Chapter 3 Flashcards

Question

List the 9 ways an agency can be terminated

Answer 1

* Agreement * Performance * Lapse of time * Withdrawal of authority * Renunciation by the agent * Death of either principal or agent * Bankruptcy * Insanity * Frustration

Answer 2

* No requirement at the time of contract made, does not matter if the matter has ceased since the time of loss. Only matters if the insured was interested in the subject matter at the time of loss. * Also allows the subject matter to be insured “lost or not lost” – possible for the insured to claim even if they acquired their interest after the loss occurred.

Answer 3

* Person benefiting must have an insurable interest in the event insured * Name of the person for whose benefit the policy has been affected must appear in the policy * Insured can recover no more than the amount of the value of their interest * Act does not apply to insurances on ships, goods or merchandises Time when interest is required? When the contract is made – no requirement to prove an interest when claim arises. Dalby v The India and London Life Insurance Company (1954) (reinsurance of the Duke of Cambridge’s life insurance policy) This is because life insurance premiums are fixed at the beginning of the contact on actuarial principles according to the probable life expectancy of the person whose life is insured.

Answer 4

* Insurance policy on the policy holder’s mother * Illegal because of lack of insurable interest * Mother lived with son and kept house for him, he insured her life for the purpose of covering funeral expenses * Held that she had no legal obligation to keep house for her son and he in turn had no legal obligation to bury her when she died * Result was that he could not recover premiums

Answer 5

* Family relationships: precise financial interest might be difficult to establish, but insurable interest presumed to exist because there is a natural tie of love and affection between the parties o Own life: every person presumed to have an unlimited interest in his or her own life o Spouses: husband and wife have an unlimited interest in the life of each other. Married Women’s Property Act 1882. Also provides that a policy taken out by a man for the benefit of his wife or children or wife for her husband etc, crates a statutory trust of the policy. The effect is that the policy money will pass to the beneficiaries free of any debts to the insured. o Other family relationships: No other family relationship automatically gives rise to an insurable interest. So, for example, a parent cannot legally insure their child and a child cannot insure their parents. * Business relationships: a financial interest in the life of another arises from a non-consumer (business) contract or from other non-consumer (business) dealings o Partners: insurable interest in each other’s lives up to the amount of any loss / expense that might arise from their death. They’re legally obliged to buy each other out on death, so gives them insurable interest. o Employer/employee: both an insure the other up to the amount of the notice period. However, keyman/keywoman policies are often large amounts for the lives of senior employees. Reflect the cost of training a new employee to fill the role of the old one. o Creditor and debtor. May lose financially if the debtor dies before the money is repaid. They may therefore insure for the debt plus interest payable on it. Debtor has no corresponding insurable interest in the life of their creditor.

Answer 6

* Outright owners / part joint owners * Mortgagees and mortgagors * Executors and trustees * Landlord and tenant * Bailees * People living together * Finders and people in possession

Answer 7

Doctrine of utmost good faith is a minim standard, legally binding for all parties in an insurance contract. It means all parties should act truthfully and ethically so that insurers can price and underwrite the risk with information that is accurate and complete. The alternative is commercial agreements – buyer beware: the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.

Answer 8

* Consumer insurance (duty not to take reasonable care not to make a misrepresentation) * Non-consumer insurance: duty not to misrepresent any matter relating to the insurance (tell the truth) and duty to disclose material facts relating to the contract (don’t conceal anything that is relevant). There is a positive duty of disclosure in non-consumer contracts

Answer 9

A false statement of fact that induces the other party to enter into a contract

Answer 10

* Be one of fact * Be made by a party to the contract * Be material * Induce the contract * Cause some loss or disadvantage to the person who relied upon it.

Answer 11

If it would influence the judgement of a prudent insurer in determining whether to take the risk, and if so, on what terms.

Answer 12

* insurers do not have to prove that knowledge of that fact in question would have changed the decision of a reasonable insurer. * 'influence the judgment' simply mean that the fact must be one which a typical, reasonable underwriter would have wanted to know when forming their opinion of the risk.

