Luật học - Chapter 11: Insurance law

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Insurance lawChapter 11Learning objectivesAt the end of this chapter you should understand:how a contract of insurance is madethe term ‘cover note’the concept of insurable interest at common law and how it has been modified by the Insurance Contracts Act 1984 (Cwlth)the concept of indemnity and its operation in contracts of insurancethe doctrine of disclosure and the matters that the insured is obliged to disclose in a proposal formthe operation of the doctrines of subrogation and proximate causeLearning objectives (cont.)the operation of the doctrine of privity of contract to contracts of insurancethe various classes of insurance contractshow insurance contracts are renewed and cancelledthe role of insurance agents and brokersthe appropriate insurance cover for business operators.Introduction Insurance law is concerned with the relationship between two persons. One person (the insurer) agrees to compensate or indemnify the other (the insured) for any loss sustained on the happening of a particular event. Insurance is regulated by common law and legislation. Relevant federal legislation includes:Insurance Contracts Act 1984Life Insurance Act 1995General Insurance Reform Act 2001The contract of insurance Premium (consideration) Insurer Insured/assured (proponent) Promise of payment by the insurerThe proposal is the offer.The policy is evidence of the contract.Cover notesA form of interim insuranceContract requiring payment whether proposal accepted or rejectedContract for interim insurance for up to 1 monthPrudential regulation of the insurance industryInsurance is also defined as a financial product under the Corporations Act 2001 and the insurance market is regulated by ASIC.The Australian Prudential Regulation Authority (APRA) took over the role of the Superannuation Commissioner in July 1998. Prudential regulator of banks, insurance companies and superannuation fundsIssues guidelinesPrevents certain promotional materialCodes of practiceSet out minimum standards with which insurers must complyProduced by insurance companies in conjunction with APRAVoluntary, but the industry is committed to complianceMost recently reviewed General Insurance Code of Practice came into operation on 1 May 2010Resolution of disputesEvery insurance company should have an internal dispute resolution service.If a dispute cannot be resolved or an insured is unhappy with the decision an insured may refer the matter to the Financial Ombudsman Service.FOS is an independent body providing a single national complaint handling service for banking, insurance and investment disputes.A referral notice must be lodged within three months of the final decision of the insurance company.Fundamental principles of insurance lawInsurable interest: The insurer will benefit from the property being preserved, and will suffer detriment if the property is damaged or destroyed.Indemnity principle: The insurer agrees to indemnify the insured for loss on the happening of a particular event. (Fixed payouts are not included.)Fundamental principles of insurance law (cont.)Duty of utmost good faith:Both parties must act in good faith and disclose all relevant information.Duty of disclosure:Non-disclosure of a material fact may void the contract. Non-disclosure Innocent Fraudulent  Limitation of liability  Contract voidDisclosureWhat must be disclosed by an insured:Matters that the insured knows to be relevant to the insurer’s decision to insure.Matters that a reasonable person could be expected to have known to be relevant to the insurer’s decision to accept the risk.Matters the insured is not required to discloseMatters that diminish the risk.Matters that are of common knowledge.Matters the insurer knows or, in the ordinary course of the business, ought to know.Where the insurer has waived the insured’s disclosure duty.Effect of non-disclosureInnocent—insurer cannot avoid the contract but can have the payout reduced to return them to the position they would have been in had they known the information prior to forming the contract.Fraudulent—as above, but the insurer has the additional option of avoiding the contract.Fundamental principles of insurance law (cont.)Doctrine of subrogationApplies to contracts of insurance that are indemnity contracts (e.g. fire and motor vehicles)Entitles the insurer to 'stand in the shoes of the insured’On payment of a loss, the insured person passes his/her rights and duties, in respect of the insured’s property against third parties, over to the insurer.Fundamental principles of insurance law (cont.)Double insurance Indemnity losses can only be claimed up to the actual loss, preventing the insureds from profiting from their loss. (Insurers contribute on a pro rata basis.)Doctrine of proximate cause The insured is covered against loss only if insured against the 'proximate cause of a loss', i.e. the first incident causing the loss.Fundamental principles of insurance law (cont.)Doctrine of privity of contractOnly the parties to a contract can receive rights and obligations pursuant to the contract, i.e. only the parties to a contract can sue or be sued with respect to the contract.Exception: general insurancespecified or referred to in the contract.Standard coverInsurer pays a minimum amount, as specified in the regulations.Renewal and cancellation of insurance contractsRenewal:Insurer must notify the insured in writing within 14 days before the cover expires.Cancellation:The insurer can cancel a contract of general insurance for a number of breaches, such as:a breach of the duty of utmost faitha breach of the duty of disclosuremisrepresentation before contract entered into.Classes of insuranceProperty insurance for:Fire LifeAccident, sickness or disability insuranceLiabilityComprehensive motor vehicleThird party property motor vehicleMarineTheftAverage clause Advised in writingAmount paid = Value of property stated in the policy x amount of loss Actual value of the policyInsurance Contracts Act Value of property stated in the policy x amount of loss 80% of the actual value of the propertyInsurance Contracts Amendment Bill 2010Proposed amendments:To cover:marine insuranceinsurance that covers Australian insuredsAustralian risk:Will not cover worker’s compensationNotices can be in an electronic formatASIC to be given powers of intervention in matters under the ActInsurance Contracts Amendment Bill 2010 (cont.)Clarifies issues of disclosure and misrepresentationInsurers must give information that is ‘clear, concise and effective’Notion of ‘utmost good faith’ extended to cover provisions that the Act implies or imposes into a contractRestrictions on insurers’ contractual rights and remediesChange to the allocation of monies under subrogationTypes of insuranceLife insuranceWhole of life policyTerm policyEndowment policyPure endowment policyAnnuity policyLiability insuranceProfessional indemnity insurancePublic liability insuranceProduct liability insuranceCompulsory third party motor vehicle schemesInsurance provider’s liabilityInsurance agent Acts on behalf of a particular insurerLiability: Insurer will be liable even if agent acts outside scope of actual or apparent authority.Insurance broker Runs independent business to arrange the best rate from an insurer, on behalf of the broker’s client.Liability: Owes a duty to the insured to exercise reasonable skill and care in completing proposal forms.