Insurance
Insurance Law is, as the name implies, the body of law pertaining to
insurance.
-This includes insurance policies, insurance claims, insurance
regulations and rates, and recently enacted laws, like the Affordable Care Act.
-Basically, insurance law can be broken into three categories: the
business of insurance, the content of insurance policies, and the handling of
claims.
Business of Insurance
-These laws affect the requirements for companies wishing to operate the
insurance industry. -These laws can vary widely from state to state, but can
affect things like ensuring the insurance company will have sufficient liquidity
to cover claims in the event of catastrophic events or natural disasters.
-These laws also govern licensing insurance companies, regulating who
insurance companies can turn away from coverage, the types of insurance a
company must offer in a jurisdiction if it wishes to offer other policies, and
many others.
Content of Insurance
Policies
Laws related to the content of insurance policies are designed to prevent
predatory practices that would essentially let insurers offer worthless or
diminished value policies.
-They also prevent insurers from misleading clauses and titles on
policies that would allow an unsophisticated buyer to believe that they are
buying one type of insurance but receive another.
–These laws also govern other provisions, like reasonable cancellation,
disclosures to third parties, and delineations of insured and uninsured events.
Handling of Claims
-These laws affect how insurance companies must respond when a claim is
made.
-They prevent insurance companies from denying claims unreasonably.
-They also prevent insurance companies, in certain instances, from cancelling
policies simply for making claims.
-They also affect how insured can make claims and what happens if someone
attempts to make a fraudulent claim.
Types of Insurance
-
The Insurance Act 1963 divides business into 2
TYPES:
A). Life business concerns life policy
B). General business includes all other
types of insurance such as:
In this issue we set
out some of the cases we have recently seen involving alleged non-disclosure of
information by those applying for insurance.
LIFE
INSURANCE
Definitions
Of Life Insurance
In general, life insurance is a type of coverage that pays benefits upon a person's death or disability. In exchange for relatively small premiums paid in the present, the policy holder receives the assurance that a larger amount of money will be available in the future to help his or her beneficiaries pay debts and funeral expenses. Some forms of life insurance can also be used as a tax-deferred investment to provide funds during a person's lifetime for retirement or everyday living expenses.
Case
Study Based On Life Insurance
In December 2002 Mrs D applied to the firm for life assurance cover of
£100,000 and for £35,000 critical illness cover. Two years later she was
diagnosed with breast cancer. The firm refused to meet her claim. It said this was
because she had not disclosed that for most of the early 1990s she had been
suffering from, and received treatment for, back pain following childbirth. It
considered the fact that she had not revealed this information to be reckless
non-disclosure.
Mrs D told the firm that she had not thought she needed to disclose this
information. She had thought the question on the firm’s application form
referred only to illnesses that had resulted in her taking time off work during
the previous five years. It was more than five years since she had suffered
from the back pain and she had never needed to take time off work because of
it.
In response, the firm pointed out
that it had asked whether she had "ever suffered"
from "back or spinal trouble". Mrs D said she did not believe that
back pain due to childbirth was "back or spinal trouble". Unable to
reach agreement with the firm, Mrs D came to us.
Complaint upheld
After studying the questions that the firm put to Mrs D when she applied for insurance, we noted that – in answer to most of the questions – Mrs D needed to give information only about any medical consultations that had occurred during the previous five years.
However, the firm’s question about
"back or spinal trouble" was not limited to that five-year period. We
felt that the wording of this question was potentially misleading. We accepted
that Mrs D had genuinely misunderstood the question and that any non-disclosure
was inadvertent.
However, we thought that that a careful reading should have made it clear
that the firm wanted to know about all back and spinal trouble, regardless of
how it occurred or when she had sought treatment for it. We took the view that
Mrs D had been slightly careless in completing the application.
Slightly careless or inadvertent
non-disclosure entitles an insurer to rewrite the insurance policy. It should do
this on the terms that it would have offered originally, if it had been fully
aware of the applicant’s medical history. In this case, the firm would have
offered full cover except for back and spinal problems.
