Insurance

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Insurance
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Terminology

• Insurer
• Insurer
• Proposal
• Policy of Insurance

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What is insurance?

• Insurance is the process by which risk is spread,
  usually among a large group of people.
• It is a contract by which one party (the insured)
  agrees to pay an amount of money (the premium) to
  another (the insurer) who agrees to pay money to
  or on behalf of the insured on the happening of
  an event, which may be certain or contingent.

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Types of Insurance

• Fire Perils
• Life
• Marine
• Superannuation
• Workers Compensation
• Accident - property
• Personal Accident
• Disability
• Liability
• Motor Vehicle
• CTP
• Comprehensive
• Third Party Property

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Business insurance

• Mandatory insurance includes
• workers compensation
• motor vehicle third party insurance

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Business insurance

• Optional business insurance includes
• business interruption
• business protection
• cash in transit
• computer failure / lightning strike
• directors and officers liability
• employers liability
• fleet insurance
• income protection

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Business insurance

• key person insurance
• litigation risk
• loss from burglary
• loss of profits
• motor vehicle insurance
• personal injury
• plate glass, glass, windows and showcases
• public risk
• succession
• water leakage

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Under and Non-insurance

• One in six businesses have no insurance

42 No Bus Int.
12 No P.L.
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Sources of insurance law

• Under common law, the relationship between the
  insurer and the insured is regulated by the law
  of contract.
• Any ambiguity in the language of the contract is
  interpreted contra proferentem, against the
  insurance company.

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Sources of insurance law

• Commonwealth insurance statutes include
• the General Insurance Reform Act 2001
• the Insurance Contracts Act 1984 (ICA)
• the Insurance (Agents and Brokers) Act 1984
• the Insurance Act (1973)
• the Life Insurance Act 1995
• the Marine Insurance Act 1909

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Insurance Contracts Act

• Does not apply to
• Health Insurance
• Marine Insurance
• Reinsurance
• Workers compensation
• Compulsory Third Party insurance
• State or Territory Insurance organisations
• Limited application to
• Life insurance
• Disability insurance

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Types of insurance

• Contingency insurance is a contract between the
  insured and the insurer where the insurer agrees
  that, when an event happens, it will pay an
  agreed sum of money, e.g. life insurance.
• Indemnity insurance is where the insurer agrees
  to pay against the actual loss that the insured
  suffered, and there is no certainty that the
  event triggering payment will ever occur, e.g.
  theft insurance, fire insurance.

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Average

• If an insured item is insured for less than 80
  of the value, the insurance company may offer to
  pay only a pro rata portion of the insured
  amount.
• Where an insured holds two or three policies for
  the same risk, recover can only be made once.

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Average

• Amount payable
• Value stated in policy x loss
• 80 of real value

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Insurable interest

• Traditionally, the insured had to have an
  insurable interest in the subject matter of the
  insurance.
• The ICA has abolished the need for an insurable
  interest (ss. 16, 18).
• The insured must suffer a pecuniary or economic
  loss, but they do not need to show legal or
  equitable ownership of any property lost or
  damaged (s. 17).

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Value

• Indemnity
• The amount paid by the insurer to the insured is
  not more than the loss sustained the insured
  should not profit by the happening of the event
  insured against.
• Replacement
• The cost of replacing the item with a new item
  (i.e.) the insured gains value

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Subrogation

• After an insurer has paid to the insured the
  monies indemnifying the loss suffered, the
  insurer is then entitled to recover from any
  third party at fault the damages for causing the
  loss which otherwise could have been sought by
  the insured.

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Standard Cover

• Provides for standard insurance cover for
• Car
• home building
• home contents
• sickness and accident
• consumer credit and
• travel
• Unless insurer has informed insured of any
  departures from standard cover (s 35)

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Notification by Insurer

• Insurer cannot rely on unusual terms unless prior
  to the contract the insurer gave the insured
  written notice of the unusual term (s 37)
• s22 Insurer to clearly inform insured in writing
  of general nature effect of duty of disclosure
  (prescribed form may be used) (s22)

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Duty of Disclosure

• Part IV provides a code for
• Breach of the duty of disclosure
• Misrepresentation
• Fraud
• by the insured (s33)

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Duty of Disclosure

• Insurance Contracts Act 1984 (Cth) s. 13
• A contract of insurance is a contract based on
  the utmost good faith and there is implied in
  such a contract a provision requiring each party
  to it to act towards the other party, in respect
  of any matter arising under or in relation to it,
  with the utmost good faith.

