Flashcards in Insurance NEW Deck (52)
What is the difference between assurance and insurance?
- Assurance has a certainty of happening but unsure of when
- Insurance is based on some future event that may or may not happen.
Why was the Insurance Act 2015 and the Consumer Insurance (DR) Act 2012 introduced?
- 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.
What actually is insurance?
A means of anticipating a risk and providing financial protection against such a risk.
What is meant by indemnification in insurance law?
- Protection for the insured against financial loss or damage.
How would one qualify for indemnity insurance?
- The insured must have some insurable interest at the date of entering the insurance contract and the date of loss.
What is insurable interest?
- A term whereby the insured person must have an interest in the subject matter of what is being insured.
What is the nature of interest for life assurance policies?
LIFE ASSURANCE - The nature of the interest must be that of a financial or pecuniary interest - e.g. a father has an insurable interest over his father's life for payment of aliment
INDEMNITY - Must have a legal or equitable interest.
What is the nature of interest for indemnity insurance contracts?
-Must have a legal or equitable interest.
- Best portrayed in MACAURA V NORTHERN ASSURANCE CO LTD
- Insured was a sole shareholder in limited company.
- In his own name he took out insurance over timber OWNED BY THE COMPANY
- Timber was destroyed in fire
- Insurer refused to indemnify.
- Court ruled that he personally had no legal or equitable interest as that lay with the legal entity company.
- Two separate entities therefore contract void.
What is the key purpose of indemnity?
- That an insured person is entitled to indemnification on the occurrence of CERTAIN DEFINED LOSSES (e.g. the cost of rebuilding house)
- The cause of such a loss was the result of CERTAIN DEFINED PERILS (e.g. a fire which burned the house done)
- Janet owns a painting valued at £1million.
- The painting is damaged after heavy flooding in her area.
- The damage done is valued at £200,000.
Janet currently holds insurance with ripeinsurance. Would she be entitled to claim for the value of the painting?
- Janet is certainly entitled to a claim as she has suffered loss on her insured item.
- Indemnification is designed to reimburse for actual loss suffered.
- Therefore she would not be entitled to full value payments as it was reported that the paining only sustained £200,000 worth of damage.
- She would therefore be entitled to indemnification of of the said amount.
What was the law that governed insurance contracts prior to the Consumer Insurance (DR) Act 2012?
Uberrimae fidei - The insured was to act in the utmost good faith to the insurer.
What did the common law uberrimae fidei contract impose on an insured person?
- Disclose all material facts that would affect the underwriting of a prudent insurer.
- Not misrepresent the insurer.
Why was the uberrimae fidei insurance contract described as problematic?
- Insured's often did not know what fell within the 'material' category, thus failing to disclose some facts.
- If an insured made a genuine mistake when providing information this was taken to be a misrepresentation that could be avoided at all costs by the insurer.
Why was the uberrimae fidei contract described as a 'win-win' for the insurer?
- Insurer could refuse payout if they deemed the insured to not have disclosed material fact that would have altered their judgement.
- On the other hand if not claim would arise the insurer would enjoy premium payments.
- The insurer could also fine or place sanction on the insured for failing to disclose material facts.
Is it fair to say that the duty of disclosure under the uberrimae fidei contract was very much on the insured? If so, why?
- The insured carried the burden of having to disclose everything to the insurer and in most cases unaware of what was important to the insurer.
What is no longer required by the 2012 Act?
- For the consumer to volunteer all material facts to the insurer.
- That the insurer must not misrepresent the insurer.
What fairer duties has the 2012 Act placed on consumers and insurers?
- Consumer only required to answer questions asked by the insurer - therefore insurer should ensure questions are specific enough to comprehensively gain a material understanding of risk.
- SECTION 2(2) The consumer must now take reasonable care to avoid misrepresenting the insurer - by answering questions as fully and accurately as possible.
What has the 2012 Act prevented insurers from doing?
- Avoiding the insurance contract for, in some cases, trivial reasons.
- The burden is now very much on the insurer to ask competent questions of the consumer.
The concept of 'materiality' was dropped by the 2012 Act. When would an insurer now have a remedy for misrepresentation by a consumer?
SECTION 4(1)(a) and (b)
- That they were induced by the misrepresentation
- That the reasonable consumer would not have made it.
The 2012 Act states that the consumer must take "reasonable care" not to misrepresent the insurer.
What will be taken in to consideration to determine whether reasonable care was or was not taken?
s.3(2) of the 2012 Act details when reasonable car will, or will not have been taken.
How has the reasonable care standard made insurance law fairer for the consumer?
- Combined with the fact consumers no longer have to provide all material information
- The reasonable care standard ensures that insurers will not ask confusing or open minded questions as it may likely be taken in to account when deciding whether the consumer took reasonable care.
- insurers usually make questions specific and to the point.
What is misrepresentation?
- A representation that is either inaccurate or misleadingly incompetent.
Can a misrepresentation be caused by an omission?
- Deliberately omitting certain information would constitute a misrepresentation.
- EXCEPT, where the insurer was aware of omission and accepted proposal regardless.
What must the insurer show to have a remedy for a misrepresentation by the consumer?
- That the consumer made a misrepresentation in breach of the reasonable care standard (s.2(2))
- That the insurer would not have entered in to the contract but for the misrepresentation, or would have entered it on different terms.
Under what circumstances would a DELIBERATE OR RECKLESS misrepresentation occur?
- If the consumer intentionally makes a false or misleading statement it is DELIBERATE
- If the consumer does not care whether their statement is true or misleading it is reckless.
- The consumer must also be aware that the misrepresentation is relevant to the insurer or did not care if it was relevant.
When does a CARELESS misrepresentation occur?
- If it is not deliberate or reckless
- Usually where the consumer makes a genuine mistake with no malicious intent.
Give an example of a:
(a) Deliberate misrepresentation
(b) Reckless misrepresentation
(c) Careless misrepresentation.
(a) If a motorist lies on their application for insurance stating they have no points on their license when they do - this qualifies as it is blatantly untrue and the consumer is aware it will affect price of premiums
(b)Reckless misrepresentation may be if another person fills in the consumer's insurance application and the consumer submits it without checking for mistakes or untrue information - this is misrepresentation because the consumer does not care whether information is not true and does not care whether it is relevant to insurer.
(c) Careless misrepresentation may selecting the wrong month or year when stating birth date - this is not deliberate (unless with the intention to affect cost), nor is it reckless.
What are the presumption of answers given by a consumer in relation to section 5 of the 2012 Act?
- That the consumer has knowledge of a reasonable consumer.
- That the consumer was aware the specific question asked was relevant to the insurer .
What remedy is available for deliberate and reckless misrepresentation?
SCHEDULE 1, PT.1(2)
- The insurer is entitled to treat the contract as though it never existed - allows insurer to avoid all claims
- The insurer may retain all premiums paid.