Insurance

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MASSEY UNIVERSITY

School of Accountancy

Lecturer’s NameFeona Sayles| Paper Number 155.210| Paper NameCommercial Law|

Honesty Declaration -

* I declare that this is an original assignment and is entirely my own work. * Where I have made use of the ideas of other writers, I have acknowledged (referenced) the source in every instance. * Where I have used any diagrams or visuals produced by others, I have acknowledged (referenced) the source in every instance. * This assignment has been prepared exclusively by me for this paper and has not been and will not be submitted as assessed work in any other academic paper. * I am aware of the Code of Student Conduct on the Massey University web site http://calendar.massey.ac.nz/statutes/dr.htm, clause 2 (f), wherein it states [Students shall] “act with honesty and integrity in submitting material or imparting information to the university”. Assessment & Examination Regulations clause (6) clarifies further that “dishonesty” is a breach of the Code of Student Conduct and will be dealt with accordingly.| Family Name| Given Name(s)| ID number| Student Signature| Date| Yong| Jim Leon| 12104642| JL Yong| 2/5/13|

Introduction
There are 2 issues faced by James here. One of them is failing to disclose a material fact about the tenants of his house being first year Massey students. Is this fact material or not? The other issue is failing to disclose the fact that the wiring of the house dates back to 1935. It seems that James didn’t feel that this would affect his claim. In fact, he didn’t seem to realize the significance of a house possessing 1935 wiring. As we can see, both issues involve the subject of disclosure and it is therefore important to understand what disclosure actually is in the context of insurance. Finally, in regards to the students, if the claim is upheld, will there be any action taken towards them?

We will look at the various laws around the topic of disclosure.

Disclosure
The relationship between the insured and the insurer is one of utmost good faith and places great importance upon disclosure. According to the Meriam Webster Online Dictionary, “disclose” is defined as to make known or public. In other words, it also means to reveal the truth about someone or something. Therefore, a customer’s full disclosure of material fact is crucial information for an insurance company, as they will use this information to assess the amount of risk a potential customer may possess. Risky customers are charged a higher premium or simply declined. That is why insurance companies tend to ask many questions at the earlier stages when the contract is being formed. The failure to disclose a material fact from the outset of the insurance contract can cause the contract to be void upon a claim. In fact, although this common law applies to both parties, insurance companies tend to benefit from it more as it can be used to protect them from people who are incentivised to not disclose everything they know, just to keep their premiums low.

Materiality
Disclosure is important only when it is “material”. Question is how do we define whether something is material? Also, what kinds of information do insurers regard as being material? Materiality can be basically defined as a particular fact that would make a difference to the risk being taken on. For example, if I were a smoker, this would be a material fact if I applied for health insurance, as it is well known that smokers are exposed to higher health risks. On the other hand, a fact that is not material is that I am left-handed, as that has nothing to do with affecting my health in any way unless you are into conspiracy theories. Now that we know roughly what materiality is, we must then apply the “prudent insurer” test to really see whether or not insurers would consider a fact material. According to Sayles (2013), “a fact is material if it would affect the mind of a...
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