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. 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. See: Griffins V. Fleming [1909] 1 Kb 805
As earlier discussed on the features of an insurance contract, where one takes out a contract of insurance, he or she spreads the risk to the insurer. Then what? Ideally, the insurer will expect the insured to act in a more carefully to avoid the risks that may occur to him or her. However, there is a tendency of people with insurance to be less careful than those without insurance. This is referred to as moral hazard. It essentially is where a person/entity that is insured behaves differently than it would behave if it were not insured.
For instance:
Assuming that Brad and his friend Matt each bought a car. Brad decided to insure his car comprehensively (full coverage) and Matt decides not to have insurance at all. Chances are that both Brad and Matt shall not have similar behavior towards their cars. Brad may be more careless about his car because that the insurance company shall compensate him for any loss. Matt on the other hand, shall be more careful or ought to be more careful since he has no insurance.
In order to address this, Insurers usually place an extra cost on the insured to compensate for such behavioral change. This could be in form of Co-payments, deductibles, etc. In this regard, the insurance may decide to cover 80% of the loss and spread the 20% to the insured in the bid to ensure that there is some risk that may motivate the insured to be more careful.
Moral hazard :
Moral Hazard is a major basis upon which challengers of universal health coverage have based their argument. They believe that if implemented, people shall be making more visits to the hospitals than they should be for even the slightest change in their health. In fact, their argument is that the Universal health insurance is a moral hazard itself which shall eventually result into a big burden to the hospitals and the government. The advocates for universal health care call this a myth.
Question ?
Imagine you have health insurance and you get a tooth ache. Would you go to the dentist to check it out at the cost of $ 800. Probably yes, because the insurance company is paying. Now imagine that you have no insurance but you have a tooth ache. Would you still have the same enthusiasm to visit the dentist?
What Is Self insurance
Where a person/entity decides not to take out insurance then he or she does not transfer his risk. Therefore, he or she is deemed t o be self insured. It means that in the event of a loss the person shall be liable for the effects thereto. In certain instances a person or an entity may decide to get no insurance and self insure. The individual or entity in this instance shall set aside some money to compensate for the potential future loss.
Self insurance is possible for any insurable risk. An insurable risk is often predictable and measurable enough to be able to estimate the amount that needs to be set aside to pay for future uncertain losses. In fact, what ideally happens is a hybrid of both self insurance and commercial insurance. Very often the insurance companies do not engage in full coverage and therefore prefer to leave some burden to the insured as discussed under moral hazard. The 20% reflects some level of self insurance some companies choose to have
The Government often engages in self-insurance and this is made possible because of the breadth of its operations and the fact that it has enough funds to pay off claims. For instance this could be derived from the fact that whereas it is compulsory for all motor vehicles operated to have motor vehicle insurance, this does not apply to government owned vehicles. Therefore, it could be contended that in the operation of such uninsured government owned vehicles is a manifestation of readiness to assume the risk sustain the loss that may arise there from.
Risk transfer: Ordinarily, the risk lies with the insured. Where the insured contracts the insurer to assume the insured’s risk, the insured basically transfers its risk to the insurer. For instance, if Brad Pitt, a quite healthy man who also acknowledges that there is a risk that he may fall sick in the future decides to contract AIG insurance company to avail him with health insurance, then he has essentially spreads the risk to fall sick in the future to AIG the insurance company. Therefore, the insurance contract basically transfers the risk from the insured to the insurer to cover the expenses that Brad may incur in the future for the time that the insurance contract covers.
Risk Aversion: Conceptually, Risk aversion is the willingness of a person to avoid risk. A risk averse person if faced with two opportunities, with similar expected returns or benefits shall prefer the option with the less risk. Risk aversion has a profound effect on how individuals approach or determine how to invest or behave in society.
The more risk adverse people tend to avoid the high risk opportunities and therefore lose out on the high rewards. Insurance is therefore important to enable individuals to take up high risk ventures or activity.
Society should generally be risk averse to ensure that its individuals to opt for insurance as a tool to transfer such risk. People who are less risk averse are also less likely to get insurance. For instance, if Brad, the healthy guy believes that he is too healthy too suffer any illness then he may opt not to get health insurance.
The concept of insurance is often understood as a form of risk management. In commercial terms it is basically an investment whereby the insured can restore hi/her financial position after a loss. The concept of insurance entails the pooling of funds by insured persons/entities known as the “INSURED’s” to pay for the losses that may incur. The pool is managed by the “INSURER” (the insurance company).
