Extent Exclusion Clauses in Holiday Insurance Contracts - Essay Example

Swarna Word count 3588 ID 5448 Order # 142441 14th December 2006 In the light of the decision in Bankers Insurance Co Ltd v Patrick South and mark Ian Gardener (2003), Consider to what extent exclusion clauses in holiday insurance contracts should be regulated to ensure fairness. INTRODUCTION : The holiday insurance contracts have been exposing their weak points in the form of exclusion clauses as far as the interests of the consumers or policy holders are concerned. In several contexts, these exclusion clauses resulted in non payment of insurance benefiting the insurance companies but leaving agony to the consumers. It is the high time to review whether these exclusion clauses are logical and whether the existing regulations are satisfactory, if not what additional regulations are needed in this regard. It requires the regulation of holiday insurance act considering the experience of policy holders in different contexts. However if one analyzes the definition of exclusion clauses, it would be revealed that the legal system has provided several safeguards for the consumers if they are interpreted accurately. Exclusion clause may be defined as a clause which may be inserted into a contract which aims to exclude or limit one partys liability for breach of contract or negligence. However, the party may only rely on such a clause if (a) it has been incorporated into the contract, and if, (b) as a matter of interpretation, it extends to the loss in question. Its validity will then be tested under (c) the Unfair Contract Terms Act 1977 and (d) the Unfair Terms in Consumer Contracts Regulations 1999. This clearly implies that the incorporation of exclusion clause must must not violate the Unfair contract terms act 1977, otherwise its validity will not be considered. Hence the consumers must try to be in full possession of insurance exclusion clause details and attitude history of insurance company in case the problem arises due to exclusion clauses. In the context of recent judgment in bankers insurance company V Patrick South and Ian Gardener, the efficiency of unfair contract terms act 1977, unfair terms in consumer contracts regulations act 1999 and other related acts as far as the accurate interpretation of exclusion clauses has to be discussed. This judgment exposed several drawbacks that are still existing in the present holiday insurance act. Hence the present paper discusses the status of present regulations, inclusion of additional regulations for guaranteeing the fairness in protection of interests of policy holders in the context of above mentioned case. METHODOLOGY: The review mechanism for different exclusion clauses in the form of unfair contract terms act 1977, unfair terms in consumer contracts regulations act 1999, sale of goods act 1979 and supply of goods and servises act 1982 was performed. The literature relating to the Bankers Insurance Co Ltd Vs South and gardener (2003) was reviewed systematically and important provisions of holiday insurance were noted. Some other cases like Steadman Vs Scofield (1992) were also interpreted by using secondary sources which dealt with the exclusion clauses. The regulatory authorities like Financial Services Authority were also studied for formulation of necessary regulations for the exclusion clauses in holiday insurance. Similarly wide range of publications relating to the contract law for implementing better regulations to exclusion clauses in holiday insurance contract were reviewed and the information was systematically presented in Results and Discussion. RESULTS AND DISCUSSION: In Bankers Insurance Co Ltd. v South and Gardner (2003) case, the defendant Patrick South had gone on tour for which he had taken travel / holiday insurance (through his friend Brennan) from Utopia travels Ltd (Claimant is Bankers Insurance Co Ltd) and unfortunately he met with head injuries while traveling in jet ski. When insurance was claimed, the banker’s insurance company Ltd refused the same quoting the usage of jet ski as exclusion clause under section 9 of the insurance act. It was opined that jet ski fell within the definition of a waterborne craft and hence will not be covered under holiday insurance contract of the company1. In other words, the company declared that jet ski is excluded from the insurance. In this context, the 1 : http://www.crownofficechambers.com/cvs.asp?id=17 client filed a case in the court and the judgment has gone in favor of the insurance company because of two reasons. 1) The jet ski was excluded from the holiday insurance provisions of insurance act. This was also found true in case of Steadman v Scofield case 2. 2) The client has not reported the incident immediately after he undergone accident to the insurance company. This has raised debate over the genuineness of the exclusion clauses kept under holiday insurance package and the need for regulation of these exclusion clauses so that the interests of the innocent customers is protected. For coming to these conclusions, one has to thoroughly review the judgment and case history of Bankers insurance company vs South and Gardener (2003) and also the general rules and regulations of exclusion clauses in holiday insurance package. Some other reports also suggested that holiday insurance sold by travel agents faces a regulatory clampdown amid persistent evidence that 2 : Steadman v Scofield case [1992] 2 Lloyds Rep 163. http://webjcli.ncl.ac.uk/2006/issue2/grant2.html. holidaymakers are being mis-sold policies due to non disclosure of exclusion clauses (The centre for public scrutiny, 2006). It is really unfortunate to find only 50 % of the holiday insurance