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Real Estate and Commercial Practice > Insurance Law > Flashcards

Insurance Law Flashcards

1
Q

What is the difference between assurance and insurance?

A
  • Assurance has a certainty of happening but unsure of when

- Insurance is based on some future event that may or may not happen.

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2
Q

Why was the Insurance Act 2015 and the Consumer Insurance (DR) Act 2012 introduced?

A
  • As a means of redressing the existing law which was deemed to be too favourable to insurers.
  • The primary aim was to make insurance fairer.
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3
Q

What is insurable interest?

A
  • An interest in the subject matter of what is being insured
  • This may be financial or pecuniary interest
  • A prime example of insurable interest may be in life assurance policies where there is a financial interest between a father and son for payments of aliment.
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4
Q

What is meant by Uberrimae fidei?

A

Utmost good faith

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5
Q

What did the common law “uberrimae fidei” contract impose on insured persons?

A
  • An insured was required to disclose all material facts that would influence the judgment of a prudent insurer
  • Not to misrepresent material facts to the insurer.
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6
Q

Why was the concept of Uberrimae fidei flawed prior to the 2012 and 2015 Act?

A
  • Insured persons often did not know what insurers deemed as ‘material’ for disclosure.
  • As the onus was very much on the insured, non-disclosure of certain facts meant the insurer would likely refuse to pay out on a claim.
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7
Q

Why may the upmost good faith principle, prior to the 2012 Act be described as a ‘win win’ for the insurer?

A
  • No stipulations as to what was material meant insurers could refuse claims for failure to disclose information (even where the insured was unaware of its importance)
  • And then of course if there was no claim they were still gaining premiums.
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8
Q

What is the duty of disclosure?

A
  • The simple definition is that the insured has to disclose all relevant facts and circumstances to the insurer.
  • This obligation was made fairer by the 2012 act but is still present.
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9
Q

Who does the Consumer Insurance (Regulations and Representations) Act 2012 apply to? And what does it deal with?

A
  • Consumers
  • The 2012 Act deals with the issue of what a consumer is obligated to tell an insurer before entering a contract of insurance.
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10
Q

How has the 2012 Act altered the previous law on the duty to disclose material facts? And what is the statutory duty imposed by this act?

A
  • Consumers are no longer required to disclose ALL material facts.
  • The new legislation provides that consumers must only answer questions the insurer puts to them.
  • The insured has a statutory duty to take reasonable care not to make misrepresentation before the contract is formed or varied.
  • In order to comply with the duty answers should be given fully and accurately.
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11
Q

Does an insurer have to pay out to a consumer if they mistakenly give false information?

A

See schedule 1 3 - 8

  • An insurer has the option of satisfying the claim or not dependent on certain circumstances.
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12
Q

If an insurer is willing to fulfil an insurance contract despite CARELESS misrepresentation, what remedies will be available to the insurer?

A

SCH.1(7) 2012 Act
- if the different terms would have imposed higher premiums then the insurer is entitled to reduce proportionately a percentage from any claim made to reflect such a difference.

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13
Q

In circumstances where the consumer insured makes a CARELESS misrepresentation to the insurer what remedies are available to the insurer?

A

SCH.1(6) 2012 Act

  • If the insurer would not have entered the contract on different terms then they are entitled to avoid the contract and refuse all claims BUT must pay back all premiums
  • where insurer would have entered the contract but on different terms the contract is taken to have included the terms missing.
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14
Q

When does CARELESS misrepresentation occur?

A

If the misrepresentation is not deliberate or reckless then it is careless.

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15
Q

When would DELIBERATE or RECKLESS misrepresentation occur?

A
  • If the consumer provides information to the insurer which is false and they are aware that such information is false or misleading
  • It is enough to satisfy reckless misrepresentation if the consumer insured did not care whether the information was untrue or misleading.
  • The consumer must be aware that such information is relevant to the insurer
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16
Q

What remedies are available to the insurer where DELIBERATE or RECKLESS misrepresentation has occurred?