The insurer and the insured enter a contract where the insurer undertakes to indemnify the insured in the event that the insured suffers a loss for a risk that was insured. To "indemnify" means to make whole again, or to be reinstated to the position that one was in, to the extent possible, prior to the happening of a specified event or peril. The Insured in exchange pays a price called a PREMIUM which is dependent on the frequency and severity of the event that is insured against known as the risk.
Risk:
In Insurance, Risk is a probable event that may occur and result into a loss. Computation of the premium is based on the likelihood of the event occurring. The calculations imply that the risk should be insurable in a technical sense, meaning that it should be fairly small, predictable, and independent of the insured individuals’ (hidden) actions and characteristics. Therefore, the risk/event insured must be fortuitous. This means that the event that is insured should be unforeseeable or accidental.
However, it should be noted that in Life insurance, death is certain. The fortuity in this instance lies in the uncertainty of when the death may occur. An risk should therefore be insurable. An insurable risk represents a future, uncertain event over which the insured has no control. In fact, life insurance is generally not considered to be indemnity insurance, but rather "contingent" insurance (i.e., a claim arises on the occurrence of a specified event). In this regard as shall be discussed further, losses that are intended are not covered under the insurance contract.
There are various types of risks and these depend on the nature of the activity the insured is engaged in. The primary risks to an automobile user are basically a collision, theft or any form of damage to the automobile or the owner. The primary health risk to an individual is illness. The nature of risk may be direct as seen in these two examples. However, there are some risks that are not as easily predictable. For instance, prior to the September 11, 2001 terrorist attack on the world trade center, what were the chances that anyone could foresee that some individuals would hijack a plane and crash land it into a building? What were the chances that the Iceland eruption would occur and disrupt business in almost the whole of Europe?
The concept of insurance is then not absolute coverage for loss. But as it shall be seen in later chapters, it entails coverage and compensation for risks that are agreed upon by the parties to the insurance contract.
Risk Transfer:
Ordinarily, the risk lies with the insured. Where the insured contracts the insurer to assume the insured’s risk, the insured basically transfers its risk to the insurer. For instance, if Brad Pitt, a quite healthy man who also acknowledges that there is a risk that he may fall sick in the future decides to contract AIG insurance company to avail him with health insurance, then he has essentially spreads the risk to fall sick in the future to AIG the insurance company. Therefore, the insurance contract basically transfers the risk from the insured to the insurer to cover the expenses that Brad may incur in the future for the time that the insurance contract covers.
Risk Aversion.
Conceptually, Risk aversion is the willingness of a person to avoid risk. A risk averse person if faced with two opportunities, with similar expected returns or benefits shall prefer the option with the less risk. Risk aversion has a profound effect on how individuals approach or determine how to invest or behave in society. The more risk adverse people tend to avoid the high risk opportunities and therefore lose out on the high rewards. Insurance is therefore important to enable individuals to take up high risk ventures or activity.
Society should generally be risk averse to ensure that its individuals to opt for insurance as a tool to transfer such risk. People who are less risk averse are also less likely to get insurance. For instance, if Brad, the healthy guy believes that he is too healthy too suffer any illness then he may opt not to get health insurance.
Moral Hazard:
As earlier discussed, where one takes out a contract of insurance, he or she spreads the risk to the insurer. Then what? Ideally, the insurer will expect the insured to act in a more carefully to avoid the risks that may occur to him or her. However, there is a tendency of people with insurance to be less careful than those without insurance. This is referred to as moral hazard. It essentially is where a person/entity that is insured behaves differently than it would behave if it were not insured.
For instance, assuming that Brad and his friend Matt each bought a car. Brad decided to insure his car comprehensively (full coverage) and Matt decides not to have insurance at all. Chances are that both Brad and Matt shall not have similar behavior towards their cars. Brad may be more careless about his car because that the insurance company shall compensate him for any loss. Matt on the other hand, shall be more careful or ought to be more careful since he has no insurance.
In order to address this, Insurers usually place an extra cost on the insured to compensate for such behavioral change. This could be in form of Co-payments, deductibles, etc. In this regard, the insurance may decide to cover 80% of the loss and spread the 20% to the insured in the bid to ensure that there is some risk that may motivate the insured to be more careful.
