Insurance

Front 1

What are the two types of insurance?

Back 1

(1) indemnity insurance - the insured is indemnified against loss, damage or destruction suffered e.g. motor insurance, fire insurance etc. The event is uncertain to occur.

(2) life assurance - the insured event, i.e. death, is certain to occur. However, the precise timing of death is uncertain.

Front 2

How does the law protect the insurer?

Back 2

The law requires the insured to make full and accurate disclosure of material facts and also by providing that breach of a fundamental term of the contract ("warranty") automatically brings the contract to an end.

Front 3

Does an insurance contract need to be in writing?

Back 3

Under s 1 of the Requirements of Writing (Scotland) Act 1995, writing is not required for the constitution of an insurance contract. However, s 22 of the Marine Insurance Act 1906, provides that a marine insurance policy is inadmissible in evidence unless it is embodied in written form.

Front 4

How is insurance regulated?

Back 4

It is regulated by the Financial Services and Markets Act 2000 (FSMA) -essentially to ensure that insurance companies are adequately capitalised andrun by fit and proper persons. FSMA also provides a specific dispute resolutionmechanism under the auspices of the Financial Services Ombudsman in consumercases.

Front 5

What does the ThirdParties (Rights Against Insurers) Act 1930 do?

Back 5

It provides those with claims against an insolvent insured witha direct right of action against the insolvent insured’s indemnity Insurer.People that have claims against those who are insolvent can have a direct rightof action against the insolvent insured's insurer. I.e. you can godirectly to the other party’s insurer, so that you get the money and it is notcaught up in the estate of the insolvent.

Front 6

(not starred) The Medical Defence Union Limited –v- Department of Trade[1980] Ch 82

Back 6

Judicial attempt to define insurance: It appears that a contract is a contract of insurance if three elements are present…First, the contract must provide that the assured will become entitled to something on the occurrence of some event…Secondly, the event must be one that involves some uncertainty…Thirdly, the assured must have an insurable interest in the subject-matter of the contract. The “benefit” must be a sum of money or an equivalent service measurable in financial terms.

Front 7

Department of Trade and Industry v StChristopher’s Motorists Association [1974] 1 WLR 99

Back 7

Membersof the association paid a subscription for the club: chauffeur for 12 months they could drink and not have to drive or if they had an accident and couldn't drive.The court held this is a contract containing a benefit that can be valued inmoney which was contingent on the happening of an uncertain event, averse to theinterest of a member = contract of insurance.

Front 8

Medical Defence Union v Department of Trade[1980] Ch. 82

Back 8

Members pay asubscription to be a member of MDU and then they provide advice and assistance.Their constitution gave them the power to defendant proceedings on behalf of amember/indemnify the member. The MDU can decide whether to defendant the actionon your behalf or not. Is this a contract of insurance? Court said no because theMDU could act on their own discretion (cannot be a mere benefit e.g.application can merely be considered by MDU). E.g. benefit NOT certain if theuncertain even happens = not a contract of insurance

Front 9

What happens if the insured has no insurable interest?

Back 9

Then the insurance contract is treated as an illegal contract (null and void), and the insured ay be prevented from recovering the premiums he has paid.

Front 10

Can someone take out life assurance for someone else?

Back 10

The Life AssuranceAct 1774 Act imposes strict limits on who can insurethe life of a third party, and also restricts the value of policies taken outby insureds on the lives of others - necessary to prove that the insured wouldsuffer direct financial loss in the event of death of the life insured, andthat the recovery under the policy will not exceed the insured’s pecuniaryinterest in the continuation of the life insured.

Front 11

What does the Married Women's Policies of Assurance (Scotland) Act 1880 do?

Back 11

s 1: a married woman can effect a policy of assurance on the life of her husband.

s 2: the proceeds of a policy effected by a married man or woman on their own lives for the benefit of their children are deemed to be held in trust for the benefit of the children.

Front 12

Who has an insurable interest under the Marine Insurance Act?

Back 12

Marine Insurance ActSection 5: (1) Subject to the provisions of this Act, every person has aninsurable interest who is interested in a marine adventure. (2) In particular aperson is interested in a marine adventure where he stands in any legal orequitable relation to the adventure or to any insurable property at risktherein, in consequence of which he may benefit by the safety or due arrival ofinsurable property, or may be prejudiced by the loss, or damage thereto, or bythe detention thereof, or may incur liability in respect thereof. Do you standto benefit or lose? If so then you are likely to have an insurable interest.

