Obtained a distinction with these notes. The notes cover the topics of types of insurance policy (employers liability etc), duty of fair presentation, policy terms (warranties, conditions precedent), coverage, claims management, subrogation and reinsurance.
WRITTEN ANSWER (5 questions)
TYPES OF POLICY
Insurance
This is when insured pays a sum of money (premium) to the insurer and in return the insurer bears the risk. If loss or damages arises from a
particular event covered, the insured makes a claim to the insurer who then pays out a sum of money to cover the cost of repairs. The insurer will
keep the premium, even if the event does not happen.
It is normal for insured to use a broker to approach the insurer. Insurer will as questions about the risk so they can consider whether to take it or
not. Insurer then proposes terms and premium. Broker seeks insureds agreement. Upon agreement there is a valid contract of insurance.
There are elements to insurance:
1. Insurance contract – a legally binding agreement between insurer and insured setting out cover. There is a premium involved acting as the
consideration.
2. Insurable interest
3. Utmost good faith – this is one area which has changed since Insurance Act 2015
4. Indemnity – insured should be restored to same financial position as before loss occurred subject to term limiting the sum. Insurer bears risk
of indemnifying for loss arising from an uncertain event outside their control happening at a future time in which insured has an interest. In
this case, insurer is bound to indemnify.
5. Subrogation – ability of insurer to take on legal rights of insured to recover what has been paid out
Insurable interest
This is the financial risk that is being insured. The person taking out the insurance must have a personal connection with that risk (e.g. owner
of the car damaged) or a connection arising from a contingent liability. Moral interest is not enough.
Subject matter of insurance must be identifiable in an indemnity policy (e.g. building). This must exist at the time the loss occurs.
o Bailment – borrowing a car
o Ownership – expectation of ownership is not enough
Difference classes of insurance (commercial is the focus)
Property insurance (fire, theft, earthquakes, terrorism)
o This is an indemnity policy, one which provides compensation for losses and damages suffered. Ownership is an obvious legal
interest but not essential.
Professional indemnity insurance
o This covers claims made against them for negligence or breach of duty in carrying out professional duties such as accountants
Motor vehicle insurance
o Minimum requirement: must provide cover for the driver for death or bodily injury to any person and/or damage to property
Cover for the insured is not a minimum requirement.
Liability insurance
o Products (anyone injured by faulty product supplied by insured – physical or financial injury)
o Public
o Employers (this is compulsory) – required to obtain to insure against any loss arising from an accident at work causing injury to
one of employees. For bodily injury or disease suffered during the course of employment.
S1 of Employers’ Liability (Compulsory Insurance) Act 1969 required every employer carrying on business in Great
Britain to insure and maintain insurance against liability for bodily injury or disease sustained by their employees,
arising out of and in the course of their employment.
Business interruption (loss of profits resulting from damage to property or to property of third party)
Common clauses
Definitions this is always included for areas such as excess, insured and geographical limits.
Insuring clause (what is covered)
Jurisdiction clauses (which country?)
Limits of Liability clause (maximum amount insurer will pay out of policy)
Excess (sum of money that insured pays on claim before the insurer has to pay its liability. This leads to reduced premiums)
Conditions (this includes notification requirements and things insured must do in order to ensure cover
Exclusions (what is not covered)
Cancellation and complaints
Period of insurance (duration of insurance)
Territorial limits (where cover applies)
Unique clauses
Methods of transport – ship, train?
Wedding rings
Wedding gifts
Temporary buildings
Child Car Seat cover
Replacement Locks
Gadget cover
Hijacking and mugging
Hazardous activities
Glass Damage
Human diseases provision
Lottery Clause – if a key employee wins lottery and leaves (covers this situation to find someone to cover this situation)
Cover for loss due to authorities linked to premises
Exclusions – damage to existing property, defective design
,Head of terms
DEFINITION: Specific terms negotiated, not legally binding itself but covers all that has been agreed in insurance policies. Listed below are terms
which would be included in the various types of insurance policies.