policies have been meeting the interests of the customers and hence there is a growing concerns over relevance of existing exclusion clauses. The injustice caused to the air travelers due to exclusion clauses was also reported 3. There is a need for launching a public consultation highlighting the need for travel insurers to be “open and transparent about consumers’ cover in the event of a unforeseen incidents”. As mentioned earlier, the policy holders have a sound chance of representing their cause under unfair contract terms act of 1977. Several authors quoted the cases 3 : Insurance. Aviation Exclusion Clause. Death from Drowning after Abandoning Ditched Aircraft Comes within Exclusion Clause Denying Recovery If Death Occurs "While Operating" Aircraft,1963, Virginia Law Review, Vol. 49, No. 8, pp. 1578-1581. involving violation of the unfair contracts terms act of 1977 4 &5. The part I of this act clearly defines the negligence on part of any party as the breach of (a) any obligation, arising from the express or implied terms of a contract, to take reasonable care or exercise reasonable skill in the performance of the contract; and (b) any common law duty to take reasonable care or exercise reasonable skill. The seller has certainly exhibited negligence or breach of contract and can be prosecuted for getting the justice for buyer. Whether the seller has violated the terms of the contract intentionally or inadvertently, once it is proved legally, he may be punished and the buyer / policy holder / consumer would get the compensation. 4 : Robert Bradgate, 1997. EU directive on direct selling. http://webjcli.ncl.ac.uk/1997/issue4/bradgat4.html. 5. Elizabeth Mac Donald and David Poyton. 2000, A particular problem for e-commerce: section 3 of unfair contract terms act 1977, http://webjcli.ncl.ac.uk/2000/issue3/macdonald3.html. The consumer is advised to refer to the cases where contract laws have been violated 6&7. The sellers of holiday insurance have been violating the act of unfair contract terms as they are keeping the exclusion clauses in unreasonable manner just to avoid the insurance payment to the clients. The unfair contract terms act 1977 also prohibits such type of acts which result in concealment of facts. For example, the insurance companies have been promoting or selling holiday insurance policies to customers with out revealing full details about the exclusion clauses. In those contexts, the unfair contract terms act (1977) implies that the validity of exclusion clause while interpreting the payment of insurance claims is questionable. Had it been correctly focused in case of 6. Alexander v Rolls royce motor cars ltd Damages - breach of contract-contract to repair motor car-claim for damages for distress, http://www.lawteacher.net/cases/cont9.htm/file-21.html. 7. Cadogan v Escada ag . Landlord and tenant - rent - review - review clause - physical composition of premises to be valued - construction of clause. http://www.lawteacher.net/cases/cont11.htm/file-9.html. Banker’s insurance Vs Patrick South case, the justice would have come in favor of Patrick South. The unfair contract terms act also emphasizes that in relation to any breach of duty or obligation, it is immaterial for any purpose of this Part of this Act whether the breach was inadvertent or intentional, or whether liability for it arises directly or vicariously. The cases reported to be in violation with law of contract in different contexts may also be useful in developing better understanding about English contract law 8&9.  Seller is surely involved with violation of legal principles of contract law and buyer may have to concentrate on some of the specific clauses as mentioned here: 8. Harvey v Perry. Contract - formation of contract - offer and acceptance - agreements contemplating execution of more formal document - whether binding contract - stipulation for formal contract. http://www.lawteacher.net/cases/cont15.htm/file-62.html 9. Kruse v Guestier & co ltd. Arbitration - reference to arbitration - arbitration agreements - scope of arbitration agreement - revocation or termination of agreement - by operation of law - other cases – frustration. http://www.lawteacher.net/cases/cont9.htm/file-88.html. (a) section 12 of the Sale of Goods Act 1979. (b) section 8 of the Supply of Goods (Implied Terms) Act 1973 . (c) section 9, 10 or 11 of the 1973 Act (relating to hire-purchase), cannot be excluded or restricted by reference to any contract term. The principle of reasonableness has been found violated by the seller or insurance company by concealing the facts relating to the exclusion clauses which is to be proved by the buyer or consumer logically to get back his compensation. The test of reasonableness will certainly decide the outcome of the case in favor of buyer. The relevance of reasonableness in solving neglected legal cases was also reported by Richard W.Right (2002). Hence the buyer should take advantage of this principle of reasonableness while solving the cases relating to exclusion clauses . The unfair contract terms act (1977) states that in relation to a contract term, the requirement of reasonableness for the purposes of this part of this act is to be met. similarly section 3 of the Misrepresentation Act 1967 clarifies that the term should be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made and the client should be paid compensation for violating the principles of contracts act (in support of interventionist approach of principle of reasonable ness). Even the non interventionist approach of principle of reasonableness exposes severe flaws in incorporating unreasonable exclusion clauses. The consent was also taken by the insurance company from the customers with out revealing the facts which is quite against the principle of reasonableness. In this context, the seller or bankers insurance company has intentionally tried for misrepresentation which is in clear violation of principles of English contract law and buyer may concentrate on this point.  