Custodial Sentence

Also known as community sentencing or alternative sentencing - all different names for the ways in which the courts can punish someone convicted of committing an offence.

Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)

Amends the Rehabilitation of Offenders Act 1974

Rozanes v. Bowen (1928)

As the underwriter knows nothing and the man who comes to him to ask him to insure knows everything, it is the duty of the assured . . . to make a full disclosure to the underwriter without being asked of all the material circumstances. This is expressed by saying it is a contract of utmost good faith.

Physical hazards: Fire insirnace

Construction of the building, nature of use, heating and electrical system.

Moral hazards: Personal history

Criminal convictions, a lack of good management of business premises, excessive or willful carelessness.

Material Fact

Definition is still taken from Section 18(2) of the Marine Insurance Act 1906 - 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. Current practice is to encourage the proposer, if in any doubt about facts which may be considered material, to disclose them.

Disclosure on Renewal

Duty of disclosure is revived at renewal for genera insurance policies.

Disclosure at Inception

Duty of disclosure starts when negotiation begins and ends when the contract is formed. There is then no requirement for the insured to declare material facts unless hear affect policy cover e.g. value of property increases or a car is sold and another purchased. However, the insured would not need to disclose a conviction for fraud mid-term unless a specific policy condition extends the insured' duty.

Facts the insured does not know

For people acting in a private capacity, the tests are 1) whether it is reasonable to expect the insured to disclose a material fact and 2) whether misrepresentation is negligent. For commercial insurances, an insurer is entitled to apply the measure of what the proposer ought to know, even if they do not.

Non- Disclosure on Proposal Forms

If a question is not asked, or an incomplete answer is provided, and the insurer does request further details, the insurer is deemed to have waived its rights regarding this information. The proposer is not considered to have failed to disclose a material fact.

Deliberate or Reckless Misrepresentation

If the consumer: 1) knew that it was untrue or misleading, or did not take care why she or not it was untrue or misleading; and 2) knew that the matter to which the misrepresentation related was relevant to the insurer or did not care why she or not it was relevant to the insurer. If it is found to be deliberate or reckless, the insurer: 1) may avoid the contract and refuse all claims; and 2) can keep any premiums paid unless t would be unfair to the consumer to retain them.

A Qualifying Misrepresentation

In order to determine if the misrepresentation is a reasonable mistake or deliberate, insurers may take into account: 1) the type of insurance contract and its target market 2) any relevant explanatory material produced by the insurer. 3) how clear and specific the insurers questions were 4) if the insured did not respond to questions, how clearly did the insurer communicate the importance of answering these questions or the possible consequences 5) whether or not an agent was acting for the insurer.

Carter v. Boehm (1766)

Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly on the knowledge of the insured only: the underwriter trusts to his representation, and proceeds upon the confidence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risk as it did not exist.

Continuing requirement

Insurers are often concerned that their rights at common law are limited because the insured does not need to disclose certain material changes mid-term. Motor insurance policies usually include a policy condition that requires continuing duty of disclosure of all material changed during the currency of the policy. Liability insurances tightly define 'the business' meaning any deviations from this are notifiable mid-term.

Non-Disclosure

It arises and gives grounds for avoidance by the insurer where a fact 1) is within the knowledge of the first party, 2) is not known to the second party or 3) is calculated, if disclosed, to induce the insurer to enter the contract at terms they consider to be better, or not to enter the contract at all.

Consumer (Disclosure and Representations) Act 2012

It removes the common law duty on consumers to disclose any facts that a prudent underwrite would consider material and replaces this with a duty to take reasonable care not to make a misrepresentation. It, therefore, replaces the duty on consumers to volunteer information before taking out insurance, with a duty to take reasonable care to answer insurers' questions fully and accurately.

Physical hazards: Theft insurance

Nature of stock, it's value and nature of security precautions.

Long-term policies - Duty of Disclosure

Once the requirements of disclosure have been met at the negotiation stage, the duty of disclosure ceases.

Moral hazards: Insurance history

Previous refusals by other insurers, previous claim history of any indication of suspected fraud or exaggeration.

Comsumer

Someone who takes out insurance wholly or mainly for purposes unrelated to the individual's trade, business of profession.

Test of a Material Fact

The courts test whether a fact is material by looking at it from a prudent insurer's point of view. They do not consider the insurer's point of view or that of the particular insurer involved.

Insured's Duty of Disclosure

The insured must make full and complete disclosure of all material facts relating to the contract of they wish to ensure that, in the event of a loss covered by the terms of the policy, their claim is paid - see Carter v. Boehm (1766)

Example of Claiming Estoppel

The insured saying that they relied on the silence from the insurer as evidence of everything being satisfactory and it was unfair to now cancel the policy. If the courts agree, the insurers would not be able to cancel the policy.

Rehabilitation Period

The period of sentence plus the 'buffer' period which applies from the end of the sentence.

Compensatory Remedy

This would be based on what the insurer would have done if it had known the correct information, such as applying relevant terms or an increased premium.

Compulsory Insurances

Under the Road Traffic Act 1988, insurers must meet all claims for personal injury and property damage made compulsory under this legislation. Once they have done so, they the. Have a right of recovery against the insured if there was a breach of the duty of disclosure.

Misrepresentation

When a fact is stated wrongly or exaggerated. Where a proposer deliberately or recklessly answers wrongly, the insurer will be entitled to avoid the policy an initio. It must concern a fact and not an opinion and must also meet the conditions outlined relating to non-disclosure.

Disclosure on Alteration

Where a change results on the need for an endorsement to the policy, such as a change in drivers, the duty of disclosure is revived.

Breach of The Duty of Utmost Good Faith

Where there has been a breach by the insured, the insurer will generally have the right to avoid the policy. Insurers must not act in a way that suggests they have waived their right as they would then be stopped from avoiding the policy e.g. writing to the insured invoking a seven day cancelation clause. In doing so, the insurer accepts that the policy is in force up to the date of cancellation. In the event of a breach noted in the event of a claim, insurers can choose to ignore the breach, but must then pay the claim and leave the policy in force.