Chapter 7 - Insurance contracts and key terms Flashcards
Repudiate
Reject
Ambiguity - ‘contra proferentem’ rule
When there is a word that may have a few meanings - the clause it construed (interpreted) against the party who proposed it, so the other party would be given the benefit of the doubt
Statutory rules
Rules laid down in legislation
Common law rules
Rules developed in court
‘Literal rule’
In disputed cases, courts will go off the ‘ordinary’ meaning of words/statutes
What is the ‘Good Luck’ principal and how was it repealed
Where a breach of warranty terminated cover
By The Insurance Act 2015
How are warrenties created
- Express warranty - in the policy itself
- Implied warranty - for marine insurance only, implied warranty of seaworthiness is automatically included in every policy
- ‘Basis of the contract’ clauses - The clauses are used to convert statements made by the insured in the proposal form into warranties
What are collateral conditions
Minor terms where a claim will still be paid if it is in breach
If it is serious and goes to the root of the contract, it may be repudiated
Claim will be paid but damages can me made by the insurer
Breach of a ‘suspensive condition’ or ‘clause describing the risk’
Cover suspended while insured fails to comply, but resumes if and when they start to comply
Can a claim be refused for a term that is not relevant to the actual loss
No - cannot contract this out either
In relation to compulsory insurance, can an insurer reject a third party incident claim by relying on a certain type of policy condition or warranty
No
Joint policy vs composite policy
Joint = Interest of the assured is the same. E.g. husband and wife on their property - breach of one causes the entire policy to fail
Composite = Interest of the assured may be different - e.g. mortgagor and mortgagee - breach by one may invalidate them without invalidating the other
A bundle of seperate contracts between an insurer and several insured companies in a group of companies are all contained in a single insurance policy. This may be described as either
Composite policy or coinsurance
An insurance contract is subject to waiver by estoppel when an insurer is aware of a breach of a warranty by an insured, but the insurer then goes on to:
Accept further premium
Advise the insured about future loss prevention
Resist a claim on grounds other than breach of duty
Common law rules for the interpretation of insurance polices include the
Application of a technical or legal meaning
Contra referendum rule
The 3 rules of statutory interpretation are
Literal rule
Golden rule
Mischief rule
Golden rule.
Where the meaning of words in a statute, if strictly applied, would lead to an absurd result, and there is an alternative interpretation which avoids this absurdity, the courts are entitled to use this other interpretation
Mischief rule
Under this rule - the judge will consider the meaning of the words in the act in the light of the abuse or ‘mischief’ which the Act was intended to correct, and choose the interpretation which makes the Act effective in suppressing this mischief
Sometimes known as the rule in Haydon’s case
What current UK legislation provides some statutory control over insurance policy wording?
The Consumer Right Act 2015
Special rules apply to employers’ liability insurance in respect of the avoidance of liability for
breach of condition or warranty.
In what type of contracts, if any, is the use of basis of the contract clauses legally permitted?
In neither consumer nor non-consumer insurance policies.
A broker, acting for a commercial policyholder, is reviewing a policy wording drawn up by an insurer. The broker proposes an additional clause for insertion into the policy, which the insurer agrees to incorporate. Against which party to the contract will the clause be construed in the event of its ambiguity?
The policyholder only
The wording used in insurance policies must have a clear meaning, but what is the position with commonly used words such as ‘storm’ and ‘fire’?
Their meaning has been established under the doctrine of precedent by previous court decisions.
An estranged spouse has wilfully set fire to jointly owned property as an act of revenge. There was a joint insurance policy on the property. What is the position in law and how, if at all, might the Financial Ombudsman treat it differently?
In law, they are jointly liable although the Ombudsman has previously found in favour of the innocent party.
A commercial insurance policy requires the insured to notify the insurer of an incident that falls under the policy within 7 days. If this collateral condition was not met and there was a claim, the insurer is most likely to:
pay the claim but it could charge for any additional expense incurred resulting from this.
An estranged spouse has wilfully set fire to jointly owned property that had a joint insurance policy on the property. How is the Financial Ombudsman likely to treat a subsequent claim referred to it?
Ask the insurer to pay one-half of the loss to the innocent party.
Under the Consumer Rights Act 2015, a contract term in an insurance policy will be considered unfair to the policyholder if it
causes a significant imbalance in the parties’ rights and obligations to the detriment of the policyholder.
Basis of contract clause
Similar to exclusion clause
A basis clause defines the basis upon which the parties have agreed to contract. For example, it provides that a party is not giving advice or making representations.
