Insurance Contracts and key Terms

Question 1

difference between a breach of the pre-contractual

information duties and breach of contract

Answer 1

Breach of pre-contractual information duties: the breach normally arises from a failure to
supply full and accurate information in the negotiations that lead up to the formation of the
contract, i.e before the contract has come into existence.
• Breach of contract: the breach arises from a failure to comply with a term of the contract itself, so that the breach occurs after the contract has been made and as a result of one party not keeping to the agreement that has now come into force.

Question 2

The principles of interpretation used by the courts to resolve disputes in insurance contracts fall into two categories:

Answer 2

• statutory rules (i.e. rules laid down in legislation);

* common law rules (i.e. rules developed by the courts).

Question 3

Insurance policies are excluded

from the Unfair Contract Terms Act 1977 (UCTA)…

Answer 3

which allows the wordings of some contracts to be challenged on the grounds that they are unreasonable

Question 4

statutory control has been imposed by

Answer 4

the Consumer Rights Act 2015

Question 5

Use of consumer rights act under insurance covers

Answer 5

• May not be used by an insured who wishes to challenge the validity of a particular exclusion or warranty or to argue that the overall cover provided was too narrow.
• May use the Act to challenge the fairness of conditions relating to the claims process, if they appeared to impose unreasonable demands

Question 6

Common law rules for the interpretation of

insurance policies

Answer 6

relating to the words’

• ordinary meaning;
• technical or legal meaning;
• in context (noscitur a sociis and ejusdem generis);
• the contra proferenterm rule in cases of ambiguity.

Question 7

What is the effect of the doctrine of precedent when it applies to the interpretation of words used in insurance

Answer 7

Once one court has considered the meaning of a word then its decision is likely to influence future cases where the word is used in a similar context within the same sort of contract.
So, although words such as ‘fire’ and ‘storm’ have no legal or technical meaning, they have
acquired a particular (though not absolutely precise) meaning when used in insurance
policies, as a result of a series of court decisions

Question 8

Rules concerning context

Answer 8

-‘noscitur a sociis’ (‘a word may be known by the company which it keeps’) rule.
-The ejusdem generis rule - general words which follow specific words are taken as referring to
‘things of the same kind’
-‘expressio unius est exclusio alterius’ (‘specifying one thing implies the exclusion of other things’ – those which are not specified)

Question 9

Contra proferentem rule ( rule of last resort)

Answer 9

deal with ambiguous contracts -the clause is construed against the party who proposed it, so that the other party is given the benefit of the doubt.
Since most insurance policies are drawn up by the insurers, an ambiguous wording will generally be construed in favour of the insured.

Question 10

warranty ( insurance )

Answer 10

a promise made by the insured relating to facts or to something which they agree to do.
A warranty may relate to past or present facts (i.e. be a promise that something was so or is so), or it may be a continuing warranty, in which the insured promises that a state of affair will continue to exist or they will continue to do something. Whether a warranty is present or continuing is a matter of construction of the relevant promise.

Question 11

functions of warranties

Answer 11

• ensure that certain high risk practices or activities are not introduced without the insurer’s knowledge.
• ensure that some aspect of good housekeeping or good management is observed by the insured

Question 12

Insurance Act 2015 effect on warranties

Answer 12

Before the IA 2015, cover for the risk used to terminate automatically from the date of breach.

However, this rule was repealed by the IA 2015; now, the remedy for breach of a warranty is suspension of the insurance cover between the time that the insured breaches the warranty and remedies the breach

Question 13

How warranties are made

Answer 13

Warranties can arise expressly or impliedly (marine) or ‘Basis of the contract’ clauses ( now abolished by s9 IA 2015 )

Question 14

Conditions precedent to the contract

Answer 14

states, in one form of words or another, that the policy will not come into effect if the insured fails to comply with the term in question
breach -If a condition precedent is never fulfilled, the contract never comes into existence

Question 15

Conditions precedent to liability

Answer 15

term that allows the insurers to discharge themselves from liability for a particular loss (which is tainted by the breach) if the term is broken.
breach -The insurer is automatically discharged from liability for the claim which is tainted by the breach. Prejudice is irrelevant. The policy remains in force.

Question 16

collateral (or ‘mere’) condition

Answer 16

conditions which are not part of the main agreement to insure but are concerned only with a side issue such as the adjustment of the premium

breach -Remedy depends on the seriousness of the breach. In most cases the insurer is not entitled to reject the claim

Question 17

suspensive condition’ or ‘clause describing the risk

Answer 17

breach -Cover is suspended for as long as the insured fails to comply with the condition, but resumes if and when they start to comply with it again

Question 18

Interaction between s.10 (breach of warranty) and s.11 (terms not relevant to loss)

Answer 18

under IA 2015 s.10 is that breach of a warranty will
mean that cover under an insurance policy is suspended, and the insurer will not be liable for any claims until the breach is remedied by the insured. However, if the warranty applies to a loss of a particular kind, or loss at a particular location or time, s.11 will apply. If the insured can show that the breach did not increase the risk of the loss that occurred, they should be able to claim under the policy (this is stated in s.11(3)) despite the non-compliance with the
warranty.

Question 19

The Road Traffic Act 1988 on warranties and conditions (Motor insurance)

Answer 19

• Motor insurance is governed in the UK by the Road Traffic Act 1988
• an insurer cannot reject a third party traffic accident’s victim’s claim by relying on certain types of policy condition or warranty

Question 20

Employers’ Liability (Compulsory Insurance) Regulations 1998 on warranties and conditions ( EL insurance)

Answer 20

insurer cannot reject an employers’
liability claim:
• on the grounds of late notification, or
• because the insured has failed to comply with a policy condition which requires him to take reasonable care to protect his employees against injury or disease.
• The use of policy excesses (deductibles) is also prohibited.
The employers’ liability insurer is given a right of recovery and can (in theory) reclaim from the employer any amount that he has had to pay to the employee solely by virtue of the Regulations.

Question 21

Joint vs composite insurance (breach)

Answer 21

-A joint policy (the interest of the assureds’ is the same, e.g. husband and wife insure their joint property) is ‘indivisible’, so that a breach by one insured (such as a breach of the duty of fair presentation of the risk) may cause the whole policy to fail.
• A breach or default by one insured under a composite (the interest of the insured persons are different, e.g. a mortgagor and mortgagee insured together) policy may invalidate their own cover without affecting the right of other insured persons to claim, provided the latter are innocent of the breach or default.

Question 22

warranty (non insurance)

Answer 22

minor term which, if broken, allows an action for damages only