Commercial Law Issues - Assignment Example

a) Under the Insurance Contracts Act 1984 what is the duty of disclosure required by Allinsurance and Jason? What must Allinsurance tell/ask? How does Jason work out the information he has to disclose? Include the questions you would expect Allinsurance to ask, explain the effect of the relevant sections of the Act and use at least one case as an illustration of your answer. Commercial law is also referred to as business law. It is a law body mainly applying to rights, persons conduct and relations. It also involves commerce businesses, trade, sales and merchandising. Commercial law also includes principal and agent title. Several countries, Australia included have over the years adopted civil codes. These codes have comprehensive statements of commercial law. Under the Insurance Contracts Act 1984, the duty of disclosure states many contract issues. Before entering into any type of contract either belonging to general insurance or any other type of insurance, it is crucial to make relevant decisions. It is also crucial to disclose to the insurance company every matter you know of. The duty of Jason according to Insurance Contracts Act of 1984 requires him not to disclose matters on some instances. These include non-disclosure of matters that is of basic common knowledge and that diminishes the risk. Other items that do not require disclosure include matters which the insurance company indicates that they do not want to know. Others include the matters that the Insurance Contract Act know or should know in any ordinary course of a business or an insurer. Insurance Contracts Act 1984 applies in many ways. If someone fails to comply with the duty of disclosure then they can face a liability reduction (Park, 1996). This is under the contract which is in respect of any claim. This can also be in certain circumstances. There can be a cancellation of the contract in these instances. If someone’s non-disclosure is fraudulent, then the Insurance Company can have an option of avoiding the contract from the start. At the beginning, Jason approached an insurance company called Allinsurance. His approach was for insurance over the house that he was renting. His partner later moved in. Jason therefore had to cater for half of the rent. However, Jason had not disclosed that his partner would take part in paying half of the rent in the lease given to the insurance company. Jason also had a contract to run in the university’s helpdesk. He was to help in the provision of IT advice from home. Jason however intended to undertake the work of providing IT advice himself which he would commence once he moves into it. This section looks into the duty of disclosure required by both Allinsurance and Jason. Duty of disclosure required by Allinsurance requires information on the insurers. Insurers need this information from customers. The customers including Jason have to provide these pieces of information. It is essential for Allinsurance since the insurance company will then decide whether to offer the insurance or not. One of the duties of disclosure by Jason includes opening up on whether or not to take up the insurance. Jason must disclose each matter that is well known to them. This is in order for the insurer to make decisions on accepting risks that come with entering into a contract with the customer. Under common law, both the policy holders and the insurers have a duty to act towards each other with genuine faith. The insurers must provide information that is highly relevant to their decision of accepting risks. Any insurer can prove this in many ways. An insurer can decide to underwrite guidelines. These guidelines often set out the risks to be accepted (Tyagi, 2007). These guidelines also set out the relevant premium as well as the conditions that attach to the risk itself. It is also necessary to understand what Alinsurance will ask or tell the Jason. Before entering into any contract, any insurer has to clearly inform any consumer in writing of the insurance company’s general effect of the duty of disclosure. This is what happens in Allinsurance. Allinsurance also discloses to the consumer the consequences of non-disclosure. It is also mandatory to look into how Jason would work out the type of information that he has to disclose. In this case, before entering into any type of contract, one has the duty to disclose to the insurer everything he knows or could reasonably be expected to know. Jason therefore has to be open to the insurance company and to let them know everything that he knows. This is always relevant to any insurers’ decision. The decision often lies on whether or not to accept any insurance risk on any terms. Before disclosing any information, Jason also has to be truthful in order for the earlier contract entered to be reinstated. According to the Insurance Contract Act of 1984, it is ones duty not to disclose some matters. These include matters that are of common knowledge and matters that diminish any risk of being undertaken by the insurer (Park, 1996). Other matters include the matters as to which any compliance with someone’s duty is waived by an Insurer. Some sections of Insurance Contracts Act 1984 have relevance. The applications of this act have first been unbundling. Amendments make it clear that any workers compensation policies are wholly exempt