PROFESSIONAL INDEMNITY
Who is covered? (definitions)
o Solicitors? Doctors? Accountants? – this must cover qualified, trainees etc
What is covered?
o Work done in course of professional business (negligence, negligent misstatement, infringement of IP rights, dishonesty) – e.g.
professional negligence in failing to audit client’s account with necessary degree of care and skill causing client loss.
o This does not include work done outside the scope of those professional services
Policy Exclusions
o Excludes advise outside of profession, professional has broken the law, infringed right to privacy, deliberately or dishonestly
acted, fraud
Limits of liability
o Prescribed by professional body of which professional is a member (e.g. SRA – prescribes a minimum limit)
o Time limits (e.g. claims only after/before a certain date)
Claims handling
o This could include a control of defence clause (how litigation could be run)
o Notification clause – specific time by which insured must notify the insurer
o Suing third parties
QC Clause
o Insurer will only contest a claim made where prospects of defending are greater than 50% to minimise conflict between
insured and insurer
BUILDING AND PROPERTY INSURANCE
Definitions
o Property, insured risks, building (specific one or general cover for all properties of insured?)
Cover:
o Does it cover accidental damage? (could be an extension), building covered
Cause of damage covered:
o Fire, lightening, earthquake, smoke, storm, flood, theft, vandalism, water or oil escaping. Accidental or reckless?
Cause of damage excluded :
o Damage caused by riot, radioactive contamination, tenant, war or terrorism (these can be covered by alternative insurance
policies), existing damage (this will not be covered)
Insured obligations
o Reduce likelihood of claims like securing the building and alarms to prevent damage (mitigation – reduce events leading to
claims)
Claims handling and settlement
o Money for repairs or reconstitution of buildings
EMPLOYER’S LIABILITY
Definitions:
o Employee (under contract of employment, it may also include apprentices, self-employed contractors sporadically, work
experience or training scheme, voluntary workers, seasonal workers?),
o Employment
o Geographical areas (UK? Employees overseas?),
o Bodily injury
o Compensation
o Defence costs
Who is covered?
o The definition of ‘employee’ is key. Does it include contractors as well as those employed under a traditional employment
contract?
What is covered?
o The definition of what constitute acting ‘in the course of employment’ is relevant. Are there any geographical limits? It is only
compulsory to have insurance for employees injured during the course of employment in Great Britain. Do they work overseas?
o Relate to employees relating bodily injury arising out of employment
e.g. if an employee brings a claim against you for bodily injury caused to them during the period of insurance arising
out of their work for you within or while working temporarily outside the geographical limits we will indemnify you
against the sums you need to pay for compensation. The amount we pay will include defence costs
o Claim example: if employee sues firm regarding a workplace accident, for example if an employee were to slip and injure
themselves on spilled food in the staff canteen.
Claims not covered:
o Injuries caused by deliberate acts of insured employer, when employee is driving, injuries involving vehicles which will be covered
by motor vehicle insurance
o UK only? Vehicles involved?
Limit of Indemnity
Notification of claims
o Promptly and possibly within a specific time period (obligations on employer/insured)
Rights of subrogation/ control of defence /claims conditions
o Example: we have the right but not the obligation to take control of and conduct in your name the investigation, settlement or
defence of any claim. If we think it necessary, we will appoint an adjuster, solicitor or any other appropriate person to deal with
the claim.
Compulsory insurance clause: It is compulsory to have this policy in the UK, there is a compulsory insurance clause.
Premium
, DUTY OF FAIR PRESENTATION
Duty of utmost good faith under Marine Insurance Act 1906
Duty imposed on each party to insurance contract. Before 12th August 2016 the process was more onerous for the insured than insurer and this
imbalance was remedied by Insurance Act 2015. Applies to consumer and commercial parties. In accordance with S17 of the Marine Insurance Act
1906, insurance contracts are contracts of utmost good faith
Misrepresentation
S18-20: Duty of utmost good faith (2 elements) – definition of ‘material fact’ same for both unless misrepresentation made fraudulently.
o 1) S20: Duty to avoid misrepresenting material facts (misrepresentation) – provides that every material representation made by
the insured or their agent to an insurer must be true.
3 elements: [omission can amount to misrepresentation]
Statement of material fact
Statement was wrong
Statement induced other party to enter contract
Duty of Disclosure
o 2) S18(1): Duty of disclosure of all material facts even if no questions asked (non-disclosure)
3 elements: Insured must disclose every material circumstance known to them before entering into insurance policy
and these must be material to the nature of the risk. Knowledge of insured is essential this does not include facts
known by the insurer. Breach if:
Material fact known by one party (insured)
Not disclosed
Undisclosed fact would have induced other party to enter into contract
*Burden of proving above is on insurer who alleges it. Evidence will be taken from actual underwriter and expert underwriter.
