General Principles

Question 1

The claims department can be seen as the ‘shop window’ of the insurance company.

Answer 1

True

Claims Department

Question 2

It does not matter how competitive an insurance company’s premiums are, or how efficiently they conduct their underwriting administration, if a claim is not properly and fairly dealt with this is where an insurer will be judged.

Answer 2

True…

Question 3

However, an insurer has obligations to every policyholder, all of whom have contributed to the common pool from which claims are paid.

Answer 3

True

Insurer obligations

Question 4

There are more interests than those of the individual claimant to be considered and, as we will see later, insurers MUST always treat all their policyholders fairly.

Answer 4

True…

Question 5

For this reason, the claimant has certain obligations that they have to meet before any settlement will be paid.

Answer 5

True

Claimant/policyholder/insured obligations

Question 6

NOTE: The term policyholder or insured refers to the person or party purchasing the insurance.

Answer 6

True

Claimant/policyholder/insured obligations

Question 7

When they make a claim against the policy, we refer to that person as the claimant, although they will still be the ??

Answer 7

Policyholder/insured.

Question 8

What is A Legal requirements for a claim

Answer 8

When someone takes out an insurance policy, a legally binding contract is formed between the insurer and the insured.

Question 9

What does the policy document represent?

Answer 9

Proof of this and issued by the insurer

Question 10

Most policies provide indemnity to the insured.

Answer 10

TRUE

Question 11

Question 1.1
Think back to your earlier studies, what do we mean by the term ‘indemnity’?

a. Providing the insured with something similar to that which they had prior to the
loss.
□
b. Placing the insured in the same financial position as they enjoyed prior to the loss. □
c. Providing the insured with replacement for their loss, whatever the cost. □

Answer 11

B

Question 12

When an insured makes a claim, it is their responsibility to prove that they have a valid claim.

Answer 12

This is known as onus of proof.

Question 13

In these cases, the insured would still need to prove a valid claim, but the insurer would then generally handle the negotiation and claims settlement aspects.

Answer 13

True

Legal requirements of a claim = Insured peril arose

Question 14

The amount payable could be a court award or a negotiated settlement, so the insured would not be involved in proving the amount of the claim

Answer 14

(Referred to as the quantum).

Question 15

The insured would not be the one receiving the settlement as this is USUALLY paid directly by the insurer to the third party.

Answer 15

True

Liability cases

Question 16

The policyholder would only be indemnified by not having to pay the settlement amount to the third party from their own pocket.

Answer 16

True

Liability cases

Question 17

When an insurer refuses to pay a claim because of, for example, the operation of an exclusion, then the onus of proof moves to the insurer, which must prove that such an exclusion applies.

Answer 17

True

Onus of proof

Question 18

The insurer has its own duties and responsibilities in respect of a claim. It will need to ensure that:

Answer 18

• all conditions and warranties have been complied with;
• cover was in force at the time of the loss (or when the claim was made, under certain policies);
• the duty of fair presentation has been complied with in respect of commercial customers/the duty to take reasonable care not to make a misrepresentation has been complied with in respect of consumer customers;
• no exceptions apply;
• the insured has taken reasonable steps to minimise the loss (mitigation);

• the insured is the same as that named in the policy (or is the person entitled to
indemnity);

• the peril (or event) is covered by the policy;
• the value of the loss is reasonable.

*ALSO The insurer has a duty to its other policyholders (and shareholders, if appropriate) to ensure that all claims payments are fair and are made on time.

Question 19

All insurance policies contain a list of conditions.

Conditions can be express or implied.

Answer 19

True

Policy conditions

Question 20

An express condition is stated in the policy,

but an implied condition is one that everyone accepts as applying to the policy, but is NOT actually stated in it.

Answer 20

True

Policy conditions

Question 21

(Policy conditions)

Examples of these types of conditions are as follows:

Answer 21

Express condition:
A motorbike must be stored in a locked garage for theft cover to be valid, as stated in the policy

Implied condition:
The insured cannot use the existence of the insurance as an excuse to act recklessly or without care.