from the act. These include common law extensions. In any other cases the contract of insurance is essentially unbundled. This happens where any policy has both insurances governed by the Insurance Contracts Act of 1984 and insurances that are not covered by this Act. Another relevance of this Act is that it works under utmost good faith. Any duty of utmost good faith can have extensions to third party beneficiaries (Turley, 2001). This is after the entering of any insurance contract. It also happens when there is any breach of duty. This therefore constitutes a specific breach of the Act. The insurance company asks some questions before the creation of policies or before entering into any contract. The insurance company provides the terms of the contract of insurance. It is vital to know why the person wants to be insured with the company. It is also beneficial to understand the expectations of the person. An insurer has to ask any applicant who is referred to as the insured many questions. These specific questions come in when arranging an insurance policy. These questions can be done via the internet, in a written proposal or orally. According to the law, an applicant must provide answers for themselves and any other person to whom all the questions apply (Tyagi, 2007). This can include another listed person under another comprehensive motor vehicle policy within their knowledge. b) Assume that Jason does not mention to Allinsurance that his partner is paying the rent too or that he will be working from the house. One question that Jason saw might have been relevant and that he could not disclose was that he intended to use the premises for business purposes. He denied the question since he intended to run the business anywhere. There was hence no relevancy in answering correctly. This section also looks at whether All insurance will pay damages caused to Jason. This is because Jason found that someone had broken into the house and stole his computer. In my opinion, All insurance is not correct to refuse pay for the stolen goods. There has to be a reduction of liability. This is because of non-disclosure. Section 28 of the IC Act defines an insurer’s remedies. It provides that when a policyholder fails to comply with the duty of disclosure then the policyholder faces a reduction of liability. This also happens when there is a misrepresentation to any insurer before the contract is entered into. In these two cases an insurer is not entitled into avoiding the contract. The insurer is entitled to a reduction of liability. This is often for a claim to an extent that will place it in a position where it will be adopted. This happens had there been a non-disclosure or misrepresentation. In this case, there had been a disclosure of the two items that were stolen. The courts have interpreted this section well. This has allowed the insurers to lower their liability to nil. This is in circumstances where there was no acceptance of the risk. It is when there is misrepresentation or non-disclosure (Turley, 2001). This therefore means that any insurer cannot avoid the policy. The insurer also cannot reduce its liability. This happens if it would have accepted the risk for a similar premium on same terms and conditions. This is also despite misrepresentation and non-disclosure. An insurer can however avoid any contract if a misrepresentation or non-disclosure is fraudulent. Contractual obligations are commercial contracts. They act as a basis on doing business. These include purchase orders, exclusive agency agreements and supply contracts. They also include partnership agreements, leases and exclusive agency agreements. Disputes always arise when the parties to a given contract do not do what they earlier on agreed to. It is always preferable to resolve any dispute without a possible court action (Tyagi, 2007). There is always an obligation imposed on an applicant to answer questions before signing an insurance policy. This is only if someone wants an insurance policy to cover all the risks that they are insuring against. The applicant must therefore fulfill their duty of disclosure. When assessing what a given applicant does to fulfill the duty, there has to be regard to some sections. These are sections 21, 21A, 22, 26 and 28. These are the sections of the Insurance Contracts Act 1984. These sections require all applicants to disclose any matter that they could reasonably be expected to know, that they know and any matter relevant to the insurer’s decision. This is relevant to enter into an insurance contract with the insurance company. Someone’s duty of disclosure applies in many ways. This is when there is an extension, a renewal, when there is variance or reinstatement. In this case, Jason did not disclose that he had items in the house. Because of this, all insurance cannot cover the damages of the stolen items. This is a consequence of the applicant not following the duty of disclosure. This is the main reason as to why the insurer refused to pay the claim. It is always necessary for an applicant to disclose all items. This is because these claims can be of high monetary value. It is therefore of high importance for the applicant to fully comply with the duty of disclosure (Turley, 2001). If Jason insists on the payment of the stolen goods, then the insurer can defend them. In response to such