Insurance
Material
A circumstance or representation is material is.. (found in s7(3) IA 2015 and examples given in s7(4)
Exclusions to fair presentation of the risk
Found in s3(5) IA 2015
Macaura v Nothern Assurance Co ltd
Insured sole shareholder of the company. Owned substantial quantity of timber and much of this stored on the insured land. So this person is connected with this company. Takes out insurance in his own name, 2 weeks later timber is destroyed in fire and made claim and was refused. Case went to court and the house of lords said that the insurer is allowed to avoid because neither a shareholder or creditor has particular interest in asset belonging to the company, even if sole shareholder or company director. The company has insurable interest but no the person. Not direct risk to the asset or subject matter of the insurance.
Consequences of breaching the duty of fair presentation
Insurer has remedies but only if he can show that but for the breach of fair presentation, the insurer would either not have entered into the insurance contract, or would only have done so on different terms. The insurer must how inducement. There will be a qualifying breach s8(3) IA 2015.
Hussain v Brown
Insurer takes out fire policy for premises, premises fitted with intruder alarm. This warranty said have to have this. Past or present? Insured argued continuing warranty. Court disagreed. If stopped working no obligation.
What does the insurer know or what ought he to know?
Section 5 IA 2015
Chapman v Pole
"You must not run away with the notion that a policy of insurance entitles a man to recover according to the amount represented as insured ... He can only recover the real and actual value of the goods".
Two types of insurance
(1) Indemnity principle - the insured is indemnified against loss, damage or destruction suffered. The event is uncertain to occur (2) Life assurance - the insured event i.e. death, is certain to occur. However, the precise timing of the death is uncertain Uncertainty is common to all insurance transactions
A warranty of fact can take 2 forms
(1) a statement of fact by the insured as to the past or present, or (2) a continuing undertaking that a state of affairs will prevail throughout the duration of the policy, which must be exactly complied with, whether it be material to the risk insured or not. This is sometimes referred to as a 'promissory' or 'continuing' warranty.
Misrepresentations
(i) deliberate (ii) careless s5 CIA s5 if (i) then the insurer has the remedy of avoiding the contract and refusing the claims s4 and schedule 1. If careless then depends on reasonable care. If the insurer would not have entered into the contracts then he may avoid the contract sch 1, para 5 2012 Act. But if they would in different terms; those terms take over; sch 1 para 7 and 8 2012
Warranties
A warranty is a fundamental term of the insurance contract. It is effectively a promise made by the insured, and must be strictly observed. Can be warranty of fact or of opinion.
What does the insured know or what ought he to know?
An insure who is an individual knows only what is known to him and what is known to anyone who is responsible for his insurance s4
Decision on fraudulent claims for this case
An insurer was not liable under the fraudulent claim rule where (a) the entirety of the claim was fabricated, or (b) where there was a genuine claim but the amount was dishonestly exaggerated. The issue in the present instance was whether an insured should be liable where the claim was justified but the information provided in support was dishonesty embellished. The fraudulent claim rule did not apply to justified claims supported by collateral lies. The insured was trying to obtain no more than he was legally entitled to under the policy and the lie was irrelevant to that entitlement (cf. an exaggerated claim where the whole claim would be rejected so as to deter fraud). While a collateral lie told in the course of making a claim might be material to how an insurer dealt with the claim, it could not be material to his liability for it. The extension of the fraudulent claim rule to lies which were found to be irrelevant to the recoverability of a claim was not appropriate.
Fehilly v General Accident fire and life insurance corporation
An obligation on a tenant to maintain a building in the condition it was in when the lease was entered into did not oblige the tenant to repair damage by fire provided it was not caused by his negligence, and therefore such an obligation could not give the tenant an insurable interest in the full value of the building.
Continuing duty of good faith
Anything he knows that goes to reduce the risk from the level at which the proposer wrongly believes it stands. There is no duty on the insured during the course of the policy to disclose to the insurer any circumstances that has developed since the inception of the policy and which increases the risk
McPhee v Royal Insurance
Breach of warranty: The insured's cabin cruiser was destroyed by fire. Dimensions were given bigger than the truth. Was in good faith, they thought that the dimensions had been correct as that was what the previous owner had said the dimensions were. Held that it was not enough for the insurer's to prove a misrepresentation- had to prove that the person had been in bad faith. The issue here was that not enough had been done to find out the dimensions, more could have been done.