Question 22

The effect of a breach of a condition varies depending upon which of the following three groups it falls into.

Answer 22

Conditions precedent to the contract,

Conditions subsequent to the contract,

*Conditions precedent to liability (or recovery)
Here we are going to concern ourselves with the conditions precedent to liability or recovery, as this is where the claims conditions fall.

Question 23

If a condition precedent to liability or recovery is not met, insurers may avoid liability for a particular loss, but they need not repudiate the contract as a whole.

Answer 23

True

Conditions precedent to liability or recovery

Question 24

If a later valid claim is made, the insurers must pay, provided that the insured complies with the condition in this instance.

Answer 24

True

Conditions precedent to liability or recovery

Question 25

The Insurance: Conduct of Business Sourcebook (ICOBS) states that, unless fraud is involved, the insurer should not refuse to pay a claim from a consumer on the grounds that a condition was not met, where that condition was not connected with the circumstances of the loss.

Answer 25

TRUE

ICOBS = Breach of Policy conditions

Question 26

Example 1.1
Henry Ramsden takes out a household policy, one of the conditions of which is that he fits window locks as a precaution against burglary. He fails to do this. Later, a poorly maintained chimney flue leads to a fire which spreads to the timber frame of the building.
Will his insurers pay for the damage despite the fact that he has breached a condition of the policy?

Answer 26

Because the condition that Henry breached was not connected to the circumstances of his loss, ICOBS states that it would be unreasonable for the insurer to avoid payment. Henry would have been in a more serious position though if he had been burgled, and he would be well-advised to fit those window locks.

Question 27

There are also policy conditions which mean that a claim may be only partially met:

Answer 27

• The average clause, in the case of under-insurance for property insurances,
• The sum insured (in respect of property insurance) or limits of liability (in respect of liability insurance),
• Voluntary or compulsory excess or deductible.

Question 28

The average clause, in the case of under-insurance for property insurances:

Answer 28

This states that the amount paid will be reduced in proportion to the amount of under-insurance.

Question 29

The sum insured (in respect of property insurance) or limits of liability (in respect of liability insurance):

Answer 29

This forms part of the policy and limits the maximum amount recoverable. Claims for losses above this amount will not be met in full.

Question 30

Question 1.2
What is an excess or deductible?
a. A term meaning the amount of indemnity paid to the insured. □
b. An amount taken from the insured’s premium to cover the first part of the claim. □
c. An amount deducted from each claim and borne by the insured. □

Answer 30

C

Question 31

The core terms and conditions of insurance contracts, such as exclusions, typically cannot be challenged on the grounds of fairness; this default position remains unchanged under the Consumer Rights Act 2015.

Answer 31

Unfair or hidden terms and conditions

Question 32

However, the Act does state that if a term of a contract is not transparent or prominent, it can be assessed for unfairness.

Answer 32

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 33

A term is:
• transparent, if it is expressed in plain and intelligible language; and
• prominent, if it is brought to the consumer’s attention in such a way that an average consumer would be aware of it.

Answer 33

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 34

The Act defines an average consumer as one who is ‘reasonably well informed, observant and circumspect’.

Answer 34

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 35

To avoid challenges for unfairness, insurers will need to ensure that the significant terms included in their insurance contracts are communicated transparently and prominently.

Answer 35

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 36

If a contract term is deemed unfair it will not be binding, although consumers are still within their rights to rely on a term if they wish to do so.

Answer 36

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 37

These rules cover both the consumer contract (the policy itself) and notices, such as renewal invitations and customer promotions.

Answer 37

True

Consumer Rights Act 2015= Unfair or hidden terms and conditions

Question 38

Duties of the insured after a loss:

The duties of the insured after a loss can be divided in to two different categories.

Answer 38

Implied duties and Express duties

Question 39

What are implied duties?

Answer 39

These are imposed by common law, whether or not they are actually found in the policy wording.

Question 40

Implied duties examples?

