Formation and formalities of an insurance contract

Formation and formalities of an insurance contract

Wednesday, January 20, 2021

The fundamental principle of Insurance is mathematical; its application is financial; and its interpretation is legal. For the layman to understand the Insurance principle he should be an actuary (who design and price the insurance products); to understand its application to financial problems, he need not be a financial; and to understand its legal concepts, he need not be a lawyer.

Insurance may be defined as a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party called insured a fixed amount of money after happening of a certain event. Insurance policy is a legal contract & its formation is subject to the fulfillment of the requisites of a contract. “A Contract may be defined as an agreement between two or more parties to do or to abstain from doing an act, with an intention to create a legally binding relationship.

The formation of the insurance contract generally commences with the making of an offer which must be accepted. In practice, the offer is made by the insured by means of completing a standard proposal form. However, in some instances, the insurer makes a standard offer to the public or a group of targeted potential clients. The parties then agree upon the material terms which are essential matters such as the amount of premium, the nature and subject matter of the risk insured, the duration of the risk, etc.

A. Elements of General Contract

1. Offer & Acceptance, 2. Consideration, 3. Legal capacity to contract or competency, 4. Consensus “ad idem”, 5. Legality of object

However, it should be noted that the absent adjustment of such terms by the proposer/insured, he/she is deemed to have accepted the standard terms of the insurance policy as provided by the insurer.

Where the insured proposes terms of insurance to the insurer, or vice versa, the insurer may accept or as often happens send a counter offer. In practice for instance, there is no binding offer of insurance until premium is in fact paid. This constitutes a counter offer which the insured may reject but the insurer may not revoke unless there is a change in circumstances.

B. Elements of Special Contract relating to Insurance

1. Life Insurance

a. Utmost Good Faith (Uberrima Fides)

b. Insurable Interest

2. General Insurance

a. Utmost Good Faith (Uberrima Fides)

b. Insurable Interest

c. Indemnity

d. Subrogation

e. Proximate Cause

In the case of Canning V. Farquhar (1886) 16 Qbd 727, where a proposal for life insurance was accepted on December 14, on the terms that no insurance was to take effect until the first premium was paid. The premium was tendered on January 9, but four days previously, the insured had fallen and suffered serious injuries from which he subsequently died. The court observed that the insurer was not bound.

It should be noted that if there is a change in the risk between the proposal and acceptance, then such should be disclosed to the insurer. Generally, the law of contract requires that he acceptance of the contract by either party should be unilateral and communicated. This principle also applies to the insurance contracts. However, there are instances where the insurance is not unilateral and therefore communication of acceptance may not be communicated but rather constituted by performance in accordance with the terms of the offer.

An example is motor third party insurance which is offered at a standard fee and sold by agents of the insurer such as at gas stations. The offer that is made by the insurer may be accepted by the potential client or not but acceptance of such offer shall be by purchasing of the certificate of insurance.

Relevant insurance Cases:

- Hercules Insurance Co Ltd V. Trivedi & Co Ltd, [1962] E.A 258

- Jupiter General Insurance Company V. Kasanda Cotton Co. [1966] Ea 252

- Jubilee Insurance Company Ltd V. Fifi Transporters Ltd Hccs No. 81/2008.

Essentials of an Insurance Contract

The essentials of any Insurance Contract are discussed as under with reference to the life Insurance only.

1. Offer & Acceptance:

In Life Insurance an offer can be made either by the Insurance Company or the applicant (proposer) & the acceptance will follow. e.g., subsequently

(a). An offer made by the Insurance company to proposer that the premium amount will be Rs.100/- per annum for the Insurance amount of Rs.1000/-. It is for the proposer to accept the offer or not.

(b). An advertisement in the newspaper about the availability of different life Insurance policies is an invitation for an offer. If a proposer makes an application then it will be offer from the applicant and the Insurance Company may or may not accept it.

(c). An offer may be considered accepted either when the Insurance Company issues the policy or the first premium is paid by the applicant.

As stated above in example (a) if the applicant pays the first premium of Rs.100/- to the Insurance Company then the contract is completed as both the parties have accepted the offer.

Similarly, if the company issues the policy in above stated example. (b) then the offer is accepted by the Insurance company & the contract is completed. In fact, in life Insurance contract the effective date of the policy is very important; when the premium is paid with the application but no conditional receipt is issued the contract is not in force until the policy is delivered to the applicant. The payment of the premium with the application constitutes the offer and the delivery of policy is its acceptance.

Further, if the premium is paid with the application & conditional receipt is issued, the effective date of the contract depends upon the provisions of the conditional receipt. There are three types of conditions as follows:

(a) The condition may be that the Insurance becomes effective as of the date of the application or medical examination whichever is later. A claim arising after this date will be paid even if the application papers have not reached the competent / Approving Authority, provided of course, that the facts on the application & the results of the medical examination are such that the company would have accepted the application had the applicant lived.

(b) The second type of conditional receipt used by a company is the approval form, which provides coverage beginning with the date the application is approved by the company. This form does not offer the insured protection for the period from the date of the application until it is approved by the company.

(c) A third type of receipt is the unconditional binding receipt. According to this receipt the company binds the Insurance from the date of the application until the policy is issued or the application is rejected. The companies using this type of receipt place a time limit usually from 30 to 60 days. This binding receipt is beneficial to the prospects because he becomes insured from the time the application is filed. This form of receipt is not widely used.

The offer or proposal and its acceptance may be verbal or in writing but in Insurance contracts these are in writing. In General Insurance the Insured offers to purchase an insurance from the Insurer and this offer is in the form of a proposal form and the Insurer after studying the proposal can either reject the proposal or accept it. In case he accepts he issues a cover note or a letter of acceptance. In the latter event the acceptance letter becomes a counter offer or proposal, which is accepted on payment of premium by the insured.

2. Consideration:

There is no validity of a contract if there is no consideration, which is the act or promise offered by one party and accepted by the other as the price of his promise. In Insurance contracts the consideration is the premium that the Insured pays to the Insurer as the price of the promise that the Insurer has made that he shall indemnify the insured. Hence premium payment is the consideration on part of the insured and the promise to Indemnify is the consideration on part of the Insurer.

In text Questions

1. When is the insurance contract considered to be completed?

2. What is consideration in any insurance contract?

3. Legal Capacity/ Competency to Contract:

For a contract to be binding on all parties, the parties intricate must have the legal capacity to enter into a contract. With respect to the insurer, if the company is formed as per laws of the country & authorized to solicit insurance then the insurer is proficient of entering into an agreement.

With respect to the insured, the person should be of legal age i.e. 18 years and of sound mind.

If a contract is made with an underage the application may be held unenforceable if the minor decides to repudiate it at a later date. In Insurance contract the insurer is bound by the contract as long as the underage wishes to continue it. If the minor repudiates his contract, the law will allow him a refund of all premium paid.

Insanity or mental incompetence precludes the making of a valid Insurance contract.

4. Consensus “ad idem” (Meeting of the mind):

The understanding between the insurer & insured individual should be of same thinking or mind. The causes for taking the Insurance policy should be explicable to both the parties. Both parties to the insurance contract should be of the same mind and there must be consent arising out of common intent. Both parties should be clear about what the other is saying. The Insurer should know what the insured wants and the insured should know what the insurer is offering and both should be agreed on this. For example, if an Insured seeking a fire policy is issued a burglary policy there is no consent arising out of common intention.

5. Legality of Object:

To be a valid contract, it must be for a legal purpose & not conflicting with public policy. Insurance is legal business therefore it cannot be illegal on the part of the insurer. An individual can take the life Insurance of his own life or his/her family associates. If an individual takes a policy on the life of an anonymous person, it will not be a valid contract as it will amount to wagering.

Another example is that the contract will not be legal if it has anything to do with stolen property or if it is in respect of any unlawful activity. Hence Insurance of stolen goods or the Insurance of smuggling operation shall not stand scrutiny in the court of law and such contracts will be void.

