Chapter 3 - Insurance Policies

Question 1

Structure, Form and Content

Answer 1

CIDRA 2012 requires that all questions are exact and clear enough for consumers to understand. Expected to consider accessibility of explanatory material.
Consumer Rights Act 2015 says that if a term of a contract is not transparent or prominent it can be assessed for unfairness.
Structure of all general insurance policies:
• heading
• preamble
• signature clause
• operative clause
• exclusions
• conditions
• policy schedule
• information and facilities

Question 2

Heading

Answer 2

Includes name of insurer, address and logo

Question 3

Preamble (Recital Clause)

Answer 3

Sets scene for what follows in the policy by referring to the insured and insurer forming a contract of which the insurer undertakes to indemnify the policyholder in accordance with the cover detailed in the policy in return of a price.
Also states that the proposal form is part of the basis of the contract but does not operate as a basis of contract clause.

Question 4

Signature

Answer 4

There will frequently be a pre-printed signature of an official from the company

Question 5

Operative Clause (Insuring Clause)

Answer 5

Most important section of the policy. Where the actual cover provided is outlined.
There will usually be a number of clauses each dealing with a different aspect of insurance.
Each clause begins with ‘The company will…’ and states exactly what the insurer is promising to do.

Question 6

Exclusions

Answer 6

Policies contain general exclusions that apply to the entire contract. The schedule contains specific exclusions.

Question 7

Conditions

Answer 7

Is a contractual term that the insured agrees to comply with during the period of cover.
Express conditions are stated in the policy.
Implied conditions are implied by common law and practice and do not need to appear in the policy.

Question 8

Policy Schedule

Answer 8

Where the policy is made specific to the insured. It contains:
* insured’s name
* insured’s address
* policy period
* premium
* details of subject matter
* sum insured or limit of liability
* policy number
* reference to specific exclusions, conditions or aspects of cover
* operative sections of the policy

Question 9

Information and Facilities

Answer 9

May include:
* definitions
* customer service standards statement
* complaints procedure
* claims information

Question 10

Fundamental Risk

Answer 10

It applies to society generally and would normally be considered too serious to be insured by an insurance company.

Question 11

Market Exclusions - War and Related Perils

Answer 11

Is considered a fundamental risk so will be the responsibility of the state to provide compensation for injury and damage.

Question 12

Market Exclusions - Radioactive Contamination and Explosive Nuclear Assemblies

Answer 12

Is a fundamental risk that falls into two categories:
* contamination as a result of nuclear accident
* liability for nuclear installations
Potential losses were to big for individual insurers. Instead cover is provided by market pools where insurers and reinsurers accept a share of the risk.

Question 13

Market Exclusions - Terrorism

Answer 13

9/11 highlighted that terrorist damage could be much greater than anything previously anticipated. Also loss could arise from an insure peril other than fire and explosion.
In July 2002 the insurance industry announced a new arrangement:
* All damage as a result of terrorist attacks is excluded by insurers’ standard commercial property wordings
* The choice is with the insured if they wish to purchase the additional cover
* Premium rates are no longer decided by government, but by insurers and Pool Re became a reinsurer of terrorism cover rather than an insurer as before.
* Each individual insurers’ maximum liability is capped for each terrorism event and per year.
* In Northern Ireland compensation is provided by the government

Question 14

Market Exclusions - Pollution and/or Contamination

Answer 14

This exclusion is standard in property insurance as it covers property only, not liability of the property owner.
Public liability policies are explicit that they cover risks from an unexpected, identifiable event, not a gradually operating cause.
Gradual pollution can be insured under an environmental impairment policy.

Question 15

Market Exclusions - Marine Policies

Answer 15

Standard to property insurance policies, its effect is to exclude material damage also covered by a marine policy.

Question 16

Market Exclusions - Contractual Liability

Answer 16

Excludes liability from an agreement entered into by the insured and extends the insured’s responsibilities beyond the common law position.
What is not covered is liability which exists only because of the agreement made.
Standard in motor and liability policies

Question 17

Market Exclusions - Sonic Bangs

Answer 17

Standard to property policies, damage arising from pressure waves from aircraft or other aerial devices travelling at sonic or supersonic speeds is excluded.

Question 18

Condition

Answer 18

• Duties of the Insured
• Alteration
• Action by the Insured in the Event of a Claim
• Fraud
• Reasonable precaution
• Contribution
• Subrogation
• Average
• Arbitration
• Cancellation

Question 19

Categories of Conditions

Answer 19

Conditions precedent to the contract must be fulfilled prior to the formation of the contract.
Conditions subsequent to the contract must be complied with once the contract is in force.
Conditions precedent to liability must be complied with for there to be a valid claim.

Question 20

Excesses

Answer 20

Excess is the first amount of each and every claim.

Question 21

Deductibles

Answer 21

Deductible is a very large excess.

Question 22

Franchises

Answer 22

Franchise is a fixed amount or period that acts as a threshold to determine whether claims are payable