Moral hazard is a major basis upon which challengers of universal health coverage have based their argument. They believe that if implemented, people shall be making more visits to the hospitals than they should be for even the slightest change in their health. In fact, their argument is that the Universal health insurance is a moral hazard itself which shall eventually result into a big burden to the hospitals and the government. The advocates for universal health care call this a myth.
Question is, imagine you have health insurance and you get a tooth ache. Would you go to the dentist to check it out at the cost of Uganda Shillings 800,000/=. Probably yes, because the insurance company is paying. Now imagine that you have no insurance but you have a tooth ache. Would you still have the same enthusiasm to visit the dentist?
Self Insurance:
Where a person/entity decides not to take out insurance then he or she does not transfer his risk. Therefore, he or she is deemed t o be self insured. It means that in the event of a loss the person shall be liable for the effects thereto. In certain instances a person or an entity may decide to get no insurance and self insure. The individual or entity in this instance shall set aside some money to compensate for the potential future loss.
Self insurance is possible for any insurable risk. An insurable risk is often predictable and measurable enough to be able to estimate the amount that needs to be set aside to pay for future uncertain losses. In fact, what ideally happens is a hybrid of both self insurance and commercial insurance. Very often the insurance companies do not engage in full coverage and therefore prefer to leave some burden to the insured as discussed under moral hazard. The 20% reflects some level of self insurance.
The Government often engages in self-insurance and this is made possible because of the breadth of its operations and the fact that it has enough funds to pay off claims. For instance this could be derived from the fact that whereas it is compulsory for all motor vehicles operated to have motor vehicle insurance, this does not apply to government owned vehicles. Therefore, it could be contended that in the operation of such uninsured government owned vehicles is a manifestation of readiness to assume the risk sustain the loss that may arise there from.
As earlier stated in the introduction, the insurance contract is a Contract of Indemnity. The parties involved are the insured and the insured. The insurance contract is governed by the basic principles of the law of contract as shall be discussed further. However, there are some contracts of indemnity that are essentially similar to insurance but are not deemed to be insurance which arouse a lot of scrutiny and debate. For instance the guarantee or warranty contract.
A guarantee or warranty contract is essentially a promise from the guarantor/ warranter to the guarantee or warrantee that the former shall indemnify or compensate the latter in the event that there is a loss concerning a certain subject matter. Contracts of warranty are often given by the manufacturer for products purchased. However these are not insurance contracts and because of the complexity of insurance it is important to fully comprehend the elements that establish the insurance relationship.
Insurance relationship
There are various elements that could establish the existence of an insurance relationship. However, the most important include:
1. Policy
2. The legal entitlement
3. Provision of money’s worth
4. Insurable interest
5. Uncertainty/fortuity
6. Control
7. Premium
First of all there must be a binding contract which as earlier noted is called the insurance policy. In the contract, the insurer must be legally bound to compensate the other party hence the legal entitlement. It should be noted that such right to legal entitlement should be clearly stated entitling the insured to money or money’s worth in the event that a loss occurs.
In the case of : Medical defense union v. Department of trade, [1979] 2 all er 421, the plaintiffs, a company whose members were practicing doctors and dentists whose business primarily consisted of conducting legal proceedings on behalf of the members and indemnifying them against claims made against them for damages, had a clause in their constitution that provided that the members had no right to such benefits but would request them from the union.
The court observed that the union was not carrying on the business of insurance and that the contract with its members was not an insurance contract because to be such, the contract must provide for the right of the insured to money or money’s worth at the happening of an event. The court further observed that it is not sufficient to say that the provision of services is enough to constitute insurance.
It should be noted that the insurance contract shall be established where the money’s worth is provided as a right to the insured in form of valuable services such as a right to advice or a right to have an item to be replaced or repaired.
In Department of trade and industry vs. St Christopher motorists association ltd, [1974] 1 all er 395 , where the defendant undertook to provide its members with chauffeur services should they be disqualified for driving due to being convicted of driving while intoxicated, the court observed that this constituted insurance.
The insured must have an insurable interest in the property or life or liability that is the subject of the insurance contract. It should also be noted that happening of the event that arises in to the loss insured should be uncertain or fortuitous. Another element is that of control. Essentially, the event insured against should be outside the control of the party assuming the risk. If the party assuming the risk has control over the event then it shall not be considered to be an insurance contract but rather be deemed a guaranty / warranty. For instance where a manufacturer of a product promises the purchaser that they shall repair or replace the product in the event that it has a defect, the manufacturer has control over the product and is therefore not an insurer but simply a guarantor.