Summary

In addition to the above features which are common to commercial contracts as well as contracts of Insurance, Insurance contracts are subject to certain special principles evolved under common law in UK. These principles are known as the fundamental principles of the law of Insurance.

Terminal Questions:

1. Explain the various features of any commercial contract.

Objective Type Questions

1. Choose the correct option

a. In an insurance contract an insurer makes an offer and the prospect accepts it.

b. In an insurance contract a prospect makes an offer and an insurer accepts it.

c. In an insurance contract an offer and acceptance is not a requirement.

d. In an insurance contract no principles of contact are applicable.

2. The consideration for the insurer under an insurance contract is a______ (premium/ sum insured)

3. The consideration for an insured under an insurance contract is a_____ (compensation/ premium).

4. Choose the correct options

Statement A: The minor can enter in to an insurance contract.

Statement B: The person with unsound mind cannot enter into an insurance contract.

a. Both statements are correct

b. Both statements are wrong

c. Statement A is correct

d. Statement B is correct

5. Choose the correct options

Statement A: Insurance is lawful business.

Statement B: The insurance is not a gambling.

a. Both statements are correct

b. Both statements are wrong

c. Statement A is correct

d. Statement B is correct

Answers to In-text Questions

1. On accepting the proposal by the insurance company the insurance contract is completed.

2. Premium paid by the person to the insurance company and any compensation paid by the insurance company.

Answers to Objective Type Questions

1. b     2. Premium     3. Compensation     4. d         5. a

Read more

How to Make an insurance claim visa-vis fraudulent Claims

How to Make an insurance claim visa-vis fraudulent Claims

Wednesday, April 08, 2020

When a loss occurs, the insured has to make a claim for indemnification within a reasonable time absent any provision in the policy that specifies a time frame with in which a claim ought to be made. The first basic obligation of the insured upon the occurrence of a loss is to give notice of the loss to the insured. It should be noted that oral notice is sufficient unless the policy provides otherwise. It should be noted that where time frame for notice has been stated in the policy, the contravention of this condition and failure to comply will entitle the insurer to avoid liability.

 

 

In the case of : Cassel v. Lancashire & yorkshire accident insurance company (1885) 1 tlr 495; where an accident policy required notice within 14 days. it was not until 8 months after an accident that the insured became aware that he had been injured as a result of it, and then he gave the notice, but it was held that the insurer was not liable since the insured had not given the insurer notice within the required time frame.

The Notice is essentially informal but may take certain standard format if provided for by the insurer in the policy. The standard format often includes the requirement for the insured to state particulars of the loss. Absent such requirement, the insured shall prove their loss by other means discussed later in the notes.

In addition to the giving of notice, there is need for further cooperation by the insured. This is often stated as a condition in the policy which is strictly enforced to enable the insurer to investigate the validity of the insured’s claim. Failure to further cooperate may enable the insurer to avoid liability.

In the case of London guarantee co v feearnley (1880) 5 app cas. 911 , a fidelity policy taken out by an employer covered him against the risk of embezzlement by an employee. In the policy, there was a condition precedent that provided that if a claim was made, the insured should prosecute the employee concerned if the insurer so required. Following a particular claim, the insured refused to comply with such a request and it was held that the insurer was thereby entitled to avoid liability.

The duty of utmost good faith clearly survives beyond the time of effecting the policy. A claim is fraudulent if it can be shown that the insured intended to defraud the insurer or put forward false evidence when in fact there was no loss. A fraudulent claim will lead the policy to becoming void and all benefits being voided regardless of whether such is expressly stated in the policy or not.

In the case of Galloway v. Royal guardian royal exchange (uk) ltd , the claimant claimed for losses following a burglary. The amount was probably a fair estimation of his losses following a burglary, but he claimed for a computer that had not been in fact lost, and the receipt for its purchase had been forged. He signed a declaration that the particulars given on the claim were true and complete. Despite being convicted of fraud, the claimant sued the insurers who rejected. The court of appeals held that although there was no express clause in the policy barring all recovery in the event of a fraudulent claim, the policy would be treated as if there were such a clause in the policy barring all recovery in the event of a fraudulent claim the policy will be treated as if there was such a clause.

Proof Of Loss:

Usually and as a matter of prudence the insurer shall require the insured to furnish evidence of the loss. This is different from the particulars of the loss that are given in the notice. The proof of loss requires documentary proof of the loss. It should be noted that the furnishing of the evidence of loss is not a guarantee that such shall be covered by the policy. The Insurer may dispute the loss and the matter may be litigated. It should however be noted that in the event the matter is litigated, the Burden of proof lies on the insured.

Measuring the loss and Indemnity:

In the case of a valued policy the measure of loss and indemnity is the value fixed by the policy, which, in comprehensive terms, is the amount decided with the insurers, while in the case of an un-valued policy, the measure of loss and indemnity is the insurable value, the assured cannot recover sums beyond the statutory sums by way of damages from the insurers. The claim under the insurance is legally analyzed as a claim for ascertained damages arising on the happening of the loss . Under English law, by contrast to the position in the United States law, at the moment, there is no secondary obligation of performance that arise from failure to pay on demand which hence entitles the assured to damages for delayed payment or unfair claims handling.

Read more

How to get the auto accident compensation

How to get the auto accident compensation

Thursday, February 06, 2020

Getting into a car accident is never fun, but what is more frustrating is trying to get the money that you deserve after an accident. Insurance companies love nothing more than not paying out on a claim, so if you do not file the paperwork correctly you may not get the money that is rightfully yours. In order to make sure that you get the money that is owed to you it is important to follow these steps precisely and file a claim with your insurance company to get the claim paid out as quickly as you can.

1. Call the police and report the accident.

Depending on your state you may be able to leave the scene of an accident before you've reported it to the police but in some states, you must stay at the scene of the accident until the police come and assist the incident. If you live in Fort Lauderdale and are nervous to go to the police on your own then please seek the services of a Fort Lauderdale car accident lawyer.

2. Document the accident.

 Collect details from everyone at the scene this way you can have some backup for the insurance company and the insurance adjuster when they make contact with you. It is important to document or write down everything that led up to the accident as soon as you have been cleared by a medic. This is because memories fade and you want to have a clear indication of what happened leading up to and during the accident. It is significant that you have a legal counselor clarify your lawful rights on the off chance that you exhaust the first $10,000 for doctor's visit expenses. In these circumstances, a legal counselor will evaluate your wounds, harms, and anticipated wellbeing forecast. A legal advisor who handles fender benders comprehends that both present and future harms must be determined. On the off chance that you are left handicapped and incapable to work as a result of a thoughtless driver, it is not out of the question that you and your family are redressed.

3. Call your insurance and report the claim.

On the off chance that you or the other driver doesn't have protection, you may need to pay the expenses out of pocket. This can leave you a large number of dollars owing debtors. Once you have documented the incident and reported this to the police, you must contact your insurance company end report the claim. You must call the insurance as soon as possible and ideally on the same day of the incident in order to get the ball rolling and preserve any evidence you have collected.

4. Meet with a claims adjuster.

It can be hard to figure out who should pay for your car collision wounds. Much of the time, harmed parties expect their protection will pay and their alternatives end there. Be that as it may, at times, at least one gatherings will be at risk for your wounds. After you have contacted the insurance company, they will assign you a case manager or claim specialist to see your case through the filing, repair, and release of the payouts in conjunction with the accident. Notwithstanding the points of confinement in the protection arrangement, you may at present have choices for covering your harms, for example, doctor's visit expenses, lost wages, property harm, or noneconomic harms.

5. You may need a lawyer.

Who pays for an auto crash relies upon a few components, including what caused the mishap, who was to blame, and the sort of impact that happened. A Fort Lauderdale fender bender attorney can assist you with figuring out which gathering or gatherings may be at risk for your harms.

