Law of Insurance Issues - Case Study Example

Number Word Count: 2591 Law of Insurance Andy and Bhavinda seem to have run into a few issues regarding their insurance policy with UDO Insurance Company Limited. It is important to note that the types of insurance as well as the details of the policy are of utmost importance in determining how each issue may be resolved. The first issue has to do with a mistake in the value of the contents of the house due to Bhavinda agreeing to store her friend's stamp collection worth 90,000. It is important to note that content insurance is a type of indemnity insurance since one insures the amount which may be lost in case of damage/theft within the home.1 The amount paid out depends on the amount actually damaged.2 This differs from contingency insurance, which is made up of a lump sum payable upon the occurrence of an event, which is usually connected with life-insurance policies.3 Indemnity insurance, as with contingency insurance, requires the policy holder to have an insurable interest in what is subject matter, which is paramount to analysing the first part of the problem.4 The case of Lucena v Crauford [1806], the court held that the fact that the claimant had a factual loss was not enough to prove that he had an insurable interest in the property.5 The decision in this case may apply to our current facts scenario as Andy and Bhavinda would not have an insurable interest in the stamps since they do not belong to them; although they may suffer a factual loss of owing their friend the value of the stamps through the principles of bailment.6 Another leading case in this area is the case of Macura v Northern Assurance Co. Ltd. [1925]. In that case, Mr. Macura had taken out an insurance policy in his own name on timber which legally belonged to the company, although the company was owned and operated by him; after the timber had been destroyed by a fire and Mr. Macura tried to make a claim under his policy, the court held that he did not have an insurable interest and only the company would have an insurable interest in that particular timber.7 This comes from the principle that a legal company is a separate legal person from its members.8 The only way that the stamps would have been covered by the policy is if there had been provision for third-party losses; however, this is not stated within this particular facts scenario. The problem here is that UDO is refusing to pay anything, citing that the couple were significantly under-insured. They are basically citing that Andy and Bhavinda misrepresented the amount of goods that they were in possession of to be covered. In effect, the test described in the case of Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd. [1995] should be used by the court to determine whether or not s.2(2) of the Misrepresentation Act 1967 should apply.9 The test determines that the circumstance may be material even if it does not induce a prudent underwriters decision to accept it or not and at what premium; however, if it is determined that it did not induce the contract, the insurance company cannot use it to avoid the contract.10 By applying the test to this case, the fact that Andy and Bhavinda had only indicated that the value of the contents was only 10,000 would at least have some effect on premiums charged, and therefore would most likely be determined by the court as a misrepresentation of fact as covered under s.2(2) of the Misrepresentation Act 1967, for which the remedy is rescission and the insurer would be able to rescind the contract and refuse paying out any claims, as they did in fact do as explained in our facts scenario. However, Andy may be attempt to rely on the case of Joel v Law Union and Crown Insurance Co. [1903], in which it was held that there is no need to disclose what you do not know; however, it was shown in the facts that he did know about Bhavinda storing the stamps, he had in fact just forgotten at the time he was purchasing his insurance.11 Since the fact that only 10,000 was falsely provided as the value of the contents at the making of the contract, then this would constitute a breach of contract based on the principle from the case of Woolfall & Rimmer v Moyle [1942].12 It is important at this point to advise Andy that even if he had insured for the adequate sum, there should be a clause added with respect to the fact that the stamps are owned by a third party, and the insurer would specifically allow third-party insurance to be supplied specifically for those stamps.13 If not, they could also refuse payment based on Andy and Bhavinda having no insurable interest in the stamps, even though he may suffer a factual loss of repaying the third-party for the loss. With regards to the separate insurance policy with SUB Insurance Company Limited which covers the valuable items in the house, this is also a type of indemnity insurance which is paid out after proving the loss/damage to the insured items. The issue here is the term in which Andy agrees to 'take all proper and reasonable steps to safeguard the items insured.' Andy decides to take his wife's 10,000 sapphire ring to be cleaned at the jeweller, making a stop at the local pub first. At the pub, he leaves the car and the glove-box containing the ring unlocked, and the car is stolen while Andy is in the pub having a beer. The car is recovered shortly afterwards, but the ring is missing. The insurers are refusing to pay and Andy is at a loss at this point. Andy may choose to rely on the case of Slattery v Mance [1962], where insured property had been lost in a fire; it was held that the insurer was liable to pay out the policy as long as it could not be proven that the insured deliberately and intentionally caused the fire.14 In following the same principle, it would seem that it would be up to the court to decide if Andy had taken all proper and reasonable steps to safeguard the items insured. Although nobody would intentionally leave their car unlocked with valuables inside, it is unclear as to Andys intention based on the facts scenario given. Since there is that specific condition which limits the cover of the policy, the court would take into consideration the judgement of Diplock J in the case of Fraser v BN Furman (Productions) Ltd. [1967]: "What, in my judgment, is reasonable as between the insurer and the insured, without being repugnant to the commercial purpose of the contract, is that the insure, where he does recognize a danger should not deliberately court it by taking measures which he himself knows are inadequate to advert it. In other words, it is not enough that the employer's omission to take particular precautions to avoid accidents should be negligent; it must be at least reckless, that is to say, made