Answer 13

* What if the fact in question was material, in that a typical, reasonable underwriter would have wanted to know about it, but it would have made no difference to the decision of the actual underwriter who took the risk – perhaps because the actual underwriter was not especially 'prudent'? * In answer to this question their Lordships held that, in order to avoid the contract, it was not enough to show that a material fact was not disclosed. * It was also necessary to show that the underwriter in question was induced by the nondisclosure into entering into the contract on the relevant terms.

Answer 14

It is necessary to show that the underwriter in question was induced by the non-disclosure into entering into the contract on the relevant terms

Answer 15

* 3 of the 4 different underwriters who had subscribed to the same risk proved inducement * The fourth was unable to provide evidence, the court accepted presumption of inducement * Also means; if the leading underwriter was induced to enter – the follower’s (underwriters under the lead underwriter on the slip) will have trusted the leader’s judgement and were also influenced.

Answer 16

Insurer may seek remedy for breach of duty only if the insured’s breach is qualifying, so the insurer: * Would not have entered into the contract at all * Would have entered into the contract on different terms

Answer 17

* Non-disclosure: what would the insurer have done if the true position had been disclosed to him prior to conclusion of the contract? * Misrepresentation: what would the insurer have done if there was no misrepresentation? Involenert Management Inc v Aprilgrange Ltd (The Galetea) (2015) o Yacht purchased in 2007 for €13m was insured for same amount each year o Actual value when insured in 2011 was €7m o If the misrepresentation had not been made, and value on proposal form had been left blank, it wouldn’t have made a difference, because they regularly did without this information

Answer 18

* A twelve-year-old conviction for armed robbery was held material to a proposal for household buildings insurance.

Answer 19

* Assured was asked to confirm that its directors ‘have not, personally or in any business capacity, been convicted of a criminal offence or charged (but not yet tried) with a criminal offence’ * One of the directors, MS, was in fact facing criminal charges brought by the Malaysian authorities in relation to his previous employment in an international firm of accountants. * MS believed that the charges were spurious and designed to put commercial pressures on his ex-employees. * Following a flood at the insured premises the insurer avoided the policy for non-disclosure. * The court held that the insurer was entitled to avoid the policy even though the charges against MS were dismissed after the insurance contract was made. * Materiality was assessed as the facts stood before the insurance contract was made – the duty was pre-contractual. * The insurer had demonstrated that they would not have insured the premises if the charges had been disclosed.

Answer 20

holidaying. * In response to the question before the contract was concluded, 'Any losses or claims in the last five years?' the presentation stated, 'No'. J, however, made a claim within that period and had recovered £15,000 from insurers in respect of a diamond lost from a ring by his then girlfriend. * J subsequently made a claim for a watch valued at £190,000 lost on a skiing holiday. * The court held that the insurer had the right to avoid the policy. * J made a misrepresentation, and the policy would not have been issued had the insurer known of the earlier claim

Answer 21

* Statutory: rules laid down in legislation. Consumer Rights Act 2015 imposes requirements for fairness and the use of intelligible language o The Act is not concerned with overall fairness of the agreement, but the ability to enforce rights under it. More concerned with claims process than overall cover. * Common law rules: rules developed by the courts: o Ordinary meaning: “literal rule”  Thompson v Equity Fire Insurance Co. (1910)  Fire policy covering a shop excluded liability “while gasoline stored or kept in building insured”. Small quantity of gasoline used for cooking.  Exclusion did not apply – “stored or kept” implied storage in large quantities, for the purpose of trade. o Legal / technical meaning: certain words have developed specific legal meaning through case precedent o Importance of context  “noscitur a sociis” a word may be known by the company which it keeps * Young v Sun Alliance & London Insurance (1977) * Seepage of water from a meadow, depth no more than a few cm * Not considered a flood. Perils “storm, tempest or flood” grouped * Suggested that flood meant something with violence, suddenness or largeness about it  Ejusdem generis: words which follow specific words are taken to be “things of the same kind”, * Cars, trucks, tractors, motorcycles and other motor-powered vehicles – the latter cannot include airplanes as the rest of the list is land-based  Expresio unius est exclusion alterius “specifying one thing implies the exclusion of other things” – those that are not specified. The provision only applied to the things that are specified o Ambiguity: contra proferentem rule (the rule of last resort)  If words are ambiguous, with two or more meanings, the clause is construed against the party who proposed it, so the insurer, so that the other party is given the benefit of the doubt. The ambiguity has to be reasonable. Not far-fetched.  Houghten v. Trafalgar Insurance Co. Ltd (1954) * In this case an exception in a motor policy stated that cover would not apply when the vehicle was 'conveying any load in excess of that for which it was constructed'. * The insurers argued that because the insured had carried six passengers in the insured vehicle (which was designed for only five) the exception operated and the loss was not covered. * However, the court accepted the alternative interpretation put forward by the insured, that the clause operated only where a weight load was exceeded, which had not happened in this case. o Inconsistencies:  Printed words conflict with hand-written, handwritten takes precedent. An endorsement supersedes the policy document  Contradiction between proposal and terms of policy document, policy document takes precedent  Express term overrules implied term