If all goes smoothly with your claim and you are paid out in a timely manner and get the right amount of money paid out, then that will be the end of the matter. But, if the insurance company refuses to pay out on a claim or they are only offering you a partial payment then you may need to seek the services of a qualified attorney. As previously mentioned, insurance companies will do their best to not payout on a claim but with the help of a lawyer, you can make sure that the insurance company is being feared forthcoming and abiding by the terms of your insurance and the law.

The process of filing an insurance claim is not complicated but it can be a lengthy process so if you feel you need help and you live in the Florida area please consult with a Fort Lauderdale personal injury lawyer. With a lawyer on your side, your rights will be protected and you may get more money than you initially thought. Contact us today to know more.

Read more

Duty of Utmost Good Faith, Disclosure & Misrepresentation in Insurance

Duty of Utmost Good Faith, Disclosure & Misrepresentation in Insurance

Tuesday, October 08, 2019

The doctrines of utmost good faith and disclosure in general contract law are applicable to contracts of insurance. In the same respect, the questions of fraud, non disclosure and misrepresentation do apply to the contracts of Insurance. All these principles are conceptually applicable to both the insured and the insurer sine each of the parties are obliged to give information to the other to assess whether to proceed with the contract.

Utmost Good Faith And Non-Disclosure.

The contract of insurance binds both parties to surrender information to each other to enable them to make a decision as to whether or not conclude the contract. Such information should be material enough to enable the other party to make a decision. It is worth noting that the insurer will be deemed to have knowledge that his agent has if that knowledge was acquired by the agent acting in the scope of his authority actual or implied.

The general duty of good faith stretches throughout the term of the contract but in relation to the disclosure of information by the insured, the prospective insured is under the duty to disclose to the insurer, prior to the conclusion of the contract, but only up to this date, all material facts within his knowledge that the latter does not or is not deemed to know. A failure to disclose entitles the insurer to avoid the contract.

The rationale for the avoidance is based on the fact that the insurance contract is based on speculation. The special facts upon which such speculation is to be made are with the insured only. The insurer and its agents trust such representations by the insured and it is upon these representations that the insure estimates the risk and the amount to be paid. It should however be noted that the duty to disclose and the duty not to misrepresent in relation bind the insured only to facts that are within his knowledge. Basic principle; you can not disclose what you don’t know.

Fraud.

In this respect, fraud is twofold.

We have instances of fraudulent misrepresentation and fraudulent non-disclosure. Both of these are defenses that may be raised by the insurer in an action to determine coverage. One is guilty of fraudulent misrepresentation if he knowingly makes a statement that is false, without belief in its truth or recklessly as to whether it is true or false. Fraudulent non-disclosure occurs where one willfully conceals from the insurer any material fact. What amounts to a material fact shall be discussed further. Compare with: Misrepresentation under Insurance

The non disclosure or the misrepresentation gives the insurer the right to avoid the contract at the instance of the insurer. In addition to the right to avoid the contract, the insurer has the right to affirm the contract despite the misrepresentation or the non disclosure. But such time that the insurer takes to make the decision to avoid or affirm if reasonable does not amount to a waiver of the right to avoid the contract.

In Kenindia Assurance Company Ltd v Kamithi and another, the court allowed the insurance company to avoid the life insurance policy where the deceased insured had not disclosed to the insurance company that he had a private doctor for his heart condition and that he had been treated for pneumonia prior to applying for insurance.

The court observed that Non-disclosure or concealment or misrepresentation of material facts did not have the effect of automatically voiding a contract of insurance, but its effect was to make the contract voidable at the instance of the insurer.
If and when an insurer became possessed of all the facts entitling him to avoid or repudiate the policy for reason of non-disclosure, concealment or misrepresentation of material facts, he would be entitled to elect to avoid or affirm the contract at once, or to have a reasonable time to weigh his options. If he opted to delay his election, the delay per se would not have the effect of vitiating his right to avoid or repudiate the contract.
The delay would only be prejudicial to his rights if it had prejudiced the assured or the rights of third parties who had intervened as a result thereof, or it was of such a length as to be evidence that the insurer had in truth decided to accept liability.

What About the Information that the Insurer’s Agent Knows? , Can It Be Imputed Upon The
Insurer?
The law of agency often imputes actions of the agent upon the principal. As earlier stated the duty of utmost good faith and disclosure that is placed on the insured in insurance law is based upon the fact that the insured is the one with the most information about the risk to be insured. The issue that would arise in this regard is whether any information that the agent knows about the insured is imputed upon the insurer. Basically, the information shall not be imputed upon the insurer since the insurer relies on the proposal form

This issue was discussed in the case of TAK Damba, he Motor Union Insurance Co Ltd v where the insured while applying for insurance asked the insurer’s agent to assist him fill in the proposal form. The proposal form was later found to have misrepresentations upon which the insurer decided to avoid the contract. The insured claimed that the insurer’s agent had the true information and that such should be imputed upon the insurer.
However, the court declined to follow the argument by the insured and relied on the case of Newsholme Bros. v. Road Transport and General Insurance Co. Ltd. [1929] All E.R. Rep. 442, in determining that the insurer only had information that was in the proposal form and this was the basis upon which the insurance contract was made.

In Newsholme Bros. v. Road Transport and General Insurance Co. Ltd, 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.
Greer, L.J further observed that; the acceptance of the premium cannot be regarded as an agreement to vary the contract by inserting in it a promise to indemnify the assured if the statements contained in the proposal form are untrue, nor can the company be said to be estopped by the receipt of the premium from relying on the contract under which the premium was paid.”
Since the duty of utmost good faith is binding upon the insurer too, where the insurer breaches this duty by not disclosing material information or by misrepresenting facts to the insurer, the insured has the right to rescind the contract and claim the premiums paid.

The court in the case of Banque Keyser Ullmann SA v Skandia (UK) Insurance Co Ltd and others and related Actions observed that the duty of the utmost good faith existing between an insurer and an insured in relation to contracts of insurance was reciprocal and required the disclosure of all material circumstances, particularly those peculiarly within the knowledge of one party only, which might affect the decision to conclude the contract of insurance. The test of whether, in all the circumstances, a duty of good faith existed was whether good faith and fair dealing required disclosure.

On the facts, since D knew that the banks were relying on the credit insurance policies as security for the loans, that L was the banks’ sole source of information as to the obtaining of cover for the policies and that L’s deception in relation to the January 1980 loan was potentially highly prejudicial to the banks, it followed that D’s failure to disclose L’s deception was a breach of the duty of utmost good faith. reffer to the Case of : Dresdner Bank v Sangobay Estates (1971) ULR 149

Read more

Duties of a Lawyer in Settling Denied and Unsettled Insurance Claims.

Duties of a Lawyer in Settling Denied and Unsettled Insurance Claims.

Sunday, September 08, 2019

Consistent rejections of insurance claims against another driver or the citizen that incurred damage to property are severe problems when the policyholder needs to get hold of the funds immediately. The policyholder thus needs to consult a lawyer to get things in order.

Why Do Insurance Claims Get Denied?

The negligence of the administration department is often the root cause behind the denial of insurance claims, while incomplete documentation is also another major reason as to why the insurance claims are denied. The policyholder needs to go through the paperwork to see what document is missing or incomplete. Yet for administration issues, the insurance company might be having a problem with verification of documents. Other types of rejections are mainly concerned with the bad faith of the insurance carrier, even if the claim a policyholder files is 100% valid.

The Insurance Carrier’s Bad Faith! 

A lot of times the insurance carrier expresses bad faith towards its policyholders. Communication gaps and inconsistencies cause this problem. The insurance carrier may deny all your requests and may also refuse to take your phone calls. It doesn’t really matter how valid your claim is, if an insurance company is not willing to entertain your request, it certainly won’t. No matter how hard you try on your own!

How to get out of the insurance claim denial cycle?

