Insurance Law

TEST II

1. Explain what is “Total Failure of Consideration” and explain your understanding of cases Tyrie & Fletcher ? (6/5)

Answer : Total Failure of Consideration is a condition where the insured has never had anything of value in return for the their own payment

The risk may fail to run, resulting in a Total Failure of Consideration because of : ❖ The proposal may be withdrawn after the premium has been paid ❖ The Policy may be void for mistake or because there was no consensus ad idem ❖ The Policy may be void because there is no insurable interest ❖ The Policy may be voided ab initio for misrepresentation or non disclosure

In Tyrie & Fletcher (1777) A first that where the risk has not been run, whether its not having been run was owing to the fault, pleasure, or will of the insured, or to any other cause, the premium shall be returned because a policy of insurance is a contract of indemnity.

Second if the insurer does not run the risk, the consideration for which the premium or money was put into his hand, fails, and therefore he ought to return it.

Another rule is that if the risk of the contract of indemnity has once commenced, there shall be no apportionment or return of the premium afterwards.

2. Explain difference of insurance and wages ? (6/10)

Answer :

Insurance contract are : ❖ The insured is required to have a financial interest in the subject matter of contract ❖ The object is to protect the insured against loss and their identity is know before the event ❖ Full disclosure on the part of both parties is required under the doctrine of utmost good faith ❖ In most cases payment is made only by the way of indemnity (example : for a loss which has been incurred) ❖ The contract is enforceable at law

Wagering contract are : ❖ The interest are limited to the stake to be won or lost ❖ Either party may win or lose and the loser can not be identified until after the event ❖ Full disclosure is not required either party ❖ The stakes are not paid by way of indemnity. Payment is made without suffering loss beforehand ❖ Neither party can enforce the contract in court

3. What is Proportional Principle ? (7/16)

Answer : Is mean the insurer may not entirely avoid the policy for breach of good faith unless there is fraud.

Example : If a proposer failed to disclose two previous claims when applying for household insurance and the insurer would have increased the premium by 25% if they had been told these facts, their liability for any subsequent loss would reduce by 20%. The following details will illustrate this :

Premium charged $ 200 Correct premium (which would have been charged) If the claim had been disclosed) $ 250 Subsequent loss $ 5,000 Liability for loss $ 200 x $ 5,000 $ 4,000 $ 250

4. What is position regarding assignment policies in property, marine, life insurance ? (9/3 – 9/5)

Answer :

❖ Assignment of contract for property insurance The assignment must take place at the same time as the sale, this is because the policy will normally lapse automatically if the subject matter is disposed of and, therefore, there will no contract to assign once the sale has taken place. On the other hand, if assignment is attempted before the sale the assignment may not yet have sufficient insurable interest n the property to make the insured valid

❖ Assignment for Marine Insurance In practice marine policies are not freely assignable because the ownership of cargo may change several times in the course of a voyage, and it is obviously convenient if the insurance cover can be easily transferred at the same time. Normally, the risk will not alter as a result of a change in the ownership of the goods, because they will usually remain on the same ship.

❖ Assignment for life Policies Life policies are freely assignable because, provided the identity of the life insured does not change on assignment, there is no change in risk. In this sense life policies are not personal contract.

It is describe with alteration below :
| |Insured |Life Insured |
|Own Policy in the name A |A |A |
|A assign policy to B |B |A |
|B Assign policy to C |C |A |

5. Describe 3 examples where insured maybe less indemnity and more indemnity ? C1–C2 ( 11/7 – 11/10)

Answer : ❖ Less than a full indemnity • The sum insured or limit liability The insured can not recover more than a sum insured or limit liability under many policies where the loss occurred • Underinsurance and average clause If the policies attached by this underinsurance clause is means that the policyholder is not paying their pair share into the pool. Logically, therefore, when they have a loss should be scaled down to take into account this under contribution, whatever the size of the loss

An average clause provided that where the sum insured is less than full value, the insured will be considered their own proportionately The formula applied as follow ;

Sum insured at the time of the loss x amount of loss = liability of insurer Value at risk at time of loss

• Excess An excess will reduce the total of any claim for the insured because the insured must bear the first amount of any loss, expressed either as a sum of money (say $ 250) or a percentage of the loss (say 5%)

