Policies Of Insurance The Parties example essay topic

The Nature of Insurance came about to offset any loss that an individual or those engaged in business may suffer through the occurrence of some unforeseen event. To offset this loss the commercial world developed the contract of insurance. In return for a fee the individual, or the business enterprise, would be indemnified for the loss suffered on the occurrence of the event insured against. Contracts of insurance cover a wide field such as life assurance, personal accident public liability, damage to property and general liability insurance.

A contract of insurance is a contract whereby one party, called the insurer, agrees in return for a payment called the premium to pay a sum of money to another, called the insured, on the occurrence of a certain event, or to indemnify the insured against the loss caused by the risk which is insured against. Policies of insurance are of two broad types: life assurance, which insures against an event that must happen, namely, death; and liability insurance, which insures against events that may happen. A contract of insurance may be in any form, such as by deed, in writing, or verbal. In practice such a contract is embodied in a written document called a policy, which expressly states all the terms of the contract. Three elements are essential to an insurance contract: (a) consideration must pass to the Insurer.

This usually takes the form of periodic payments, called premiums; (b) there must be some degree of uncertainty as to whether the event insured against will happen, or if it is bound to happen, as to when it will happen (c) the event, if or when it happens, must be adverse to the interest of the insured. Insurance business in Ireland is carried on principally by registered friendly societies, which deal in life assurance and are governed by the Friendly Societies Acts 1909-1989. Both statutes attempt to provide some supervision by the state so as to safeguard the interest of policy holders. Insurance companies must hold a licence, maintain a bond with the High court and make annual returns. The usual procedure for a party seeking insurance is to first complete a proposal form and submit it to the insurers.

Where the proposal form is rejected that is the end of the matter and there is no contract. The insurer is not bound to give any legal reasons why the proposal was rejected. Where the proposal is accepted a contract may come in to existence. The precise moment of its creation will depend on the particular events. It often happens that the policy does not become operative until the first premium is paid, this occurred in Harney vs. Century Insurance Co. Ltd (1983), where it was declared that ' this policy is not in force until the first premium has been paid to the company..

' In such cases the parties are free to withdraw from their commitments between lodging the proposal form and the payment of the first premium. The premium is the consideration for the risk undertaken by the insurer. The method and the time of payment depends on the terms of the policy. The insurer may sue for the premium where there is a binding contract to issue the policy. In practice, this is rarely possible because the policy usually provides that the insurers are not on risk until the premium is paid. An insurance contract is formed in the same way as other contracts i.e. by agreement, consideration and an intention to create legal relations.

The person seeking insurance usually completes a proposal form, which generally requires particulars of the proposer, details of the cover sought and any other information considered necessary to enable the insurer to assess the risk involved. The completed proposal form is then sent directly to, or through an agent of, the insurance company. If it is rejected, that is the end of the matter and no contract will come into effect. If the proposal is rejected, the insurer will issue a policy conforming with the proposal.

Usually the proposal will be met with a statement that the policy will not become operative until the first premium is paid. Thus, either party is free to withdraw from their commitment between the time that the proposal form is submitted and the first premium is paid. A person who wishes immediate insurance while the proposal form is being considered is generally given temporary cover by the issue of a cover note. This is in effect a separate contract and is distinct from the policy.

A cover note will contain such terms as are appropriate to a short-term contract. The cover note is operative for a given period, usually a month, unless in the meantime the insurers decline the proposal. All insurance contracts are uberrimae fidei or utmost good faith. This duty of disclosure is based on the sound principle that a party applying for insurance is in possession of the material information whereas the insurer knows nothing.

Unless a full disclosure is made to the insurer of all material facts which are known, or ought to have been known, to the insured at the time of making the contract, then the contract is void able at the option of the insurer. To redress this imbalance the insured is placed by the law under duty to disclose all material facts of which the proposer knows, or ought to know where questions are asked by the proposer e.g. Chandler neglects to notify Dodgem Insurance that Castle View has a thatched roof. In practice this duty works harshly against the insured, especially as there is no duty on the insurer to warn the proposer of this duty of disclosure and the consequences of non-disclosure. All material information, which may influence the insurer in assessing the risk to be incurred, and whether the insurer should incur such a risk, and what premium should be imposed where the risk is accepted, must be disclosed.

The duty of disclosure may only exist where the proposer is actually expected to answer question. The advent of over the counter insurance has given the courts the opportunity to modify the utmost good faith rule somewhat. In 1986, the Supreme Court in Aro road & land vehicles Ltd vs. Insurance Corporation of Ireland, an insurance policy was sold without the requirement of a proposal form being filled out. The court ruled that since no questions were asked of the proposal the insurers were not, in the absence of fraud, entitled to repudiate the policy on the ground of non disclosure. The consequences of non-disclosure by the insured by the insured, where such a duty exists, allow the insurer to avoid the policy, which means that the insurer may refuse to honour the contractual obligations. Avoidance is the sole remedy and it may be availed of before or after the occurrence of the loss.