Answer 22

* If term goes to root of transaction * If term bears materially on risk * If damages would be an adequate remedy for breach

Answer 23

1) Obligation imposed 2) Labelling: warranty, condition, or condition precedent liability 3) What remedy is available for breach 4) Does section 11 apply? Is it risk-defining or risk-mitigating? 5) Risk-defining: apply remedy, no need to consider section 11 of !A 2015. 6) Risk-mitigating: see if assured can satisfy burden of proof under s11.

Answer 24

* Proposal form noted whether vehicles driven in one or more shifts each day = “just one” * Held that this was risk defining rather than risk mitigating – not a continuing warranty, but that cover would not apply when vehicles were being driven in more than one shift * Good example of: Risk defining vs risk mitigating

Answer 25

* IA 2015, section 11: no liability under a contract for a loss that aoccurs or is attributable to something that happens after a warranty has been breached, but before the breach is remedied. Suspends insurance cover during this period * Insurer does not have to prove connection between the breach and any loss that has occurred unless warranty is intended to reduce the risk of a loss of a particular kind, location or time due to application of section 11 * Once remedied, suspension lifted

Answer 26

* If condition never fulfilled, the contract never comes into existence

Answer 27

* Insurer discharged from liability for the claim which is tainted by the breach – but policy remains in force

Answer 28

* Depends on seriousness of breach – mostly not allowed to reject claim * Insurer may claim damages in form of reduction from amount to be paid * Example Milton Keynes v Nulty (2013), insurer indemnified but deducted 15% from indemnity to reflect prejudice suffered due to breach

Answer 29

Knowing of the breach, the insurers: * Issued or renewed the policy * Advised the insured about future loss prevention * Resisted the claim on grounds other than breach of warranty without reserving the right to rely on further points of defence under the insurance contract

Answer 30

* A rejection of a consumer’s policyholder’s claim is unreasonable, except where there is evidence of fraud, if it is for: * (3) breach of warranty or condition unless the circumstances of the claim are connected to the breach

Answer 31

* Consumer insurance – no * Non-consumer insurance = yes so long as transparency requirement s 17 is met: insurer’s draw attention to disadvantageous term

Answer 32

1) Motor insurance: 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. This is only in relation to claims that affect third parties, to protect the rights of the victims. Does not prevent insurers rejecting claims for damage to the car itself 2) Employer’s liability (Compulsory insurance ) Regulations 1998: * Cannot reject a claim: o On ground of late notification o Because insured has failed to comply with policy condition to take reasonable care to protect their employees against injury or disease. * Cannot use excesses * Can recover from the employer themselves

Answer 33

* Joint (i.e. husband and wife) – the whole policy fails * Composite – invalidate their own cover without affecting the right of the other insured person’s claim

Answer 34

* Good example of different interests in the same policy: * Claimant applied for a mortgage from his building society, and applied for fire insurance at the same time * Did not disclose that he had been convicted of armed robbery 12 years previously * Court held that the insurers could avoid the policy for the claimant, but allowed the building society, which was also insured, to recover, since the interest of the society was different and the policy was composite.