We required the firm to reinstate Mrs D’s policy – adding the exclusion
for back and spinal problems – and to deal with the claim on those terms. There
was no connection between Mrs D’s breast cancer and the exclusion clause so the
firm had to meet her claim in full, together with interest.
MARINE INSURANCE
Definitions Of
Marine Insurance
Marine insurance covers the loss or damage of ships, cargo, terminals,
and any transport or cargo by which property is transferred, acquired, or held
between the points of origin and final destination. Cargo insurance —discussed
here — is a sub-branch of marine insurance, though Marine also includes Onshore
and Offshore exposed property, (container terminals, ports, oil platforms,
pipelines), Hull, Marine Casualty, and Marine Liability. When goods are
transported by mail or courier, shipping insurance is used instead.
Case Study Based On
Marine Insurance
Marine insurance -
whether explosion and resulting damage caused by policyholder's "recklessness"
while installing gas heater in cabin of his boat
Mr A was devastated when he had a phone call to say his boat had been
badly damaged by an explosion in the cabin. Since buying the boat a year
earlier he had put a great deal of money and effort into renovating it and had
spent almost every weekend - and most of his annual leave - on the boat.
After inspecting the damage, Mr A put in a claim under his marine
insurance policy. However, the insurer refused to pay out. It said that, in
installing a gas heater in the cabin, Mr A had "knowingly taken
insufficient measures to avert the risk of a faulty and dangerous installation".
The insurer said that this constituted "recklessness" and was
therefore a breach of a policy condition.
The insurer based its view on a report prepared by the marine surveyor
it had appointed to inspect the damage. The surveyor concluded that the cause
of the explosion was the gas heater Mr A had installed in the cabin.
Mr A disputed the surveyor's conclusions. He was not convinced that the
heater had caused the explosion and he put forward several alternative
theories. He strenuously denied that he had acted recklessly in installing the
heater, and said that he had considerable experience in installing such
appliances correctly and had taken appropriate care.
When the insurer insisted that the circumstances of the case meant that
it was not obliged to meet Mr A's claim, he brought his complaint to us.
Complaint upheld
To decide whether the insurance company was entitled to refuse Mr A's claim, we
needed to consider whether Mr A had been reckless when he installed the gas
appliance. In other words, we had to try and establish whether he failed to
take adequate measures to avert the risk of a faulty and dangerous
installation.
In reaching its conclusions on the case, the insurer had relied heavily
on the advice of the marine surveyor. So we reviewed the surveyor's report and
his subsequent correspondence with the insurer.
We were concerned by some of the surveyor's findings. For example, he
had noted that the heater was not of a type intended for use "in a
marine situation". However, our investigations showed that this was
not the case.
We also noted that in response to a written query by the insurer, the
surveyor had said that he did not feel Mr A had been "reckless" when
installing the heater, merely that he had "probably been unaware of the
perils involved".
In the light of the available evidence, we concluded that Mr A had
understood the risks and had taken appropriate steps to ensure the heater was
installed safely.
He had not, therefore, acted "recklessly". We told the
insurer it should deal with the claim, in accordance with the terms of the
policy.
FIRE INSURANCE
Definitions Of Fire
Insurance
Fire insurance is insurance that is used to cover damage to a property
caused by fire. Fire insurance is a specialized form of insurance beyond
property insurance, and is designed to cover the cost of replacement,
reconstruction or repair beyond what is covered by the property insurance policy.
Policies cover damage to the building itself, and may also cover damage to
nearby structures, personal property and expenses associated with not being
able to live in or use the property if it is damaged.
Case Study Based On
Fire Insurance
It was the night of St Patrick’s Day 2011, when the fire suddenly
erupted at the family home of Mr & Mrs S from Dublin. The fire spread
very quickly and before anybody could do anything about it, all that remained
were four outer walls. Thankfully no one was hurt and the damage extend was
limited to just the buildings and the contents.
