Lecture 2 – Law of Insurance
Contract of Insurance
Key Concepts
What is an insurance contract?
There is no definition given. The nearest approximation to a definition is contained in the case of
Prudential Insurance Co v Inland Revenue Commissioners where Channell J. remarked:
“It must be a contract whereby for some consideration, usually but not necessarily for periodical
payments called premiums, you secure to yourself some benefit, usually but not necessarily the
payment of a sum of money, upon the happening of some event… The event should be one which
involves some amount of uncertainty. There must be either uncertainty whether the event will ever
happen or not, or if the event is one which must happen at some time there must be uncertainty as
to the time which it will happen.”
Consumer Insurance Contract definition found in Consumer Insurance (Disclosure and
Representations) Act 2012. Consumer insurance contracts. Individual taking insurance for their
property.
Insurance Act 2015 has the definition of non-consumer insurance contract. Applicable to Commercial
Contracts. Business to business insurance contracts.
Marine Insurance Act 1906 – for sea-going and other vessels (varied by two other acts).
Types of Insurance Contracts
1. Indemnity Insurance – which entitles the insured to indemnification from the insurer on the
occurrence of an event or peril which is delimited in the contract of insurance.
Indemnity insurance may be first party of third party. First party insurance covers the insured
against damage to his property. Third party insurance covers the insured’s liability to a third
party. E.g. the insured may take out a first party insurance to cover personal injury to himself
and property damage to his car. The third party insurance must also be taken out against his
liability for property damage to property or personal injury of a third party.
2. Life assurance – it is certain that the life assured will come to an end at some point, but the
precise timing of the death is uncertain, and it is this uncertainty which is common to all
insurance transactions whether indemnity or life.
Key Characteristics of an Insurance contract:
1. A binding contract to pay the insured
If there is a proper offer being made who wants the insurance and that offer has been
accepted by the insurer. If there is a proper offer and a proper acceptance, then the
contract comes into existence. Give all the details and submit it, you are making an
offer. The insurance company decides whether they want to accept the offer
considering all the details.
, 2. The insured must have an insurable interest in either the life or the property insured
(Life Assurance Act 1774 and see MacAura v Northern Assurance Company Ltd [1925]
AC 619, both discussed later);
Must have some kind of interest in the property, the owner of the car, must show
what is the interest the person has in the property. You cannot insure anything in
which you have no interest in, it is an essential element of an insurance contract.
3. The insured event must be outside the control of the insured (generally);
e.g. getting an insurance for a house which may be affected by a fire that may damage
the house, they are uncertain events. Don’t know if it will happen or never happen,
have no control over the event.
4. The event or the time of the event must be uncertain.
You do not know if such a thing will happen, must be uncontrolled event. The insurer
covers the risk of an uncertain event which might or might not happen in the future
and no one has control over it.
How to affect an Insurance Contract?
Proposal Form
The proposal forms, which are commonly standardized, outline the terms on which insurance
companies do business. The proposer’s completion of the proposal form is an offer to the insurance
company, which the insurance company will accept or reject depending on the information given.
• Disclosure of facts – all the facts relating to the property.
• Make representations – where do you keep the property? Maybe the laptop at home
or elsewhere, where do you park your car? Garage/street?
• Insurable Interest – they ask you if you are the owner of the car, must have some
interest in the property.
• Declaration – Whatever they have stated is accurate to the best of their knowledge,
the company will consider all of the facts and maybe make an offer.
Typically, the insurance company will conditionally accept the offer, subject to payment of the first
premium and clarification of any outstanding points. Once the proposer’s proposal form is accepted
and an insurance policy issued by the insurance company, the proposer becomes known as the
“insured”.
The period of insurance usually starts from acceptance of payment of the first premium. There is no
liability if there is no contract.
Canning v Farquhar
The proposer’s proposal form had been excepted subject to payment of the first premium; meanwhile
Canning fell off a cliff and was seriously injured. Canning’s agent submitted the premium four days
after the accident and told the insurer about Canning’s injuries. The insurer refused to accept the
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