Chapter 2: Basic Insurance Legal Principles and Terminology Flashcards
Define ‘insurance contract’
An agreement, enforceable by law, between an insured and an insurer
Define ‘valid contract’
A valid contract must have offer anc acceptance, consideration, the intention to create a legal agreement, the possibility of performance, capacity to enter legal relations, consensus ad idem, legality, and certainty
Define ‘consensus ad idem’
‘meeting of minds’- do both parties think they are agreeing to the same thing?
What happens ifa contract is missing one of the essentials of a contract?
It is void ab initio
Define ‘good faith’
Both parties must not mislead one another
What is contract certainty?
All parties involved in the contract should know exactly what the terms are before inception, and their should be some evidence of this issued to the insured
Define ‘offer and acceptance’
A contract comes in to existence when it is accepted unconditionally
What happens if there is conditional acceptance?
If new terms are introduced, this becomes a counter offer, which rejects the original offer and must be accepted unconditionally
Which case law is relevant to conditional offers?
Hyde v Wrench 1840
If a contract is accepted through the post, when is acceptance complete?
When the letter was posted, not when it arrived- Household Fire Insurance Co. v Grant (1879)
Define ‘consideration’
“each person’s side of the bargain which supports the contract”
What is the case law relevant to consideration?
Currie v Misa (1875)
What is insurable interest?
The right to insure, arising out of a lrgal relationship between the insured and the subject matter of the insurance
Define ‘Subject-matter of insurance’
WHat is actually being insured (not necessarily what is on the contract!)
When do you need insurable interest in life insurance?
At inception
When do you need insurable interest in marine insurance?
At the time of loss
When do you need insurable interest in general isurance contracts?
At both inception and loss
How can insurable interest be created?
Common law, contract, or statute, such as Settled Land ACt 1925, or Reoair of Benefice Buildings Measure Act 1972
What are examples of statute that limits insurable interest?
The Carriage of Goods by Sea Act 1971, Hotel Proprietors Act 1956, Carriers Act 1830
What is the duty of good faith?
No one actively misleads another- the proposer discloses all material facts to the insurer, and the insurer cannot add new non-standard terms, or withhold the knowledge of a discount if a risk is improved
What is a consumer?
Someone who is buying insurance for purposes unrelated to their business, trade, or profession
What does the Consumer Insurance (Disclosure and Representations) Act 2012 say?
The consumer has to take reasonable care to not make a misrepresentation to their insurers- either a careless or reckless misrepresentation
When is a misrepresentation deliberate or reckless?
If the consumer knew it was untrue, or did not care, and knew the matter was relevant to the insurer, but did not care
What happens if an insurer can prove the consumer was deliberate and reckless?
They can avoid the contract, refuse claims, and may not need to return the premium
What happens if an insurer can prove the consumer representation was careless?
Depends on what they would have done without the representation- they can avoid the contract, change its terms, or reduce the claim
Where can you find the law for disclosure and representations in non-consumer insureds?
Insurance Act 2015
What does the Insurance ACt 2015 say?
Insured must make a fair presentation to the insurer, must disclose every material circumstance the insurer shoudl know
What does Carter v Boehm (1766) say?
The insured has to make an accurate representation (about a fort in Sumatra)
According to the Marine Insurance Act 1906, define ‘material’
A circumstance is material if it “would ingluence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk”
What are examples of material information?
Physical and moral hazards
How did the Insurance ACt 2015 change how material information is considered?
Said material information cannot be given in a data dump, and the insurer has the responsibility to ask questions
What happened in the case of Berkshire Assets (West London) Ltd v AXA Insurance UK PLC 2021?
The insured did not disclose one of their directors were the subject of criminial proceedings
Under the Insurance ACt 2015, what does the insured NOT need to disclose?
Anything that lessens the risk, anything the insurer knows or ought to know, anything the insurer is presumed to know, and anything wauved by the insurers
What are examples of information that does not need to be disclosed from insured to the insurer?
Matters of law, public knowledge, factors that lessen the risk, the info waived by insurers, info that could have been revealed in a survery, and info the insured does not know.
Under the insurance ACt, what is the role of the broker in representation?
