- 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.
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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.