Law of Insurance

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