|        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Sunday, April 14th, 8:46PM


Latest Headlines

ISO Case Studies - April 2012

  This week's case studies look at non-disclosure when the clients say "But I told my adviser/ broker..."

Friday, April 13th 2012, 2:50PM

CASE STUDY 12:      ("P" is Participant insurer and "C" is Complainant)

 If you know information about your client that should be disclosed on an application you should ensure that it is disclosed. If you are paid a commission or a referral fee then you could be deemed an agent of the insurer and the insurer may be deemed to be on notice of information which was not disclosed on the application if you know about it.

 Complaint No:  116613

Year: 2010

Casebook Index:  Non-disclosure - Convictions, Broker, Non-disclosure - Previous underwriting terms, Avoidance ab initio, Insurance Law Reform Act 1977

 What Happened?

In 2008, C's broker arranged cover for a work vehicle, belonging to C's company. The cover was provided by a second broker ("X") and was underwritten by P. Later in 2008, the policy was endorsed to provide cover for various other vehicles, including C's racing car.

In April 2009, C discovered the racing car had been stolen. It was recovered after having been stripped of parts. X advised P of a claim.

P discovered that C had 10 traffic convictions and 2 licence suspensions. P avoided the policy from inception and declined to consider the claim. C accepted that he failed to disclose the convictions and suspensions on the proposal. However, he believed the broker knew of them and, therefore, P could not rely on the non-disclosure to avoid the policy and decline to consider the claim.

Did the broker know about C's traffic convictions?

The Case Manager discussed the matter with the broker who advised him that, when the policy was arranged, he was aware there was a "licence issue". The broker later confirmed to P that he knew C's licence had been suspended for demerit points.

While the broker did not appear to have known the full details of C's convictions and suspensions, he knew that C's licence had been suspended for demerit points. The Case Manager considered this fact clearly indicated that C had a number of traffic convictions. The broker was reasonably put on inquiry about the full extent of C's convictions and suspensions when the policy was arranged.

Was the broker P's representative?

Under Section 10 of the Insurance Law Reform Act 1977 ("the ILR Act"), P was deemed to have notice of any information held by the broker if the broker was a "representative of the insurer".

Section 10(3) of the ILR Act states that a person is a "representative of the insurer" if he/she is "entitled to receive from the insurer commission or other valuable consideration ... for ... arranging, negotiating, soliciting or procuring the contract of insurance".

The broker was the referring agent to X and was listed as the "client contact person". X confirmed that the broker was paid a referral fee. The Case Manager believed that, for the purposes of section 10, the broker was P's representative.

Therefore, P was deemed to have been reasonably put on enquiry about the full extent of the convictions and suspensions and could not rely on their non-disclosure to avoid the policy and the complaint was upheld.


It is important that if you know of information which is not disclosed on an application that you discuss this with your client and explain that he/she has an obligation to disclose this. If you know material information which is not disclosed on an application the insurer can also be deemed to know it.



CASE STUDY 13:      ("P" is Participant insurer and "C" is Complainant)

Customers often claim that they told their broker/ adviser of their convictions or that the broker/ adviser was aware of them. The ISO Scheme's ability to assess credibility is very limited and the ISO Scheme largely relies on documentation completed at the time to assess what information was disclosed. The file and telephone notes you have on a customers file will assist in establishing what information was disclosed at inception.


Complaint No:  114158

Year: 2009

Casebook Index: Avoidance ab initio, Knowledge, Non-disclosure - Convictions, Proposal questions, Prudent underwriter, Representation by broker, Whether ‘on notice'

What Happened?

In August 2007, D's broker asked P for a quotation for business and vehicle insurance, including cover for a 2006 Jeep Cherokee ("the Jeep") owned by C.

D's broker provided P with information about C as follows:

"[D's] daughter [C] drives Jeep. Age 23. No accidents last 3 years. Lost licence - demerits (3 months) Driving whilst disqualified x2. 3 years ago- Nothing since (appears to have turned the corner)".

P confirmed cover for D's vehicles.

In January 2008, D's broker provided a policy endorsement to P, adding a Nissan Skyline belonging to C, to the vehicle policy from 12 December 2007. On 11 February 2008, the endorsement was accepted by P.     

On 31 January 2008, C completed a Private Boat Proposal to insure 2 jet-skis. The jet-ski proposal asked if C had "[e]ver...[e]ngaged in any criminal activity or had any criminal convictions, acquittals or diversions, or have any criminal prosecutions pending?" The answer recorded was "No".