The insurance contract should also have a premium which is consideration for the assumption of the risk and such should be paid for that purpose.
Refer to: Hampton v. Toxteth cooperative society [1915] 1 ch. 721 , where the court observed that no insurance business can be carried on in the absence of a clearly stipulated premium and policy.
Types of insurance:
There are various types of insurance which are categorized on different grounds. Insurance could also be categorized on the basis of the nature of risk involved, premium paid, the age of the insured’s, by geographical location etc. It should however be noted that it is illegal to categorize insurance in a manner that discriminate against certain individuals on the basis of race, gender, age, nationality or tribe.
The nature and subject matter of the risk insured is the major basis of distinction in the type of insurance. Essentially, the common types of insurance include liability insurance, property insurance, third party insurance, life insurance etc. The list of risks and types of insurance that can be provided in Uganda is provided under section 5 of the insurance act.
Below is a list showing some of the different types of insurance and the nature of risks or perils insured against.
Type of insurance and perils insured against .
1. Liability insurance:
Note this includes automobile insurance, property damage and bodily injury bodily injury: Damages from un-intentional torts (this includes negligence: automobile, professional negligence, etc.) Property: losses arising from or caused by invitees, trespassers, licensees, tenants, Also catastrophes such as floods, earth quakes etc.
2. Home owner’s insurance:
Liability, damage to, or destruction of the home, loss of use of home, loss of, or damage to personal property, “defective title”
3. Automobile insurance:
This could either be first party personal or third party automobile insurance. First party: Here the loss and damage to insured his/her vehicle, Third party: Here the loss and damage to third party or their property
4. Business insurance:
Commonly referred to as commercial general liability insurance. Cause of loss (eg fire, explosion, smoke, lightning), Damage caused to the business buildings fixtures, furniture and equipment by a covered peril, Debris removal, personal effects etc, Loss of business due to the event .
5. Life insurance: Covers death, burial costs, loans etc.
6. Health insurance: Covers illnesses
Compulsory insurance
Some forms of insurance are compulsory. In Uganda and other countries for instance, automobile insurance is compulsory and such compulsion is mandated and regulated under the motor vehicle insurance (third party risks) act, cap 214. Section 2 mandates all vehicles operated to have motor vehicle insurance except those that are owned by the government of Uganda. Section 2(3) of the same act makes it criminal and establishes a fine not exceeding 100,000 or imprisonment for two years or both.
The significance of insurance is to provide protection against the risks of uncertain events befalling the insured. Usually and as a matter of practice, the insurance policy defines the nature of risk that it intends to protect the insured from. As a general rule, the insurance covers the
insured where the loss is caused by the insured and it is irrelevant whether the insured was negligent or not. However, it is important to note that the insurance shall not cover a loss caused by intentional or deliberate actions. For instance in Life insurance, Suicidal acts are not covered by Insurance, Another example would be arson where the insured burns down his/her own house, in such an instance the insurer shall not cover the property insured. In this regard, the insurer shall often impose on the insured some obligations to ensure reasonable care. For instance, the insurer of an automobile may require the insured to maintain his or her automobile in a road worthy condition.
The risks or perils that are covered are often found in the wording of the policy stating what is covered. In the same context, the risks or perils not insured are often specified in the policy. Please refer to Section 1 of the class insurance policy. It states the risks and perils covered. It also states the risks and perils not covered.
Legal controversy however often arises in respect to construction of the policy provisions when ascertaining whether or not the loss was due to a risk or peril covered. This shall lead us to an analytical discussion of the principles of construction or interpretation of the insurance policy under insurance law.
Principles of construction or interpretation
It should be noted that the issue of interpretation is a question of law. The general rules of interpretation are applicable to insurance law. Primarily, words to be understood in their ordinary meaning. However, the ordinary meaning may not be applicable in instances where the word in controversy requires a technical meaning or where the context in which the words has been used requires that it be interpreted in that context. What is most important however is where the wording is ambiguous. The courts have applied the contra proferentem rule to interpretation of ambiguous words in insurance contracts. The maxim simply provides that “ambiguities are to be construed against the party responsible for drafting them.” It should be noted that where there is a genuine ambiguity, then clearly the court shall apply the contra proferentum rule.