Case description
Like many home owners, Mr & Mrs S decided to handle the claim
themselves. They got all the necessary forms and following the instructions of
their insurers, they called in some contractors to assess how much it will
cost to repair the damage. The received quotes came to €160,000 including VAT,
so they submitted this amount to the insurers and awaited patiently for their
response.
The estimate of €160,000 included the cost of entirely
gutting the building, replacing the kitchen, wardrobes, walls, ceilings, doors,
frames, bathrooms, floor and most of the possessions of the 2000 sq ft
bungalow.
They were shocked when they received an offer from their insurers
for €96,000 in full and final settlement of their claim. This
amount was €64,000 less than they had estimated it would cost them to get their
life back to normal. On the advice of their friends they appointed Insurance
Claim Solutions to help them handle their claim.
List of issues
During preliminary investigation, Insurance Claim Solutions Loss
Assessor discovered that:
- The
insurance company excluded from the compensation kitchen units,
appliances, flooring, doors, furniture and most other items
- Mould
growth had started to appear in the cavity and was hidden in areas
throughout the building
- Insurers
were using unrealistic pricing to calculate the cost of reinstatement
- Insurers were insisting on cleaning smoke damaged clothing and furniture
Approach taken by Insurance Claim Solutions
Insurance Claim Solutions engaged a professional smoke and water damage
restoration expert to carry out forensic testing on the smoke and water damaged
items. The tests confirmed that the damage was too severe to be repaired and
the items needed to be replaced.
We also flagged to our clients insurers that mould had started to grow
in some of the areas and that it needed to be eradicated and treated before any
repairs could be carried out.
On behalf of the property owners, Insurance Claims Solutions refused the
€96 000 offer of settlement and submitted a revised claim for €205,000,
€45 000 more than the initial claim filed by the property owners.
Achieved Results
Mr & Mrs S could not believe it when they received a full
compensation of €205,000.
MOTOR INSURANCE
Definitions of
Motor Insurance
A motor insurance policy is a mandatory policy issued by an insurance company as part of prevention of public liability to protect the general public from any accident that might take place on the road. The law mandates that every owner of a motor vehicle must have one motor insurance policy.
Case Study Based On
Motor Insurance.
Mrs G took out motor insurance by telephone. In answer to one of the
firm’s questions she said that she was the owner and keeper of the car. Mrs G
asked for her son, A, to be added to the policy as a named driver.
The firm sent Mrs G details of all the information she had given and
that it had relied on when deciding the terms of her insurance policy, asking
her to let it know if anything was incorrect. Mrs G did not make any changes.
A few months later, after A was involved in a road traffic accident, the
firm discovered that the car was registered in his name, not his mother’s. The
firm also found that the receipt for the car named A as the purchaser.
When the firm declined to meet the claim, Mrs G insisted that she was
indeed the real purchaser and owner of the car. She said that the registration
documents had been issued in her son’s name by mistake. The firm told her it
would not have insured the car at all if it had known that A was the owner.
Unable to reach an agreement, Mrs G came to us.
Complaint rejected
In our view, the questions that the firm had asked Mrs G when she applied for insurance were clear and unlikely to be misunderstood. And the firm had specifically drawn Mrs G’s attention to the importance of accurate information and records.
Her
failure to reveal that the car was registered in A’s name had induced the firm
to offer insurance. As it would not have insured the vehicle if it had been
aware of the true position, the firm was entitled to avoid the policy (treat it as though it had never
existed). We rejected the complaint.
ACCIDENT INSURANCE
Definitions Of Accident Insurance
Insurance
providing for loss resulting from accidental bodily injury. In insurance, accidental death and
dismemberment (AD&D) is a policy that pays benefits to the
beneficiary if the cause of death is an accident. This is a limited form of life insurance which is generally less
expensive.
In the
event of an accidental death, this insurance will pay benefits in addition to
any life
insurance but
only up to a set amount total regardless of any other insurance held by same
insurer, held by the client. This is called double indemnity coverage and is often available even
when accidental death insurance is merely an add-on to a regular life insurance
plan. Some of the covered accidents include traffic accidents, exposure, homicide, falls, heavy equipment
accidents and drowning. Accidental deaths are the fifth
leading cause of death in the U.S. as well as in Canada.
