2. Insurance: Introduction Flashcards

1
Q

When did the Consumer Insurance (Disclosure and Representations) Act 2012 come into force?

A

6 April 2013

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2
Q

What are the two types of insurance?

A

1) Life assurance
⁃ The insured event (i.e. death) is certain to occur. However the precise timing of the death is uncertain.

2) Indemnity insurance
⁃ The insured is indemnified against any loss, damage or destruction suffered e.g. motor insurance, fire insurance, theft insurance, marine insurance, building and contents insurance, etc. The event is uncertain to occur.

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3
Q

What are the relevant pieces of legislation that apply to both Scots law and English law on insurance?

A

With a couple of exceptions, Scots and English Law on insurance are identical:
⁃ The Marine Insurance Act 1906 applies in both jurisdictions. This Act codified the Common Law and the great majority of the principles set to in the Act apply equally to non-marine insurance.
⁃ The Consumer Insurance (Disclosure and Representations) Act 2012 applies to consumer insurance contracts in England, Wales and Scotland.
- New Insurance Bill (3/02/15 could be made law)

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4
Q

What is the purpose of insurance?

A

Insurance is designed to provide safeguards in the event of misfortune or the occurrence of a risk. It allows parties to anticipate the risk of particular events and protect themselves from the financial consequences of the occurrence of such events. The insured is “buying” a right to financial compensations should the insured-risk event occur.

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5
Q

What is the major focus of insurance law?

A

The major focus of insurance law is the insured’s duty to disclose material facts to the insurer as it determines the premiums they set and the risk they calculate.

The most significant legal rule in relation to insurance law is the classification of an insurance contract as a contract uberrima fides, or involving the utmost good faith [Life Association of Scotland v Foster (1873) per Lord President Inglis at 359].

The law protects the insurer by requiring the insured to make full and accurate disclosure of material facts and also by providing that breach of a fundamental term of the contract (“warranty”) automatically brings the contract to an end.

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6
Q

How are the activities of the insurers regulated?

A

The activities of insurers are regulated by the Financial Services and Markets Act 2000 (FSMA) - essentially to ensure that insurance companies are adequately capitalised and run by fit and proper persons. FSMA also provides a specific dispute resolution mechanism under the auspices of the Financial Services Ombudsman in consumer cases.

Part XV of FSMA 2000 provides funds, contributed to by all Insurers practising in the United Kingdom and administered by the Financial Services Compensation Scheme Ltd., with which to discharge 90% of the liabilities of insolvent insurers.

Insurance law has been built up through case law, industry practice, a complex regulatory framework and, in particular, the application and interpretation of the Marine Insurance Act 1906. The 1906 Act codified the previous common law for all insurance contracts.

However – note the effect of the Consumer Insurance (Disclosure and Representations) Act 2012 [ Came into force on 6 April 2013]to consumer contracts.
⁃ There is more protection for consumers now as the Act distinguished consumer and business insurance contracts.

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7
Q

Do insurance contracts fall under the Unfair Contract Terms Act 1977?

A

Insurance contract are specifically exempted from the Unfair Contract Terms Act 1977 but not the Unfair Terms in Consumer Contracts Regulations 1999[ However the extent to which theses regulations actually influence the contract of insurance isn’t very clear since there has been limited case law.].

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8
Q

What does the The Third Parties (Rights Against Insurers) Act 1930 provide?

A

Those with claims against an insolvent insurer with a direct act of action against his indemnity insurer.[ Look this up - not really sure.]

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9
Q

How is an insurance contract defined?

A

There is no single definition of insurance that is regarded as thoroughly satisfactory by practitioners, lawyers and academics:
⁃ Judicial attempts at definitions.
i) “It is a contract … by which the Insurer undertakes in consideration of the payment of an estimated equivalent beforehand, to make up to the assured any loss he may sustain by the occurrence of an uncertain contingency” - Scottish Amicable v Northern Assurance Company 1883
ii) “It must be a contract whereby for some consideration, usually but not necessarily for periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event.”[ Four different elements identified in this case - in bold.] - Channell J in Prudential Insurance Co v Inland Revenue Commissioners [1904]
iii) “It appears that a contract is a contract of insurance if three elements are present…First, the contract must provide that the assured will become entitled to something on the occurrence of some event…Secondly, the event must be one that involves some uncertainty…Thirdly, the assured must have an insurable interest in the subject-matter of the contract.” - The Medical Defence Union Limited –v- Department of Trade [1980]

The “benefit” must be a sum of money or an equivalent service measurable in financial terms - Department of Trade and Industry v St Christopher’s Motorists Association [1974].

The right to the benefit must be certain: Medical Defence Union v Department of Trade [1980].

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10
Q

How is a consumer insurance contract defined?

A

“consumer insurance contract” is defined as [Section I Consumer Insurance (Disclosure and Representations) Act 2012]: “a contract of insurance between (a) an individual who enters into the contract wholly or mainly for purposes unrelated to the individual’s trade, business or profession, and (b) a person who carries on the business of insurance and who becomes a party to the contract by way of that business”.

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11
Q

Is writing required for the constitution of a contract of insurance?

A

Writing is not required for the constitution of an insurance contract under s 1 RW(S)A 1995.
⁃ Nevertheless it is almost inevitable that the contract will be in writing

However s 22 of the Marine Insurance Act 1906, provides that a marine insurance policy is inadmissible in evidence unless it is embodied in written form.

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12
Q

What is the requirement of an insurable interest?