Answer 40

• act as though they are uninsured, and take all reasonable steps to minimise the loss;
• advise the appropriate authorities as necessary in the event of loss or damage, e.g. advising the fire service in the event of a fire or advising the police in the event of a theft;
• not hinder the insurer in the claims investigation process and must assist the insurer where possible with all aspects of dealing with the loss, including helping it to recover its outlay where recovery opportunities exist.
• take all steps to prevent a loss from spreading, e.g. attempt to contain a fire; and

*Failure to comply with these conditions could render the claim invalid.

Question 41

What are express duties?

Answer 41

These are always written into the contract, and are usually found as conditions in the policy.

Question 42

A breach of these conditions (Express Duties) allows the insurer to reject a particular claim if the breach of the condition is connected to the circumstances of that claim.

Answer 42

True

Express Duties

Question 43

What is ‘claims procedure’ or ‘action by the insured’?

Answer 43

There is always a condition setting out the insured’s duties in the event of an insured event occurring.

Question 44

Although the condition may vary in length and detail from policy to policy, the action required by the insured will be to:

Answer 44

• give proof and details of the loss in writing within a certain timescale.
• involve the emergency services, if appropriate;
• notify the insurer promptly;
• take reasonable steps to prevent further damage;

Question 45

Most policies state that the insured should notify their insurer of a claim ‘promptly’.

Answer 45

True

Notification

Question 46

In the absence of an express condition to the contrary, verbal notice is sufficient, i.e. a telephone call.

Answer 46

True

Notification

Question 47

In most instances, further information is obtained by the completion of a claim form, USUALLY issued by ??

Answer 47

The insurer after the initial notification has been made.

Question 48

In most instances, if further information is required how will the insurer obtain them?

Answer 48

By completion of a claim form.

Question 49

However, in some lines of business, particularly personal lines, the information is taken over the:

Answer 49

Telephone at point of notification.

Question 50

In respect of motor or liability claims, there is USUALLY a requirement that all notifications of fatal injury inquiries, coroner’s inquests, proceedings or prosecutions are forwarded to the insurer as soon as possible. Why??

Answer 50

This is to enable the insurer to arrange a suitable defence, if necessary.

Question 51

It is the insured’s duty to prove that a loss has occurred and to demonstrate its size.

Answer 51

True

Documentary Evidence

Question 52

The precise nature of the proof needed will depend on the policy wording.

Answer 52

True

Documentary Evidence

Question 53

Most insurers operate a first notification of loss process (FNOL) in order to quickly gather details about the claim.

Answer 53

This is USUALLY done by a telephone process whereby the customer calls a hotline to report the claim to a dedicated claims team.

Question 54

In some instances, this can be done online or via a smart phone app and, as technology expands, we can expect to see more

Answer 54

True

FNOL

Question 55

Notifications via non-traditional ways, such as:

Answer 55

For example, an alert from a telematics device automatically triggering the FNOL process, following a motor accident.

Question 56

The telephone or internet notification is sufficient to validate the claim and for the insurer to make arrangements for adjustment or settlement without a signature on a form, for which types of claims?

Answer 56

For some claims, especially low value motor and property claims,

Question 57

In more complex claims, such as large commercial property or liability claims, a claim form may be issued to supplement the details provided over the phone.

Answer 57

True

FNOL

Question 58

What are the Benefits of telephone FNOL?

The benefits to the insurer

Answer 58

The benefits to the insurer are:

control over cost and fewer exaggerated claims…

Question 59

What are the Benefits of telephone FNOL?

The benefits to the insured

Answer 59

The benefits to the insured are:
• claims are settled more quickly; and 
• the claims process is simplified; 
• immediate access to the service;
• the quality of repair and replacement work is generally of a high and consistent standard

Question 60

Control over cost??

Answer 60

The benefits to the insurer in FNOL:
Claims are notified quicker and insurers have more opportunities to use their approved repairers and goods suppliers, with whom they will negotiate discounts;

Question 61

Fewer exaggerated claims?