the actual recognition by the insured that a danger exists, and not caring whether or not it is averted. The purpose of the condition is to ensure that the insured will not, because he is covered against loss by the policy, refrain from taking precautions which he knows ought to be taken."15 By Andy relying on the principles of this case, as long as he can prove he was not reckless in leaving the necklace in the car unlocked (i.e. it is done all the time as well as others with no previous break-ins), then he may have a claim against the insurance company for the necklace which in fact was stolen out of the car. The insurance company would rebut this by trying to prove that Andy's negligence was the cause of the damage by relying on the case of Symington v Union Society of Canton [1928] as it allows for the insurer to claim a breach where the risk taken by the insured is the proximate cause of the loss/damage, and does not have to be the direct cause of the loss/damage.16 It would depend how the court would treat Andy's negligent act of leaving the car and the glove-box unlocked while at the pub. Andy would try to persuade the court that they should use the case of Wayne Tank and Pump Co. Ltd. V Employers Liability Assurance Corp. Ltd. [1974], where the court held that where there are two causes for the loss, it may be found that the risk was not the cause of the loss.17 In applying this to the facts, Andy would try to persuade the court that the cause of the loss was the intention of the robber to steal the car and the fact that the doors were left unlocked was not the cause of the loss. This may be backed by the fact that Andy had only left the doors unlocked and not left the keys in the ignition, and the robber had taken the car, presumably by manipulating the ignition with something other than the keys. Since a car theft is in fact natural and unexpected, it falls under the definition of the word 'accident', according to R. W. Hodgin, in his book, Insurance Law: Text and Materials.18 After looking at all of the aspects, Andy may attempt to make a case out of the insurance company not paying out the policy as he does present some reasonable arguments, but he should be advised that it could go either way. In the final scenario involving Bhavinda & Kate insuring their jointly-owned business premises in Derby, it is made known to us that Kate has a prior conviction of arson from 14 years ago which was not disclosed at the time the policy was enacted and also the previous refusal of insurance due to Kate's conviction was also not disclosed. The first issue to be addressed is that of insurable interest in this indemnity insurance contract. As long as it is a partnership and not a proper company, they both have an insurable interest in the premises as their liability to the business is unlimited, unlike a company which is a separate legal entity which must ensure its property in its own name, as discussed above.19 Secondly is the issue of the duty of the insured party do disclose information. As Lord Mansfiend states: "Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie most commonly within the knowledge of the insured only: the under-writer trusts to his representation, and proceeds upon the confidence that he does not keep back any circumstances in his knowledge, to mis-lead the under-writer into a belief that the circumstance does not exist, and to induce him to estimate the risqu as if it did not exist."20 In effect, the insured has a duty to disclose all material facts, but not opinions.21 The case of Economides v Commercial Union Assurance Co. Plc. [1998], in which a student living in the U.K. insured the contents of his house for 12,000, then increased it to 16,000 - his house was subsequently burglarized for 31,000. This was held to be an honest misrepresentation of the contents value and if the insurers wished for their clients to obtain independent valuations for their goods, it must be made a term of the contract.22 Honest misrepresentations along these lines may be dealt with in the same way.23 There is also a duty for the insured to disclose facts even if the insured thinks that the facts may be immaterial.24 This would apply to the information about being declined insurance prior to coming to INS Insurance Company Ltd. Based on the Pan-Atlantic test, it would seem that the insurer may have followed suit with the previous company Bhavinda and Kate went to and declined insurance due to the offence.25 Even where is can be seen that the misrepresentation has nothing to do with the loss that occurred, it is still presumed that the insurance company has the right to terminate the contract, as was the case in De Hahn v Hartley [1786], where it was held that where the policy insured a ship with sailing with 50 sailors and the ship actually carried 52 sailors at the time of the accident, the insurer was able to avoid the contract, even though it was obvious that the breach had no connection with the loss.26 However, the Pan-Atlantic test may suggest at the least that the insurer would not have insured the property at all, or at the very least for the same price that the policy was given if they had known about the information.27 Based on the analysis of the situations above, it may be difficult for Andy and Bhavinda to be able to recover damages on their respective policies based on the facts scenarios given. Essentially, the insurance companies usually have the upper hand as they are the party which drafts the contract on their own terms, and if not read carefully, certain barriers may arise if you make a claim against the policy. Works Cited Books Birds, John, Norma J. Hird. Bird's Modern Insurance Law 6th Edition. London; Sweet & Maxwell, 2004. Clarke, Malcolm Alistair. Policies and perceptions of insurance: an introduction to insurance law. New York; Oxford University Press, 1997. Hodgin, R.W. Insurance Law: Text and Materials. London; Cavendish, 2002. Cases Carter v Boehm [1776] 3 Burr. 1905 De Hahn v Hartley [1786] 1 T.R. 343 Economides v Commercial Union Assurance Co. Pl. [1998] Q.B. 587 Fraser v BN Furman (Productions) Ltd. [1967] 1 WLR 898 Joel v Law Union and Crown Insurance Co. [1903] 2 K.B. 863 Lucena v Crauford [1806] 2 B & P.N.R. 269 Macura v Northern Assurance Co. Ltd. [1925] A.C. 619, HL North British & Mercantile Insurance Co. v Moffat [1871] L.R. 7 C.P.25 Pan Atlantic Insurance Co. Ltd v Pine Top Insurance Co. Ltd. [1995] 1 A.C. 501 Roselodge Ltd. (formerly Rose Diamond Products Ltd.) v Castle [1966] 2 Lloyd's Rep. 113 Slattery v Mance [1962] 1 QB 676 Symington v Union Society of Canton [1928] 97 L.J.K.B 646 Wayne Tank and Pump Co. Ltd. V Employers Liability Assurance Corp. Ltd. [1974] Q.B. 57 Woolfall & Rimmer v Moyle [1942] 1 K.B. 66 Read More