File a demand letter: 

Filing a demand letter is the most-convenient method to seek an insurance claim settlement with a carrier. This document outlines several provisions that ease the overall process. In this document, you need to mention how legitimate your claim is and why it is important for you to settle the claim amount. If your insurance company hasn’t responded well to your previous queries, consider dropping it off a concise demand letter. This would be your first litigation step in an attempt to resolve your case.

Adjust your claim amount:

Bear in mind that the insurance adjusters would never compensate you in full. This is why you must know what rights you possess and the things you can do to receive the compensation you truly deserve.

Your insurance adjuster will try its level best to make you compromise with an unjustified insurance claim. Your medical or police record will be duly referenced by your insurance adjuster to make things complicated for you. In such a scenario, you must not respond with aggression. You must strengthen your agenda with readily available facts & figures in order to receive the compensation you truly deserve.

Patience is the key here… Make sure that you don’t fall a prey to your insurance adjuster. And during the entire negotiation process, make sure that you evaluate the offers and counter-offers wisely. Every offer proposed by the insurance company must be in line with your case.

It is, however uncertain that how long your negotiation process goes, but after a few conversations between both the parties (you and your insurance adjuster), you will get closer to a possible negotiation.

Make a court appeal: 

If you are unable to settle your unsettled insurance claims on your own, then consider appealing to the court. If the amount of the damages doesn’t surpass the limit of the state where you are living, you may file a case in a small claims court. The best part of appealing the small claims court is, you are not required to physically appear in the court or even go through legal proceedings to come up to a final conclusion.

To its contrast, if your insurance claim is higher than usual, you may have to file your case in a civil court. In a civil court, your due amount would be decided by the judge, and the insurance company will bear that particular amount. In this scenario, you would have to consult a personal injury attorney to represent the case on your behalf. The reason why you must consult a personal injury attorney for larger claims is, there’s a hefty amount under the possession of the insurance company and claiming such a big dispute requires great amount of resources.

Pressurizing through a lawyer: 

Legal consultation firms like CohenWinters start by putting pressure on the insurance company after the policyholder receives a straight refusal or a below par claim offer. Then the official communication takes place between the lawyer and the insurance company and all documents are scrutinized in order to highlight the chances of settlement or increase the already proposed claim amount. It is, however, possible that the consulted law firm takes your matter to the court if things don’t turn into your favor with soft negotiation talks. If your case is totally valid and you consult a reputed law firm like CohenWinters, the insurance company would be left with no other choice except for seeking an agreement with you.

Regardless of what type of accident you met with or what extent of damage was caused to your property, you would definitely tend to settle the issue outside of the court due to the cost it incurs to engage the court in these matters. The better alternative to this is to consult a third-party legal professional who would negotiate on your behalf to settle the case with your insurance company. Your consulted lawyer or law firm would collect necessary evidence and process the same to defend your case in order to get back to you with a positive response.

Do you really need a lawyer to settle your denied & unsettled insurance claims?

Even if your claim is genuine and justifiable, chances are you’d get denied every time you consult your insurance company. You, as a policyholder would thus need to consult a third-party law firm in order to negotiate your insurance settlement amount. Doing it on your own won’t help you much and you may end up with a compromised offer.

Qualities of an Insurance Claim Lawyer You Must Really Look Out For?

Upon consulting a lawyer for settling your denied & unsettled insurance claims, you must look forward to below qualities that an ideal lawyer possesses:

- Negotiation skills and logical-reasoning;

- Result and time-oriented;

- Works to the best of your interest regardless of how complex the situation gets;

- Prompt availability to respond to your immediate queries;

- Gap analysis to determine whether your insurance claim is sufficient or not;

- Proper gathering of evidences to make your case more apparent and winning;

- Mindful suggestions for alternate options to clients in an event of a complete denial from insurance companies;

- Past history of dealing with unsettled insurance claims.

Read more

What Is Reinsurance ?- Facultative Reinsurance and Treaty Reinsurance

What Is Reinsurance ?- Facultative Reinsurance and Treaty Reinsurance

Sunday, March 05, 2017

Reinsurance is insurance that is obtained by an insurance company (referred to as the insurer) from another insurance company (referred to as the re insurer) as a means of risk management. The main function of procuring reinsurance is to transfer risk from the insurer to the re-insurer. The re-insurer and the insurer enter into a reinsurance agreement which specifics the conditions upon which the re-insurer would pay the insurer's losses in terms of excess of loss or proportional to loss. The re insurer is therefore paid what is termed as a reinsurance premium by the re-insurer.

Illustration:

Assume an insurer sells 1000 policies, each with a $1000 policy limit. In theory, the insurer could lose $1000 on each policy – totaling up to $ 1,000,000. It may be better to pass some of the risk to a re-insurance company ie re insurer as this will minimize the insurer's risk. Reinsurance essentially occurs when multiple insurance companies segment risk by purchasing insurance policies from other insurers in order to limit the total loss the original insurer would otherwise experience in case of disaster. By spreading the risk, an individual insurance company can take on clients whose coverage would be too great of a burden for a single company to handle alone. When reinsurance happens, the premium paid by the insured is classically shared by all of the insurance companies involved.

Reference cases

• Nasser mohamed omer v prudential assurance co ltd [1966]1 ea 79
• Corporate insurance co ltd v wachira [1995-1998]1 ea 20
• General accident insurance co (k) ltd v mutuma [1995–1998]1 ea 65
• Kariuki v irungu [2004]2ea 108
• Kasereka v gateway insurance co ltd [2003]2 ea 502
• Madison insurance co ltd v kinara and another [2005]1 ea 240

There are two basic methods of reinsurance, Facultative Reinsurance and Treaty Reinsurance

1. Facultative Reinsurance

Facultative reinsurance is a form of reinsurance in which a contract is negotiated for a specific insurance policy. This type of reinsurance is acquired when a policy is unusual or large and the original insurer is concerned about the liability risks. The policyholder is not cognizant that reinsurance has been taken out, in comparison with coinsurance in which multiple insurers can take on the risk of a policy together.

2. Treaty Reinsurance

Treaty reinsurance means that there is an agreement between the Re-insurer and a direct company occasionally called ‘ceding company’ where the re-insured undertakes or agrees to cede and the re-insurer reach agreement to accept all insurances offered within the limit of the agreement.

The treaty arrangement can be on any of the following:-

Quota Share:
Under this type of agreement, every business is shared on an agreed proportion and the ceding company cannot alone retain the business even if he has the capacity to retain that business.

Surplus:
The direct company only places on the treaty excess of the business that are above its retention. The direct company's retention is referred to as a line whereas the treaty capability is a multiple of that line.

Excess of Loss:
Here an insurer elects the maximum amount he/she is prepared to bear in the event of loss and thus buys re-insurance under an agreement that will make the re-insurer accountable for the losses in excess of the amount that is above the deductible of the ceding company. This is usually arranged in stratum.

Stop Loss or Excess of Loss Ratio:
This is for academic purpose only as we do not have any agreement arranged on this basis. This is a distinction of excess of loss whereby the loss ratio of the ceding company on particular accounts for example fire insurance is clogged at an agreed percentage and if the loss ratio has exceeded the agreed percentage the re-insurer bears the difference.

Read more

What is a Cover Note and Insurable Interest In Property Insurance ?

What is a Cover Note and Insurable Interest In Property Insurance ?

Sunday, March 05, 2017

Forming part of the Insurance Contract Formation and Formalities, is the cover note is a temporary contract of insurance that between the insurer and the insured. In practice, the cover note is issued by the agent of the insurer. What essentially happens is that an insurer assigns an agent and issues a cover note to the agent or authorizes the latter to issue out the same on the insurer’s behalf.

When an insurer makes a proposal for insurance to an insured, the agent often issues a cover note to the insured pending approval and acceptance of the proposal by the insured or even the issue of a policy by the insurer. Such is the cover note.