Answer 35

* Each company had a separate interest to insure and the insurance was composite * Fraud within one company – the mirror group – did not taint coverage and the payment of claims for other companies in the group

Answer 36

Establish on the balance of probabilities: * The loss was caused by the operation of an insured peril * The amount of their loss

Answer 37

* handle claims promptly and fairly; * provide reasonable guidance to help a policyholder make a claim and provide appropriate information on its progress; * not unreasonably reject a claim (including by termination or avoiding a policy); and * settle claims promptly once settlement has been agreed.

Answer 38

* Prior to the Enterprise Act 2016, claiming interest used to be the only option available to an insured who suffered loss as a result of an insurer’s late payment of the insured amount. * Claiming damages for such late payments was denied by the English courts. * In Sprung v. Royal Insurance (UK) Ltd (1999), the insured needed the insured amount to save his business. * Initially, the insurer denied liability, but it then decided to pay the insured amount three-and-a-half years later. During this time, the insured lost his business. * The Court of Appeal rejected the insured's claim from the insurer for damages for late payment. * The only option recognised by the court for the insured to be compensated for late payment was claiming interest. * Enterprise Act 2016 rights this wrong: The law reform makes it an implied term under the insurance contract that the insurer must pay any sums due in respect of the claim within a reasonable time. * Breach of this provision will result in contractual damages, in addition to the sums due under the policy and any interest on those sums.

Answer 39

* Ship that was damaged by a torpedo (excluded as a war risk) which, after reaching the port of Le Havre, sank while trying to move to an outer berth during a storm (the sinking from the storm insured as a 'peril of the sea'). * The House of Lords held that the cause needed to be 'proximate in efficiency'. Causation was not a chain but a net. * In such a net, the court emphasised that the most efficient cause is to be found to identify the proximate cause of the loss. * Their Lordships also clarified that the proximate cause is to be found as a matter of common sense. * On the fact, the House of Lords found that the effect of the torpedo never ceased. * It continued from the moment the torpedo hit the ship until the ship sank. * As a result, the torpedo was treated as the proximate cause, because the damage caused had been effective throughout.

Answer 40

* Uninsured and insured = insured event prevails and the claim is covered * Insured and excluded = excluded event prevails and loss is declined

Answer 41

* Damage to a yacht was caused by two concurrent proximate causes. * First, heavy weather (a peril of the sea which was insured) and, second, defective design (which was an uninsured peril – neither insured nor excluded). * Neither cause would have brought about the loss on its own and, since the former was insured and the latter was not excluded, the insurers were liable in full.

Answer 42

Marine insurance policies usually contain a sue and labour clause which entitles the insured to claim expenses incurred to prevent or minimise insured losses.

Answer 43

* Falsification of a loss – i.e. the insured makes a claim when they have suffered no loss. * Deliberate loss – i.e. a policyholder deliberately causes the loss in order to bring a claim. For instance, in Samuel v. Dumas (1924), the insured deliberately sunk the ship he owned and insured. In Suez Fortune Investments Ltd v. Talbot Underwriting Ltd (The Brilliante Virtuoso) (2019) the court held that the explosion in the engine room of the vessel was instigated by the insured shipowner. * Exaggeration of a loss – i.e. if the insured exaggerates the amount of loss, the claim would be fraudulent. In Galloway v. Guardian Royal Exchange (UK) Ltd (1999), an assured who suffered a genuine loss of goods to the value of £16,000 was refused all recovery because he added an additional claim for £2,000 for a computer which had not been lost. * Lying about the circumstances of a genuine loss to improve the chances of a claim being paid by the insurer. An insurer’s rejection of a claim on this basis is referred to as the ‘fraudulent device’ defence. However, this type of fraudulent claim should be approached with caution after the Supreme Court's ruling in the Versloot case.

Answer 44

* dishonestly make a false representation; * dishonestly fail to disclose to another person information which he or she is under a duty to disclose; or * dishonestly abuse their position.

