Insurance Contract Act - Assignment Example

Insurance Contract Act Name: Tutor: Subject: Date: Tables of contents Introduction 2 Utmost good faith 3 The Insurance Contract Act 1984 4 Advantages of the Utmost good faith under insurance laws 4 Amendment of the Insurance Contracts Act 1984 5 Common law 5 Statute law 6 Stage of the Insurance Contract Act 1984 6 i. Insurer Obligations 7 ii.Consumers Obligation 8 Types of insurance policy 8 Miranda’s case 9 If the cause of the fire was a break-in 10 References 11 Introduction Insurance is an act of insuring your business or property against unknown. It is a way a person enters a contract with an insurance company so that he can be returned to the initial financial position if an accident occurs. Insurance laws are the body of law which are concerned with insurance matters. Utmost good faith This is one of the principles of the common law. It is also called Uberrimae Fidei. Under this principle, it compels any person who as entered into a contract with the insurance company to provide a genuine information information especially when he is seeking compensation from the company. On the other hand, the insurance company has an obligation to act act under the good faith when dealing with the insured. There are conditions that are relevant to law of contracts and are acceptable. Some of this doctrine is caveat emptor. This doctrine is a warning to the buyer that they must be aware to check the property before buying. Such doctrine is not acceptable in the insurance contract. It is, therefore, essential for the parties under an insurance contract to act in utmost good faith (Miller and Perry, 2013). The principle of utmost good faith was exercised in the case of carter vs. Boehm (1976). In the case where one party breaches this condition of utmost good faith, the aggrieved party is free to abandon the contract. In such cases, the policy holder can seek the refund of premiums already paid, or the insurance company can free itself from claims made by the policyholder (Graw, 2012). The Insurance Contract Act 1984 The duty of utmost good faith is now part of the general insurance contract in Australia, and it is placed under section 13 of the insurance contract Act 1984. This section requires both parties, the insured and insurer to act towards each other in a genuine manner. All the information given concerning the insured property or what happened before an accident occurs must be facts and not mere statements to influence the decision made by the company for the sake of compensation (Merkin, 2013) Advantages of the Utmost good faith under insurance laws The insurance contract is currently based on the duty of good faith. This duty was given a prominence by the high court of Australia during the ruling in the case of AMP Financial Planning limited versus CGU Insurance Limited in August 2007 According to section 13 of the Act, insurance contracts are actionable by courts of law, and it is based on the principle of utmost good faith. The parties to the contract have an obligation to act in utmost good faith to one another. It is, therefore, considered a breach of an insurance contract if one party breaches the duty of utmost good faith. The consequences of this are the payment of damages caused, and this can give rise to an estoppel. However, the act does not, by any means, results to avoidance ab initio. Amendment of the Insurance Contracts Act 1984 The amendment of this law as clarified the consequences of breaching the duty of utmost good faith. When and insured party breached this principle the contract comes to an end and can also be sued for breaching the Insurance Contract Act. There is no obligation in a contract that has been breached. There is no penalty imposed whenever a duty has been breached. Common law In most cases, common law has been used to present the body of legal principles and concepts that was passed by the previous judges in the English courts of law. The common law was adopted in Australia as a result of settling of Australia as a British colony. The rule that is given by this common law has led to mixed reactions though it is strongly believed that the common law expresses the prevailing values of the community. In Australia, common law has been overlaid by the statute. This means the common law in Australian no longer protects individual as it used to be many years ago against overreaching powers of government. Problems of common law 1. There is a tendency that the courts are reluctant in changing the law of their accord. This is dangerous since the laws and precedents adopted may be outdated and yet it is not simple to change them. 2. Common laws are made by the court, yet the core function of the court is to assess cases and administer justice and not to make laws (common law). Parliament is responsible for making legislation. 3. The common law is made in court undemocratically. It does not the wishes of people 4. Parliament is elected by the people; therefore, they have the capacity to enact laws. On the other hand, judges are elected by the court system and not the people. This means if they enact law, it will be undemocratic. 5. Statute law These are laws that are enacted by the parliament. In Australia, statute laws are made by the government. It is commonly used Australian courts, however, when there is no statute covering certain case, then judges will opt for common law. The common law is not a written law but it is a judge made law. The judge has the authority to give his or her opinion and based on earlier opinion when there is no relevant statute in such case. This privilege is mostly exercised by the judges in the high court. Stage of the Insurance Contract Act 1984 There are factors to be considered before the insurance company covers the risk that is likely to take place. Insurance companies make their decision basing on the information that a beneficiary is giving. However, there are rules set by the Insurance Contract Act 1984 that need to be observed so that the contract can be legal (Merkin and Steele, 2013).  