An example of a cover note is where one is purchasing the third party auto mobile insurance from the insurer’s agents. However, it should be noted that the courts shall be strict in regards to the authority of the agent; hence, actions of an agent issuing a cover note without authority shall not bind the insurer.

It should be noted that the cover note is deemed to be a temporary contract of insurance for the duration that is agreed upon pending the consideration, approval and acceptance or denial of the proposal by the insurer. It often contains no terms but simply incorporates the conditions of the insurance policy issued by the insurer stating that the insurer has proposed to effect an insurance subject to all the usual terms and conditions.

Therefore, once issued, the cover note covers the assured and outs the undertakers on risk for the period while the proposal is being considered and until the policy is either granted or refused. It should therefore be noted that the cover not terminates once the policy is issued.

Refference:
Pyarali Kuverji V. The British India General Insurance Co. Ltd [1956] 7 Ulr 194
Mirembe Wire Products Ltd V. Gold Star Insurance Co. Civil Suit No. 54/2002
Re Coleman’s Depository Ltd & Health Assurance Association [1907] 2 Kb 798

The major features of the insurance contract include the following:

The Declarations: These are statements that identify the parties, the basis upon which the contract is issued, information about the loss and exposure thereto, period of coverage and date of commencement, and the premium to be paid

The Insuring Agreement: This provides the perils insured.

Exlusions: This provides the items excluded: locations, perils, property, losses

Conditions: Includes: NOTICE and PROOF of loss, Suspension of coverage, cooperation between parties, examination and investigations

Endorsement And Riders: Endorsements and riders essentially mean the same thing, hence, they make a change in the contract to which they are attached. The former is used in property/liability insurance while the latter in life/health insurance.

What is an insurable interest? 

The insurable interest is the most important feature of the insurance contract. Essentially it means that the party to the insurance policy who is the insured must have a particular relationship with the subject matter of the insurance contract to which he/she is exposed. Absence of this relationship renders the contract illegal, void or simply unenforceable. The insurable interest varies depending on the nature of the risk and category of insurance which can be assessed at the Cover Note stage.

Insurable Interest in Property and Life Insurance

For an insured to be deemed to have an insurable interest in property insurance contract, he/she must a proprietary interest in the subject matter in the form of a right to a legal or equitable interest or a right under contract. Persons with contingent interests and beneficiaries of property under a will are not deemed to have an insurable interest.
In Macaura V. Northern Assurance Company Ltd [1925] Ac 619 , the sole shareholder of a limited company who was also a substantial creditor of the company insured in his own name timber owned by the company. When the timber was destroyed by a fire, he claimed for indemnification under the policy. The House of Lords observed that he had no insurable interest in the property owned by his company.

SEE:
Mark Rowlands Ltd V. Bernni Inns Ltd [1986] Qb 211
United Bus Service Ltd V. The Indian Insurance Co. Ltd [1969] Ea 242
Kinyanjui V. South Indian Assurance Company Co. Ltd [1969] Ea 160

Insurable Interest in Life Insurance

The insurable interest in a life insurance is the life of the insured. In the case of Dalby V. India And London Life Assurance Co. [1854] 15 Cb 365, the court observed that the insurable interest must exist at the time the policy is effected and need not to continue thereafter. Unlike the insurable interest in property which requires the insurable interest to exist at the commencement and execution of the policy to the occurrence of the loss, the court in DALBY stated that in life insurance the interest should exist at the time of execution of the agreement and need not exist at the occurrence of the death. more on this is discussed in the post about Waiver of insurable interest. The consequence of this has led to the treatment of the life insurance policy as an asset that could be used as a security or guarantee.
Note: Spouses have an unlimited insurable interest in each other’s lives. refference case: Griffins V. Fleming [1909] 1 Kb 805

Read more

What are the different types / categoris of Insurance

What are the different types / categoris of Insurance

Sunday, March 05, 2017

You wake up every day or stay awake all night working hard for your money and you would like to enjoy the fruits of your labor throughout the future. Preparing for your coming years, to achieve this, it means more than investing appropriately for your ambitions and time horizon.  To many, it also involves purchasing the perfect amount of insurance during their working years. But one question is. 

How do you choose the perfect policy if you do not know what it is all about?

There are many different types of insurance available for your business. Insurance can be divided into protection for three main categories: assets and revenue, liability, and employees. In this guide , I will take you through the common  types of covers  from which you can opt .

Assets and Revenue

Fire and Perils:

Protection against loss or damage to buildings or contents caused by fire and other defined events (earthquakes, storm, malicious damage etc). Check your policy for the specific events covered as most policies exclude flood damage.

Ensure your policy includes a consequential loss clause which will provide compensation for loss of profits due to some interruption such as fire, delay, confiscation or detention by customs or other lawful authority, loss of market, lack of performance, loss of contract or depreciation in the value of land and stock.

General property:

This Involves loss of or damage to or destruction of tangible property including any tools of trade, mobile phones, stock or office contents whether they are at the business premises or not.

Glass breakage:

Cover for replacing or repairing accidental breakage to plate glass windows, glass display case or glass panels in refrigeration cabinets.

Electronic equipment:

Provides cover for the loss or damage of electrical, electronic or mechanical items (computers, faxes, printers). It does not cover the cost of general wear and tear or preventative mechanical maintenance.

Machinery breakdown:

Cover against unforeseen and sudden loss or damage to machinery, as well as business risk and liabilities relating to machine use. Also known as engineering equipment insurance.

Perishable food:

Covers the loss of perishable food or other stock deterioration due to refrigeration breakdown or power failure.

Fusion insurance:

Covers loss caused by damage to an electric motor by an electric current, and is particularly important for refrigerated stocks. (Sometimes an extension of fire and perils policy).

Damage to Goods:

Protection for goods you are holding on behalf of customers or other goods otherwise in your possession that suffer damaged or loss due to negligence. Goods in transit insurance covers loss or damage of goods during inland transportation.

Export credit:

Protects your foreign receivables against commercial and/or political risks which could result in non-payment of your invoices. It allows you to extend credit to qualified international buyers while reducing the risk of non-payment.

Marine insurance:

Covers the loss or damage of ships, cargo, merchandise, terminals, and any property by which cargo is transferred, acquired, or held between the points of origin and final destination.

Fidelity guarantee 

(Employee dishonesty): covers against loss of money or goods due to misappropriation, fraud, embezzlement, theft or dishonesty. by employees.

Loss of money:

Covers theft of cash and other negotiable instruments (cash cheques, postal orders) from business premises or while in transit to and from the bank.

Unregistered equipment:

Covers against loss or damage to unregistered mobile machines such as backhoes, excavators and diggers. You'll need a separate third party liability policy for these vehicles if they temporarily go onto public roads.

Product recall:

Provides cover for the costs of recalling a product known, or suspected to be, defective.

Trade credit:

Provides protection against loss due to credit risks such as protracted default, debtor's insolvency or bankruptcy.

Loss of profit:

Covers the loss of profits incurred in the event of some calamity which causes trading to cease.

Income protection insurance:

Provides a replacement income of up to 75% of your gross personal income if an injury or illness prevents you from working. Business expenses can be added to Income Protection Insurance otherwise take out business overheads insurance, which will pay the usual operating costs to keep your business afloat while you are unable to work.

There are very many policy provider , you do not need to look too far from where you are,you can start from online advertisements or contact your Legal Adviser. All you only need to educate your self about the available policy provider by asking all the relevant information you need to know about the various options for your benefit,

Read more

Features of an Insurance Contract - Insurance And Social Responsibility

Features of an Insurance Contract - Insurance And Social Responsibility

Sunday, March 05, 2017

An insurance contract is an insurance policy which creates the relationship between the insurer and the insured. It is binding in nature, is always in a standard form and it is drafted by the insurer. The insured only signs the policy if he agrees to follow the terms and conditions. 