Answer 45

* Insurer not liable to pay claim – may recover sums paid and treat contract as terminated from time of fraudulent act s 12 (1) * If insurer terminates contract, does not have to return premiums paid and not have to pay claims after act s 12 (2) * Does not affect claims relating to events occurring before fraudulent act s 12 (3) * S 13: in employer’s liability, if one employee makes fraudulent claim, does not effect other employees. If insurers terminate contract of said employee, they can’t for rest of employees.

Answer 46

* A good example of subrogation where the insured has recovered for the same loss twice * The seller of a house recovered £330 from his insurer when the property was damaged by fire between the signing of the contract and the completion of the sale. * The buyer afterwards completed the purchase and, despite the fire, paid the full price of £3,100, which he was bound to do by the terms of the contract. * It was held that the seller had to pay to his insurer £330 from the money that he had received from the buyer, otherwise the seller would have 'made a profit from his loss'.

Answer 47

* A good example of the insurer can only claim subrogation after the insured has paid * Insurers had paid £409 to the motor vehicle repairers who had carried out repairs on the insured's car. * However, even though three attempts had been made to repair the car, the work was not satisfactory, so the insured sued the person who caused the damage and recovered £350, which they used to get the work done properly. * The motor insurers attempted to claim this £350 by way of subrogation but failed because the repairs they had paid for were useless and no satisfaction note had been signed by the insured. * The judge held that the insurers were not entitled to recover and stated: 'So far as the insured was concerned, they (the insurers) might have thrown £409 in bank notes into the Thames.'

Answer 48

* Where the insured has recovered for the same loss twice * Where the insurers bring an action against the third party

Answer 49

Riot Compensation Act 2016 – where the insurers may sue in their own name

Answer 50

The law only allows a person to sue once for a wrongful act that has been committed against them. So if they’re acting on behalf of the insured, they have to sue for the entire amount. I.e. any deductibles/excesses would go to the insured who had to cover this themselves.

Answer 51

* If there is any surplus after the insurers have recovered their money the insured is entitled to keep it. The insurer is not entitled to recover more than it has paid out. * Yorkshire Insurance Co. Ltd v. Nisbet Shipping Co. Ltd (1962). In this case insurers had paid an agreed value of £72,000 for the loss of a ship in a collision in 1945. * The insured sued the Canadian Government, who owned the other ship, and damages of £75,000 were awarded. This sum was converted into Canadian dollars at the exchange rate prevailing in 1945. * However, when the dollars were converted into sterling they produced £126,000, because the pound had been devalued in 1949. It was held that the insurers were entitled to £72,000 only, the sum they had paid out. * The insured thus benefited from the £55,000 surplus (and the insurers, effectively, lost the interest that they could have earned on their money over 13 years).

Answer 52

* Tort = examples are negligence and nuisance * Contract = if the insured has some sort of alternative contractual right to recovery, in addition to their own insurance * Statute = Riot Compensation Act 2016 as an example

Answer 53

* subrogation gives the insurer the right to pursue a claim against a third party for the loss of the subject matter, whereas abandonment and salvage confer rights only over the subject matter itself; * an action by way of subrogation cannot be brought in the insurer’s own name (with one exception), whereas an insurer who accepts abandonment becomes the owner of the goods; * the insurer can make a profit on the abandoned property, whereas subrogation allows the insurer to recover no more than their own payment; and * subrogation operates automatically as a result of the principle of indemnity, whereas abandoned property need not be accepted by the insurer.

