#3232 - Insurance Contracts - Commercial and IP

Basic principles of insurance law

• Client enters into an Insurance Contract – to manage risk!

• Contracts of utmost good faith: insurer has to be made aware of all material information. Imposes duty on the client to refrain from making a misrepresentation of material facts.

• Both insurer and insured have a duty to disclose every material fact affecting the risk before the contract is concluded. [Disclose even if the insurer has not asked for the information]

Exceptions =

• Material facts = a fact that would influence the judgment of a prudent insurer in fixing the premium or determining whether he will take the risk [Mis-rep Act S.20(2)]

• The insured must have a “insurable interest”

Components of a Standard Insurance policy:

Duty of utmost good faith:

• 2 obligations = to refrain from making a misrepresentation AND to disclose material facts even if no question is asked.

• Breach for misrepresentations: insurer can avid the policy whether or not the proposer was aware that the fact was incorrect.

• Breach for failure to disclose: insurer can ONLY avoid the policy if the proposer was both aware of the fact and ought to have realised that the insurer would regard it as material.

• Continuing duty: there is a debate about this.

Misrepresentation:

• S.20(2) MA 1967

• Pan Atlantic case: A material circumstance is one that would have an effect on the mind of the prudent insurer in assessing the risk. It is not necessary for the circumstances to have a decisive effect on the insurer’s acceptance of the risk or on the premium charge.

• Insurer must show that he was induced by the misrepresentation to enter into the policy on the relevant terms [Pan Atlantic]

• Distinguish between representations BEFORE and DURING the policy.

• Synergy Health – faulty fire alarm case.

• Remedy = avoidance [for fraudulent; innocent; negligent misrep]

• Avoidance = restitution so each party is put back into the position they would have been in had the insurance contract not been entered into. [see top of p.17]

• Fraudulent misrep = damages for victim

• Innocent misrep = statutory right to damages [S.2(1)] unless he can prove he had reasonable grounds to believe and did believe up to the time the contract was made, that the facts represented were true.

Double Insurance:

• One person has the benefit of 2 or more policies on the same property against identical risk!

• What are the terms of the policy – can insurer avoid the contract on this basis

• Insurer may agree to pay a ratable proportion [will not pay out on the whole amount of loss if there are 2 insurers’. Will only pay out in proportion to the cover provided].

• Client will have to claim under BOTH policies – cannot claim under one only! Insurer who pays out is entitled to require the other insurer to contribute towards the insurance payout through the Equitable doctrine of contribution

• Generally undesirable – potential for both policies to be invalidated.

Notifying the insurer of the claim:

• Check the condition precedents

• Time limits? If there is no time limit imposed then client is expected to notify within a reasonable time [Shinidean v Alldown 2006]

Making a claim under a insurance policy:

1. Insurer has suffered LOSS

2. Loss was covered by the Insurance POLICY [cannot recover more than loss suffered]

3. All conditions in policy must be complied with

Subrogation:

• Enables insurer to recoup some of the money from a third party who caused or contributed to the loss.

• Allows the insurer to “step...