Answer 61

The benefits to the insurer in FNOL:
The insured is talking directly to the claims handler so will find it more difficult to embellish their claim and the quick notification gives them less time to ‘invent’ items

Question 62

The quality of repair and replacement work is generally of a high and consistent standard?

Answer 62

The benefits to the insured in FNOL:

Because approved repairers or service providers are vetted and monitored.

Question 63

Claim form??

Answer 63

If a claim form is required it will either be issued on the conclusion of the FNOL call or, in some cases, directly by the broker that sold the policy to the insured.

Question 64

What’s the purpose of the claim form?

Answer 64

• To enable the insurer to make an assessment of the potential severity of the claim..
• To enable the insurer to assess whether there may be a potential third party claim (in respect of motor and liability insurance);
• To enable the insurer to consider whether any potential recovery rights exist,

*To establish whether the insured is entitled to indemnity under the policy,

• To provide sufficient information to permit the insurer to begin processing the claim (if appropriate).

Question 65

The insurer must satisfy itself that:

Answer 65

– the loss (actual or potential) is covered under the terms of the policy, and

– the information given on the claim form is consistent with that given on the proposal form;

Question 66

All these issues (Claim form and Insurer satisfaction) have an important impact on the claim liability and therefore the reserves.

Answer 66

True

Question 67

What are the Contents of a claim form/notification?

Answer 67

The questions vary according to the class of insurance concerned, although the basic purpose is the same.

Question 68

A property claim notification may require the following information, apart from the basic
personal details:

Answer 68

• capacity in which the insured is claiming (e.g. as owner, custodian etc.);
• date, cause, circumstances and the monetary amount of the loss or damage;
• description of the property damaged, e.g. stock, fixtures and fittings;
• situation and occupancy of the premises;
• whether any other person has an interest in the lost or damaged property; and
• whether there is any other insurance in force.

Question 69

A motor accident notification may require the following information:

Answer 69

• details of any independent witnesses to the accident.
• details of the insured;
• the vehicle involved in the accident, and its use (i.e. domestic or business);
• the specific detail of the accident: date, time, road conditions, lighting etc.;
• sketch plan of the accident scene, showing positions of vehicle(s) before and after the accident; and

Question 70

With other classes of insurance;
(for example, theft insurance),
there may be questions relating to informing ??

Answer 70

The police and whether steps have been taken to prevent a recurrence.

Question 71

Once the claim form or notification is received,
the insurer’s claims department will carry out certain tasks, for example the insurer’s claims department will carry out certain tasks, for example checking with its underwriting records to make sure that:

Answer 71

• that the policy is in force; and

* that the peril that has caused the loss or damage is covered in the terms of the policy

Question 72

In most cases this information is added to the claims system and only discrepancies between what is held and being advised at claim stage would be referred to??

Answer 72

Underwriters

Question 73

Which condition has to be considered??

Answer 73

Good Faith

Question 74

The insurer will compare the answers on the claim form with those on the proposal form. why?

Answer 74

This is to check that all material information was notified to the underwriters at the start of the policy, and that there has NOT been a breach of the duty of fair presentation in respect of commercial customers, or the duty to take care NOT to make a misrepresentation in respect of consumer customers.

Question 75

Who next needs to check that the value of the loss is reasonable??

Answer 75

The claims handler

Question 76

How does the claims handler check that the value of the loss is reasonable??

Answer 76

This is USUALLY done by looking at relevant internet sites, reference books, using the handler’s own experience and validating it with experts in the applicable field of insurance.

Question 77

Which claims can be dealt with quickly and efficiently once the claim is validated and everything is in order??

Answer 77

Most small domestic claims

Question 78

However, for larger claims, who may visit the claimant to assess the damage??

Answer 78

a loss adjuster

Question 79

In addition to the notification information, additional evidence and/or enquiries could be made. These will be different depending on the type of claim, as the following examples show.

Answer 79

True

Supporting evidence

Question 80

The details given at notification can often be compared with the list given to the police by the insured, for which type of insurance claim?

Answer 80

True

Supporting evidence=Theft Claims

Question 81

Images/dashboard camera footage of the incident and satellite images of the location may be reviewed as necessary, as well as engineering reports, for which type of insurance claim?