The major features of an insurance contract include;

The Declarations page

The declaration page has statements that establish the parties to the contract, the basis upon which the contract is issued, the information about the loss and the exposure of the insured object, the date of commencement and how long it will last, and the premium to be paid by the insured.

The Insuring Agreement

The insuring agreement contains the risks insured by the insurance company for example Jubilee Insurance Company will pay for loss or damage of your car and its attached accessories and spare parts by risk that is covered; fire, theft.

Exclusions

This provides the items excluded, this includes risks,property,losses,locations.For example the policy might provide that Jubilee insurance company will NOT be liable for any accident whilst your  car  is being driven by a third party beyond working hours.

Conditions

Under conditions the policy provides for what the insured ought to fulfill to sustain a claim in case he suffers loss. The conditions include Notice and proof of loss, cooperation between parties, suspension of coverage, examination and investigations. For instance you and any other person claiming indemnity must take all reasonable steps to maintain your car in an efficient and roadworthy condition.

Endorsements and Riders

These carry the same meaning but their purpose is to amend the policy and they apply only if referred to by number in the schedule. Endorsements are used in property insurance for example house, car while riders are used in life or health insurance.

Claiming indemnity from an Insurance company is not always easy especially if one has not fulfilled the terms and conditions they agreed to.It is vital to acquaint oneself with all the requirements of the policy and take reasonable care.

For more on this refer to the post about Formation and Formalities of an Insurance Contract.

Insurance And Social Responsibility
Insurance can have various effects on society through the way that it changes who bears the cost of losses and damage. The role of Insurance to society has been quite debatable.
On one hand it has been averred that insurance has a positive impact on society in the sense that it ensures continuous investment (this includes the operation of the society) in society by assuming the risks involved. With the assumption of the risk and the losses thereto, the different elements of society such as business, health, sports are operational as the element of risk is minimized or eliminated.

It has also been argued that insurance can/may help societies and individuals prepare for catastrophes and mitigate the effects of catastrophes on both households and societies. In fact, the role of insurance in reinstating society after catastrophes is highly noted. For instance, insurance compensations made after the 2001, September 11 terrorist attacks in New York, the Tsunami floods in New Orleans and currently the Earth quake in Japan.

Whereas it is not a guarantee that such catastrophes are covered, it should be noted that where they are covered, Insurance plays a big role in protecting society and reinstating it to the condition prior to such mishap.

However, it has also been argued that insurance has some negative impact on society. The advocates of this argument have based this on moral hazard. It has been argued that due to moral hazard, insurance has a tendency of increasing risk to the society. The rationale is that with the existence of insurance, individuals in society tend to become more reckless and therefore neglect the duties of care that they owe other individuals in society and society as a whole.

Read more

What is the difference beteen Warranties And Conditions in Contarct

What is the difference beteen Warranties And Conditions in Contarct

Thursday, February 13, 2014

The warranty is the most fundamental term of the policy and MUST be incorporated into the policy. It is essentially the promise made by the insured and upon its breach; the insurer is discharged from all liability as from the date of the breach.

The breadth of the discharge of the insurer’s obligations was discussed in the case of Bank of Nora Scotia Vs. Hellenic Mutual War Risk Association (bermuda) ltd, the good luck, [1991] 2 wlr 1279, where the court observed that:

A breach of warranty in a marine policy automatically discharged the insurer from liability. In this case, an insured ship owner had clearly acted in breach of warranty by taking the ship to a prohibited area. The benefit of the insurance had been assigned to a bank which had lent money to the insured and was a mortgagee of the ship; the insurers had been notified of the assignment, gave an undertaking to advise the bank promptly ‘if the ship ceases to be insured.” Notwithstanding this, the insurers failed to advise the bank until some weeks after it had discovered the breach of warranty and the loss of the ship. At this time the bank decided to make a further advance to the insured which it was held would not have been done had the insurer’s complied with the undertaking to advise it promptly.

The court in its holding distinguished warranties from conditions and it stated that, a warranty is a condition precedent and that if a promissory warranty is not complied with, the insurer is discharged from liability as from the date of the breach of warranty, for the simple reason that fulfillment of the condition precedent to the liability or further liability of the insurer.

ALSO in the case of Beauchamp Vs.Nnational Mutual Indemnity Insurance Company (1937) 3 ALLER 19 , a builder who had not previously undertaken any demolition work took out a policy of insurance to cover the demolition of a mill. He was asked in the proposal form “are there any explosives used?” and answered “no”: and agreed that his answer should form the basis of the contract between himself and the assurer. The policy of insurance contained a condition “the insured shall take reasonable precautions to prevent accidents.” The plaintiff proceeded to demolish the mill, and in the course of such demolition used explosives.

Three persons were killed by falling masonry and upon a claim being made under the policy, the insurance company repudiated liability. The court observed that the denial of the use of explosives amounted to a warranty that they would not be used and even if it amounted to a mere description of the risk to be insured, the cause or contributing cause of the accident was the use of explosive and that there had been a change in the risk, for the company insured a non-explosive demolition.

From the above case, it could be seen that the court shall be strict in discharging the insurer from liability where there is breach of a warranty. However, it should be noted that the courts are very cautious when handling the interpretation of warranties in the contract. In this respect, warranties should be clear and unambiguous and where a term in the contract is ambiguous, the court shall interpret the contract “contra proferentum” (hence, against the party that drafts the contract).

The leading example is the decision of the House of lords in the case of: Provincial Insurance Company V. Morgan (1933) A.C 240, A coal merchants declared that their lorry would be used for coal, which became the basis of the contract. On the day of the accident, the lorry was also used to carry Forestry Commission timber.

However, at the time, the timber had been unloaded and only coal was on-board. 

The House of Lords held an endorsement on the policy stating that the use was “transportation of own goods in connection with the insured’s own business” did not mean that the vehicle was to be used exclusively for the insured’s own goods. On “a strict but reasonable construction” the declaration and the clause only meant that transporting coal was to be the normal use.
Transporting other goods would not terminate liability under the policy .

Read more

Assignment of the benefit and Assignment of the policy- Insurance Law

Assignment of the benefit and Assignment of the policy- Insurance Law

Thursday, February 13, 2014

Assignment of the benefit:
Since the subject matter of the policy alone does not assign any benefit under the policy to the assignee, the next question would be whether or not is possible to assign the benefit itself. By benefit here, we mean the benefits payable under the policy. The benefit can be assigned. It should be noted that the benefit to the policy is a chose in action which though is intangible, could be assigned. However, such assignment should be expressly stated. In this situation the insured is simply saying that the proceeds from any claim he has or may have to go to a third party. It should however be noted that the assignee is only entitled to that which the assignor is entitled to. An example of this is the life insurance.

Assignment of the policy:
What about the policy itself? It should be noted that all policies are regarded as personal to the insured and any assignment of them requires the consent of the insurer. The rationale is that the premiums are based in the computation based on the measure of the risk the insured may expose the insurer to. Therefore, it can be averred that the policy for a policy to be assigned, the insurer’s consent must be sought and if granted, often, such shall amount to the creation of a new contract/policy or a novation of the assigned contract/policy.

See : Peters v. General accident fire and life assurance corp ltd, [1938] 2 all er 267

In this case, the vendor of a motor car insured by the defendants handed over the insurance policy with the car to the purchaser. The policy contained the usual clause extending the cover to any person driving with the consent or permission of the insured. The plaintiff, who had been injured by the car after the sale had been completed, obtained a judgment against the purchaser, and in the present action sought to recover the damages he had been awarded from the present defendants under the provisions of the Road Traffic Act. The court observed that when the vendor sold the car, the insurance policy automatically lapsed and therefore at the time of the accident, the purchaser could not be said to be driving the car by the order or with the permission of the vendor, as the car was then the purchaser’s own property. The insured is not entitled to assign his policy to a third party. An insurance policy is a contract of personal indemnity, and the insurers cannot be compelled to accept responsibility in respect of a third party who may be quite unknown to them.