Example : If a commercial fire policy is subject to an aggregate excess of $ 10,000 the insurer will not liable to pay for any losses until the total for all losses for the policy year exceed S 10,000

❖ Extension in the operation indemnity • Reinstatement Basis It is cover give benefit the insured because the insurer will pay for a loss (let say for loss of building) with rebuilding the new building without deduction for wear and tear. The sum insured for reinstatement cover is more higher to cover the cost of rebuilding as new • New for old cover Same with reinstatement but it is more specific for restrictive items with limited life such as clothing and linen, and pay new for old only when the items are less than, say, three years old at the date of the loss • Agreed value cover The parties agree that in event of loss a particular sum, fixed at the outset of the insurance, will be paid, regardless of actual value of the property at the time.

6. What is position regarding salvage and abandonment in marine and non marine insurance ? (11/13 – 11/14)

Answer : • Marine Insurance Salvage and abandonment are particularly important because marine recognize not only actual total losses but what are know as constructive total losses. This is where the subject matter is not destroyed but the insured is deprived of the possession of their ship or goods and : ✓ It is unlikely that they can recover the ship or goods ✓ The cost of recovering the ship or goods would exceed their value when recovered The action of giving up the subject matter to the insurer is referred to as abandonment and automatically when there is an actual loss and the insured must serve a notice of abandonment on the insurers if they wish to be paid for a total loss

The right of the insurer to take over the subject matter is salvage

• Non Marine Insurance The concept of a constructive total loss is not recognized because the doctrine of abandonment and salvage support the principle of indemnity and prevent the insured from making a profit from his loss

Example : In motor policies when the insurer write off the insurer are entitled to sell the insured vehicle to reduce their loss.

7. How may the insurer may be affected statutory of reinstatement ? (11/13 – 11/14)

Answer : The act applies : ✓ To fire insurance of building only ✓ To England, Wales and some other country where it has been adopted, but not to Scotland or Ireland ✓ To policies written by insurance companies but not to policies issued on behalf of llyod”s underwriters PART II

8. a. What is proximate clause

b. Give 3 examples ? (10/14 – 10/15)

Answer : ✓ Leyland shipping v Norwich Union Fire Insurance Society Ltd (1918) The policy covered perils of the seas, but exclude war risk. The ship was hit by torpedo and despite being badly holed and in danger of sinking, try to reach the port of le havre, where repair there is a storm the harbors master ordered the ship to an outer berth to save the harbour from being blocked if the ship sank, which she did after she left port (the proximate cause of the loss was torpedo)

✓ Etherington v Lancashire and Yorkshire Accident Insurance Company (1909) The insured fell from his horse, and suffered some injuries that force him to lie in cold and damp condition so that he contracted pneumonia, of which he eventually died (the proximate cause of his death was fall from the horse)

✓ Winicofsky v Army and Navy Insurance (1919) Where the wartime air – raid gave thieves the opportunity to steal goods from a building, the theft is in insured peril but the air – raid is excluded (the proximate cause of the loss was wartime air)

c. Describe doctrine the modification of proximate clause ? (10/18)

Answer : The doctrine can modified by the particular words used in policy by directly or indirectly with the peril in question, for example insurer may wish to Exclude some risk (such as war risk) absolutely and be in a position to refuse payment even where the perils operates as a remote cause (i.e a cause which makes only a minor contribution to the loss)

In case oei v Foster (1982) The house is on fire while the insured’s wife left the house but left some fat heating on the electric cooker which she borrowed, she was legally liable for this damage and claimed indemnity under the personal liability cover of her husband’s household insurance.

d. Describe burden proof ?

Answer : The burden is on the insured to prove that an insured peril was the proximate clause of the loss, example in Fire policies, if there is fire on the building the insured must prove that property has been burned or if the insured can prove that fire is arise not because of earthquake or civil commotion the loss will be liable.

Once the insured has established prima facia (on the face of it) loss by an insured peril the burden shifts to the insurers, if they wish to avoid the claim they must prove in turn that an expected perils was the proximate cause of the loss

Example cases Spinney’s (1948) Ltd v Royal Insurance Co Ltd (1980)

9. Subrogation and contribution are corollaries to principle of indemnity , describe ?