There is no longer a separate expressed duty of disclosure on the broker
Define ‘duty of fair presentation’
To present the case honestly
What are the remedies for breaching the duty of fair presentation at original placement?
If the breach was deliberate or reckless the insurer can void the policy ab initio and keep the premium, but oif it was not deliberate or reckless it can be voided (premium returned), the terms can be changed, or the limit of the claim can be brought down
What are the duties for breaching the duty of fair presentation at variation?
If the breach was deliberate or reckless the insurer can void the policy from that time and keep the premium. If it was not deliberate or reckless and premium went up, insurers can pretend the contract never took place and return the premium difference, or adjust teh claim limit appropriately, or if the premium was reduced, they can adjust the claim limit
What law makes third party motor compulsory?
Road Traffic Act 1988
What is teh law around compulsory insurance and misrepresentation?
If there is misrepresentation in third party motor, insurers must meet the claim, then they can seek to recover their losses from the insured
Define ‘estoppel’
A bar or impediment that stops someone asserting a right
What are the practical applications of estoppel?
The insurer must not lead the insured into a false sense of security about the contract, as if they do, the insured can claim estoppel- silence was a sign everything was fine
Is there a standard period of cancellation for insurance policies?
No
What are ways of terminating insurance contracts?
Fulfilment or voidable contracts
Define ‘voidable contracts’
Contract where material information has not been shared
Define ‘proximate cause’
The actove, efficient cause that sets in motion a train of events which brings about a result, without the intervention of a new and independent force
When was proximate cause defined?
In the case of Pawsey v Scottish Union and National (1907)
What happened in the case of Leyland Shipping v Norwich Union Fire Insurance Society (1918)
Proximate cause is proximate in efficency
Define ‘insured peril’
Peril named in the policy and covered
What is an excepted or excluded peril?
One explicitly excluded in the policy
What is an unamed or uninsured peril?
One not mentioned at all in the policy- this is normally covered
Define ‘indemnity’
‘Financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred’
Which case highlighted the importance of indemnity?
Castellian v. Preston (1883)
Are all policies policies of indemnity?
No, some policies (like accident or sickness) provide fixed benefits
What are examples of benefit policies?
life, pensions, personal accident, loss of license for air crew
What are different ways to provide the isnured with indemnity?
Cash, repair, reinstatement, and replacement
What does reinstatement as a way to indenify involve?
Insurer agrees to restore a building or piece of machinery that has been damaged by an insured peril
How is indemnity measured in marine insurance?
The insurable value is calculated using the formula in the Marine Insurance ACt 1906 at the beginning of the contract
How is indemnity measured in property insurance?
Its value at the date and place of loss- can be through the reinstatement memorandum or day one reinstatement
What is the basis of indemnity in farming stock?
The local market price- as this is both the buying price and selling price
Where are agreed value policies common?
In marine insurance
What are first loss policies?
Where an insurer believes a total loss is unlikely, so they insure for a smaller amount
What is the average condition?
If something in under insured, the insured is their own insurer for the bit not covered by the policy
Define ‘excess’
The amount deducted from each claim and paid by the insured
Define ‘deductible’
Used to mean a large excess, now used interchangeably
Define ‘franchise’
Same as an excess, but if the claim value is above the franchise, the insurer will pay it all, and the insured pays nothing
What is the principle of ‘contribution’
The principle of sharing the burden of the loss fairly among all insurers who cover the loss
Define ‘contribution’
“the right of an insured to call upon others similarly, but not necessarily equally, liable to the same insured to share the cost of an indemnity payment”
Where was the principle of contribution established?
King and Queen Granaries case
What is the most common case of dual insurance?
Travel insurance for items, when sometimes it is covered by household contents insurance
What is subrogation?
The right of an insurer, following payment of a claim, to take over the insured’s right to recover payment froma third party responsible for the loss
Define ‘tort’
A breach of the duty to act in a reasonable way to each other
What are mutual hold harmless agreements?
Agreements where both parties have excluded subrogation rights- so they clean up their own messes rather than claim off of each other
What happened in Lister v Romford Ice and Cold STorage Ltd (1957)?
A son injured his fatehr whilst at work, the insurers paid out for the fatehrs injury, then went after the son. The insurnce industry was criticised for this.
