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7 - Insurance contract and key terms (Warranties, conditions and other…
7 - Insurance contract and key terms
Terms of a contract
Interpretation of insurance contracts
Cover offered under insurance contract must be precisely defined
Can't have any inconsistency or amiguity in documents
Dispute around wordings often comes up when claims are made
Rules of construction (interpretation)
Court must use these to decide on menaing of words used (see below)
Statutory rules
Consumer Rights Act (2015)
Changes
Consumer can claim term is unfair even if it was individually negotiated
Trader cannot exclude or restrict liability for death or personal injury by negligence
No unfair term or contract is bindning on consumer
Rest of contract can still continue if term is unfair
Very little statutory control of wording of insurance policies in UK
Generally free to enter whatever contract a party wishes
Exempt from
Unfair Contract Terms Act (1977)
Allows contract wordings to be challenged if they are unfair
Insurance contracts
Terms 'condition' and 'warranty' don't always have same meaning as in common law
Only concerned with terms which place obligations on the insured
Common law rules for interpretation of insurance policies
Importance of context
Court will consider immediate and then wider context if meaning of word is unclear
'Ejusdem generis'
rule
General words which follow specific ones are taken as referring to 'things of the same kind'
'Noscitur a socciis'
rule
A word may be known by the company which it keeps
'Expressio unius est exclusio alterius'
rule
Specifying one thing implies the exclusion of other things
Ambiguity
'Contra proferentum'
rule
Gives party who did not draft the clause the benefit of the doubt
Will therefore usually be the insured
Ambiguity will be in favour of insurer if broker proposes clauses on insured's behalf
Suggested that this rule should only be used if other methods don't provide resolution
Technical or legal meaning
'Literal rule' may not apply if there is a clearly established technical meaning
CRA 2015
requires contracts to be in plain and simple language
Words such as 'riot', 'theft' and 'average' have distinct legal meaning
Inconsistencies
Courts have developed rules for dealing with these in insurance contracts
Latter will take precedemt where printed words conflict with each other
Policy change will overrule previous version of policy
Policy document will take precedent over previous proposal
An express term will override an implied term
Courts will decide what the parties intended to happen in the event of a breach
Ordinary meaning
Courts will apply 'literal rule' to meaning of contract wording
Non-insurance contracts
Warranties
A term oncerning minor part of agreement only
Injured party can claim damages if broken, but not repudiate contract
Conditions
Term which relates to important point of contract
If broken, injured party can claim damages and repudiate contract
Warranties, conditions and other terms
Warranties
Continuing warranties
Often applied by insurer to ensure good risk management by insured
Can also be used to ensure high risk practices are not introduced
Exact compliance
Warranty must be exactly complied with
Cover is suspended until breach is remedied as per
IA 2015
No direct link to loss has to be made
Nature of warranties
Used to be something which, if broken, allowed insurer to repudiate contract
No a promise made by the insured relating to facts or something which they promised to do
Can relate to present or continuing facts
How warranties are made
Implied warranties
Only allowed in marine insurance
MIA 1906
places implied warranty of seaworthiness into every policy
'Basis of contract' clauses
Used to convert statements made by insured in proposal form into warranties
Abolished by
IA 2015
and
CIDRA 2012
Express warranties
May be expressly stated in policy itself
Court can decide term in a contract is a warranty even if not named as such
Conditions
Conditions precedent to liability
Allows insurer to discharge themselves from liability for particular loss if term is broker
Minor terms
'Collateral conditions'
Breach of which won't stop insured from being entitled to make a claim
Insurer can seek damages bu reducing claim pay-out
Conditions precedent to the contract
One which states policy will not come into effect if insured fails to comply
Exceptions clauses (exclusions)
Suspensive conditions
Prior to
IA 2015
, courts could rule that, when warranty was breach, cover could just be suspended until remedy
Virtually all policies have exclusions, removing insurer's liability in certain situations
Breach of warranty or condition
Waiver of breach
Used to result in automatic termination under common law and
MIA 1906
Only way to prove waiver of breach was through
promissory estoppel
Insured who has broken warranty cannot enforce contract unless insurer clearly indicated they do not intended to rely on breach of warranty as a defence to further liability
Knowing of the breach, the insurers...
Renewed the policy
Accepted further premium
Refuse claim for something other than breach of warranty
Terms not relevant to the actual loss
Insurer cannot exclude, limit or remove liability if insured can prove that non-compliance could not have increased risk of particular loss
This will override 'breach of warranty' if warranty refers to loss of a particular kind
Insurance: Conduct of Business (ICOBS) rules
Rejection of claim is unreasonable if not breach of warranty or condition connecting to loss
Contracting out of the Insurance Act (2015)
Consumer insurance
Parties prevented from contracting out of sections related to breach of warranty and terms not relating to loss, if would put consumer in worse position
Non-consumer insurance
Insured prohibited from creating a warranty by basis of the contract clauses
May contract out of out of sections related to breach of warranty and terms not relating to loss, if transparency requiremet is met
Compulsory insurances
Motor
RTA 1988
stipulates insurer cannot avoid liability by relaying on certain types of condition or warranty
Employers' Liability
Rules contained within
Employers' Liability (Compulsory Insurance) Regulations (1998)
Prohibits five types of condition or warranty
Insurer can't reject claim based on...
Late notification
Because insured has failed to comply with condition regarding protection of employees from injury or disease
Excesses and deductibles also prohibited
Joint and composite insurance
Distinguishing between
Joint
'Indivisible' meaning if one party breaches duty of fair presentation, the whole policy is invalidated
Where interest in subject matter is joint, e.g. property ownership
Composite
Breach may invalidate cover of one insured but not affect others
Bundle of separate contracts contained within one policy
Different interests, e.g. mortgagor and mortgagee
Construction policies covering contractors and sub-contractors
Policy may specifically state act by one insured will not prejudice rights of another
Property policies may sometimes include 'mortgagee clause' which states cover provided to lender won't be invalidated by act of insured
Rights
Joint
Rights of joint insureds stand or fall together
One insured has no right to indemnity even in case of 'wilful misconduct' by other insured
Composite
Insureds have separate interests and rights