In the latter situation the consequences for the insured may be left to face the loss without protection of indemnity. It was decided in Keating vs. New Ireland Insurance Co. plc (1990) that a policy cannot be avoided on the ground of non-disclosure unless it is proved that the insured was aware of the material fact in issue. In Harney vs. Century Insurance ltd. (1983) where a proposal form is completed the duty of disclosure may continue up to the moment the proposal is accepted or even later. The contra proferentem rule may be applied to insurance contracts in order to ease the duty of disclosure in special circumstances. Where a term of an insurance contract is ambiguous as to admit to two different constructions, the court will choose the meaning unfavourable to the party who drew up the contract, to the benefit of the other party.

There are a limited number of material facts, which need not be disclosed. These are outlined in Section 18 (3) of the Marine Insurance Act 1906, and include. Any circumstance which diminishes the risk. Any circumstance that is known or presumed known to the insurer. The insurer is presumed to know matters or common notoriety or knowledge, and matters which an insurer in the ordinary course of his business as such ought to know e.g. thatch roof on Castle View.

Any circumstance as to which information is waived by the insurer; . Any circumstance which it is superfluous to disclose by reason of any express or implies warranty. The essence of a contract of insurance is the protection of some interest of the insured. This is known as an insurable interest.

To prevent contracts of insurance being used as instruments of gaming the law provides that the insurance contracts are void unless the assured has some insurable in the subject matter of the insurance, or the life assured. The insured person must benefit by its continued existence or be prejudiced by its destruction or loss. Any policy in which the insurer has no insurable interest is a wager, and void under the Gaming and Lotteries Act 1956. It is a well established rule that one has unlimited interest in one own life.

In cases other than insuring relatives, where a person proves some pecuniary and legally enforceable interest in the life of another then an insurable interest exists. Whether a policy requires the insured to have an insurable interest is a matter of construction. This requirement seeks to prevent " a mischievous kind of gaming " which might follow if an insured could obtain insurance cover for an event in which he had no such interest. While it is not unlawful for the insurer to pay on a policy where the insured has no insurable interest, the practice is that most policies require some proof of interest because of the important principles of indemnity. To constitute insurable interest: a) There must be a person or a physical object exposed to the loss or damage; or' alternatively, there must be some potential liability which may devolve on the insured; b) This person, object or liability must be the subject matter of the insurance; and) The insured must bear some relationship thereto recognised by law in consequence of which he stands to benefit by the safety of the person or object or the absence of liability, or be prejudiced by loss sustained by the person or object or by the creation of the liability. An indemnity is an undertaking to give protection against damage or loss.

It is said by law that contracts of insurance are constructed as contracts of indemnity. This means that the insured cannot recover more than the actual loss. Of course, where there is no insurable interest there is no loss to be indemnified. It follows therefore, that the insured is not allowed to profit from the policy. A number of rules have been established to enforce this principle. Under most policies of insurance the parties agree on a maximum figure up to which the policy is to operate.

The premium is assessed by reference to this maximum figure, which is sometimes referred to as the sum assured, though this is misleading because the insurer's liability can never exceed this figure and in many cases will be a great deal less. This is so because the contract usually provides that the insurer will pay the sum insured, or indemnify the actual loss suffered by the insured, whichever is the lesser amount i.e. Chandler has insured Castle View for lb 150,000 even though it's really worth lb 200,000. When this occurs i.e. failure to insure the property for it's full amount the insured must bear the remaining loss after receiving the sum insured. However if there is only partial loss of property it is common to find an average clause in the policy relating to property.

Where the value of the property is greater than the sum insured, the insured is his or her insurer for the difference and must bear a rateable share of loss. The one exception to this rule arises under a so-called value policy. This kind of policy is used where the parties wish to determine with certainty the sum of money to be payable in the event of a loss. The sum is agreed at the time of contract.

Where a total loss occurs the sum representing the agreed value is paid, despite the fact that it exceeds the insured's actual loss. The primary obligation of the insurer is to provide a cash indemnity where a successful claim is made. In practice many policies give the insurer the option to either replace the value of the property with a sum of money, or to reinstate the property as it existed before the damage. Should the insured desire reinstatement of the building in event of its destruction, a special clause to that effect, known as a reinstatement cause must be inserted in the policy. Where the insurers opt to reinstate they are under a duty to replace it in substantially the same condition as it was originally. This obligation is not limited to the sum insured.