On 7 March 2008, C's broker confirmed cover for the jet-skis with P.  The information on the jet-ski proposal was also used by P to insure contents belonging to C.

On 18 April 2008, the jet-skis were stolen from C's driveway. C made a claim to P for the theft.

On 6 May 2008, the Skyline and its contents were stolen from a car-park.

On 7 May 2008, C made claims to P for the theft of the Skyline and the contents.

P obtained a conviction history for C, as follows:

  • in 2002, 2 convictions for theft and shoplifting;
  • between 1 November 2002 and 17 February 2004, 3 convictions for driving while disqualified;  and
  • between 17 June 2002 and 23 January 2008, 9 speeding convictions and a suspension of licence.

P avoided the jet-ski policy and the contents policy from commencement, because C failed to disclose her criminal convictions when the policies were arranged.

P also avoided the Skyline risk and declined to consider the Skyline claim. The premium paid to insure the Skyline was refunded.

C challenged P's decisions to avoid the policies and decline to consider the claims. She said she had disclosed her convictions in a contents proposal completed for, and subsequently accepted by, her previous insurer X. C's broker had arranged the previous insurance and, therefore, knew of her convictions.

C's broker said he was "...  not aware of [C's] criminal or traffic convictions".

In the case of the applicant, the principle of utmost good faith means that the individual must inform the insurer of any facts which may be material to the insurance cover sought, such as criminal convictions. The duty of disclosure exists when the proposal was completed.

Did P have notice of C's convictions?

Under section 10 of the Insurance Law Reform Act 1977 ("ILRA"), if a broker receives commission for placing a policy, he/she is regarded as an agent of the insurer in the negotiation of any insurance contract. 

C believed that, because her broker forwarded a contents proposal to X, her broker knew of her convictions and should have told P. However, her broker said it did not know of C's convictions until it was informed by P.

In situations where there is contradictory evidence, the ISO's ability to investigate is limited. Because of this limitation, the Case Manager had to rely on the documentation provided. A copy of the 2006 proposal was not available and it could not be confirmed that it disclosed C's convictions. Therefore, the Case Manager did not believe C and D had proved, on the balance of probabilities, that the information on the X proposal was known to their broker. Therefore, P could not be deemed to have notice of the information under section 10 of the ILRA.

Were the convictions material?

Information is material if it would influence the mind of a prudent insurer when deciding whether to accept an application for insurance and, if so, on what terms.

The Case Manager presented the fact situation (with identifying details omitted) to 3 senior independent underwriters and asked how this would have influenced their decisions to insure the jet skis, contents and Skyline. 

Two of the 3 underwriters contacted by the Case Manager indicated it would have affected their decisions to insure the jet-skis and contents, to the extent that they would have significantly altered the terms of cover. On this basis, the Case Manager was satisfied the non-disclosure caused P to enter the contract on the terms provided and P was entitled to avoid the policy and decline to consider the claim.

Two underwriters believed that C's convictions were not material, citing instead C's age and the value of the Jeep. The third underwriter believed the convictions were material, but thought P knew enough to be put on notice and to enquire further. Therefore, having regard to the prudent underwriters' opinions, the Case Manager did not believe the non-disclosure of C's conviction history was material information and therefore  P was not entitled to avoid the vehicle policy.

Result Complaint partially upheld



It is important that clients understand that all questions on the proposal must be answered correctly as this is information that is important to the insurer when assessing the risk. Whilst many people do not believe convictions are material to all policies when completing a proposal the test of materiality is what the "prudent insurer" thinks rather than the average person.


« ISO Case Studies - March 2012ISO Scheme Case Studies »

Special Offers

Commenting is closed



Printable version  


Email to a friend
Insurance Briefs

Asteron Life unveils product enhancements
Asteron Life is proud to announce a series of enhancements and clarifications to multiple covers across Personal and Business Insurance product offerings, reflecting its commitment to understanding and meeting the evolving needs of customers, and making it a more seamless experience for advisers.

Partners helps fund depression recovery centre
New Whakamātūtū Wellington Depression Recovery Centre gets financial boost from Partners Life.

AIA adds cover for prophylactic surgery following cancer
AIA makes changes to policies and adds preventative surgery for several types of cancer.

Chubb appoints David Morrow as Country President for New Zealand
Chubb has appointed David Morrow as Country President for New Zealand.

News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News


Most Commented On
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
Site by Web Developer and