Remedies for breach
Depends on whether the breach is deliberate/reckless or not. A qualifying breach is deliberate or reckless if insured knew that he was in breach or did not care whether or not he was in breach, the insurer has onus of proof s8. Remedies set out in schedule 1
Wayne Tank & Pump Co Ltd v Employers Liability Assurance Corporation Ltd
Factory destroyed. Negligence of engineers and other equipment that was not fir for purpose. Being designed to determine hot wax. It was left unattended and it was not tested and there was a fire. Specifically excluded goods sold and supplied. 2 causes one of which excluded, insures not liable.
Regulation of insurance
Financial Services and Market Act 2000 (FSMA) essentially to endure that insurance companies remain solvent and are run by fit and proper persons. FSMA also provides ta specific dispute resolution mechanism under the auspices of the financial services ombudsman in for consumers and micro-businesses.
Turnbull and co v Scottish provident institution
Firm of merchants insured life of local agent based in Iceland and the reason they did this is because the agent was responsible for lucrative stream of business coming into the firm. He dies and the company refused to pay out to the firm on the basis that they were not sufficiently connected to have insurable interest. Court disagreed because direct link and that qualified insurable interest. Indemnity insurance the insurable interest must exist at the time of loss.
versloot dredging v hdi
Flood in engine room; number of contributing factors all under the insurance. The Respondents were informed that although the ships alarms had sounded at noon on the day of the flood, the crew were unable to attend to the engine room due to the rolling of the ship in heavy weather. This was in fact a lie on behalf of the Appellant, advanced at a time when the cause of the flood was not known and in frustration of the Respondents delay in processing the claim and making payment. It later transpired that the lie was irrelevant. The damage to the ship was caused by a peril of the seas and not due to the fault of the Appellant.
Salvage
If an insurer has paid a total loss then the wreckage of the insured object, if the insurer so wishes, becomes his property, and he is entitled to retain whatever he can realise from its disposal
Proximate cause - two dominant causes
If there are two dominant causes and one of them is excluded by the policy the insurer will not have to pay.
Proximate cause - two causes
If there are two independent causes, neither of which can be determined to be the dominant cause of the loss, and one is covered and the other is not mentioned in the policy - then the insurers must pay.
If breach of warranty
If there is a breach of warranty the insurer has no liability for any loss occurring after the warranty has been breached and before the breach has been remedied - s 10(2) IA 2015.
Life insurance
In life assurance you can insure your own life for whatever sum you wish and there are no issues with double insurance. Not permissible to insure the life of another person for a value beyond what you will lose if they die: Life Assurance Act 1774, section 3.
Duties of disclosure
Insurance is a contract "uberrimae fidei" although this has been modified by the changes made to the law of insurance by the Consumer Insurance (Disclosure and Representations) Act 2012 ("the 2012 Act"), which came into force on 6 April 2013, and the Insurance Act 2015 (IA 2015), which came into force on 12 August 2016. An insured is obliged to provide information to his insurer prior to the contract of insurance being entered into or any variation being made to the insurance contract. The duty differs depending on whether the contract is a consumer insurance contact or not. A consumer insurance contract is an insurance contract entered into between an individual who enters into the contract wholly or mainly for purposes unrelated to the individual's trade, business or profession (i.e. the consumer insured) and a person who carries on the business of insurance and who becomes a party to the contract by way of that business (i.e. the insurer): section 1 2012 Act. Otherwise it is a non-consumer insurance contract (a commercial insurance contract).
Purposes of insurance
Insurance is designed to provide safeguards in the event of misfortune or the occurrence of risk. Key element in the practice of insurance is the spreading of the losses of the few who actually incur them amongst the many who buy the coverage. A major issue underlying insurance law is that the insured knows much more about the risk he wishes to have insured. The insurer provides insurance for profit and as such he will not want to offer unlimited over against every eventuality.
