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6 - Pre-contractual information duty (Duty of disclosure (Matters which…
6 - Pre-contractual information duty
Misrepresentation
Types
Fraudulent
False statement with deliberate intention of misleading another
Innocent
No intention to mislead other party
Negligent
False because care not taken to ensure it was correct
To affect validity of agreement false statement must...
Be material
Induce the contract
Be made by a party to the contract
Cause loss or disadvantage to other party
Be one of fact
Remedies
Business insurance
Insurers may seek remedy for any type of misrepresentation as a matter of strict law
Consumer insurance
Only if it is negligent or fraudulent
Question is 'what would insurer have done if there wasn't misrepresentation?'
Not 'what would they have done if insured had told the truth?'
Duty of disclosure
Business insurance
Positive duty
Case of
Rozanes vs Bowen (1928)
Insurer will not be able to know full facts about risk without proposer's disclosure
Insurance Act (2015)
Duty to disclose information that they know or ought to know which a prudent underwriter would require
Agent's duty
Insurer can seek remedy for breach by insured's agent
Principal is responsible for agents actions under common law
IA 2015
- what is known to insured's agent is attributed to insured
Material facts
Prudent insurer
Would the risk have been writeable and at the same premium were the full facts known?
Actual inducement test
Must be proved by insurer and not presumed
Insurer can only seek remedy if breach is 'qualifying'
If insurer wouldn't have entered into contract or would but on different terms
Connection between facts and the loss
It is relevance of particular fact to risk as a whole not just that claim
There there doesn't have to be a connection ('nexus') between the fact and the loss
Action can be taken by insurer at time of discovery, even if there has been no loss
Consumer insurance
Consumer Insurance (Disclosure and Representations) Act (2012)
Consumer merely has to take care not to make misrepresentation
Insurer must prove inducement
Essential duty is to disclose all facts and circumstances material to the risk
Matters which must be disclosed
Physical hazard
Adequate description of subject matter of insurance
Unusual details about subject matter which worsen the risk
Moral hazard
Insured's identity
Equality Act (2010)
outlawed discrimination on 'protected characteristics'
European Court ruling under
Test Achats (2011)
that insurers can no longer discriminate on gender
Still allowed to consider person's occupation as a rating factor
Criminal acts
Present strongest indication of moral hazard
Doesn't need to be connection between crime and type insurance
Previous claims and insurance history
Other policies
Insurer would want to know if insured is purchasing dual-insurance
Failure to disclose other life policies may breach duty of fair presentation of risk
Non-consumer proposer must disclose material fact even if not asked to do so
Includes information which they ought to know
Individual within insured company often arranges insurances
Knowledge of fraudulent misrepresentation not imputed to insured
Matters which need not be disclosed
Matters of law
Facts which lessen the risk
Facts known by the insurer
Facts which the insurer ought to know
Information waived by insurer
Facts outside scope of specific questions
Facts which an inspection should have revealed
Facts the proposer doesn't know
'Spent' convictions
Duration of duty
Common law rule
At common law, duty begins at commencement of negotiations and ends with offer an unqualified acceptance
No duty to disclose new material facts which arise during contract period
Position at renewal
Duty of disclosure revived if insurer offers renewal
Insured will be have taken to affirm no changes if they make no declaration
Only applies at inception for life contracts
Continuing duty
Duty to disclose new material facts during contract on in two cases...
When there are agreed changes in the contract
Where policy specifically requires continuing disclosure
'Increase in risk' clause
If risk is increased, cover will ceases unless alteration is notified and accepted
Good faith in the claims process
Important to note that...
Fraudulent claims is breach of good faith but remedy is forfeiture of entire claim
Right to repudiated contract may arise from fraudulent claim
Falsehood must be substantial and willful
Burden of proof rests on insurer
Remedy for fraudulent claims
Insurance Act (2015)
Insurer may recover any monies paid in connection with claim
Insurer may treat contract as terminated from time of fraudulent act
Forfeiture or fraud clause
Group life policy
Employer takes out policy for benefit of all employees
Fraud by one employee won't invalidated other employees' cover
Criminal Justice and Courts Act (2015)
Claim for personal injury will fail if claimant has been fundamentally dishonest in respect of part of the claim
Compulsory insurances
Employers' Liability
Insurer can avoid policy in its entirety in case of misrepresentation or non-disclosure
Motor Insurance
Basic right to avoid for breach of pre-contractual information duty
Road Traffic Act (1988)
Allows victim of RTA with order for damages to claim directly from TP's insurer
Also allows insurers to refuse payment if policy was obtained by non-disclosure or misrepresentation
Need court order to do so
As per
CIDRA
must still be qualifying misrepresentation
Contracts for sale of goods
Contract cannot be avoided simply because one party made poor bargain
Subject to '
caveat emptor'
-
Let the buyer beware
Breach of duty
Breach by the insured
Business insurance
Insurer can avoid contract if they wouldn't have entered into contract if info was disclosed
Must return premiums paid
IA 2015
provides they must seek alternative remedy if they would have still entered contract
Different terms
Contract to continue but on those terms
Higher premium
May reduce proprtionately the amount paid on a claim
FORMULA
In case of misrepresentation or fraudulent non-disclosure...
Insurer can claim damages as an alternative to avoidance
No English cases
Innocent
Can avoid policy if burden of proof is met
Can't keep premium
Can ignore breach
Can refuse claim but allow policy to stand
Fraudulent
Can keep premium
Can ignore breach but unlikely
Can avoid policy
Can refuse claim and allow policy to stand but unlikely
Insurer can waive breach
Need to be careful as silence or delay can be interpreted as a waiver
Contracting out
Parties to non-consumer contract can contract out of
IA 2015
to detriment of insured
Through a 'disadvantageous' term
Can only do so if it is clear and unambiguous and they draw it to insured's attention
Consumer insurance
CIDRA 2012
Insurer can only seek remedy if breach is 'qualifying'
Must be deliberate, reckless or careless
Burden of proof is on insurer
Presumptions made...
Consumer has reasonable knowledge
Consumer knew matter relating to question was relevant to insurer
Breach by the insurer
Neither
IA 2015
or
CIDRA 2012
contain provision for breach of duty by insurer
Therefore must be reviewed under
MIA (1906)
Either party may avoid contract if other doesn't observe utmost good faith
Common law poses general duty to act in good faith
Financial Services Act (2012)
Illegal to deliberately conceal material facts or make false statement to induce person to enter contract of insurance
Offence to engage in conduct which creates false impression of market or price of investment
Insurance: Conduct of Business (ICOBS) Rules
Insurer must not unreasonably reject a claim (including by termination or avoiding a policy)
Other than where there is evidence of fraud, an unreasonable rejection would be..
.
Non-negligent misrepresentation of material fact
Non-disclosure where insured could not have been reasonably expected to disclose
'Consumer'
Any natural person who is acting outside of their business, trade or profession
ICOBS rules apply to all insurers regulated by FCA and PRA
FCA can bring action against insured who are in breach
Restrict an insurer's right to seek remedy for breach of warranty or condition
Number of general requirements for claims handling