Front 13

*Macaura v Northern Assurance Co Limited [1925]AC 619

Back 13

An insured who is anunsecured and sole creditor of a limited company. The company owns asubstantial quantity of timber, most of which is stored on the shareholder’sland. The company owns the timber but the timber is on the land owned by theshareholder. This shareholder, (Macaura), takes out insurance on the timberunder his own name. The timber is destroyed by fire so he makes a claim, theinsurers refuse his claim. The HoL hold that the insurers are entitled torefuse this claim; neither a shareholder nor a creditor has any insurableinterest in any particular asset belonging to a company, even if it is the soleshareholder or the main director. The company had the insurable interest in thetimber not the shareholder. It is the company that suffers the loss, theshareholder has a relation to the company not to the goods (not a direct loss).

Front 14

*Cowan v Jeffrey Associates 1998 SC 496 (OH)

Back 14

Cowan is thedirector/sole shareholder of a company and is also owed money from a company.Just before he buys premises, he insures them against fire (i.e. an assetassured against fire). When the premises where destroyed the insurance was inhis own name but the premises were at this stage owned by the company. Macaurawas binding so there was no insurable interest as sole shareholder/director.

Front 15

Mitchell v Scottish Eagle Insurance Co. Ltd.1997 SLT 793

Back 15

Only insurableinterest in property owned by the partnership is that of the partnership; noneof the joint partners individually have an interest which can be identified asinsurable. Partnerships in Scotland have their own legalpersonality and in England they do NOT.

Front 16

Turnbull & Co v Scottish ProvidentInstitution 1896 34 SLR 146

Back 16

Afirm of merchants insured the life of their agent who was in Iceland and he wasresponsible for bringing in a lucrative stream of business to the firm. The manin related to the agent to have an insurable interest in his life. Held that adirect financial interest in the life continuing (the case here as he wasbringing business to the firm) qualifies as an insurable interest. If there isa direct financial impact on a company if their employee dies then they willgave an insurable interest.

Front 17

Godsall v Boldero (1807) 9 East 72

Back 17

Held that in indemnity insurance the insurable interest must exist at the time of the loss.

Front 18

Dalby v India & London Life Assurance Co(1854) 15 CB 365

Back 18

Thereis some doubt as to whether an insurable interest must also exist at the time the contract is enteredinto but it seems this is probably required. However, in life assurance therequirement is that it must exist at the time when the contract of insurancewas made and need not continue to exist at the time of the loss.

Front 19

Feasey v Sun Life Assurance Co of Canada [2003]

Back 19

The court found thereto be an insurable interest. Difficult to define insurable insurance, itdepends on the type of insurance and each policy needs to be considered on it’sown facts; the court will try to find an insurable interest where possible.

Front 20

What is the Indemnity Principle?

Back 20

TheInsured must prove not only the occurrence of the insured peril (e.g. fire,flood or wind), but also that he has suffered in consequence a pecuniary loss(monetary loss), over and above any excess (or “retention”) which he has agreedto bear himself. “The sum insured” represents the maximum figure which theInsured can recover.

Front 21

What happens if the insured has insured the same risk with two insurers?

Back 21

The insured will not be able to make double recovery. he can pursue his claim against one of the insurers only in order to recover his loss except where the contract of insurance includes a 'rateable contribution clause'. The insurer who had paid out would be entitled to recover a contribution from the other.

Front 22

Is there a limit to how much you can take out life assurance of?

Back 22

You can insure your own life for whatever sum you wish and there are no issues with double insurance. It is not permissible to insure the life of another person for a value beyond what you will lose if they die: Life Assurance Act 1774, s 3.

Front 23

What happens when an insured claims for an item that is damaged?

Back 23

When something is damaged then it is a partialdamage and the insurer is obliged to repair the item to the state it was inbefore repair (not brand new). If that is not the best way to deal with theitem, then the owner will receive a monetary sum to the value of a second handprice of the item.

Front 24

Leppardv Excess Insurance Co Ltd [1979] 1 WLR 512 (CA)

Back 24

(Englishcase) the claimant bought a cottage as an investment; bought it to resell. Heinsured it for £10, 000 then increases it to £14, 000 and then it is destroyedthen he claims £8000, which is what it would cost to rebuild the cottage. Hedoesn’t get that amount, the insurers offer £3000 (the agreed market value ofthe property, which was the extent of his loss). Anything over £3000 would havemade Leppard a profit, which is forbidden by the indemnity principle.

