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Insurance Contract Law Notes
Insurance Contract Law Notes
Reading:
Sealy & Hooley, Commercial Law – Text, Cases and Materials (4th ed ,OUP, ,
2009)
Law Commission: Insurance Contract Law
http://www.lawcom.gov.uk/insurance_contract.htm
Issue Paper 1: Misrepresentation and Non-Disclosure (2006)
Issue Paper 2: Warranties (2006)
Issue Paper 4: Insurable Interest (2008)
Reforming Insurance Contract Law: A Summary of Responses to
Consultation (2008)
Birds & Hird, Birds’ Modern Insurance Law (7th ed, Sweet and Maxwell, 2007)
James Davey, 'Future Imperfect: Human Genetics and Insurance' [2000] JBL 587
(on westlaw)
ABI on Genetic Testing:
http://www.abi.org.uk/Information/Consumers/Health_and_Protection/499.pdf
James Davey, 'Printpak v AGF Insurance: No Need to be Alarmed' [1999] JBL
580 (on westlaw)
Jonathan Brock, ‘Hurricane Damage and the Law’ (2006) 32 Commonwealth
Law Bulletin 3, http://www.falcon-chambers.co.uk/uploads/docs/section9/JB.pdf
http://www.weird-websites.com/jokes/auto-insurance-car-insurance-claims-
insuranse-motor.htm
1. Introduction
Contract where the insurer agrees, in return for a consideration by the insured
(ie. the premium) to pay a sum of money if (or when, in the case of certainty such
as death) a specified event, in which the insured has an interest, should occur
Formalities
Purpose
Reduce risk
Loss distribution
Investment device
Types
Indemnity insurance
Contingency Insurance
FSA http://www.fsa.gov.uk/
Lloyd’s of London http://www.lloyds.com/
1. Must provide some benefit for the insured on the occurrence of some event
2. The occurrence must involve some element of uncertainty
3. The uncertain event should be one which is prima facie adverse to the interest
of the assured
B. Uncertainty
cannot insure certain events eg. deterioration of perishable goods, wear
and tear
Where the assured is so situated that the happening of the event on which the
insurance money is to become payable would, as a proximate cause, involve the
assured in the loss or diminution of any right recognised by law (1st party
insurance), or in any legal liability (3rd party insurance), there is an insurable
interest.
Life insurance: financial interest in the life insured unless it is your own life or that
of your spouse or partner
• s. 1 of the Life Assurance Act 1774 (at the time of policy; otherwise policy
null and void)
Indemnity Insurances
s.2 requires the names of the insured and all the beneficiaries to be
listed in the life policy (Law Reform: unnecessary technicality)
Contrast:
Australia: s.17 Insurance Contracts Act 1984
Canada: Constitution Insurance Co of Canada v Kosmopoulos 34
DLR (4th) 208
Many US jurisdiction adopted: ‘factual expectancy test’
Lack of insurable interest where it is required and consequences
Life insurance: policy null and void and premiums not returnable – policy is
illegal (Law Reform: ‘overly harsh. In the absence of fraud, we would
expect that the policy holder should have their premiums returned.’)
A. Pre-Contract
pre-contractual duties: (1) not to misrepresent material facts and (2) to disclose
material facts
contrast ordinary contracts: caveat emptor (buyer beware)
Breach of those duties: insurer can avoid policy ab initio (avoidance
normally requires restitution i.e. the parties are restored to the position
they were in prior to the contract being made)
Non-Disclosure
‘Insurance is a contract upon speculation. The special facts, upon which the
contingent chance is to be computed, lie most commonly in the knowledge of the
insured only: the under-writer trusts to his representation, and proceeds upon the
confidence that he does not keep back any circumstance in his knowledge, to
mislead the under-writer into a belief that the circumstance does not exist, and to
induce him to estimate the risqué as if it did not exist.’ Carter Boehm (1766) 3
Burr 1905, 1909.
Is this still the case today? Are insurers still as vulnerable as they were
250 years ago?
Woolcott v Sun Alliance and London Insurance Ltd [1978] 1 WLR 493
duty on the insured to disclose all facts as a reasonable or prudent insurer
might have treated as material (objective test)
test not:
· what the insured actually believed to be material (ie. acted honestly)
· what a reasonable insured would have believed to be material
· what the particular insurer would regard as material
Race Discrimination
• Race Relations Act 1976: it is unlawful to discriminate
against a person by refusing to deal with them on equal terms, or at
all, on the basis of their race
• Includes insurance s.20(2)©
• Prohibition irrespective of any scientific or medical date to
support unequal treatment
•
What about DNA results? Predictive Genetic Tests
Disability Discrimination?
· s.19 of the Disability Discrimination Act 1995: unlawful for a
provider of services to unjustifiably discriminate against a
disabled person
· Disability??? – narrow definition: (1) a physical or mental
impairment and (2) substantial and long term adverse effect on
the ability to carry out normal day-to-day activities
Common law?
· have to disclose all material facts
Questions
· Can insurers compel applicants to undergo a genetic test?
· How can predictive genetic tests be used by insurers?
· How reliable are the results?
ABI’s Code of Practice for Genetic Tests (June 2008)
http://www.abi.org.uk/Information/Codes_and_Guidance_Notes/416
97.pdf
Concordat and Moratorium on Genetics and Insurance (initially
agreed with Gov in 2001; latest: March 2005)
http://www.abi.org.uk/Information/Codes_and_Guidance_Notes/528
.pdf
·
Misrepresentation
insurer can avoid liability on the basis of a material misrepresentation
• Innocent?
• Negligent?
• Fraudulent?
(1) Materiality
s. 18(2) and 20(2) of Marine Insurance Act 1906
a fact is material for the purposes of both non-disclosure and
misrepresentation if it is one ‘which would influence the judgment of a prudent
underwriter in fixing the premium, or determining whether he will take the risk’
Pan Atlantic Insurance Co ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501
• A material fact is one that would have an effect on the mind
of the prudent insurer in assessing the risk; it is not necessary that
it would have a decisive effective on the insurer’s acceptance of the
risk or on the amount of the premium charged
• BUT: the insurer can only avoid the policy (rather than merely reject
the claim) if the material misrepresentation or non-disclosure induced the
insurer to enter into the policy on the terms
BUT
Cannot/need not disclose facts which
· diminish the risk
· the insurer knows/presumed to know or which are common knowledge
· are waived by the insurer
· you are not aware of
Constructive knowledge
s.18(1) of the Marine Insurance Act: ‘the assured is deemed to know every
circumstance which, in the ordinary course of business ought to be known by
him.’
BUT
(1) Warranty as to Past/Present Fact
Exclusion Clauses
contra preferentem
Houghton v Trafalgar Insurance Co Ltd [1954] 1 QB 247
Making a claim
(1) condition precedent, mere condition, innominate terms
On innominate terms: Alfred McAlpine plc v BAI (Run off) Ltd [2000] 1 Lloyds’s
Rep IR 352
Friends Provident Life and Pensions v Sirius International Insurance
[2005] 2 lloyd’s rep 517, [2005] EWCA Civ 601
To what extent do the principles of the FSA alter the strict legal rights of insurers
vis-a-vis consumers?
See http://www.fsahandbook.info/FSA/html/handbook/ICOBS
THE INSURER
Mutual Duty of Disclosure: The Insurer’s Duty
Banque Fianciere de la Cite v Westgate Insurance Co Ltd [1990] 1 QB 665,
Doctrine of Subrogation
Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555