Utmost good faith, disclosure and representations
Utmost good faith, disclosure and representations tests the duty to present a risk fairly and the remedies for a qualifying misrepresentation. The exam distinguishes commercial insurance under the Insurance Act 2015 from consumer insurance under the Consumer Insurance (Disclosure and Representations) Act 2012.
Commercial duty of fair presentation
- The insured must disclose every material circumstance it knows or ought to know, or give sufficient information to put a prudent insurer on notice to make further enquiries.
- Knowledge includes the insured's senior management and those who arranged the insurance; a reasonable search is expected.
- Presentation must be clear and substantially correct; a representation must be substantially true and not misleading.
Consumer duty
- Consumers must take reasonable care to answer the insurer's questions accurately; they are not expected to volunteer information the insurer has not asked for.
- The insurer must ask clear questions; a 'reasonable consumer' test applies to answers.
Remedies
- Deliberate or reckless breach: the insurer may avoid the policy and retain premium.
- Careless breach: the remedy is proportionate. If the insurer would have charged more, the claim is reduced by the proportion the actual premium bears to the correct premium; if it would have excluded the risk, the claim may be refused.
Worked example
A commercial insured fails to disclose a declined renewal. The insurer shows it would have charged 20% more premium. The breach was careless, not deliberate. The insurer cannot avoid the policy; it reduces the claim proportionately because the correct premium was higher than the premium paid.
Traps that cost marks
- Saying utmost good faith has been abolished entirely.
- Applying commercial rules to a consumer.
- Assuming avoidance is always available for any misrepresentation.
- Ignoring inducement: the insurer must show it was induced by the misrepresentation.