Front 25

Sprung v Royal Insurance (UK) Ltd [1999] 1Lloyd’s Rep IR 111 (CA)

Back 25

Break in of a family business, andeventually the insurer allowed a judgement to be made against them, this was 4years after the loss had occurred. Mr Sprung wanted damages for the financialconsequences of the insurance company’s failure to deal with the claim properlyat the time. The court said they have to follow previous authority on this. Theamount payable is of the same nature as a payment of damages, there is no causeof action for a late payment of a claim except the court adding interest atjudgement rate. This is not the position in Scots law. So the law is then treated as a breach ofcontract for which there is an unliquidated claim on the damages. If you do not pay damages there is no rightof action against you except that the damages continue to increase in interestat the judicial rate.

Front 26

Scott Lithgow Ltd. v Secretary of State for Defence 1989 S.C. (HL) 9 and Strachan v Scottish Boatowners’ Mutual Insurance Association 2010 SC 367.

Back 26

InScots law, where the insurer is liable to indemnify the insured, the payment of theinsured’s claim made under the policy is classified as a contractual obligation to pay a sum of money equivalent to theinsured's loss, rather than an obligation to pay damages for breach of contractor otherwise: Scots law will allowa damages claim for late payment.

Front 27

What is subrogation?

Back 27

The general rule is that the insured must never be more than fully indemnified. Subrogation is the right of an insurer who has fully indemnified the insured to stand in the shoes of the insured and to exercise (in the insured's name) all rights that the insured could have exercised himself to recover from any source other than the insurers the whole part of the financial loss he has sustained and for which he has been indemnified. E.g. the insurance company pays out but theinsurance company takes action against the negligent driver.

Front 28

Castellain v Preston [1883] 11 QBD 380 (CA)

Back 28

the owner of property contracts to sellit and the buildings are destroyed before completion of the sale, the seller isinsured and the insurers pay out to him the full amount of the costs of thedamage before completion of sale took place, the vender still hadthe risk and received the full purchase price. The purchaser had to pay theprice from the day that they entered the property, it was at their risk not thevender’s risk. The vender is happy with vender’s price and indemnity money (notallowed because of the indemnity principle) then the insurers takeaction against the insured to get the money back. The question for the courtwas whether the insurers were subrogatedto the insured to receive the undiminished purchase price for the insured’sproperty. Court said yes, they could have received the purchase price andtherefore can get the purchase price back. The vender had been fullycompensated by the undiminished purchase price from the purchaser, the indemnity principle and subrogationdoes not allow the insured to make a profit.

Front 29

Lonsdale & Thompson Limited v Black ArrowGroup Plc [1993] Ch 361

Back 29

Ifhowever the vender had been accountable to a third party e.g. a tenant so thathe had to utilise the insurance proceeds in a particular way to reinstate theproperty and the insurers had paid out under the policy, they wouldn’t have hada right to subrogation to recovery against the purchase price because there hehasn’t received an additional benefit; he’s not recovered twice; the insurancemoney would be paid to get the property into the position that it had been inbefore the damage and then he receives the purchase price.

Front 30

Caledonia North Sea Limited v London BridgeEngineering Limited 2000 SLT 1123

Back 30

The insurance company is subrogated tothe rights of the insured and MUST raise an action in the name of the insured. The payment by the insurer ofthe claim of indemnifying the insured against their loss does NOT have theeffect of transferring the insured’s rights to the insurer.

Front 31

Lord Napier & Ettrick v Hunter [1993] AC 713

Back 31

Insurers,having indemnified the insured up to the limit of their policy, are entitled totheir remedy out of funds received by the insured from a third party eventhough the insured’s loss might be greater than the sum insured.

Front 32

Simpson & Co v Thomson Burrall [1877] 3 AppCas 279 (HL)

Back 32

Salvage: Ifan insurer has paid a total loss then the wreckage of the insured object, ifthe insurer so wishes, becomes his property, and he is entitled to retainwhatever he can realise from its disposal.

Front 33

What happens if there are two independent causes for the incident, neither of which can be determined to be the dominant cause of the loss, and one is covered and the other is not mentioned in the policy?

Back 33

Then the insurers must pay.

