Misrepresentation, Insurance Contracts Act - Assignment Example

Commercial Law Name: Institution: Date: Commercial Law Answer to Question No. 1 In relation to the case law presented, there are few important points with respect to Insurance, which are discussed as follows The owners should apply for Construction & Public Liability Insurance for constructing, renovating or extending their homes (Australian Owners Builders, Insurance Services, 2011). Evan here is the owner of classic Victorian Cottage, for which he has comprehensive Building Insurance Policy. This Insurance policy covers for the damages occurred due to natural calamities such as storms, fire etc. The owners should reveal accurate & completed details regarding property, its renovations& alterations etc. This is known as duty of utmost good faith (PowerPoint presentation, Commercial Transactions, Module 12 - Insurance Summer Session, 2010-11).The insured needs to disclose every little detail to the insured so as to retain the validity of their capacity to make & sustain the claims in case of materialization of the events resulting into destruction of the asset. If the insured has concealed or missed on any information to be given or informed to the insurer, then it would be as good as breach of trust. Claim made by insured thereafter may be totally denied or reduced or invalidated by the insured. Insurance law specifically has reserved duty of disclosure regarding renovations etc. Any insurance contract is deemed to be contract based on utmost good faith. The duty of disclosure requires the insured to reveal every single detail regarding the insured property, which 1) Is known to the insured which could be relevant with respect to insurance policy matters 2) Is known to the insured, which is relevant for decision making of the insured on whether to insure the prospective insured. 3) Could be known to a reasonable person in similar circumstances Any insured is not required to disclose, which 1) Would decrease the chances of claim. In other words which would reduce the chance that insurer will accept the risk 2) Is commonly known to everyone 3) Should be known to any person in normal course of business 4) Insured indicates its wish to not to know. Though, blank answers might be waived off by insurer , it necessarily does not lead to misrepresentation Where the insured is unable to answer or gives incomplete information or gives irrelevant answer to any matters in policy, then insurer shall be assumed to have waived off duty of disclosure for such matters. Insurance law makes an express statement as to effects of non-disclosure , which are as follows 1) Failure to comply with duty of disclosure may give the insured right to reduce or totally avoid or cancel the claim & policy 2) In case the insurer has evidence of fraudulent non-disclosure on the part of insured, then insurer has right to declare the insurance contract, void - ab–initio. Now let’s have a look at Evan’s case. Evan owns a classic Victorian cottage. The Insurer “INTOINSURE” had presented Mr. Evan with the application containing lots of question related to matters of the property to be insured. These questions were regarding building integrity which required him to answer more with respect to building construction, specifically roofs& walls. Evan left some of these questions unanswered due to misunderstanding. He also said that the said property did not have any construction issues. The insurer based upon the responses filled up by Evan, followed up. Later Evan carried out certain renovations & the insured was kept in loop with respect to the same by verbal communication. He said that the renovation works were carried out by qualified trade persons. On the basis of this communication, insurer accepted the risk & insured Evan’s property. But Evan failed to mention the fact that he has complained to Buildings Services Authority regarding unsafe & faulty workmanship in renovations carried out by the trade persons. Department of Commerce‘s consumer protection division helps the consumers to settle the disputes between trades persons & consumers (owners of the building). After 2 months, the storm takes place destroying the property totally. Evan claimed for compensation for damages incurred by storm. When the insurer conducted investigation, they found out that the damages caused to building were partly due to storm & partly due to faulty quality of the renovation works carried out by the trade persons. Now the question remains whether Evan should rely on this comprehensive building insurance policy for full indemnity. This issue is discussed as follows: 1) As mentioned above, any insurance contract is based on utmost good faith. Principal of disclosure requires that insured to reveal every single detail with respect to matters relevant to the insurance policy 2) Also Insurance laws state that failure to disclose the relevant information, which should have been informed to the insurer, which pertains to its decision to insure, would render the contract invalid or may reduce or cancel the claim. 