Case Study Based On Accident Insurance
Coyne
Learmonth specialise in helping Taxi Driver clients who have been involved in
accidents. Very often Taxi drivers have vehicles which have very high mileage
and because of that high mileage the value of the vehicle is relatively low and
the cost of hiring a replacement Taxi can be quite high and significantly more
than the value of the vehicle that was written off in the accident. This often
leads to Insurers claiming that they shouldn't have to pay out Hire charges in
a sum in excess of the value of the client's vehicle.
In this
case the client Taxi Driver was involved in an accident which wrote off his
Taxi which had a value of £1,700. He sustained personal injury and needed to
hire a replacement Taxi so that he could continue to earn his living. Because
of delays on the part of the Insurance Company arguing that he shouldn't be
claiming the cost of a replacement Taxi but should be claiming loss of income
the Hire charges increased. The Hire charges were eventually settled in the sum
of £13,000 that is to say £11,300 more than his vehicle was worth. He also
recovered damages for his personal injury and his legal costs were paid. Taxi
drivers and Chauffeurs are often met with arguments from Defendants that they
should claim loss of earnings rather than the cost of a replacement vehicle.
That, however, exposes the client to the risk of losing his home because he has
no income to pay his rent or mortgage and the Court will recognise that is an
unreasonable sacrifice for the Claimant to be exposed to.
AVIATION INSURANCE
Definitions Of Aviation Insurance
Aviation
insurance is insurance coverage geared specifically to the operation of
aircraft and the risks involved in aviation. Aviation insurance policies are
distinctly different from those for other areas of transportation and tend to
incorporate aviation terminology, as well as terminology, limits and clauses
specific to aviation insurance.
Case Study Based On Aviation Insurance
Situation
Our
policyholder committed to doing a reality television show where contestants
were required to step out of a flying helicopter and retrieve flags. This is
not something the average aviation insurance carrier wants to insure!
Action
United
Risk began careful negotiations with both the aviation underwriter and the
producer of the show. In addition, we were successful in obtaining waivers from
the television contestants themselves.
Solution
United
Risk was successful at securing liability coverage for the stunt at a premium
of less than $5,000. The client was happy and completed their stunt with no
issues!
Nature of a contract of insurance
-The insurer will send the person seeking the coverage (the proposer) a
proposal form to complete.
-The proposal form (the offer) sets out details the insurer needs to
know for determining risks.
- The offer does not come from the insurer. It made by the person
seeking insurance protection.
-If the offer is accepted, the proposer becomes the insured (‘assured in
contract of life assurance), while the insurance company is known as the
insurer.
- Rules of contract apply, an offer can be revoked at any time before
acceptance.
BATTY v PEARL [1937] 1 AC 12
Facts : X signed a proposal form on
the life of her mother at a premium of 10p. per week. The sum assured was left
blank on the proposal form when it was signed but was later filled in at £250,
the agreed sum. However, the policy was issued for £1000. X paid the premium of
10p. per week for more than eight years before the company discovered the
mistake.
Issue : Whether the insurance company was bound by its mistake.
Held : The company had made a counter-offer when it inserted of £250 for
10p. per week. This meant that X was free to accept or reject the
counter-offer. By her conduct of paying 10p. per week for the last eight years,
she had clearly accepted the counter-offer. Therefore a valid contract existed
for the sum of £1000 at weekly premium of 10p. per week.
Definitions
-A ‘contract of insurance’ is a contract wherein one person (the
insurer) agrees to indemnify another person (the insured) against a loss which
may arise upon the occurrence of some event or to pay a certain definite sum of
money on the occurrence of the particular event.
-The loss which is being insured against is called the ’risk’.
- The insurer and the insured enter into a contract of insurance, and
the document containing the terms of the contract is called the ‘policy’.