Answer 81

True

Supporting evidence= Motor liability claims

Question 82

Medical evidence and/or doctors’ certificates, death certificates and coroners’ inquest judgments will be examined, as applicable, for which type of insurance claim?

Answer 82

True

Supporting evidence= Personal injury and sickness claims

Question 83

Vehicle registration documents in respect of total loss motor claims or vehicle theft would be appropriate, for which type of insurance claim?

Answer 83

True

Supporting evidence= Motor damage claims

Question 84

Different types of experts may also be used in the investigation process, for example:

Answer 84

Doctors
Motor engineers 
Restoration experts 
Supply chain records 
Solicitors 
Surveyors

Question 85

In the investigation process, why are Doctors used?

Answer 85

To verify or assess the severity of injuries and assist in rehabilitation

Question 86

In the investigation process, why are Motor engineers used?

Answer 86

To verify the damage caused and agree repair costs with the garage

Question 87

In the investigation process, why are Restoration experts used?

Answer 87

To restore property or contents damaged by water and fire

Question 88

In the investigation process, why are Supply chain records used?

Answer 88

OFTEN used in place of experts to help validate a loss.

Question 89

In the investigation process, why are Solicitors used?

Answer 89

To give legal opinions, or to commence or defend legal proceedings.

Question 90

In the investigation process, why are Surveyors used?

Answer 90

To estimate rebuilding costs

Question 91

For example,
Most large household insurers will have a delegated authority agreement with their building repair suppliers, so that the?

Answer 91

Suppliers can validate the loss on the insurer’s behalf without the use of an expert.

Question 92

Where an insurer wishes to involve other experts, it should always give an explanation ?

Answer 92

To the insured as to why they are involved and the extent of their role.

Question 93

What is Proximate cause?

Answer 93

‘Proximate cause’ was defined in Pawsey v. Scottish Union and National (1907) as:

“the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

Question 94

Example 1.2
Marsden v. City & County Insurance Company (1865): A shopkeeper insured his plate glass against loss or damage arising from any cause except fire. Fire broke out at a neighbour’s shop and a mob gathered. The mob rioted and broke the plate glass….

Answer 94

It was held that the riot and NOT the fire was the cause of the loss. The damage was not the inevitable result of the fire.

Question 95

Gabay v. Lloyd (1825):
Horses on board a ship were frightened by a storm. They broke down their stalls and kicked one another, resulting in some deaths.

Answer 95

It was held that death so caused was a loss by perils of the sea…

Question 96

Once the insurer has established the proximate cause of the loss, it MUST check that the peril is covered by the policy.

Answer 96

True

Proximate cause

Question 97

Perils can be classified as follows. Insured perils those named in the policy as covered

Answer 97

Excepted or excluded perils those named as specifically not covered

Uninsured or unnamed perils those perils not referred to in the policy and therefore not insured If an excepted or uninsured peril is the proximate cause, the insurer will not be liable.

Question 98

There may be circumstances where the ultimate cause of the loss appears to be an uninsured peril..

Answer 98

e.g. water damage resulting from putting out a fire, but insurers will nevertheless be liable if the proximate cause was an insured peril..

Question 99

The effect of an excepted peril being involved in a chain of events will depend on the wording of the exception.

Answer 99

True

Proximate cause

Question 100

It is very IMPORTANT for the insurer to draft the exclusions in such a way that whatever is excluded is clearly mentioned in the policy.

In the case of any ambiguity in the policy wording, the benefit of doubt will always go to the insured.

Answer 100

This is because the insurance company drafts the policy terms, conditions and exclusions.

Question 101

These are links to the claims handling process.

Answer 101

True….

Question 102

It is very IMPORTANT for the insurer to draft the exclusions in such a way that whatever is excluded is clearly mentioned in the policy.

In the case of any ambiguity in the policy wording, the benefit of doubt will always go to the insured. Why?

Answer 102

This is because the insurance company drafts the policy terms, conditions and exclusions.