Front 34

*J J Lloyd Instruments Ltd v Northern StarInsurance Co Ltd (The “Miss Jay Jay”) [1987] 1 Lloyd’s Rep 32 (CA)

Back 34

A vessel was lost at sea, due to a combination of unusual sea conditions and thepolicy here did cover perils of the sea but did not mention design defects andthe insurers had to pay out because the dominant cause could not bedistinguished. If there are two independent causes, neither of which can bedetermined to be the dominant cause of the loss, and one is covered and theother is notmentioned in the policy – then theinsurers must pay.

Front 35

*Syarikat Takaful Malaysia Berhad v GlobalProcess Systems Inc and Anr “The Cendor Mopu” [2011] UKSC 5; [2011] 1 All ER869

Back 35

They narrowed down the scenarios inwhich more than one cause will be able to be found; they would prefer that adominant cause is found. However, if you’re in a situation where it’s simplyimpossible to find a dominant cause then then the insurers must pay unlessexplicitly excluded.

Front 36

What happens if there are two dominant causes of the loss and one of them is excluded by the insurance policy?

Back 36

The insurer will not need to pay.

Front 37

Who has to prove the dominant cause was one covered by the policy?

Back 37

It is up to the insured to prove that the cause of their loss was one covered by the insurer.

Front 38

*Wayne Tank & Pump Co Ltd v EmployersLiability Assurance Corporation Ltd [1974] QB 57 (CA):

Back 38

There were two causes as to why a fire broke out in a factory. (1) negligent use by engineerswho were working in the factory and an ineffective thermostat and (2) the negligent act of an employee whoturned it on overnight withouttesting it. The dominant cause was not distinguishable. The policy coveredaccidents in course of business in premises other than their own BUT itspecifically excluded damage caused by by the nature or condition of any goodssold or supplied by the insured. Ifone of the perils is explicitly excluded thenthey will not have to pay.

Front 39

What are the three primary components of the duty of good faith?

Back 39

(1)the duty of disclosure

(2) not to misrepresent

(3) no fraudulent claim

Front 40

What is the duty of disclosure?

Back 40

It is the duty on the insured to make full and accurate disclosure of all material facts that would influence the judgement of a prudent underwriter.

Front 41

When does the duty of disclosure exist?

Back 41

(a) at the negotiation stage

(b)until the contract of insurance is formed and

(c) when the policy comes up for renewal

Front 42

What is the insurer's duty to disclose?

Back 42

The insurer is under a duty to disclose facts that are material to the nature of the risk insured or the recoverability of a claim under the policy, which a prudent insured would take into account in deciding whether or not to take out cover with the insurer. In such circumstances, the duty yo disclose can arise during the subsistence of the insurance contract.

Front 43

What must be disclosed by the insured?

Back 43

Under s 18 of the Marine Insurance Act: (1) The assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known to him. (2) Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk.

Front 44

What does 'material' mean?

Back 44

There are two interpretations:

(1) whether the undisclosed fact would have had a 'decisive influence' on the prudent insurer or

(2) whether the fact is one which would have had an 'effect' on the insurer's mind.

Front 45

*Pan Atlantic v Pine Top Industries Co. Limited (1995)

Back 45

The 'decisive influence' test was rejected, the insurer need only prove that that the issue that was not disclosed by the insured was one that a prudent insurer would have taken into account in making his decision to accept the risk and set the premium accordingly. The insurer must prove that the failure to disclose the relevant fact actually induced him to accept the risk and enter into the insurance contract at a specific premium.

Front 46

Hooper v Royal London General Insurance Co Ltd (1993).

Back 46

Held that the 'reasonable insured' test applies only to life assurance.

Front 47

What is the 'reasonable insured' test?

Back 47

The duty in Scots law in the context of life assurance is framed by reference to what the reasonable man in the position of the insured would consider to be material.

Front 48

St. Paul Fire & Marine Insurance Co (UK) Ltd. v McDonnell Dowell Constructors Ltd. (1995)

Back 48

The Court of Appeal indicated that a presumption in favour of inducement existed, and that non-disclosure need only be one of the inducing factors, not the sol inducing factor. Thus the insured is burdened with the onus of proving that the failure to disclose did not induce the insurer to contract. Inducement has been established where it was held that, had the particular issue been disclosed, it would have provoked the insurer to ask further questions which would in turn have led to the application of a higher premium.

Front 49

What is the statutory basis for the duty not to misrepresent material facts?

Back 49

s 20 of the Marine Insurance Act 1906

Front 50

Economides v Commercial Union Assurance Plc.