Previous post:
Assignment of the subject matter of the insurance policy
Next post: Insurance Intermediaries

Read more

Requirement to establish an insurance contract- Insurance law

Requirement to establish an insurance contract- Insurance law

Thursday, September 19, 2013

Insurance is a contract of indemnity,one party(the insurer) offers to indemnify/compensate another (insured) incase something fatal happens to the insured as long as it's covered in the policy. The policy is the written contract that stipulates what the insurer (who is always an insurance company) will do incase an unforeseen event happens,it has the terms and conditions to be fulfilled by both parties.

The insurance relationship is identical to other contracts however it has certain elements that make it
distinguished and these include; 

Policy-
The insurer and the insured sign a contract called a policy and the contract has the details of what is intended to be insured.Most insurance policies are standard so it's up to the insured to accept or refuse the terms and conditions embedded there in,there's no room for negotiation.The policy serves as a legal document that binds both parties to the contract.

Provision of money's worth-
The insurance relationship also ought to make a provision of money's worth.The parties agree that in case a certain event occurs the insurer is obliged to reimburse the money or repair/purchase the object damaged. For instance if Mike insures his motorcycle from accidents the insurance company should be able to repair it or reimburse the money for the motorcycle.This is dependent on the terms agreed on in the policy.

Insurable interest-
One can only insure that in which one has an interest,you can't insure what doesn't belong to you and one can't claim indemnity where he has no interest.Ownership/legal interest is important in insurance,however there's an exception for third parties.A parent can insure his child's health but can't benefit from the medical insurance.It only becomes an exception because he insures on behalf of the child the benefits are only sustained to the insured. 

Fortuity/uncertainty-
The occurrence of a fatal event insured against should be uncertain,the insured need not have foreseen it.The rationale is that the insurer promises to indemnify incase of an unforeseeable loss. 

Control-
The insurer isn't supposed to have control over the risk,where the insurer has control then insurance loses meaning and it's deemed as a guaranty/warranty. 

Premium-
Just like any other contract,there has to be payment of consideration in an insurance contract for the assumption of risk.The insured must pay an amount of money to the insurer to indemnify him in case he sustains loss in future.

The party that has intentions of insuring itself from a risk certain should make sure that it reads and understands the policy,avoid insuring risks that are foreseen or within his knowledge and must be certain that he has an interest in the object and above all endeavor to make his contract with the insurer legal.

Read more

Dresdner Bank v Sangobay Estates (1971) ULR 149

Dresdner Bank v Sangobay Estates (1971) ULR 149

Tuesday, March 19, 2013

In this case of Dresdner Bank v Sangobay Estates (1971) ULR 149. The plaintiff sued for five separate bills of exchange drawn upon the first defendant. The Bills were accepted by the first defendant and signed by the other defendants as guarantors. The bills were presented for payment and returned dis honoured and the defendants became jointly and severally liable to the plaintiff for the money.

The defendants denied the status of the plaintiff and maintained the plaintiff obtained the bills in bad faith. The particulars of the bad faith could only be discovered after the discovery of the documents and the defendant applied for an order under order 10 rule 12 that the plaintiff should be ordered to make a discovery of the documents in his possession relating to any matter in the suit. The court held that the defendants were entitled to the discovery sought to give them the details of the bad faith and such order was discretionary where the court found that discovery was necessary.

Court said that the object of the rule is that it often happens that any party to an action makes an allegation of fact such as the existence of a partnership or an agency which is disputed by the other party. If the allegation is true, the right to discovery would follow.

If it is not true, there would be no right to discovery and the fact that the pleader is unable to plead except in general terms is the very reason why he should discover from the other party so as to enable him plead in detail and if at a particular stage of any action a party is stopped by reason of his ignorance of some fact which is known only to the other party, that is the very reason why there should be discovery of a fact and it does not make any difference if a party is stopped at the trial or before.

Read more

What amounts to Mis-representation under Insurance Law

What amounts to Mis-representation under Insurance Law

Tuesday, February 12, 2013

A misrepresentation of facts by the insured makes the contract voidable at the instance of the insurer. Basically, the insurer can avoid the contract of insurance if he was induced to enter into it by a misrepresentation of the facts by the insured that was false. The Duty Of Utmost Good Faith, Disclosure, Non-Disclosure And Misrepresentation on this subject.
There is always a question of whether the misrepresentation is material or in relation to a particular material fact. But what amounts to materiality shall be discussed further. What is important to note is that that these misrepresentations simply refer to the statements made prior to the conclusion of the contract of insurance before the parties. The usual not the only source of those misrepresentations is the proposal form.

Materiality
As earlier stated there is the issue of materiality of the facts stated or not disclosed. What amounts to material information is basically the information that the insurer would need the applicant for insurance to disclose to them in order for the insurer to be able to make an informed decision in speculating the risk and the premium to be paid. The test of materiality is whether the information misrepresented or not disclosed would have an effect on the insurer in assessing the risk.
In contract law, for a party to plead the defense of misrepresentation, he ought to show that he was induced by such misrepresentation to enter into the contract.

The court in the Pan Atlantic Insurance Co Ltd and another v Pine Top Insurance Co Ltd case Court stated that the inducement requirement in contract law is applicable to the misrepresentation in cases of insurance law.
What is more interesting is that the court went on to extend this inducement requirement to non disclosure. Essentially, for an insurer to plead misrepresentation or non disclosure as defenses or a basis for avoiding a contract, they ought to show that they were induced by the misrepresented facts and or the non disclosure to make a decision which they would otherwise not have made.

In the Pan Atlantic case, the court observed that the test of materiality of disclosure for the purposes of both marine insurance and non-marine insurance was, on the natural and ordinary meaning of whether the relevant circumstance would have had an effect on the mind of a prudent insurer in weighing up the risk, NOT whether had it been fully and accurately disclosed it would have had a decisive effect on the prudent underwriter’s decision whether to accept the risk and if so, at what premium (emphasis intended). Court further observed that, that test accorded with the duty of the assured to disclose all matters which would be taken into account by the underwriter when assessing the risk (ie the ‘speculation’) which he was consenting to assume

Furthermore, the same court observed that, however, for an insurer to be entitled to avoid a policy for misrepresentation or non-disclosure, not only did the misrepresentation or non-disclosure have to be material but in addition it had to have induced the making of the policy on the relevant terms. Accordingly, an underwriter who was not induced by the misrepresentation or non-disclosure of a material fact to make the contract could not rely on the misrepresentation or non-disclosure to avoid the contract.

Read more

Vicarious Liability- Imputing The Egent's Knowledge In Insurance

Vicarious Liability- Imputing The Egent's Knowledge In Insurance

Friday, February 08, 2013

Generally, the law shall impute the agent’s knowledge upon the Insurer. This often arises where the insurer alleges that the insured did not provide material facts and the latter claims that he/she did provide them to the insurer’s agent. The Insurer is deemed to know what the agent knows.

In Woollcott v. Excess insurance co. [1979] 1 lloyds rep 231, the court generally observed that the agent’s knowledge shall be imputed to the insurer because he will have been held out as having authority to receive it.

Refer to: Kenindia assurance co ltd v alpha knits ltd and another (2003) 2 ea 512

The first respondent had insured its factory against fire with the appellant. The policy had been issued through the second respondent as broker. The factory was destroyed by fire and the resulting loss was assessed at KShs 162 855 227.
The appellant agreed to pay for the loss and with the consent in writing of the first respondent paid KShs 155 625 577 to Kenya Commercial Bank which had a financial interest in the factory. The balance of KShs 7 229 650 was paid by the appellant to the second respondent, who used it to offset a liability it had with the first respondent.
This payment was made pursuant to a discharge voucher which the first respondent had signed, acknowledging receipt of the money which was to be collected by its brokers (that is, the second respondent).
The appellant issued the payment to the second respondent without the consent of the first respondent. The first respondent demanded payment of the balance from the appellant, arguing that it had not received the money, and instituted action in the High Court to recover the KShs 7 229 650. The appellant filed a defense arguing that payment was made to the second respondent pursuant to a course of business that had developed between the parties. The first respondent applied to strike out the defense on the ground that payment to the second respondent contravened provisions of section 105 of the

Insurance Companies Act (Chapter 487). The application was allowed and the defense was struck out. The appellant appealed to the Court of Appeal.

