Q2. The Consumer Insurance (disclosure and representation) act 2012. Explain the principles which apply to a business applying to entering into a contract of insurance in relation to disclosure of information.
Insurance is mostly governed by the common law, although the Marine Insurance Act 1906 restated and codified much of the common law for marine insurance purposes. Insurance contracts are carefully worded and the insurer’s liability often depends on whether the situation giving rise to a claim falls within the ambit of the words chosen. Customer insurance is covered by Unfair Contract Terms Act by commercial insurance isn’t. The insurance industry is generally regulated by the Insurance Companies Act 1982.
The contract of insurance is described as a contract uberrimae fidei, or involving the utmost good faith in relation to consumer insurance contracts.
Like the duty of good faith, the duty of disclosure is mutual, although few cases exist that explore the duty as it applies to the insurer. The duty of good faith is wider in ambit than the duty of disclosure. Good faith applies at all times during the insurance contract: during negotiations; the currency of the insurance contract; and the date when a claim is made.
By contrast, the duty of disclosure applies during negotiations, but only up until a binding insurance contract is formed. It revives when the insured renews the contact. Usually annually. There is, however, no obligation on the insured to disclose factors increasing the risk during the course of the insurance contract.
There are three elements of good faith
- Duty of disclosure of all facts which are material to the risks insured in the insurance policy;
- Duty not to misrepresent facts
- Duty not to make a fraudulent claim on the policy.
There are two important issues to consider in the context of disclosure;
- The state of knowledge or belief of the insurer about the relevance of certain facts to the risk insured; and
- The test of what is “material” fact to the risks insured in terms of the insurance contract.
The first issue concerns the thorny problem of how the law treats the situation where the insured did not disclose a material fact but was unaware of the fact at the formation of the contract. In such cases it is important to distinguish between a consumer insurance and commercial insurance.
Consumer insurance the law asks: “Did the insured disclose what he knew or did he wilfully turn a blind eye or conceal the factual position?” If he did not disclose what he did not know, the insurer is unable to avoid liability.
In the case of Joel v law union insurance 1908 & Economides v commercial union assurance plc 1998 – held, that the insurer will be under a duty to indemnify the insurance in circumstances where the insured did not know of the material fact and did not turn a wilful blind eye to the matters.
However, in the case of marine insurance (commercial nature) the law is as set out in s18 (1) of the Marine Insurance Act 1906. Here, the question becomes “Did the insured disclose what he knew or ought to have known?” Moreover, in terms of s18 (1) the insured is deemed to know every circumstance which, in the ordinary course of business, ought to be known to him.
The test for Materiality – with regard to the test, there are two possible interpretations. Have a look at Notary public London for additional help