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Duty of Disclosure

• Insurance Contracts Act 1984 (Cth) s. 21
• Subject to this Act, an insured has a duty to
  disclose to the insurer before the relevant
  contract of insurance is entered into, every
  matter that is known to the insured, being a
  matter that
• the insured knows to be a matter relevant to the
  decision of the insurer whether to accept the
  risk and if so on what terms, or
• a reasonable person in the circumstances could be
  expected to know to be a matter so relevant.

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Duty of Disclosure

• Insurance Contracts Act 1984 (Cth) s. 21
• The duty of disclosure does not require the
  disclosure of a matter
• that diminishes the risk
• that is of common knowledge
• that the insurer knows or in the ordinary course
  of his business as insurer ought to know or
• as to which compliance with the duty of
  disclosure is waived by the insurer.

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Duty of Disclosure

• Insurance Contracts Act 1984 (Cth) s. 21
• Where a person
• failed to answer, or
• gave an obviously incomplete or irrelevant answer
  to,
• a question included in a proposal form about a
  matter, the insurer shall be deemed to have
  waived compliance with the duty of disclosure in
  relation to the matter.

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Duty of Disclosure

• Where a question in the insurance proposal is
  ambiguous and a person answered in a reasonable
  way, the question will be taken to have that
  meaning (s. 23).
• Where a statement by the insured is untrue but
  made on the basis of a reasonably held belief,
  the statement is not to be taken as a
  misrepresentation (s. 26).

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Ambiguous Questions (s23)

• Where
• a statement is made in answer to a question asked
  in relation to a proposed contract of insurance
  and
• a reasonable person in the circumstances would
  have understood the question to have the meaning
  that the person answering the question apparently
  understood it to have
• that meaning shall be deemed to be the meaning of
  the question.

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Reasonable Belief (s26)

• Where a statement that was made by a person in
  connection with a proposed contract of insurance
  was in fact untrue but was made on the basis of a
  belief that the person held, being a belief that
  a reasonable person in the circumstances would
  have held, the statement shall not be taken to be
  a misrepresentation.

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Relevant to Risk (s26)

• A statement that was made by a person in
  connection with a proposed contract of insurance
  shall not be taken to be a misrepresentation
  unless the person who made the statement knew, or
  a reasonable person in the circumstances could be
  expected to have known, that the statement would
  have been relevant to the decision of the insurer
  whether to accept the risk and, if so, on what
  terms.

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Failure to Answer (s27)

• A person shall not be taken to have made a
  misrepresentation by reason only that the person
  failed to answer a question included in a
  proposal form or gave an obviously incomplete or
  irrelevant answer to such a question.

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Remedies (s 28)

• Applies where a person under a contract of
  general insurance
• failed to comply with the duty of disclosure or
• made a misrepresentation to the insurer
• before the contract was entered into
• but does not apply where the insurer would have
  entered into the contract, for the same premium
  and on the same terms and conditions if there was
  no breach or misrepresentation

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Remedies (s28)

• If the failure was fraudulent, the insurer may
  avoid the contract.
• If the insurer is not entitled to avoid the
  contract or, being entitled to avoid the contract
  has not done so, the liability of the insurer in
  respect of a claim is reduced to the amount that
  would place the insurer in a position in which
  the insurer would have been if the failure had
  not occurred or the misrepresentation had not
  been made.

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Relief (s 31)

• If a contract has been avoided by the Insurer for
  fraudulent
• Breach of the duty of disclosure
• Misrepresentation
• A court may, if it would be harsh or unjust not
  to do so
• Disregard the avoidance
• Allow the insured to recover the whole or part of
  his claim

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Relief (s 31)

• A court shall only do so if the insurer has
• Not been prejudiced by the fraud or
• The prejudice is minimal
• A court shall have regard to
• The need to deter insurance fraud
• The culpability of the insured

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Payment of Claim

• Interest payable on claims for period during
  which unreasonable for insurer to have withheld
  payment (s57)