Some of these include: 1. Product disclosure – it is essential for the person taking an insurance policy to disclose all the information that is vital in that contract. Failure to disclose all the information that is relevant information to the contract can lead to the following consequences: Cancellation of the contract No compensation in case of accident Reduce the claim Refuse to pay the claim However, there are situated when the party seeking compensation tends to answer questions fraudulently. This will also result in the following consequences: The insurance company can treat the policy has never been in place Refuse to settle the claim Do both In case the status of the policy changes, it is the duty of the beneficiary to inform the company concerning the same. Otherwise, the repercussions are the same as the ones named above. 2. Product Disclosure Statement – it is also necessary for the insurance company to provide a Product Disclosure Statement to the customer. This document shows all the terms of the policy so that the customer will know what is expected of him. The policy contains the duration of the policy, the premiums to pay monthly and conditions that can make the policy be null and void. i. Insurer Obligations The insurance company has an obligation to provide the customer with this document so that the customer can be able to make an informed decision before buying the policy. The Product Disclosure Statement contains all the information that the customer can require before making a decision on whether to buy or not. ii. Consumers Obligation Consumers are required to request for this form before buying the policy of their choice. It is essential for the consumer to read and understand the form because it covers all the conditions attached to such policies. In case the customer fails to understand anything, he can ask the official within there for assistance 3. Offer and acceptances – there must be offer and acceptance of an insurance contract to be in existence. The insurance company is the one to accept the offer. There will consider various issues affecting the property to be insured before accepting the offer. 4. There should be an insurable interested – the policy holder must be suffering financial loss whenever an accident of an insured event occurred or psychological loss in case of life insurance policy (Clarke, 2013). Types of insurance policy 1. Contingency insurance – this is a contract that cannot be renewed. In the event of loss or maturity, the insurance company will only pay the agreed amount to the beneficiary, and no other claims will be made either on the day of compensation or in future time. 2. Indemnity insurance - in this type of policy, the insurance pays only the actual loss that the policyholder has suffered, and no future claims will be made. Compensation is made at once. Miranda’s case According to the legislative or case law, policyholder or the beneficiary has a duty of ‘Property Condition Disclosure”. This is a complete negligence and the insurance company cannot compensate MR Miranda. The beneficiary cannot be compensated because of the following reasons: If Mr Miranda had disclosed the full purpose of the property insured, he would have paid a higher premium than what he paid for partial disclosure If the insurance company had the full knowledge of the property, the terms could be different The contract that was formed by the insurance company and Miranda are considered invalid because the beneficiary had already breached this obligation of disclosure The Insurance Contract Act of 1984, in Australian laws clearly state that the policy holder has a duty and obligation to reveal what he knows about the property (Sheller and Shukla, 2012). Of course Mr Miranda knew that he was using the premises for other business other than that he had insured. There are some of the possible reasons as to why Mr Miranda had failed to disclose full information concerning the usage of the building. These reasons are as follows: He knew that the insurance company would decline the offer because of high chances of occurrence of the risk Premium value was likely to be high High complexity of insuring the premises used for manufacturing He had no license for the business of manufacturing cosmetics If the cause of the fire was a break-in This would make no difference because Mr Miranda had not disclosed full information concerning the status of the building. If in case the fire was caused by a break in, the policy still covers. However, the fact that Mr Miranda breached the contract, the policy is considered to be null and void. In conclusion, the insurance company has laid down the terms and condition that should be followed. Every customer need to be served with the product disclosure statement so that he can go through the terms and conditions of the policy. In addition, he would be able to know the consequences of defaulting or breaching the terms of the policy. References Clarke, M. A. (2013). Law of Liability Insurance. CRC Press. Graw, S. (2012). An introduction to the law of contract. Miller, A. D., & Perry, R. (2013). Good Faith Performance. Iowa L. Rev., 98, 689-863. Merkin, R. (Ed.). (2013). Privity of Contract: The Impact of the Contracts (Right of Third Parties) Act 1999. CRC Press. Merkin, R., & Steele, J. (2013). Insurance and the Law of Obligations. Oxford University Press. Sheller, M., & Shukla, C. (2012). What does your insurer know?. Keeping Good Companies, 64(8), 499. Read More