Similarly the principles of European contract law and international commerce laws have to be interpreted well by the customer or policy holder before construction of case for best judgment of contract law related cases (Ewan Mc Kendrick, 2005). Alan Taylor et al, (2004), and Adams and Brownsword (2000) also contributed significantly for efficient educational program on contract laws. The buyer is strongly advised to refer their literary / legal publications or books before construction of case against the seller. The financial services authority (FSA) should be given responsibility of successful implementation of holiday insurance packages sold by travel agents and it should guide the regulations of the exclusion clauses for ensuring the fair treatment for policy holders / travelers. Ironically, the policy holders are not provided with 100 % information on exclusion clauses of holiday insurance because of which the clients have been facing problem when the claims are processed. This is found very common in case of terrorist incidents and health issues. This was more reflected in recent terrorist attacks occurred in Egypt in which the affected people were not paid insurance amount citing the terrorist act as an exclusion clause. Unfortunately, several tourists were not informed relating to the same exclusion clause when the policy was sold. There were no reports where insurance agents explain the clauses which are not covered under the holiday insurance package. For example, if we see the case of Bankers Insurance Co Ltd Vs South and Gardener, the exclusion provision was mentioned in the contract which reads like this. “Read your policy in full before you travel making sure you understand exactly what we will and will not pay for under each Section." This indicates that the company clarified its stand legally, but has not informed the policy holder which can be considered as unfair. But we cannot justify the policy holders case once the regulations are not red properly and interpret correctly. The new regulations must provide balance to both these situations in which the genuine customers will get fair chance to stake their respective claims. The regulation is strongly needed to protect the interests of the policy holders by providing higher transparency in the declaration of exclusion clauses. Even the new regulation should see some genuine items can be removed from the exclusion clauses so that the customers interests will be protected in fair manner. The government of England in 2003 took decision that travel insurance sold as part of holiday packages would not be included in legislation that will charge the Financial Services Authority with regulating the general insurance market. Ofcourse this is not a permanent solution as it will not help in covering insuarance for several travellers and has to be reviewed immediately. Alan Taylor et al, (2004) discussed the way in which the black treatment of some insurance contracts have been done and also motivates different sections of the people to develop awareness about the exclusion clauses mentioned in the insurance agreements and how to interpret them properly. The need of the hour is ideal construction of the insurance provisions through educational campaigns for various sections of society relating to the holiday insurance. Hence the new regulations for holiday insurance must prioritize this approach for protecting the interests of the consumers. The timely claiming of insurance is also found to be very crucial. In case of Banking Insurance Vs South and Gardener, the personal liability clause was explained in detail and it listed the desired actions to be taken in situation of accident. Full details of the circumstances giving rise to the claim plus any supporting evidence will be required according to this claim. Had they filed the claim immediately after the incident, they would have provided the complete information. Unfortunately, they could not provide the same as they delayed it by approximately for three years. One should learn lesson from this. However, the new regulation for holiday insurance should try to provide necessary counseling to the policy holders relating to study of exclusion clauses so that the fairness in protecting their interests would be guaranteed. Similarly the principles of European contract law, English laws and international commerce laws were interpreted for best judgment of insurance contract law related cases by Ewan Mc Kendrick (2005). He also explained about some of the complicated cases with logical analysis which will certainly enlighten the different groups of public on exclusion clauses of insurance acts and in that process they may contribute well for implementations of new regulations for holiday insurance. Several modifications have to be made for the existing regulations of exclusion clauses of holiday insurance. The staff must be trained to behave politely with the customers at any time during processing of enquiries and must explain the items listed in exclusion clauses. The salient points of the insurance package including the exclusion clauses must be addressed properly and should be in plain and user friendly language so that policy holders will not get confused. Even in case of doubts over exclusion clauses, basic first aid advice has to be given over telephone it self and hence it needs thorough training of all the telephone operators working