Chapter 3: Insurance Policies Flashcards
What is the parol evidence rule?
Only the contract itself can be relied upon, not the negotiations leading up to it
What form is a policy generally issued in?
A schedule form consisting of a pre-printed policy wording and a policy schedule.
The policy schedule indicates which parts of the pre-printed wording are in force, as well as containing all the variable information and details of the specific risk
What sort of language should policy documentation use?
Clear, everyday wording with definitions for unfamiliar words
What does contra proferentem mean?
When there is a dispute over unclear or ambiguous policy wording it is interpreted against the party that provided the wording (normally for insurance this would be the insurer)
Can the terms of an insurance contract be challenged for being unfair?
By default no, however if a term is ambiguous or not prominent enough that can be challenged under the Consumer Rights Act 2015
What happens if an ambiguous or not prominent term is challenged and deemed to be unfair?
It is not binding
Generally, what are the 8 sections of a basic general insurance policy?
- Heading
- Recital Clause (preamble)
- Signature
- Operative Clause (insuring)
- Exceptions
- Conditions
- Schedule
- Information/Facilities
What will the heading section of a policy contain?
Insurer name, address + logo
What is the purpose of the recital clause/preamble?
“Sets the scene” - refers to the two parties coming together to form the contract and outlines the purpose of the contract (the insurer promising to indemnify the insured in return for a premium)
Also makes the proposal form part of the basis of the contract
What is arguably the most important section of a policy?
The operative clause
Also called insuring clause
What does the operative/insuring clause do?
Outlines the cover provided - may be only one or a number of clauses for different aspects/limits
What is a condition?
A term that the insured agrees to comply with during the cover period
What two types of conditions are there?
Express and implied
What is an express conditon?
A condition with is stated in the policy
What is an implied condition?
A condition implied by common law that is not expressly stated in the policy
What would be contained within the policy schedule?
The variable parts of the policy, it makes the policy specific to the insured
Insured name + address Policy period Premium Policy number Subject matter Sum insured + limit of liability Special exclusions/conditions What sections of the policy wording are applicable
What may the information and facilities section of a policy contain?
Definitions - words capitalised or in bold
Customer service policies (response times)
Complaints procedures
How to claim
What are the two types of exclusions found in most general insurance policies?
- General exclusions - apply to all sections of the policy
2. Specific exclusions - apply to specific parts of a policy
What is a market exclusion?
A general exclusion that is common to all (or virtually all) insurance policies
What are some common market exclusions?
- War
- Nuclear
- Terrorism (for commercial insurance, esp property)
- Pollution/contamination (for property insurance)
- Cyber risk (except for specialist insurance)
- Sonic boom
- Contractual liability (liability which only exists due to a contract the insured has entered into)
- Marine (property covered by a marine policy is excluded from a property policy)
Although terrorism is a common market exclusion, terrorism cover can be purchased. How does this work?
Insurer’s can offer terrorism cover but it must be purchased on an “all-risks” basis, cover all the policy and all property locations. The insurer then reinsures it through a mutual re-insurer, Pool Re, which was setup in collaboration with the UK government and backed by a treasure guarantee. The insurer’s liability is capped per event and year and in Northern Ireland is provided directly by the government
What are the main express conditions?
- Duties of the insured
- Alteration - extends duty of disclosure
- Actions in event of a claim
- Fraud
- Reasonable precautions
- Contribution
- Subrogation
- Average
- Arbitration
- Cancellation
What is a reasonable precaution condition?
States that the insured must act as if they are uninsured - having insurance is not a reason to act carelessly. Instead they must act to minimise all losses
What is a contribution condition?
Limits an insurer’s liability to their share of the loss in a situation where cover is provided under two or more policies
What is the purpose of a subrogation condition?
It allows the insurer to exercise it’s subrogation rights as soon as it if notified of a claim, even before payment is made
What is the purpose of an average condition?
To reduce claims payments where there is underinsurance (ie the value of the subject matter is greater than the value insured)
What is a warranty?
A promise. Usually relates to something the insured will or will not do, or a promise surrounding certain facts. Can be express or implied
Give some examples of express warranties
Household - a burglar alarm must be fitted and active
Motor - vehicle kept in a garage overnight
Property - maintained sprinkler system present
Marine - vessel will not travel to a certain place
etc
What happens if a warranty is breached?
The insurer’s liability is suspended until the breach is remedied
There are three categories of conditions based upon when they must be fulfilled. What are these?
1, Precedent to the contract (before the contract eg implied conditions such as insurable interest)
- Subsequent to the contract (once the contract is in force eg notification of changes in material circumstances)
- Precedent to liability (when a claim occurs eg must be notified within a certain timeframe)
What was a basis of contract clause?
Representations made during proposal/negotiation were made into warranties
Are basis of contract clauses valid?
No - these were abolished under CIDRA 2012 for consumer insurance and Insurance Act 2015 for commercial
The only exception to this is if the insurer and insured have agreed to contract out of IA 2015
What is an excess?
The first portion of each and every claim for which the insured is responsible
What are the two types of excess?
Compulsory - imposed by the insurer
Voluntary - accepted by insured in return for a lower premium
What is a deductible?
A large excess
What is a franchise?
A fixed amount or period of time that acts as a threshold or baseline to determine whether a claim is payable. It must be exceeded for there to be a claim
For example a business interruption policy could have a franchise of 7 days. If the business was interrupted for 6 days there would be no claim. If the business was interrupted for 8 days, the whole 8 days become claimable
Your business has a policy with a franchise of £10,000. How much would your insurer pay in the event of a claim worth:
A) £5,000?
B) £12,000?
A) Nothing
B) £12,000
You have a car insurance policy with a compulsory excess of £200 and a voluntary excess of £150. How much would the insurer pay for a claim of:
A) £300?
B) £1,000?
A) Nothing
B) £650
How can losses arising from radioactive contamination and explosive nuclear assemblies be covered?
Through “market pools”
What cover for pollution, if any, is provided under a public liability policy?
Pollution arising from a sudden, unexpected, identifiable, incident
What cover for pollution, if any, is provided under a standard property policy?
None
How does PoolRe define a Small Medium Enterprise for rating purposes?
A business with assets up to £5 million