A

The insured must have an insurable interest in the subject matter of the insurance.
⁃ This generally means that the insured must generally stand to incur a loss in consequence of a loss covered by the policy (i.e. if you are actually going to suffer a loss if something happens to the item that has been insured).
- It may be “described loosely as the assured’s pecuniary interest in the subject matter of the insurance arising from a relationship with it recognised in law”.
The notion of an insurable interest has been slightly unclear with no definition of the concept; one place which gives some guidance is the Life Assurance Act 1774 Section 1: -
⁃ “From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every assurance made contrary to the true intent and meaning hereof shall be null and void to all intents and purposes whatsoever.”
⁃ So this requires that the insured has an interest in the subject matter.

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13
Q

What are the limits imposed by the Life Assurance Act 1774?

A

The Life Assurance Act 1774 Act is important in that it imposes strict limits on who can insure the life of a third party, and also restricts the value of policies taken out by insureds on the lives of others - necessary to prove that the insured would suffer direct financial loss in the event of death of the life insured, and that the recovery under the policy will not exceed the insured’s pecuniary interest in the continuation of the life insured.
⁃ So all you are able to recover is what you have actually lost through the person passing away.

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14
Q

What does the Married Women’s Policies of Assurance (Scotland) Act 1880 provide for?

A

Married Women’s Policies of Assurance (Scotland) Act 1880 (now applies to Civil Partners s.132 CPA 2004)
⁃ This sets out clearly when certain policies of insurance can be taken out in respect of another:
⁃ Section 1 - A married woman can effect a policy of assurance on the life of her husband.[ So a married woman has an insurable interest in the life of her husband.]
⁃ Section 2 - The proceeds of a policy effected by a married man or woman on their own lives for the benefit of their children are deemed to be held in trust for the benefit of the children.[ Parents owe to their children an obligation of aliment (FL(S)A 1985 s1(1)(c)) so the children have an insurable interest in the lives of their parents.]
- Outwith these defined classes of relationship, the insured would have to possess a financial interest in the life insured to have an insurable interest.

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15
Q

What does Marine Insurance Act Section 5 provide for?

A

Sets out when someone has an insurable interest in marine insurance.

⁃ (1) Subject to the provisions of this Act, every person has an insurable interest who is interested in a marine adventure.
⁃ (2) In particular a person is interested in a marine adventure where he stands in any legal or equitable relation to the adventure or to any insurable property at risk therein, in consequence of which he may benefit by the safety or due arrival of insurable property, or may be prejudiced by the loss, or damage thereto, or by the detention thereof, or may incur liability in respect thereof.

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16
Q

What do you look to in the absence of statutory provisions to determine whether someone has an insurable interest?

A

case law (see below)

17
Q

Macaura v Northern Assurance Co Limited [1925]

A

Northern Irish appeal to the HL
The insured was an unsecured creditor of and the sole shareholder in a limited company. The company owed a substantial quantity of timber and the majority was stored on the land of the insured. The insured had a policy of insurance on the timber in his own name then the timber was destroyed by fire. The insurance claim was refused by the insurer, and the HL held that the insurer was correct and entitled to withhold payment. Neither a shareholder or a creditor has any insurable interest in a particular asset belonging to a company even if the insured was the sole shareholder or main director of the company. The insured’s interest was in relation to the company, not to the goods. It was the company that had the insurable interest in the timber.

18
Q

Cowan v Jeffrey Associates 1998

A

Cowan was director and sole shareholder of a company. He had also signed personal guarantees covering the company’s indebtedness and was owed lots of money by the company as a creditor. He insured premises owned by the company in his own name. The premises were destroyed he made a claim against the insurance company. The Court held that Macaura was binding on him and that Cowan had no insurable interest.

19
Q

Mitchell v Scottish Eagle Insurance Co. Ltd. 1997

A

Held that when you have a partnership, the only insurable interest in property owned by the partnership is that of the partnership - none of the partners individually have an insurable interest.

20
Q

Feasey v Sun Life Assurance Co of Canada [2003]

A

The law on insurable interest has recently been reviewed in depth in this case:

⁃ Crewmen employed on ships, shipowners might be liable in the event of injury or death. The shipowners entered into a policy of insurance with an ‘indemnity club’ to cover this risk in the form of life assurance. In court it was argued that the indemnity club didn’t have an insurable interest in the lives of these individual crewmen. However, the court found on a 2:1 majority that the indemnity club did have an insurable interest.
⁃ Some obiter remarks were made - it was recognised that it was difficult to come up with a definition of insurable interest which applies in all situations. Thus the words used in a life assurance context where one identified life as the subject of insurance wouldn’t be suitable for a case like this where many lives were insured. Each policy and each case must be considered on its own facts to find whether there is an insurable interest and importantly the court will try to find an insurable interest where possible.
⁃ [NB moreover there is criticism of the insurance companies who take on the premium then try to claim that the insured has no insurable interest - thus the courts will try to find one where possible.]

21
Q

Fehilly v General Accident Fire & Life Assurance Corporation Ltd 1982

A

States the extent of insurable interest:
⁃ Tenants of a ballroom in Stirling sought to make a claim - held that the extent of their insurable interest only related to the period of time in which they were tenants. If the property was destroyed, the tenants could only recover the market value of the remainder of the lease since this was their sole interest in the building.

22
Q

What is the distinction between timing of insurable interest between 1) property and liability insurance, and 2) life assurance?

A

⁃ In property and liability insurance[ I.e. indemnity insurance] the insurable interest must exist at the time of entering into the contract of insurance and at the time of the loss - Godsall v Boldero (1807).

⁃ However, in life assurance the requirement is that the insurable interest must exist at the time when the contract of insurance was made - Dalby v India & London Life Assurance Co (1854)[ Look this up.].