claims, insurers can say that the applicant failed to comply with their written down duty of disclosure. c) Jason’s partner then has a terrible accident crossing the road to borrow some bath crystals and dies. Before she died she turned the bath and on and because of her accident no-one discovered this until it had overflowed, causing $5000 of damage. Unfortunately it is also discovered that she is growing drugs in her wardrobe. The company does not have the right to refuse to pay for damages. This is because Jason had no idea that his partner grew drugs in her wardrobe. The company could have refused the claim only if Jason had disclosed to them that he knew that his partner grew drugs. There is so much importance when there is proper disclosure. Before making any claim, an insurance company must consider several issues. It is worth considering that in any case of for example motor vehicle insurance; one can lose part of the entire no-claim bonus. This always means that the coming year’s premium can cost more. One can also pay excess. Jason had a right to make a claim. This is because he might be unable in paying excess. This could be because of financial hardship. One can request the insurer to take more out of the payment they will receive. There are several things that someone can do to help an insurer to claim one’s process efficiently and quickly. This also reduces possibilities of complications. In particular, one must fully notify the insurer promptly and provide enough information and evidence in support of the claim (Park, 1996). In Jason’s case, he could come up with evidence that he never saw what was in his partner’s closet. It is also important to cooperate with an insurer’s loss assessors. Notification on such instances is tremendously powerful. This can help in quick solving of disputes that might arise between the insurance company and Jason. Notification done over the phone can be followed up in writing. The letter must include relevant details of the incident. Supporting documents can be used in supporting the claim. In order to avoid such occurrences measures must be taken. In this instance, the partner of Jason died after a terrible accident. In the first place, his partner was not aware that the accident could happen. No one discovered her after her death until the bath that she had turned on overflowed. This caused $5000 damage. All insurance on their part refused to cover damages incurred due to the running bath. This was on the basis that Jason was responsible for all the illegal activities carried out in the house. All of these were not mentioned in the duty of disclosure before entering the contract. Things mentioned can be covered for incase of damages. However, on most occasions the things that were not mentioned cannot be catered for. In this case, Jason had no idea that his partner grew drugs in her wardrobe. Disputes can arise here. This is mainly because Jason claims that he had no idea about the drugs. On the other hand the company refuses to cover the damages because nothing had been mentioned in the duty of disclosure. Complaints sometimes arise against insurance companies. According to Australian law, an insured person is under a duty of utmost good faith. When someone applies any insurance, he or she has to volunteer material information (Tyagi, 2007). This has to be whether or not an insurer asks about it. If someone fails to disclose information whether or not he knew about it there is a misrepresentation. This is the reason as to why all insurance refused to pay for the damages caused by the running tap. Failure to disclose any material facts that induces any insurer towards entering any contract on agreed terms leads to consequences. This is because the insurer is highly entitled to avoid the policy entirely. This means that he can treat it as if it never existed. This is in the case with Jason’s case. All insurance made a choice to ignore completely that the policy existed. There is often no distinction made between negligent, dishonest or innocent behavior. Avoidance is often therefore the best remedy. In this case, Jason can argue out on the basis of ignorance. This means that he was ignorant of any illegal activities going on in the house. The duty of faith applies to both the insurer and the insured. In reality however, the duty of faith is often one-sided. This means that the only remedy is the one that operates against the insured. There could be a breach of contract in Jason’s case. In cases where the duty is breached, there is the introduction of a new law. The new laws introduce many ranges of proportionate remedies. This remedy often base on what an insurer would have done is there was no breach (Park, 1996). These include addition of exclusion and charging higher premiums. Insurers can have the ability to avoid any policy earlier agreed on. This happens when an insured’s misrepresentation was reckless or deliberate. Jason acted recklessly. Every human being must know what is going on with the partner he or she lives with. This is mainly necessary in case of any accidents that might arise. References Park, S. (1996). The Duty of Disclosure in Insurance Contract Law. Washington: Dartmouth. Turley. (2001). Australian Principles of Commercial. New York: Routledge. Tyagi, C. (2007). Insurance Law and Practice. 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