If an insurance intermediary fails to pass vital risk information to the insurer, how does this affect a subsequent claim?

Choosing the option that states the insurer is bound by the contract highlights an important principle in insurance law known as the 'utmost good faith' or 'uberrima fides' principle. This principle implies that while both parties (the insurer and the insured) have a duty to disclose material information relevant to the risk being insured, it ultimately falls on the insurer to conduct thorough due diligence based on the disclosures made.

Even if an intermediary fails to pass on vital risk information, the contract of insurance remains effective unless there has been fraud or intentional misrepresentation on the part of the insured or the intermediary. The insurer cannot simply void the contract based on the intermediary's actions. They are still bound by the terms of the contract unless they can clearly demonstrate that the missing information was crucial to the risk assessment and that its absence materially alters the risk assumed.

This understanding is foundational in enforcing that the onus of verification does not solely rest with the insured or the intermediary—and insurers must ensure that their due diligence adequately covers the risk before accepting it. This principle emphasizes how contractual obligations endure unless specific conditions, such as fraud, are met, thus affirming that the insurer remains bound to the contract in this scenario.