Back 50

The insured had indicated that the value of the contents his home was much less than it actually was. However, the insured was acting on information which was provided to him by his father and he genuinely thought he was telling the truth and was under no obligation to establish the true position. It was held that the insurance company was not entitled to avoid liability. Where the insured is an individual, the duty to disclose will only encompass matters that are within the actual knowledge of the insured. He cannot be expected to disclose matters of which he is unaware.

Front 51

*McPhee v Royal Insurance (1979)

Back 51

Commercial insured a boat, which was then destroyed by a fire. The commercialinsured had told the insurer that dimensions of the boat were substantially bigger than what thevessels dimensions actually were. So, the insurance company resisted liability on the basis of misrepresentation of material facts. The commercial based what they told the insurer on what they were told by the seller. It was that as acommercial insured it is not enough to say that you answered the question ingood faith & that you had an honest belief that the dimensions were such. Youmust have a reasonable amount of diligence when answering questions. In the context of a commercial insured, the testis much higher: had McPhee been a consumer insured, they would have been okbecause they had a genuine belief. But because they were commercial insuredthey must have diligence and do more than is required & take reasonablesteps to ascertain the position – phoning up someone is not enough.

Front 52

What is the position of the insurer with regards to a fraudulent claim?

Back 52

An insurer is under no obligation to meet a fraudulent claim. The making of a fraudulent claim also rules out any valid claim that the insured might have had in relation to the same incident.

Front 53

What is a consumer insurance contract?

Back 53

It is an insurance contract entered into between an individual who enters into the contract wholly or mainly for purposes unrelated to the individual's trade, business or profession (i.e. the consumer insured) and a person who carries on the business of insurance and who becomes a party to the contract by way of that business (i.e. the insurer).

Front 54

What duty is involved in a consumer insurance contract?

Back 54

In an consumer insurance contract, the common law duties of (a) disclosure and (b) not to misrepresent material facts, and the equivalent statutory duties in the Marine Insurance Act 1906 are replaced by a single duty which obliges the consumer insured to take reasonable care not to make a misrepresentation before the contract is formed or varied. Refer to the statutory duties in the 2012 Act.

Front 55

What is the standard of care to be discharged by the consumer insured?

Back 55

The standard of care to be dischargedby the consumer insured is that of the reasonable consumer, unless the insurerwas, or ought to have been, aware of any particular characteristics orcircumstances of the actual facts or the representation made by the consumerwas dishonest: section 3(3), (4) and (5) of the 2012 Act.

Front 56

On what basis is it decided if the consumer insured has taken reasonable care not to make a misrepresentation?

Back 56

Whether the insured has taken reasonable care not to make a misrepresentation is to be determined in light of all the relevant circumstances and the Act sets out some examples of factors that may need to be considered: section 3(1) and (2) of the 2012 Act.

Front 57

In what situation/what statutory basis does the insurer have a remedy if the consumer insured has breached their duty not to make a misrepresentation?

Back 57

The insurer will have a remedy wherethe consumer insured breaches the duty to take reasonable care not to make amisrepresentation and where without the misrepresentation the insurer would nothave entered into the contract or would have done so only on different terms: section 4 of the 2012 Act.

Front 58

Under the 2012 Act, what are the two types of misrepresentation a consumer insured can make?

Back 58

s 5: (1) deliberate or reckless misrepresentation =if the consumer knew the misrepresentation was untrue or misleading or not careand the matter to which was misleading was relevant to the insurer or not care.

(2) careless misrepresentation = not deliberateor reckless.

Front 59

What can the insurer do if the consumer breaches the reasonable care rule by making a deliberate or reckless misrepresentation?

Back 59

The insurer canavoid the contract of insurance; refuse all claims. The insurer can retain all of the premiums paid, except to the extent (if an The remediesare in s 4 and Schedule 1 of the 2012 Act.

Front 60

On what basis is the duty to not make a fraudulent claim?

Back 60

The consumer is also under a common lawobligation not to make a fraudulent claim (not changed by the 2012 Act).Therefore do NOT write about the statute if you are writing about a fraudulentclaim in the exam because it is NOT in the statute.

Front 61

What is the continuing duty of Good Faith and when does it exist?

Back 61

An insurer is bound, before the contract is entered into, to disclose to the proposer anything he knows that could reduce the risk from that level at which the proposer wrongly believes it stands. The duty also exists during the contract, but only in relation to facts that are material to the insured risk.