-The insured pays the insurer ‘premium’ which is the consideration paid
by the insured either in the form of the lump of sum or a periodical amount.
- Consideration for a contract of insurance is premium.
- A contract of insurance may be said to be a contract where the insured
is indemnify against unforeseeable loss or damage which may or may not occur.
-In a insurance contract, the party taking out the insurance coverage is
known as the ‘insured’ while the company who takes on the risk is known as
the’insurer’.
- Two classes of person make up the category of insurer:
-Underwriter means they assume the risk themselves, frequently will
insure the risk at lower premium.
-All contracts of insurance (other than marine, life and accident
insurance) are contracts of indemnity.
-
Insured has to have an ‘insurable interest’.\
-
Not all risk can be insured
-
The risk which can be insured must be an ‘insurable interest’.
MACAURA v NOTHERN ASSURANCE CO LTD
[1925] AC 619
Facts: Macaura owned a tree plantation was covered by an insurance
policy. He subsequently sold the plantation to a company of which he was the
only shareholder, though the purchase money remained owing to him. After the
sale, Macaura continued to insure the plantation in his own name, a fire broke
out and destroyed the plantation. When Macaura attempted to claim on the
policy, the company refused to pay.
Issue: Whether Macaura had an insurable interest at the time of the
loss.
Held: The insurance company did not have to pay. The plantation company
was legal entity in its own right, separate from its shareholders and while it
was the owner of the plantation and had an insurable interest, it had no
policy. Macaura, on the other hand, had a policy, but because he had assigned
the plantation to the company he had no insurable interest.
Renewal of The Policy
-
Before the expiration of the policy, the insurer will send the insured a
renewal notice, usually 28 days prior to the policy lapsing.
-
The renewal notice is an offer by the insurer to the insured, with
acceptance taking place generally on payment of the premium.
-
Life policies are normally treated as ongoing contracts and as are not subject to renewal.
Material Facts
-
Is a fact that would influence the mind of a prudent insurer in deciding
whether to accept the risk, and if so, at what premium.
-
If a person fails to disclose a fact which is not material, the contract
of insurance is still valid.
-
The steps in obtaining a contract of insurance are as follows:
·
Cover note
Interim insurance
that covers the insured for a short length of time, usually one month.
·
Proposal
Contains a set of
questions that will allow the insurer to determine the risk, and the answers
the proponent gives allow the insurer to determine the amount of the premium.
The proponent must disclose all material facts that could affect the risk.
·
Issue of the policy
Acceptance of the risk by the insurer. The date of the contract will
determine when coverage against the risk commences.
·
Renewal notice
Usually sent 28
days before the policy is due to expire with acceptance taking place on payment
of the premium.
Completion Of Proposal Form By An
Agent
-
A person who wishes to effect an insurance would be required to fill up
the proposal form himself.
-
Most contracts of insurance are arranged through intermediaries who can
be the employees for insurance companies, agents or brokers.
-
The differences between an insurance agent and and an insurance broker
is that:
A)) an insurance
agent acts on behalf of a particular
insurer.
B)) an insurance
broker acts as an independent advisor, not ‘tied’ to any one insurer
- The duties of an agent or broker
are largely determined by the express and implied terms that make up the agency
agreement. These duties includes :
·
Following the principal’s instructions
The primary duty of
an agent or broker is to exercise care and skill in following the principal’s
instructions. For example, where a broker receives payment from an insured in
relation to renewal of an insurance contract and fails to renew it, the broker
can be sued for breach of that duty by the principal.
·
Acting in person
·
Acting in good faith
·
Exercising reasonable care, skill and diligence in performing the terms
of the contract.
-
An agent or broker who incorrectly completes a proposal form after
having been supplied with the correct information, or who is aware of material
facts and fails to disclose them may be sued by the insured for breach of
contract as well as being liable in negligence for breach of their duty to
exercise reasonable care and skill.
·
Keeping proper accounts
·
Maintaining confidentially of information
·
Accepting only the agreed or customary remuneration and nothing else