Answer 54

* Worker injured a fellow employee (who was his father) in the course of his employment. The injured employee recovered damages from the employer because the latter was vicariously liable for the son's negligence. * Having indemnified the employers, the employers' liability insurers brought a successful action against the negligent employee to recover what they had paid. * Concern at the harsh effects of the decision, particularly in view of the relationship between the parties (because the compensation given to the father was taken back from the son), and accompanying criticism of the industry led insurers generally to agree to give up their subrogation rights in such cases. * Now, other than in exceptional circumstances, insurers do not pursue

Answer 55

* The injured claimant worked for a cleaning firm (Cameron) that was contracted to clean at a Ford location. The claimant successfully recovered damages from Ford, which was vicariously liable for its employee's negligence. * Ford then sought an indemnity from Cameron, relying on the indemnity clause in the contract, which led to Cameron trying to bring (through subrogation) a legal claim directly against the negligent Ford employee. * The Court of Appeal rejected Cameron's claim, on the grounds of public policy, and highlighted that industrial relations would be harmed if there was a right to sue employees in such cases.

Answer 56

Contribution is the right of an insurer to call upon others similarly, but not necessarily equally liable to the same insured, to share the cost of an indemnity payment.

Answer 57

* each policy is liable for the loss; * each insures the same interest in the subject matter; * two or more policies of indemnity exist; * each insures the subject matter of the loss; and * each insures the peril which brings about the loss.

Answer 58

* A policy which ended at 4pm on 4 September 2010 was not renewed with QBE, and the insured took out a new policy with Allianz that started at 4pm that day. * The QBE policy included an 'excess' clause, under which, if there was any other insurance in place, the other insurance would respond first and QBE would only be liable for loss in excess of the cover of the other policy. There was a similar clause in the Allianz policy. * At 4.35am on 4 September 2010, the property was severely damaged by an earthquake. QBE paid the claim but it sought 50% contribution from Allianz on the basis that Allianz had been on risk at the same time. * The judge dismissed the claim and held that the Allianz policy should be construed as incepting at 4pm on 4 September 2010. The intention had been to provide seamless continuing cover rather than overlapping cover. If necessary, a term would be implied to that effect.

Answer 59

* Escape clauses o A condition that effectively forbids the insured from taking out another policy without the consent of the insurers. If so – policy avoided. o What happens if both policies have escape policies? The second policy never operates. First insurer liable. * Other non-contribution clauses o There shall be no liability in respect of any loss for which the insured is entitled to indemnity under any other policy o Pushes the whole of any loss onto the other insurer o Gale v Motor Union Insurance Co (1928)  Two motor insurers both excluded liability for losses that were insured elsewhere  Judge ruled that the loss should be shared equally between the two insurers o Often amended to read that “except in respect of any excesses beyond the amount which would have been payable under such other insurance had the insurance not been effected” * More specific insurance clauses o Policy is likely to be regarded as more specific if it describes or identifies the subject matter more precisely * Rateable proportion clause o If at the time of any loss, damage or liability there is any other insurance covering such incidents we will pay only our rateable proportion. o Effect is to prevent the insured from recovering in full under a policy that includes the condition.

Answer 60

* Maximum liability method o Normally used in property insurances when not subject to an average. * Independent liability method o Used in property insurance when subject to average – non-consumer business insurance o Used in liability insurance

Answer 61

Agreed to share certain losses where their policies cover the same subject matter against the same peril, even though the policies may not cover the same interest. They agreed to disregard the principle established in the King and Queen Granaries case.

Answer 62

* The accident victim has obtained a judgment against the negligent driver (that is, the court has ordered the driver to pay compensation to him) * The driver has failed to satisfy the judgment within seven days

Answer 63

Company matters Partnerships Trusts Mortgages Revenue Matters

Answer 64

Matters of family law including disputes about family property Matters concerning children such as adoption / guardianship

Answer 65

Busiest sector of the High Court Commercial Court, Admiralty Court, Technology and Construction Court Jurisdiction over every type of common law civil action, principal areas are contract and torts.

Answer 66

Court of Appeal (civil division) High Court County Courts Supreme Court Crown Court Court of Appeal (Criminal Division) Magistrates'

Answer 67

Small claims track: disputes up to £10,000, except personal injury cases and housing disrepair cases, where limits are £1.5k and £1k Fast track: straightforward disputes no more than £25k Multi-track: disputes that are neither small nor allocated to fast. Financial value over £25k or if trial likely to last longer than one day, or oral expert not limited to one expert per party in two expert fields.

Chapter 3 Flashcards

(92 cards)