Constitution of contract of insurance
It is a contract, so the normal rules of contract law exists in this part of insurance. Writing is not required. However s22 of the Marine Insurance policy is inadmissible in evidence unless it is embodied in written form.
Create warranty
No particular form of wording is required to create a warranty but it must be clear that the parties intend the term to be a warranty. The Courts will try to mitigate the severity of the law in relation to breach of warranty by interpreting any ambiguity in the warranty contra proferentem
Fraudulent claims
Not obliged to pay and may recover all sums s12(1) IA 2015
Contracting out
Parties can contract out of the statutory provisions set out in sections 15-18 of the act.
Who is that that owns the subject matter?
Person with the most obvious insurable interest. Who owns the asset because they are likely to be the person with insurable interest. Not someone merely closely connected
J J Lloyd Instruments Ltd v Northern Star Insurance Co Ltd
Policy covered perisl of the sea, issues with the design of the ship and 2 things contributed tot he loss and based on the principles above they are liable
Contract out of the provisions
Possible to contract out of sections 10 and 11 in commercial insurance provided the insurer complies with the requirements of s 17 (discussed above) - see s 16(2) IA 2015. Not possible to contract out of the provisions in consumer insurance contracts - s 15 IA 2015.
Ansari v New India Assurance
Premises protected by automatic sprinkler, continuing warranty because they wanted it to function permanently
unconnected with the loss that occurred
Prior to IA 2015 a breach of warranty allowed the insurer to escape liability even if the breach was unconnected with the loss that occurred. No longer the case due to s11 IA 2015 - if a loss occurs and the warranty has not been complied with the insurer cannot use noncompliance to exclude its liability if the insured shows that the non-compliance could not have increased the risk of loss which actually occurred in the circumstances in which it occurred
Proposal forms could be rendered warranties
Prior to IA 2015 answers to questions and statements made in proposal forms could be rendered warranties by a 'basis of the contract' clause. This is no longer the position - s 6 2012 Act and s 9 IA 2015. Not possible to contract out of this provision in any type of insurance contract - s 15 and 16(1) IA 2015.
It is for the insured to prove that the cause of loss was included as an insured peril.
Rhesa Shipping v Edmunds (the "Popi M")
Godsall v Boldero
Some doubt as to whether an insurable interest must also exist at the time the contract is entered into but it seems this is probably required. Own a car and take insurance sell to another person, sells it back, car destroyed, have it at the start and have to have it at the time of loss. If didn't sell it back an the back then the buyer will have the insurable interest.
the indemnity principle
The Insured must prove not only the occurrence of the insured peril, for example fire, but also that he has suffered in consequence a pecuniary loss, over and above any excess (or "retention") which he has agreed to bear himself. "The sum insured" represents the maximum figure which the Insured can recover.
Leppard v Excess Insurance Co Ltd
The claimants purchased a dilapidated cottage for £1,500 with the intention of selling it on. Insures the cottage for £10,000. Property is destroyed by a fire. Claims and wants to get £8,000 and is offered £3,000. He rejects this and takes the matter to court. The court upheld the insurance company's offer- if he had received a profit which is forbidden by law.
Subrogation
The general rule is that the insured must never be more than fully indemnified. From the indemnity principle flows the right of subrogation. Subrogation is the right of an insurer who has fully indemnified the insured to stand in the shoes of the insured and to exercise (in the insured's name) all rights that the insured could have exercised himself to recover from any source other than the insurers the whole or part of the financial loss he has sustained and for which he has been indemnified. The right of subrogation applies "from the top down" - insurers, having indemnified the insured up to the limit of their policy, are entitled to their remedy out of funds received by the insured from a third party even though the insured's loss might be greater than the sum insured. Subrogation is not available to contingency insurers - as such the life insurers of a person killed in a car crash cannot claim against the person responsible for the crash.
Amount recovered
The indemnity principle provides that an insured can only receive from the insurer the amount which he has lost. Over-insurance will do the policyholder no good. Where the insured item is damaged (a partial loss) the insurer is required to pay for the cost of its repair to its predamaged condition. Where repairs are not carried out the standard measure of indemnity is the second hand value of the object in its pre damaged condition. It is possible to insure for "replacement as new", but that will cost more.