Front 62

Carter v Boehm 1766 3 Burr (1905)

Back 62

Theinsured was the Governor of Sumatra and insured the profits of his tenure withthe insurer. However, he neglected to disclose the facts that the fort on whichhe relied to protect the outpost was designed to resist natives rather than theFrench and that the French were likely to attack. The French attacked and thefort was destroyed. Held that underwriters were entitled to avoid the policy.Insured did not win case due to failure to disclose the presence of the FrenchArmy

Front 63

Is there a continuing duty on the insured?

Back 63

No, there is no common law duty on the insured, during the course of the policy (as opposed to the period prior to and at inception of the contract and at the time of renewal), to disclose to the insurer any circumstance that has developed since the inception of the policy and which increases the risk. However, the policy may have a specific term requiring such a disclosure to be made.

Front 64

What is a warranty?

Back 64

Awarranty is a fundamental term of the insurance contract. It is effectively apromise made by the insured, and must be strictly observed. Can be warranty offact or of opinion.

Front 65

What are the two forms of a warranty of fact?

Back 65

(1) a statement of fact by the insuredas to the past or present, or;

(2) a continuing undertaking that astate of affairs will prevail throughout the duration of the policy, which mustbe exactly complied with, whether it be material to the risk insured or not.This is sometimes referred to as a ‘promissory’ or ‘continuing’ warranty.

Front 66

*Hussain v Brown [1996] 1 Lloyd’s Rep 627 (CA)

Back 66

The insured took out a fire policy inrelation to some commercial premises, the question asked was are the premisesfitted with any form of intruder alarm, the insured answered yes and this wasthe basis of the contract clause in the proposal form. A fire broke out whenthe intruder alarm was inoperative. The insurer argued that the question askedconstituted a continuing warranty; the alarm had to be operative when empty.The court disagreed with the insurers argument as the question was phrased inthe present tense; the policy was not clear so the insurer had to pay out.

Front 67

*Ansari v New India Assurance Ltd. [2009] EWCACiv 93; [2009] Lloyd’s Rep IR 562

Back 67

Theinsured took out insurance on commercial premises, one of the questions on theproposal form was are the premises protected by an automatic sprinklerinstallation. The insured said yes and a fire breaks out. Again this questionis in the present tense however, the Court of Appeal distinguishes this casefrom Hussain v Brown; they said it was a continuing warranty but the insurers did not have to pay because thesprinkler system wasn’t in operation at the time; it was an integral part ofthe building and was constantly ready to operate without being turned onby someone (no negligence).

Front 68

What is the effect of a breach of warranty?

Back 68

The effect depends on whether it is classed as pastor present fact warranty or a continuing warranty. Either way it is good forthe insurer. If it is a past or present warranty, it seems that the insureravoids responsibility from the moment of formation of the contract i.e. sayingsomething that is false while making the contract. If it is a continuingwarranty, the insurer cannot rescind the contract but the insurer is dischargedfrom all responsibility from when the breach of warranty occurs. (Bank of Nova Scotia v Hellenic Mutual War RisksAssociation (Bermuda) Ltd (The Good Luck)).

Front 69

*Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck)

Back 69

Here the insurers were found liable to the bank, for failing (in breach of an undertaking) to inform the bank that cover had ceased, as soon as they were aware of the breach of warranty. If it is a continuing warranty, the insurer cannot rescind the contract but the insurer is discharged from all responsibility from when the breach of warranty occurs.

Front 70

Kennedy v Smith 1976 SLT 110 (First Division)

Back 70

This case involved someone who had never drunkalcohol in their life but he caused a fatal car accident after a pint. However,the statement given for his insurance was that he completely abstained fromdrinking alcohol, which he did at the time of filling out the form forthe insurance so the policy was valid and the insurer cannot refuse to pay out as it was not acontinuing warranty.

Front 71

*Dawsons Ltd. v Bonnin 1922 SC (HL) 156

Back 71

Effectof breach. Dawsons Ltd (furniture company) take out insurance for one of theirlorries. The proposal form has a basis of a contract clause in it. Dawsons fillout the form for their insurance and they give the business address in centralGlasgow. The proposal asks where the lorry will normally be parked and theywrote at the above address (mistake), it is usually parked on the outskirts ofGlasgow. The lorry is destroyed by fire, Dawson’s make a claim, argue that theirmistake did not add to the risk, arguably it reduced the risk. Court said no, therewas a breach of warranty, insurer did not have to pay out.