A

CONTRACT IS VOIDABLE

  • The insurer is entitled to treat the contract as through it never existed.
  • This means that any claims made can be rejected.
  • The insurer can retain the premium of the insured so long as it is not unfair to the consumer (in certain circumstances).
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17
Q

What may be regarded as the main principle of the Consumer Insurance (Disclosure and Representation) Act 2012?

A
  • To revoke the current burden placed upon the insurer under the common law.
  • Original position is that it was for the insurer to DISCLOSE ALL MATERIAL FACTS
  • The onus is now on the insurer who must ask questions which are comprehensive enough to provide MATERIAL understanding of risks involved in entering in to the consumer insurance contract with the insured.
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18
Q

What is the indemnity principle?

A

Indemnity principle entitles insured persons to compensation where they have suffered loss - therefore if there is no loss there is no right to be indemnified

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19
Q

Why may life insurance be distinguished from a contract of indemnity?

A
  • Life insurance contracts involve insurance over a certain event occurring (death of the assured person)
  • In these circumstances the assured does not sustain any financial loss but the happening of the event triggers the insurance to be paid.
  • Indemnity insurance has the general rule that the insured is only entitled to be reimbursed for what is actual lost.
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20
Q

Provide an example of indemnity insurance and how it works.

A
  • A painting valued at £1million pound is insured.
  • It sustains £200,000 worth of damage
  • The insured is entitled to claim £200,000 as that is the value that is actually lost.
21
Q

Who does the Insurance Act 2015 apply to?

A

Businesses

22
Q

Prior to the Insurance Act 2015 what was the law relating to disclosure on the part of the insured?

A

Similar to consumer insured

- must disclose every material circumstance which is known the insured.

23
Q

What is the statutory duty placed upon business insured’s after implementation of the Insurance Act 2015?

A

p. 3(4)

- The insured must make a fair presentation of the risk involved in entering in to the contract

24
Q

What is meant by “fair presentation of risk” in the Insurance Act 2015?

A
  • insured must disclose all material circumstances which they know, or ought to know about; OR
  • disclosure by the business insured that the insurer should make further enquires in to the insured to find material circumstances.
25
Q

How may a “material circumstance” be defined to the lay person?

A
  • Something that could influence the decision the insurer makes when deciding whether to offer insurance
26
Q

When making material presentation to facts what must the insured be cautious of?

A

The the presentation of the material facts are substantially correct.

27
Q

In respect of material presentation as to expectation or belief, what must the insured ensure?

A

That the material presentation as to expectation or belief is made in good faith.

28
Q

Why is the business insured prevented from ‘turning a blind eye’ to matters which may increase the risk of the insurer entering in to the commercial insurance contract?

A

s. 4(6)
- As the insured is expected to know information that should have been reasonably revealed by a reasonable search of information available to the insured.
- This may be by means of an enquiry or otherwise

29
Q

When will a breach under a commercial insurance contract be DELIBERATE or RECKLESS?

A

s. 8(5)
- If the insured knew they were in breach of the duty of fair presentation, or they did not care whether they were in breach.

30
Q

What remedies are available to a commercial insurer where there has been DELIBERATE or RECKLESS misrepresentation by the insured?

A

sch.1(2)

  • The insurer is entitled to treat the contract as though it never existed and refuse all claims.
  • The insurer is not required to return premiums paid.
31
Q

If a breach by the insured it not deliberate or reckless what is it deemed to be?

A

A careless breach.

32
Q

Can an insurer avoid a contract because of a CARELESS breach?

A

YES - sch.1(4)

  • if the insurer would not have entered in to the contract on any terms then they may avoid the contract and refuse all claims.
  • The insurer is required to return all premiums paid by the insured.
33
Q

Where there has been a CARELESS breach of “fair presentation of risk” what alterations may be made if the insurer WOULD HAVE entered the contract but on different terms?

A

sch.1(5)

  • The contract is to be treated as having already included they terms
  • The insurer may deduct from any claims paid out if the premiums they would gave charged would have been higher because of the misrepresentation.
34
Q

In simple terms what is a warranty in an insurance contract?