Double recovery
The insured cannot make double recovery if he insures the same risk with two insurers - he can pursue his claim against one of the insurers only in order to recover his loss except where the contract of insurance includes a "rateable contribution clause". The insurer who had paid out would be entitled to recover a contribution from the other.
Commercial Insurance contracts
The insured must make to the insurer a "fair presentation of the risk" s3(1) Insurance Act 2015 Duty of fair presentation s3(2) IA 2015
Rausher v Borthwick
The insured's ship was damaged by a collision. The hole was temporarily fixed but when it was being towed back the motion of the sea caused the hole to reopen and the ship to sink. Insurance covered collisions but did not cover perils of the sea. Held that the insurance company was liable to pay as if it weren't for the collision the ship would not have sank.
Insurable interest
The life assurance act 1774, section 1 - if no insurable interest shall be null and void. Act imposes strict limits on who can insure the life of a third party and also restricts the value of policies taken out on the life of others - necessary to prove that the insured would suffer direct financial loss in the event of the life insured.
Proximate Cause
The principle of indemnity for loss involves consideration of what losses are covered by a policy. The policy will specify the risks covered and will usually also specify against what perils. Problems can arise where there are two possible causes, one of which is covered under the policy and the other is not.
Cowan v Jeffrey Associates
The pursuer entered into a contract of insurance on a building which was destroyed in a fire. The insurers repudiated liability on the grounds that there was no insurable interest. At the time of placing the insurance and at the time of the fire, the pursuer was a prospective purchaser who had entered into borrowing arrangements with the bank who were going to grant a security, but this was not granted as ownership was never obtained. It was therefore held that there was not an insurable interest.
Mitchell v Scottish Eagle Insurance co
Where property was praetorship property and title was taken in one or more of the partner's names, the only insurable interest was that of the partnership; None of the joint proprietors individually had an interest which could be identified as insurable.
Consumer Insurance contracts
Where the consumer insured and insurer enter into a consumer insurance contract the consumer insured must take reasonable care not to make a misrepresentation before the contract if formed or varied
Protection of insurer
by the insured to provide information to the insurer - in consumer insurance the insured must take reasonable care not to make a misrepresentation to the insurer and for commercial insurance the insured must make a fair presentation of the risk. In an insurance contract an insured might provide a warranty to the insurer regarding certain matter. Breach of warranty means the insurer is not on cover from time the warranty is breached until it is remedied.
Third party (rights against insurers) Act 2010
provides those with claims against insolvent insured with a direct right of action against the insolvent insured's insurer.
Consumer Insurance contracts - standard of care
reasonable consumer unless the insurer was, or ought to have been, aware of any particular characteristics or circumstances of the actual consumer or the representation made by the consumer was dishonest s(3)(4) and (5). Whether the insured has taken reasonable care not to make a misrepresentation is to be determined in light of all the relevant circumstances and the act sets out some examples of factors that may need to be considered s3(1) and (2) Remedy: section 4 2012
Knowledge - general
s6(1) An individuals knowledge includes matters which the individual suspected and of which he would have had knowledge but for deliberately refraining from confirming them or enquiring about them
Rhesa Shipping v Edmunds (the "Popi M")
ship sank in good condition, large hole opened up and the owners has possible explanations as to why and said undetected submarine was the cause. Insurers refused to pay you and said it as poor condition of the ship. Held that had to prove it was because of insurers peril, have to say this is what caused the loss and this is what is covered by it.
Feasey v Sun life assurance co of canada
tried to rearrange cover by life insurance and said P and I club did not have insurable interest of crew members court found that here was such an interest. Court noted it was difficult to come up with a definition of insurable interest for any such circumstances. Every policy and every case based on own facts. However the court will tend to try and find insurable interest, the court is keen that insurable interest is found and makes clear that they are not happy about insurers making this point and taking the premium for nothing.
Scots law position
where the insurer is liable to indemnify the insured, the payment of the insured's claim made under the policy is classified as a contractual obligation to pay a sum of money equivalent to the insured's loss, rather than an obligation to pay damages for breach of contract or otherwise