The Court Held (Per Kwach JA) – Pursuant to section 105 of the Insurance Companies Act, even if the first respondent owed the appellant any money on account of premiums or other debt, the appellant could not deduct it from any amount due to the first respondent under the claim except with the first respondent’s express consent. The payment to the second respondent by the appellant was clearly illegal because it was expressly prohibited by statute. Such defenses as implied authority, course of dealing or that the first respondents had represented the second respondent as its agent for purposes of receiving the money due to it arising from the claim, were patently bogus and were properly rejected by the High Court Judge.

Previous post: insurance intermediaries /egents/ brokers
Next post: making an insurance claim

Read more

The Role of Insurance Intermediaries- Egents and Brokers

The Role of Insurance Intermediaries- Egents and Brokers

Friday, February 08, 2013

In most insurance transactions, there is an intermediary, usually an insurance agent or broker, between the buyer and the insurer. In commercial property-casualty insurance markets for instance, the intermediary plays the role of “market maker,” helping buyers to identify their coverage and risk management needs and matching buyers with appropriate insurers.

The role of the intermediary is to scan the market, match buyers with insurers who have the skill, capacity, risk appetite, and financial strength to underwrite the risk, and then help their client select from competing offers. Price is important but is only one of several criteria that buyers consider in deciding upon the insurer or insurers that provide their coverage. Also important are the breadth of coverage offered by competing insurers, the risk management services provided, the insurer’s reputation for claims settlement and financial strength, and other factors.

The relationship between the insurer and the intermediaries is basically an agency relationship and is therefore governed by the principles of agency. Basically, an agency is a relationship when a person, called the agent, is authorized to act on behalf of another (called the principal) to create a legal relationship with a third party.

The FUNDAMENTAL element of the law of agency is that the AGENT must have the authority to act on behalf of the Principal. In this respect, the principal is bound by any acts of his agent within the latter’s actual, apparent (or ostensible) or usual authority and by an unauthorized act which the principal ratifies.

ACTUAL AUTHORITY is what the agent is expressly authorized to do by the principal insurance company. Authority may however be implied.

IMPLIED AUTHORITY arises where in the circumstances, it must be the position that the agent had actual authority but it was never conferred on him. For instance, if an Insurer gives his agent cover notes, it impliedly authorizes him to effect temporary binding contracts. [See notes on Cover note above].

APPARENT AUTHORITY arises where the principal, by words or by conduct holds out his agent as having particular authority. The essence of apparent authority is the representation made by

the principal to the third party and it matters not what the agent says or whether he/she is acting fraudulently.

RATIFICATION is the act of validating an act by an agent that would otherwise not be valid due to the absence of authority provided that the agent was purporting to act as such and the principal was in existence and identifiable by the parties. The effect of ratification is that it dates back to the time of the original act of the agent.

Previous post: Assignment of the benefit and Assignment of the policy under insurance
Next post: IMPUTING THE AGENT’S KNOWLEDGE UNDER INSURANCE

Read more

Clasification and Assignment of the subject matter of the insurance policy

Clasification and Assignment of the subject matter of the insurance policy

Friday, February 08, 2013

What amounts to an Assignment In Insurance
Generally, an assignment in law is the complete transfer of the rights to receive the benefits accruing to one of the parties to that contract. For example, if Party A contracts with Party B to sell Party A's car to Party B for $10, Party A can later assign the benefits of the contract - i.e., the right to be paid $10 - to Party C. In this scenario, Party A is the obligee / assignor, Party B is an obligor, and Party C is the assignee. Assignments are generally be permitted unless there is an express prohibition against the assignment of rights in the contract. Where assignment is thus permitted, the assignor need not consult the other party to the contract. An assignment cannot have any effect on the duties of the other party to the contract, nor can it reduce the possibility of the other party receiving full performance of the same quality. For assignment to be effective, it must occur in the present.

No specific language is required to make such an assignment, but the assignor must make some clear statement of intent to assign clearly identified contractual rights to the assignee. A promise to assign in the future has no legal effect. A cause of action for breach of the contract on the part of the obligor lies with the assignee, which will hold the exclusive right to commence a cause of action for any failure to perform or defective performance. Because the assignee substitutes the assignor, the obligor can raise any defense to the contract that the obligor could have raised against the assignor
When looking at Assignment in Insurance, the study is in three contexts; to wit; the effect of assignment by the insured of the subject matter of the insurance policy, the assignment of the benefit of a contract of insurance and the assignment of the contract of insurance itself.

In general, an assignment in law amounts to transfer of the rights however for academic and professional examination purposes especially with regard to the United Kingdom and Commonwealth countries, insurance is often sub-divided on a Subject Matter of Insurance or Functional basis, as shown below:

Classification of Insurance

(a) Insurance of the person.
This classification is not equivalent to ‘personal insurance’),that’s to say. Human beings being the subject matter of the insurance. For example. life insurance, health insurance and personal accident insurances, among others.

(b) Insurance of property.
This involves covering tangible objects against loss or damage For example fire, motor damage, marine cargo, among others

(c) Insurance of liability.
This involves covering legal liability for death, injury or Property damage to others for example. employees compensation, public liability, among others.

(d) Insurance of pecuniary interests:
This classification relates to any financial interest to be insured not covered by Insurance of the person, Insurance of property, Insurance of Liability as mentioned in (a) - (c) above, as well as business interruption, credit and rent insurances.

Assignment of the subject matter
This mainly concerns insurance of property when that property is sold or disposed of by the insured. Generally, the assignment of a subject matter of an insurance policy cannot operate to assign the insurance. Once the contract for the sale of property or land is made, the purchaser obtains an equitable interest in the property although the vendor retains the legal estate. At this stage they both clearly have an insurable interest. However, upon the completion of the purchase and therefore the passing of title, the legal estate vest in the purchaser and at this point, the vendor ceases to have an insurable interest. If the property is therefore damaged at this point, the vendor may not recover anything for this reason. The purchaser on the other hand is not the insured under the policy and therefore not party to the agreement between the insurer and the insured/vendor. However, it should be noted that if the policy allows assignment of the rights of the insured, then such shall be the case.

In Rayner vs. Preston (1881) 18 ch d 1,
The plaintiffs purchased from the defendants a message and workshops. Between the date of the contract and the time fixed for completion the buildings purchased were injured by fire. The vendors had, before the contract, insured the buildings against fire, but there was not in the contract any mention of this fact, or any mention of the policy. The plaintiffs brought an action to establish their right to a sum received by the vendors from the insurance office, or to have it applied in or towards reinstating the buildings injured.

The court below decided against their claim, and from this the plaintiffs appealed. It was contended by the appellants that they were entitled to the moneys. The court of appeal denied the plaintiffs claim holding that the insurance contract was merely and that the parties were simply parties to a contract of vendor and purchaser and not trustee and beneficiary and therefore, the contract would not pass anything in respect of the moneys.
The court emphasized that, the contract of insurance is a mere personal contract for the payment of money on the happening of certain conditions. It is not a contract which runs with the land. If so, upon the completion of the purchase, there ought to be a decree that the policy be handed over. But that is not the law. It is a mere personal contract, and, unless the personal contract is assigned, there can be no suit of action maintained upon it, except between the original parties to it. 

Assignment of the benefit and Assignment of the policy
It must not be thought that the academic classification is only of use in studying for examinations. Thinking about insurance according to the function it performs, ie. (person, property, liability, pecuniary interest etc.) is a useful check-list when trying to help a client on deciding what insurances to take or have.

Read more