Good faith and disclosure

Good faith

• Information must be clear and accessible.

• Facts: Must be substantially correct.

• Expectations or beliefs: Must be shared honestly and in good faith.

Duty of disclosure

Duty to disclose material cirmustances

Insureds duty of disclosure - consumer insurance

CIDRA - Consumer Insurance (Disclosure and Representations) Act 2012

• Replaces the old duty to disclose all material facts.

• Consumers must now take reasonable care not to misrepresent information.

• Consumers no longer need to volunteer information — they must answer insurers’ questions fully and accurately.

• Includes rules on agency, group schemes and insurance on another’s life.

• Bans basis of contract clauses that put consumers at a disadvantage.

• Insurers must ask clear, specific questions; intermediaries had to update documents and processes.

Insureds duty of disclosure -non- consumer insurance

• Telling the insured about possible premium discounts.

• Only accepting risks the insurer is authorised to cover.

• Giving truthful information — not misleading the insured about cover.

The Insurance Act 2015

• The Act abolishes the old rule that let insurers or insureds void a contract just because utmost good faith wasn’t observed.

• Good faith still matters, but it is modified by the Insurance Act 2015 and CIDRA 2012.

• Key change: Breaches of good faith no longer automatically void the policy — remedies are now proportionate, not automatic.

Duty to make a fair presentation

The insured must give a fair presentation of the risk by doing ONE of the following:

• Disclosing all material circumstances they know or should know;

• Presenting information in a clear and accessible way; or

• Giving enough information to put the insurer on notice to ask further questions.

What does an individual insured know?

• Disclosing all material circumstances they know or should know;

• Presenting information in a clear and accessible way; or

• Giving enough information to put the insurer on notice to ask further questions.

What does a non- indiviual insured know?

only what is known to one or more of the individuals who are:

• part of the 'senior management team' (those who play significant decision-making roles about the organisation of insured activities); or

• responsible for the insured’s insurances

What is the insurer expected to know?

An insurer knows something if it is known by anyone involved in deciding whether to take the risk and on what terms.

An insurer is presumed to know:

• Common knowledge.

• Information a typical insurer in that class would reasonably be expected to know in normal business.

If either party suspects something is true but deliberately avoids checking, the law treats them as knowing it.

When is an intermediatory considered to be the insurers agent?

• • are the insurer’s appointed representative,
  • collect info with the insurer’s express authority, or
  • have authority to bind the insurer.

• Otherwise, the intermediary is presumed to be the consumer’s agent, unless the consumer proves differently.

Effect of FCA rules

• Advisers must tell clients their demands and needs.

• They must show how the recommended product meets those needs.

• This requires thorough fact‑finding, so the adviser is responsible for gathering all relevant information.

When should there be duty of disclosure?

Inception

Renewal

Continuing requirement

On alteration

When does a policy require continuing requirement on a property ,motor and liability insurance?

• Commercial Property Insurance:
  Must disclose moves to new locations or anything that increases the risk of damage.

• Motor Insurance:
  Often requires ongoing disclosure of all material changes during the policy period.

• Public Liability Insurance:
  Insurers define the insured's business activities narrowly, so any new or extended activities must be disclosed.
  May also include a condition for continuous disclosure of material circumstances.

What are makes a circumstance material?

IA 2015 states a circumstance is material if it would influence the judgement of an insurer in determining whether to take the risk, and if so, on what terms

Examples of a material circumstance

• Unusual or special facts about the risk.

• Any specific concerns that made the insured seek cover.

• Anything industry experts would expect to be included in a fair presentation for that type of risk.

Circumstances that do not need to be disclosed

• Information that lessens the risk

. • Information the insurer knows.

• Information the insurer ought to know.

• Information the insurer is presumed to know. • Information waived by the insurer.

• Spent convictions

Consequences of misrepresentation by consumers

If a consumer deliberately or recklessly misrepresents or withholds information, the insurer can avoid the policy from the start (ab initio).