Chapter 7 - Insurance contracts and key terms

Question 1

Repudiate

Answer 1

Reject

Question 2

Ambiguity - ‘contra proferentem’ rule

Answer 2

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

Question 3

Statutory rules

Answer 3

Rules laid down in legislation

Question 4

Common law rules

Answer 4

Rules developed in court

Question 5

‘Literal rule’

Answer 5

In disputed cases, courts will go off the ‘ordinary’ meaning of words/statutes

Question 6

What is the ‘Good Luck’ principal and how was it repealed

Answer 6

Where a breach of warranty terminated cover

By The Insurance Act 2015

Question 7

How are warrenties created

Answer 7

• 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

Question 8

What are collateral conditions

Answer 8

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

Question 9

Breach of a ‘suspensive condition’ or ‘clause describing the risk’

Answer 9

Cover suspended while insured fails to comply, but resumes if and when they start to comply

Question 10

Can a claim be refused for a term that is not relevant to the actual loss

Answer 10

No - cannot contract this out either

Question 11

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

Answer 11

No

Question 12

Joint policy vs composite policy

Answer 12

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

Question 13

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

Answer 13

Composite policy or coinsurance

Question 14

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:

Answer 14

Accept further premium

Advise the insured about future loss prevention

Resist a claim on grounds other than breach of duty

Question 15

Common law rules for the interpretation of insurance polices include the

Answer 15

Application of a technical or legal meaning

Contra referendum rule

Question 16

The 3 rules of statutory interpretation are

Answer 16

Literal rule

Golden rule

Mischief rule

Question 17

Golden rule.

Answer 17

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

Question 18

Mischief rule

Answer 18

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

Question 19

What current UK legislation provides some statutory control over insurance policy wording?

Answer 19

The Consumer Right Act 2015

Question 20

Special rules apply to employers’ liability insurance in respect of the avoidance of liability for

Answer 20

breach of condition or warranty.

Question 21

In what type of contracts, if any, is the use of basis of the contract clauses legally permitted?

Answer 21

In neither consumer nor non-consumer insurance policies.

Question 22

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?

Answer 22

The policyholder only

Question 23

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’?

Answer 23

Their meaning has been established under the doctrine of precedent by previous court decisions.

Question 24

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?

Answer 24

In law, they are jointly liable although the Ombudsman has previously found in favour of the innocent party.

Question 25

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:

Answer 25

pay the claim but it could charge for any additional expense incurred resulting from this.

Question 26

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?

Answer 26

Ask the insurer to pay one-half of the loss to the innocent party.

Question 27

Under the Consumer Rights Act 2015, a contract term in an insurance policy will be considered unfair to the policyholder if it

Answer 27

causes a significant imbalance in the parties’ rights and obligations to the detriment of the policyholder.

Question 28

Basis of contract clause

Answer 28

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.