Insurance Law Terms - Coursework Example

Insurance Law Terms [School] [Lecturer] Insurance Law Terms A Warranty In a contract, a warranty is a fundamental term which must be strictly complied with. This is because its breach usually leads to the termination of the whole contract regardless of the damage caused by the breach itself. This implies that the warranty must be followed whether it poses a material risk or not; failure of which the insurer is unarguably discharged from liability subject to the direct provision in the concerned policy (Marine Insurance Act (1906) S 33 (3)). With the strictness of warranties, insurers always strive to clearly define the key facts and guidelines that build the insurance. Even though there are many aspects of insurance laws that are defined by warranties, set agreements and rules of insurance may often be considered without necessarily using the term ‘warranty’. This is in conjunction to the statement of the Viscount Finlay who claimed that ‘warranty’ may sometimes be ignored while the meaning is retained for a certain set of insurance policies (Dawsons Ltd v Bonnin (1922) 2 AC 413). There is no specific way of creating warranties and the term can sometimes be ignored. However, the language used to define the warranty should be as unequivocal as possible so as to clearly show that the terms used are fundamental to the warranty contract. Therefore, for a term to be classified as a warranty, it must go to the root of the contract. Warranties can be classified as follows: a) Promissory warranties This is a type of warranty realized when the warranty itself extends into the future. In case of a breach, the liability of the insurer is usually terminated from only the exact date of the breach. Considering the case of Beauchamp v National Mutual Indemnity Insurance Co (1937) 3 AII ER 19 which follows the following statements: The proposal form asked “Are any explosives used in your business?” The insured answered that there were none; This was correct at the time the form was completed; But subsequently (for the first time in his business) the insured ( a builder) used explosives to demolish a building. This is a promissory warranty because the question and its answer related directly to the future. b) Warranties as to existing state of affairs This is a type of warranty made in conjunction to the state of affairs present at the time of proposal meaning that the state of affairs generally exists at the time of warrantying. Subsequent change of affairs does not result to the breach of this warranty but only warrantying of the existing state of affairs as it is exactly when the proposal is completed. However, a breach occurs when his state of affairs was not exactly as he warranted at the time and this allows the insurer to terminate the contract right from the time it was concluded. Considering an example of the case of Hair v Prudential Assurance Co Ltd (1983) 2 Lloyd’s Rep 667: Warranty contained in a fire policy; It stated that the insured premises were occupied; This is a warranty as to existing state of affairs being that this could not be considered to be mounting to a continuous obligation but instead an indication of the existing state of affairs which existed at the time the answers were given and therefore did not lead to a warranty that no eminent change would occur. c) Warranty as to opinion or belief This is a type of warranty, commonly included in proposal forms in cases where the insured is an individual. This implies that it is the insured that attests that the given answers in the proposal form are true to the best of his knowledge. This warranty is only breached when the insured becomes reckless or dishonest. An example of this warranty is seen as of the following case statements: In consideration to the Confederation Life Assn. v Miller (1887) 14 SCR 330; The insured warranted on a life policy that to the best of his knowledge and belief he had suffered no serious injury. Considering this type of warranty, this would be untrue only if the answer given was willingly false. 2. A term descriptive of risk This is used to refer to the non-warranty terms which simply limits or describes the available risk. For such terms, the result of an insurer engaging in a related risk is that the insurance cover is temporarily suspended during the defined period and is immediately resumed once the engagement in the concerned risk is terminated. This is in contrast to the terms of warranty. An example of a term descriptive of risk is seen in the case presented below; In the case of Provincial Insurance v Morgan (1933) AC 240, the following statements were used in the insurance cover: The proposer for motor policy stated in their proposal form that the concerned vehicle would only be used for transporting coal; The fact concerning the statement warranted and formed the basis for the contract; The lorry got an accident while carrying coal However, earlier the same day, it had been carrying timber; Insurers argued a breach of the warranty Considering all the facts about the warranty policies, the accepted answer was not necessarily a warranty but a term descriptive of risk. The consequence was the suspension of the cover during the time when the vehicle was driven in multiple shifts and later resumed during the term of accident. This implied that the vehicle was covered at the time of accident even though it had ferried timber earlier the same day. 3. A condition precedent Unlike a warranty, a condition precedent refers to a pre-condition whose breach is only actionable if it results into a loss. They are categorized into two: a) Conditions precedent to liability b) Conditions precedent to recovery a) Condition precedent to liability This is a pre-condition in which there is absolutely no liability until the precedent condition is achieved. This implies that the breach of this condition will allow the insurer reject liability starting from the date the condition was first breached. An example of this is seen in the Charter Reinsurance Ltd v Fagan (1997) AC 313 as in the following statements: Reinsurance policy stated that reinsurers were unable to make payment to the reinsured until the reinsured shall have completely paid its own policy holders; The task was to determine whether that was a condition precedent of liability. The used wording was clearly defined to avoid allowing the claim of condition precedent. This also implied that the reinsured was entitled to fully recover from the reinsurer upon proof of its liability to make a payment rather than on having made past payment already. It was also held that while focusing on the entire context of the policy, the used wording was not specifically concerned with the timing of the payments made to the policy holders by the reinsured but rather the availed quantification of the sums. b) Conditions precedent to recovery This refers to the requirements that the insured have to comply with at the time of the loss. The aim of this condition is to enable insurers obtain specified and relevant particulars of loss. The breach of this particular condition gives the insurers right to reject liability for a specific claim. 4. A collateral term This is a clause in a policy that can neither be categorized as a warranty nor a condition. It does not guarantee the right to retract the contract (Re Bradley, Essex and Suffolk Accident Indemnity Society (1912) 1 KB 415). A collateral term can as well be further explained by the use of the borrowed terms, ‘innominate term’ which has, over the past, been used to refer to a term that is not that fundamental that its breach necessarily amounts to an obvious repudiation of the concerned contract (Alfred McAlpine plc v BAI (Run-off) Ltd (2000) Lloyd’s Rep IR 352). This terminology of ‘innominate term’ was borrowed from the general contract law and used in the clarification of the collateral term. References Alfred McAlpine plc v BAI (Run-off) Ltd (2000) Lloyd’s Rep IR 352 Beauchamp v National Mutual Indemnity Insurance Co (1937) 3 AII ER 19 Charter Reinsurance Ltd v Fagan (1997) AC 313 Confederation Life Assn v Miller (1887) 14 SCR 330 Dawsons Ltd v Bonnin (1922) 2 AC 413 Hair v Prudential Assurance Co Ltd (1983) 2 Lloyd’s Rep 667 Marine Insurance Act (1906) S 33 (3) Provincial Insurance v Morgan (1933) AC 240 Re Bradley, Essex and Suffolk Accident Indemnity Society (1912) 1 KB 415 Read More