Knowledge
They must disclose knowledge they know (actual knowledge - case law: PCW Syndicates) and knowledge they are deemed to know
(constructive knowledge -in ordinary course of their business).
In S18(2), the circumstances are material if it would influence the judgement of the prudent insurer in fixing the premium or deciding whether
to write the risk/ take the risk (objective test).
Materiality
The big question is: what constitutes a material fact? The leading case in this area is Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd 1995.
They concluded that something that influences the judgement of an insurer must have had an effect on the mind of the insurer in weighing up the
risk. There is a 2-limb subjective and objective test stemming from this key case.
1. Objective Test (set out in S18)
This test for materiality is an objective one made by reference to a hypothetical prudent insurer (this is tested by an expert underwriter giving
expert evidence at trial in accordance with civil procedure rule 35). This is whether a prudent insurer would have entered into the contract on
the same terms if they had known. The actual insurer is irrelevant when determining whether a fact is material or not. Generally material
facts can be categorised in two ways:
o Moral hazard (suggests insured is unreliable or dishonest- charged with fraud, current insurer is refusing renewal terms); or
o Physical hazard (increases chances of insured event happening – e.g. previous claims, events to increase risk of fire or burglary,
flood damage previously).
2. Subjective Test: Inducement
Although this is not expressly set out in MIA, there is a second limb to the test of materiality. The actual insurer must prove that they were
induced by the insured’s failure to discharge its duty to disclose all material facts or misrepresentation (the actual underwriter will give
evidence on this). Therefore, there is a subjective element to inducement. This second limb was confirmed in the Pan Atlantic case. It requires
the insurer to prove on the balance of probabilities that the non-disclosure was an effective cause of them entering into the contract on the
set terms. It does not have to be the sole cause of them entering into the contract, just an effective cause. They need to show that they would
not have written the risk, would have charged a higher premium or included specific warranties or conditions if they had known.
Exceptions
S 18(3) of the MIA set out a list of exceptions to the duty to disclose material facts. In the absence of enquiry by the insurer, the insured is not
required to disclose any circumstances that diminish the risk, are known or presumed to be known by insurer (common knowledge), when
information is waived by insurer (proposal form limits information to certain period of time – e.g. over past 5 years), anything already covered
by a warranty in the policy. This warranty aspect is only present in S18(3).
Remedies
S18(1): Both Misrepresentation and Non-Disclosure: Avoid insurance contract from the start – insurer must return premium and escape all
liability, any claims paid out must be refunded by insured. This is as if the policy never existed. They were required to return premium to
insured unless there had been fraud or illegality on the part of the insured.
Misrepresentation only: remedy of damages (rare)
Duty of fair presentation under the Insurance Act 2015
Significant changes were made to the law. This applies to all non-consumer insurance and reinsurance contract created, amended and renewed
from 12th August 2016 onwards. The Marine Insurance Act 1906 will continue to apply to insurance contracts created before this date. S3 sets out
the key elements of duty of fair presentation.
Duty of Disclosure
The Insurance Act repealed S18-20 of MIA. Under S3(1) and (2), the duty of disclosure is less onerous for the insured and prompts the insurer into
reciprocal action. S3(3)(a) and S4 of IA provide that a fair presentation is one where:
The insured firstly gives disclosure to the insurer of every material circumstance which the insured knows or ought to know about.
The insured then discharges its duty by giving the insurer sufficient information to put the insurer on notice of enquiry (to make further
enquiries). This marks a shift in the disclosure burden. The onus is now on the insurer to make enquiries (this was not done previously).
o This means that in the absence of the insured disclosing every material circumstance, the insured discharges its burden to provide
a fair presentation by giving disclosure of sufficient information to put a prudent insurer on notice that it needs to make further
enquiries for the purpose of revealing those material circumstances. It is then for the insurer to ask relevant questions of the
insured and to ensure the information given is clear, and seek clarity if data is presented incompletely or in an incomprehensible
form.
The truth of material representation of fact must be substantially correct and made in good faith
Materiality
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