If, during the reinstatement, costs arise which compel the insurers to pay in excess of the sum insured they must complete the work. And of course, insurers may be liable in negligence where the reinstatement is done poorly, or if there is unreasonable delay. Subrogation entitles the insurer, who has paid an indemnity to an insured, to all the rights of the insured against any third party liable in respect of the loss. This ensures that the policy holder obtains no more than a full indemnity. However the insurer is only subrogate d when the insurer is paid. This was explained in Driscoll vs. Driscoll (1918): ' A contract of insurance is only a contract of indemnity'.

The foundation of the doctrine of subrogation is to be found in the principle that no man should be paid twice over in compensation for the same loss. The corollary to this is that a contract of indemnity against loss should not have the effect of preventing the insured from being paid once in full. The insured's loss may often be covered by more than one insurance contract. For instance, an insured may insure the same risk with two separate insurers or the same risk may be insured under two separate contracts of insurance with the same insurer, as where a business takes out public liability insurance and product liability insurance. If so, the insured is entitled to claim under either or both insurance contracts until he is fully indemnified. But, importantly, the law precludes double recovery, as this would be contrary to the principle of indemnity.

Where a risk is insured against with more than one insurer and the insured makes a claim and recovers against only one insurer, that insurer can seek a pro rata contribution from any other insurers under the equitable doctrine of contribution. The insurance contract usually modifies this right to contribution by including a 'rateable proportion clause' for example: "If at the time of a claim there is any other policy covering any events insured under this policy we shall be liable only for our proportionate share". Accordingly, any one insurer is protected from paying more than his 'share' of the loss, thereby forcing the insured to pursue claims against each insurer for their proportion of the loss. Double insurance and the doctrine of contribution only operates where the same subject-matter is covered by two or more separate insurance contracts, in relation to the same risk. For example in Hibernian Insurance vs. Eagle Star Insurance (1987), Hibernian insured a Hillman imp car owned by a Mrs Gent, her husband was named diver on the policy. The insurance contract was amended to cover a red alpine on the day it was driven and crashed by the insured's husband.

Following the road accident the third party in the accident successfully sued the insured's husband. Consequently, Hibernian indemnified the insured and then sought contribution against Eagle Star. The insurance contract covered any property owned by Talbot and any driver where the driver had Talbot's permission. Eagle Star, on these facts, were liable for half of the third party's claim.

For the right of contribution to arise there are a number of conditions, which must be fulfilled (i) All of the insurance policies concerned must have a common subject matter. It is not necessary that the extent of cover should be the same in all policies but it is necessary that some portion of the property destroyed in respect of which the claim is made should be common to all. (ii) All policies must cover the peril that causes the loss. ( ) All the policies must be effected by or on behalf of the same insured. (iv) All the policies must be in force at the same time of the loss and must be legally enforceable. A policy, which is unenforceable for breach of a condition, cannot give rise to a claim for contribution. If the plaintiff is guilty of any negligent actions that contributed to the cause of the harm, the defendant could escape liability for negligence. The Civil Liability Act 1961 provides that were a party suffers damage partly through his or her own fault and partly through the fault of another, that party may still recover compensation.

The amount recoverable will be reduced by the contribution, which that party's negligence bears to the total cause of the injury or damage. It is common to find negligence apportioned. For example: in O'Leary vs. O'Connell (1968), a pedestrian's leg was broken after being struck by a motorcycle while crossing a road. Both parties were negligent for not keeping a proper look out and fault was apportioned 85 per cent to the motorcyclist and 15 per cent to the pedestrian. In the case study it is clearly apparent that contributory negligence hasn't occurred as the plaintiff had in no way contributed to the storm or the large section of the roof being blown away. Chandler has had the premises insured for lb 150,000 even though it's worth lb 200,000, Dodgem Insurance are therefore only required to pay Chandler at most lb 150,000 even though the cost might be more.

The policy taken out by Joey will in no way effect the policy Chandler has taking out with Dodgem Insurance Ltd. The two Insurance companies will be required to each pay an appropriate percentage of the claim. Chandler is not entitled to any contribution from Central Perk Insurance as this policy was taking out by Dodgem Ltd and is a general contents policy. Dodgem Insurance will receive a relevant payout for any damage done to the general contents on their section of Castle View i.e. the ground floor.

Even though Chandler neglected to mention that Castle View has a thatched roof, he is covered by Section 18 (3) of the Marine Insurance Act 1906 (b) i.e. Any circumstance that is known or presumed known to the insurer. The insurer is presumed to know matters or common notoriety or knowledge, and matters, which an insurer in the ordinary course of his business as such ought to know. Chandler may have presumed that because Dodgem Insurance Ltd are located in the same building that he is insuring that they will have taking the fact that it has a thatched roof into account..