BERESFORD V ROYAL INSURANCE CO LTD [1937] 2 ALL ER 243
By a condition in an insurance policy issued in 1925 it was provided that: “If the life assured shall die by his own hand, whether sane or insane, within one year from the commencement of the assurance, the policy shall be void as against any person claiming the amount hereby assured or any part thereof.” The premiums were regularly paid upon the policy until 1934, when the assured committed suicide. It was found as a fact by a jury that the assured was sane at the time of his death. In an action upon the policy by the administratrix of the assured, the insurance company pleaded that as the assured died by his own hand, it was contrary to public policy that the insurance company should pay the sums assured:
Held – in the circumstances it was not contrary to public policy that the insurance company should pay the sums assured.
The defendants having made a contract and having had the full benefit of it and being liable to pay upon it, because the fact upon which they agreed to pay has occurred, now say: “It would be contrary to public policy for us to pay, because the creditors of a criminal would get the money, and so we shall keep the money ourselves.” …The contract was legally made. It was properly performed by the assured. For many years he paid his premiums under it, and when the contract ends by the happening of the event upon which the insurance company become liable, namely, the death of the deceased, the only thing which remains to be done is for the insurance company to pay the money they had contracted to pay. The insurance company might have inserted in their policy a condition that they would not be liable in case of insane or felonious suicide whenever committed. They did not do so. PROVINCIAL INSURANCE COMPANY V. MORGAN (1933) A.C 240,
In this case 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.
EXCLUSIONS Exclusions are therefore used by the insurer to draw the boundaries of the scope of coverage. It should be noted that exclusions stated in the policy are interpreted together with the perils covered in determining the coverage. For instance, fire as a cause of the loss may be covered. However, if the exclusions provide that the loss shall not be covered if the fire is caused by a riot then the exclusion serves the purpose of specifying the scope of fire that shall be covered under the policy as a cause of the loss. Therefore, the exclusions state enables the insurer to limit exposure and also impose some reasonable care on to the insured. In another respect, the exclusions narrow down the interpretation of some words and therefore taking away their ordinary meaning,.
CAUSATION It is not sufficient that the insured shall recover wherever there is a loss. It should be noted that the loss should fall within the cover provided as defined in the policy. In that respect, the insured must prove that the loss was proximately caused by the insured peril. In reference to the class insurance policy, section 1 states the perils covered. Determining the proximate cause is a question of fact. By proximate cause, we do not mean the last cause but the dominant cause. Very often, a loss may be caused by more than one event. For instance imagine if brad’s motor cycle is insured against fire. A riot breaks out in town and the motorcycle is burnt. What would be the dominant cause of the fire? It is the riot of course and per our class sample policy, such riots shall be excluded and are not covered.
BEAUCHAMP V NATIONAL MUTUAL INDEMNITY INSURANCE CO LTD [1937] 3 ALL ER 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:—
Held – (i) The denial of the use of explosives amounted to a warranty that they would not be used.
(ii) 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. (iii) There had been a change in the risk, for the company insured a non-explosive demolition. the risk of insuring a demolition where there is no explosion going on is entirely different from the risk of insuring a demolition where there is explosion.
WAYNE TANK AND PUMP CO LTD V THE EMPLOYERS’ LIABILITY ASSURANCE CORPORATION LTD [1973] 3 ALL ER 825
The plaintiffs took out a public liability policy with the defendant insurers which, by the general words of the policy, gave cover for sums that the plaintiffs might become legally liable to pay as damages consequent on damage to property as a result of certain specified types of accident. An exception clause in the policy provided that the defendants would not indemnify the plaintiffs in respect of liability consequent on ‘damage caused by the nature or condition of any goods … supplied by’ the plaintiffs. Under a contract with H Ltd the plaintiffs installed certain electrically operated equipment at H Ltd’s factory. The equipment was wholly unsuitable for its purpose and was a potential fire hazard. When the equipment had been installed an employee of the plaintiffs switched it on, although it had not yet been tested, and left it unattended throughout the night. In consequence a fire broke out causing extensive damage to the factory. In an action for breach of contract H Ltd were awarded some £150,000 damages against the plaintiffs. In that action it was found that the two causes of the fire were (1) the dangerous nature of the equipment, and (2) the conduct of the plaintiffs’ employee in switching it on and leaving it unattended. The plaintiffs claimed indemnity from the defendants under the policy in respect of their liability to H Ltd. It was common ground that the fire was an ‘accident’ within the terms of the policy.