Front 72

What is the law on event insured?

Back 72

There is a rule that the insured cannot deliberately cause the loss insured against. (refer to Beresefordv Royal Insurance Company Limited [1938] AC 586)

Front 73

Beresefordv Royal Insurance Company Limited [1938] AC 586

Back 73

The insured insured his life 5 times then he killed himself so insurers did not have to pay out. What happens if the insured event was partly caused by the actions of the insured? The answer varies from case to case.

Front 74

What is the 'Average' principle?

Back 74

Thisprinciple is important where the subject matter of the insurance isunder-insured. There will usually be a clause in the insurance contract whichprovides that the insured can recover only the proportion that the sum insuredbears to the actual value of the property.

Front 75

What is the right of 'contribution'?

Back 75

Theright of contribution arises where the property is insured with more than oneinsurance company and an insured event causes loss which is valued at less thanthe combined amount of the policies. Prima facie, the insured may recover fromany one insurer the whole amount insured by it, but there is usually a clausein the insurance contract to the effect that each insurer shall be liable tocontribute rateably only (“a rateable contribution clause”). If an insurer paysout more than his share of the loss he has a right to recover the amount hepaid out above his share from the other insurers - (Sickness and Accident Insurance AssociationLtd. v General Accident Assurance Corporation Ltd. (1892) 19 R 977)

Front 76

What does the Third Parties (Rights Against Insurers) Act 1930 do?

Back 76

It prevents the proceeds of any insurance policy of a bankrupt insured being paid to the insured's trustee in bankruptcy. The Act enables a third party who has a valid claim against an insured who has become bankrupt to proceed directly against the insurer.

Front 77

What does part XV of the Financial Services and Markets Act do?

Back 77

Part XV of the FinancialServices and Markets Act 2000 (FSMA) provides protection for the insured wherethe insurer is unable to meet its liabilities, e.g. on insolvency.

Front 78

What is the distinction to note in relation to insurance intermediaries?

Back 78

(1) an independent intermediary - a broker - who acts for the insured

(2) a tied agent who acts for the insurer: limited to selling the products of his principal.

Front 79

What are the obligations of the broker?

Back 79

- tosatisfy himself as to the nature and value of the risk proposed for insurance;

- toadvise his client as to the most appropriate form of coverage; and

- tonegotiate with the insurer to secure the best terms available.

- also assist the insured incollecting any claim that may need to be made on the policy

Front 80

*Stockton v Mason and The Vehicle and General Insurance CoLtd [1978] 2Lloyd’s Rep 430 (CA)

Back 80

Insured asked brokers to transfer an existing policy from one car to another. Brokers are normally the agent of the insured. Broker said that they would 'see to it'. The broker here, as they normally do, did have authority to issue cover notes. The broker did not raise the cover, but failed to tell the insured, the insured thought he was covered and had a collision. The question was - was he insured or not? In this case it was said the broker, unusually, was acting as an agent for the insurer because the broker did have authority to issue cover notes and said 'yes, that will be alright we will see to that'. That bound the insurer. The insurer having organised the broker to issue cover notes.

Front 81

*Newsholme Bros v Road Transport and General InsuranceCo Ltd [1929] 2 KB 356 (CA)

Back 81

A proposal form was handed by the agent of an insurance company to a partner in the plaintiff firm who was minded to insure a motor omnibus, the property of the partnership, against damage by accident and third-party risks. In answer to three of the questions set out in the proposal form the partner gave the correct answers orally to the agent, but the agent wrote those answers on the form incorrectly, either because he had misunderstood or forgotten what the partner had told him or intentionally to earn a commission which otherwise he might not receive.The partner then signed the form, which contained a warranty that the answers were true and a statement that the warranty was promissory and should be the basis of the contract between insurers and assured. The company issued a policy and accepted a premium. An accident having occurred, the plaintiffs claimed to be indemnified under their policy, but the company repudiated the claim on the ground that the written proposal contained untrue statements.It was held that: the agent was not authorised by the company to fill in the proposal form and in doing so must be regarded as the agent of the proposer, and knowledge of the agent that the answers to certain questions in the form were not true was not notice to the company; the written contract alone could be looked at to ascertain the terms of the agreement between the parties; and, therefore, the company was not liable to meet the plaintiff’s claim.

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What is the statutory basis for determining whether an agent is acting as an agent for the consumer insured or insurer?

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s 9 and Schedule 2 of the 2012 Act