3) Evan didn’t answer set of questions pertaining to building integrity which were enlisted in the application for insurance policy, due to misunderstanding & impatience. This can’t be assumed to be failure to disclosure because the insurance law also states that if the insurer waives off the blank or incomplete disclosure, then it won’t be considered as failure to disclose. Hence un-answering the set of questions can’t be said to be failure to disclosure. Hence Evan is safe with respect to indemnity with respect to this point, because he was not further inquired with respect to such unanswered sections. This would mean that the insurer waived off the duty of disclosure for these questions. 4) But Evan took up the substantial renovations, which means that these renovations would alter the structure of the property. This matter was inquired by insurer, but Evan communicated verbally that the renovations are taken up by qualified trade persons, whereas Evan had filed complaint against the trade persons for questionable workmanship (Government of Western Australia, Department of Commerce, and Consumer Protection, 2015). Evan should have informed the insurer regarding this complaint, because this is a relevant matter in insuring the property. 5) If Evan had informed the insurer regarding the complaint against trade persons regarding faulty workmanship, the insurer might have thought twice before insuring the property. This is because faulty structures would definitely suffer damages & hence insurer would have higher probability of claim which is risky. Though Evan has communicated verbally, he has provided incomplete information, where insured required full disclosure of any events affecting the property structures. 6) Also the insurer conducted investigation for damages, where they found out that damages were mainly caused partly due to storm & partly due to faulty structure. 7) Even if it’s contended that this omission of fact not to be regarded as failure to disclosure , it is prudent that Evan should have declared the facts of faulty workmanship of the renovation, because this is a relevant matter affecting the decision making ability of the insurer, with respect to accepting the risk of insuring the property. 8) The insurer can’t be expected to settle for the whole amount, which would have been settled for, if such misrepresentation was not made. But the compensation amount can be reduced to the extent where the insurer could have been had the misrepresentation not made. 9) In light of the above factors, Evan won’t be able to rely on his comprehensive Building Insurance policy for full indemnity because of a) Failure to disclose the complaint made to Building services Authority b) Failure to disclose that the renovations were not of good quality c) Failure to disclose the relevant information where full disclosure was sought by the insurer. d) Such failure to disclose may lead to reduction or denial of claim by the insurer. Answer to Question No. 2 Misrepresentation refers to presenting false information, before the contract is entered into, which induces the other party to enter into contract. Misrepresentation could be innocent or fraudulent. Misrepresentation is deemed to be innocent if there is no intention to deceive the other party to contract of insurance. If the intention is to deceive or mislead the party, then it is fraudulent misrepresentation. Common laws provide for rescission of the contract or / & compensation for damages due to such fraudulent information. Misrepresentation if found out to be fraudulent then can lead the insurer to carry out action for claiming the damages & declaring the insurance contract as void ab initio (Megarry, Wade, Harpum, Bridge, and Dixon, 2012). Damages could be measured for negligent misrepresentation will be generally the amount required to restore the plaintiff to the position before the representation, subject to loss is reasonably foreseeable (Arthur, Barrister and Member of Victorian Bar, 2010, p.23). As per Insurance Contracts Act, if insured makes misrepresentation before entering into contract, then the liability of the insurer could be reduced to the amount, where insurer would have been provided there was no misrepresentation. But there would be no reduction allowed if insurer would have contracted for same premium on same terms, provided there is no fraudulent misrepresentation. Insurer has the burden for proving that it would not have entered into contract, if the misrepresentation was not made & there was full disclosure of the facts. Here the insurer has to prove that their company would not have entered into insurance contract, if Evan had fully disclosed regarding complaint filed to building services authority regarding faulty workmanship with respect to renovations undertaken (Denes, Moray, Agnew, and Legal Directions, 2011). So Remedies as available to insurer in cases of misrepresentation would be as follows If the insurer is entitled to rescind the contract, then the insurer may just avoid the contract by treating it as void ab initio (Legal services commission of South Australia, 2009). If the insurer is not entitled to cancel the contract altogether, then the liability of the insurer may be reduced to the amount at which the insurer could have been if misrepresentation had not been made. In the given case, Evan had left some blank answers with respect to building integrity which involved questions on construction of roofs & walls. This was due to misunderstanding, & not intentional. But anyhow the insurer waived it off& followed up with him later on the basis of available information. Hence Evan won’t be held as misrepresenting on this point. But Evan was inquired by the insurer regarding the renovations taken up, before entering into insurance contract. He failed to disclose the fact that the trades person has not carried out the work effectively & that he has already filed complaint against the trades person. So in a way he had induced insurer to enter into contract by omitting the relevant matter of disclosure. In the case, where the insurer is induced to enter into contract, based on misrepresentation, the insurer can take action against the insured or even may cancel the contract. When the insured property was destroyed due to storm, the insurer company conducted the investigation so as to find out the reason behind damages incurred to the structure. Insurers found out that the cottage is destroyed partly due to storm & partly due the faulty workmanship carried out while carried out renovation works. Now the question remains that whether the misrepresentation will be regarded as a justification for negating the claim by insured. The insured, Mr. Evan has not made intentional misrepresentation, hence Insurer won’t be able to cancel the contract, treating the same as void ab initio. This is because, misrepresentation in given case is unintentional omission of facts. The insurer can’t totally deny the claim settlement, nor he can cancel the contract .It would be appropriate if insurer reduces the claim settlement liability by the amount where the insurer would have been, provided misrepresentation was not made (Barry Nilsson Lawyers, 2014). So basically, Mr. Evan can’t be denied the whole claim amount settlement. But instead he may receive an adjusted amount as compensation. This reduced amount received as compensation for damages incurred to the building, is adjusted for the amount which would have been if misrepresentation had not been made. Evan had no intention to deceive the insurance company, but it is a mere omission of the fact that has led to misrepresentation. Misrepresentation in this case is innocent & cannot be held as fraudulent in any circumstances. References Australian Owners Builders, Insurance Services. (2011). Why is Construction & Public Liability Insurance Required? Retrieved from http://www.aobis.com.au/index.php?option=com_content&view=article&id=127 Barry Nilsson Lawyers. (2014). Non-disclosure and misrepresentation - Michail v Australian Alliance Insurance Co Ltd [2013] QDC 284.Retrieved from http://www.lexology.com/library/detail.aspx?g=6ff724b0-6724-49da-a5e5-e6f9176371fc Government of Western Australia, Department of Commerce, Consumer Protection. (2015). Complaints and conciliation a guide for consumers. Retrieved from http://www.lawcom.gov.uk/wp-content/uploads/2015/03/cp182_ICL_Misrep_Non disclosure_Breach_of_Warranty.pdf Arthur, J., Barrister, & Member of Victorian Bar. (June 2010), Damages and Equitable Compensation in a Commercial Setting. Retrieved from www.gordonandjackson.com.au Legal services commission of South Australia. ( Last Revised: Mar 2nd 2009). Misrepresentation, retrieved from http://www.lawhandbook.sa.gov.au/ch10s02s10.php Denes, O, Moray and Agnew, & Legal Directions – July 2011. ( Last Updated: 1 August 2011). Court interprets principles of non-disclosure, fraud, misrepresentation, election and restitution. Retrieved from http://www.mondaq.com/australia/x/140878/Insurance/Court+interprets+principles+of+nondisclosure+fraud+misrepresentation+election+and+restitution Powerpoint presentation ,Commercial Transactions. (2010-11). Module 12 - Insurance Summer Session 2010-11. Retrieved from http://sydney.edu.au/lec/subjects/commercial/topic_notes/Summer%202010-11/Module%2012%20-%20Insurance%20Summer1011.ppt Megarry, R., Wade, W., Harpum, C., Bridge, S., Dixon, M, J. (2012). The Law of Real Property,(page no 701), Sweet & Maxwell. Retrieved from https://books.google.co.in/books?id=va6 NDmT6PEC&pg=PA701&lpg=PA701&dq=remedies+for+misrepresentation+australian+insurance+property&source=bl&ots=sn96OqdO7Z&sig=BsQTO0tQj5IuXNbuR5aYzA4z1dc&hl=en&sa=X&ved=0CE8Q6AEwCGoVChMIpvGS47_nxwIVx8GOCh1WyAjk Read More