Held – The defendants were entitled to avoid liability under the exception clause, and accordingly the claim failed, for the following reasons—
(i) Once the equipment had been installed in H Ltd’s factory it constituted goods ‘supplied’ by the plaintiffs within the exception clause. It was not necessary to show that the contract with H Ltd had been completed or that the property in the equipment had passed to H Ltd in order to establish that the equipment had been ‘supplied’
(ii) The exception clause was applicable because—
(a) (per Lord Denning MR and Roskill LJ) the damage had been ‘caused’ by the dangerous nature of the equipment supplied since it had been the proximate cause of the fire; for the purposes of insurance law, in cases where there were two competing causes, the dominant or effective cause was to be taken as the proximate cause even though it was more remote in point of time; the dominant and effective cause of the fire was the dangerous nature of the equipment rather than the conduct of the plaintiffs’ employee which had merely precipitated the fire
(b) in any event, in cases where there were two causes of a loss, one within the general words of the policy and the other within an exception clause in the policy, the insurers were entitled to rely on the exception and were not liable for the loss. MARCEL BELLER LTD V HAYDEN [1978] 3 ALL ER 111
The plaintiffs insured an employee’s life for £15,000 under a Lloyd’s personal accident policy. The sum was payable in the event, inter alia, of the employee sustaining ‘accidental’ bodily injury resulting in death. An exclusion clause in the policy provided that the underwriters would not be liable for death which directly or indirectly resulted from ‘deliberate exposure to exceptional danger’ or from the employee’s own ‘criminal act’. The employee consumed alcohol before driving his car and as a result of his impaired judgment drove negligently and at an excessive speed before losing control of the car and crashing into some iron railings. He died from the injuries sustained in the crash. The plaintiffs’ underwriters refused to pay the claim under the policy and the plaintiffs brought an action against one of the underwriters claiming the sum insured. The underwriter denied liability on the ground that the death was caused by the employee’s deliberate exposure to exceptional danger and by his criminal acts in driving while unfit through drink, contrary to s 5(1) of the Road Traffic Act 1972, and driving dangerously, contrary to s 2 of that Act.
Held – (i) In deciding for the purposes of an insurance policy whether an event was ‘accidental’ a distinction had to be drawn between cases where the predisposing cause of the event was the deliberate taking of an appreciated risk and cases where the predisposing cause, although a deliberate act, led to the taking of a risk which was not deliberately run and not appreciated but which nevertheless was the immediate cause of the event. The predisposing cause of the crash was the employee’s deliberate consumption of alcohol, but the immediate cause of it was his negligent driving, and negligent acts were ‘accidental’ acts within the policy. It followed that the death resulted from accidental injury.
(ii) A ‘deliberate exposure to exceptional danger’ meant conscious exposure to such danger, and as there was no evidence that the employee had deliberately chosen to take the risk involved in driving under the effect of alcohol, and having regard to the fact that alcohol could make a person careless, his driving, though negligent, did not amount to a ‘deliberate’ exposure to exceptional danger.
(iii) However, a ‘criminal act’ within the exclusion clause was not limited to a crime involving moral culpability or turpitude but covered any criminal act other than an inadvertent or negligent act; it therefore covered the offences of dangerous driving and driving under the influence of drink which the employee had committed; but even if the scope of the phrase was so limited, those offences were sufficiently serious to qualify as ‘criminal acts’ in the limited sense; it followed that the accident had resulted from the employee’s own criminal acts and the underwriter was therefore exempted from liability by the exclusion clause.
Reference: Deustche Genosseschaftshank v. Banhorpe [1995] 4 ALL ER 717 Young v Sun Alliance & London Insurance [1977] 1 WLR 104. Shaw and Cairns L.JJ Lawton L.J. the learned justices referred to the word flood as to mean something violent and abnormal and not simply accumulation of water as the insured alleged. English V. Western [1940] 2 KB 156, Houghton V. Trafalgar Insurance Co. Ltd, [1954] 1 QB 247 and Alder v. Moore [1961] 2 QB 57 for instance where the rule was applied.