in holiday insurance companies. Similarly the minimum necessary medical kit of the company should be operated by all the evacuation medical personnel so that in case of emergency the first aid will be provided to the travelers immediately irrespective of interpretation of the exclusion clauses. The most important factor that decides the success of any new regulations in holiday insurance is that policy holders must read the terms and conditions of insurance company carefully and should check for the exclusion clauses before signing the contract (Leggat et al, 1999 ; Leggat and Leggat, 2002). The insurance companies have not been completely transparent while enrolling the clients and they are not providing clear rules and regulations relating to exclusion clauses to clients intentionally. The travel consultants must be trained well in health regulations of holiday insurance package so that they aid in providing awareness relating to exclusion clauses in holiday insurance to the clients (Invatts et al., 1999). The people’s awareness about the contract law and its effective interpretation of exclusion clauses will certainly enhance the efficiency of holiday insurance claims and customers will get sufficient justice. If we see the example of Bankers Insurance Co Ltd Vs South and Gardener case (2003), the provisions covered under the contract were indicated clearly in the contract which are as follows. “The policy benefits are listed and include the usual travel benefits such as personal accident, medical expenses, loss of possessions and so forth and, of relevance to this matter, personal liability up to £2,000,000”. Had Brennan and South developed awareness about the contract laws and exclusion clauses properly they would have claimed the insurance in proper time and would have avoided using jet ski. This calls for correct interpretations of all the provisions including exclusion clauses mentioned in the legal insurance contract. Adams and Brownsword (2000) and Ewan Mc Kendrick (2005) contributed significantly for efficient educational programme on contract laws. In addition to the regulations in holiday insurance contracts made at government level to ensure fairness for policy holders, the timely action and correct interpretation of exclusion clauses before indulging in any sport or recreation on behalf of policy holder is also very crucial in succeeding in different insurance claims. For example, if we correctly analyze the case of Bankers Insurance Co Ltd vs South and Gardener (2003), the main draw back was found with Smith and Kenny Brennan who have not reported the incident immediately. Even though the incident happened in 1997, they claimed insurance only in 2000 which is really pathetic. They also failed in reading the exclusion clauses and other important provisions of document before signing the same which was a severe mistake. Hence one should learn from this incident that one cannot be casual in dealing with insurance claims. Similarly South didn’t bother to read the exclusion provisions even after he left for a vacation. Had he red the same, he would have known that the jet ski will not be covered under this insurance contract. Hence all policy holders must read the instructions and exclusion clauses properly so that they don’t indulge in those recreational activities which are not covered under insurance contract. CONCLUSION : The exclusion clauses in holiday insurance contracts, if properly not regulated, will definitely lead to the injustice and unfair treatment as far as the interests of the customers or policy holders. This was very much reflected in the cases like Bankers Insurance Co Ltd Vs South and Gardener (2003) and Steadman Vs Scofield (1992) where the customers had also committed the mistake in addition to the flaws present in the exclusion clauses. However, if facts and supporting documents of insurance exclusion clauses and the attitude of company officials is properly submitted, the present contract laws would be interpreted well by the courts of law and validity of exclusion clauses may not be considered and the compensation would be paid to the parties. The people should develop awareness about these legal regulations for correct interpretation of exclusion clauses. In addition, the need of the hour is to review the contract laws systematically and collect the opinion of all the sections society i.e. government agencies, private agencies, legal authorities and general public with a final aim of regulating the exclusion clauses for providing fairness to the interests of the policy holders. BIBLIOGRAPHY: Adams,J.N. & Brownsword,R. (2000), Understanding contract law, Sweet and Maxwell publication, P:288. ISBN : 0421858508. Alan Taylor, Linda Mulcahy & John Tillotson. (2004), Contract law in perspective, Routledge Cavendish publication, P:304. ISBN: 185941771X. Ewan Mc Kendrick. (2005), Contract law, Palgrave Mcmilan publication, P:512. ISBN : 1403948690. Ewan Mc Kendrick. (2005), Contract law : text, cases and materials, Oxford University Press publication, P: 313. ISBN : 0199274800. Ivatts S.L, Plant A.J & Condon RJ. (1999), Travel health: perceptions and practices of travel consultants, J Travel Med, 6: 76-80. Leggat P.A, Carne J & Kedjarune U. (1999), Travel Insurance and health, J Travel Med, 6: 243-248. Leggat P & Leggat F.W. (2002), Travel insurance claims made by travellers from Australia, J Travel Med, 9: 59-65. Richard. W. Wright. (2002), Justice and Reasonable Care in Negligence Law, American Journal of Jurisprudence, Vol. 47, p. 143. The centre for public scrutiny. (2006), Travel agents face clampdown on holiday insurance, Monday 27 November 2006. http://www.cfps.org.uk/blog/?c=Central-government. Read More