A

A pre-contractual promise by the insured to the insurer which keeps the insured’s policy valid.

35
Q

What was the law relating to breach of warranty PRIOR to the Insurance Act 2015?

A

An insurer was entitled to avoid an insurance contract where an insured had breached a policy warranty at any time during the year of insurance.

36
Q

How has the 2015 changed the law relating to breach of warranty?

A
  • Insurers may now only suspend the insured’s insurance during the time of the actual breach.
37
Q

Give an example of what a warranty may be and how this could be breached.

A
  • An insured may state to the insurer that they will set an alarm whenever the property is not occupied.
  • The warranty would be in breach where an alarm is not set when the property is unoccupied.
38
Q

Suppose an insured breaches their warranty by doing something, and after remedying the breach there is subsequent loss. Would the insurer be liable to pay out?

A

YES and NO

  • If the subsequent loss was unrelated to the breach then the insurer would be liable
  • if the subsequent loss was attributable to something happening before the breach was remedied then the insurer will NOT be liable.
39
Q

EXAMPLE.

  • Suppose a vessel has insurance out over their boat.
  • The vessel sails in to dangerous water amidst a war zone despite telling their insurer they would AVOID all war torn water.
  • The vessel is struck by a torpedo
  • The vessel proceeds to leave the dangerous water and sinks

Who is liable and why?

A

INSURER NOT LIABLE.

  • In this case the insured has breached a warranty by sailing in to war torn waters.
  • Despite having remedied the original breach, the subsequent loss was attributable to something happening.
  • That ‘something’ was being struck by a torpedo which resulted in the subsequent sinking of the vessel.
40
Q

Is an insurer liable for losses which occur before a breach of warranty?

A

YES

41
Q

What are the two types of warranty?

A
  • “past/present fact warrant only”

- “a continuing warranty”

42
Q

How did the case of Hussain v Brown 1995 attempt to differentiate between a past/present fact only warrant and a continuing warranty?

A
  • In this case the insurer asked the question “is your premises fitted with a intruder alarm system” to which the insured responded YES (true at the time)
  • The system was destroyed by a fire 5 months later
  • Insurers failed in their argument that there was an ongoing warranty imposed on an ongoing obligation to maintain the warranted systems
  • The court made clear that if an insurer wished that to be the case they should be specify it
43
Q

In as simple terms as possible distinguish between a past/present fact warranty and a pro missory warranty.

A
  • A past/present fact warranty relates to a specific ‘thing’ being done before or at the time the contract was made.
  • A pro missory warranty is a statement about future facts or about facts that will continue to be true throughout the term of the policy.
44
Q

In Macaura v Northern Assurance Co Ltd. the insured person was a sole share holder in a limited company. The individual personally took insurance out over timber owned by the company.
What problems would the insured face should he seek indemnification for loss of the timber?

A
  • Within indemnity insurance contracts the general rule is that the insured must have legal or equitable interest in the subject matter of what is being insured.
  • In this instance the insured does not actually have that said interest as the legal interest is the companies as well as the equitable interest.
  • An insurer therefore could seek to avoid a claim due to lack of insurable interest.
45
Q

When would a deliberate or reckless breach occur?

A

SECTION 8(5)

  • If the insured knew, or did not care that they were in breach of the fair presentation risk principle.
46
Q

What other qualifying breach is there other than deliberate and reckless?

A

Non-deliberate and non-reckless

47
Q

Where in the 2015 Act can details on remedies for breaches be found?

A

SCHEDULE 1, PART 1

48
Q

What is a warranty?

A

Warranties are pre-contractual promises that the insured gives to the insurer in order to keep their insurance policy valid.

49
Q

What was the law relating to warranties prior to the 2015 Act?

A
  • Allowed the insurer to terminate cover as at the date of breach
  • regardless of whether the breach was relevant to the likelihood of the loss occurring.

Real Estate and Commercial Practice (5 decks)

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