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THE LAW OF
INSURANCECONTRACTS
FOURTH EDITIONBY
MALCOLM ACLARKEMA, LL B, Ph D (Cantab)
Fellow ofSt John's Collège, CambridgeProfessor of Commercial Contract law al the University of Cambridge
WITH THE ASSISTANCE OF
JULIANMBURLINGMA, LL B (Cantab)
of the Middle Temple and Gray's Inn, BarristerCounsel to Lloyd's
AND
ROBERT LPURVESBA, LL B, B Corn (Hons) (Cape Town), Ph D (Cantab)
General Counsel's Division, Insurance, Financial Services Authority
INSURANCE LAW LIBRARY
EDITOR-IN-CHIEF
MALCOLM A CLARKE
LLPLONDON HONGKONG
2002
CONTENTS
PAGE
Préface to the Fourth Edition vBibliographical Abbreviations xxxiTable of Cases xxxiiiTable of Législation, Directives and Conventions cxliii
[AU références are to paragraph number]
1 INSURANCE CONTRACTS By Malcolm A Clarke andRobert L Purves
PARA.
Définition or Description 1-1Contract 1-1AAn Insurer in Business 1-1BMoney or Corresponding Benefit 1-1CAn Uncertain Event 1-1DAn Adverse Event 1-1EPremium 1—IF
Guarantee Insurance 1-2Insurance Contracts 1-3
2 THE CONFLICT OF LAWS By Robert L Purves
The Proper Law of the Insurance Contract 2-1Introduction 2-1AThe Scope of the Proper Law 2-1BRelated Contracts 2-1CThe Search for the Proper Law at Common Law 2-1D
Common Law: Express Choice 2-2Public Policy of the Forum 2-2AConnection with the Law Chosen 2-2BFloating Choice Clauses 2-2CEquity Clauses 2-2DIncorporation 2-2EThe Putative Proper Law 2-2F
vii
CONTENTS
Implied ChoiceJurisdiction or Arbitration ClausesForm and Language of the PolicyCurrency and Place of PaymentInference in Favorem Negotii
Imputed Choice: LocalisationContacts
The Place of ContractingThe Place of PerformanceThe Form of the PolicyValidity
ContractsReinsuranceLife InsuranceVehicle InsuranceFire InsuranceLiability Insurance
AssignmentAgency
The Contract of AgencyThe Contract Mandated
The Applicable Law of the Contract under the RomeConvention
Risks Situated in the ECContracts of General Insurance
The Situation of RisksApplicable Law
Contracte of Long Term InsuranceJurisdiction: Common Law
Forum ConveniensJurisdiction: The Brussels Régulation and the Brussels
and Lugano ConventionsInterprétation
The Brussels ConventionThe Brussels Régulation
PurposeThe Brussels ConventionThe Brussels Régulation
The Scope of the Brussels Convention and the BrusselsRégulation
Forum Non Conveniens under the BrusselsConvention
Forum Non Conveniens under the BrusselsRégulation
Jurisdiction: the Basis of DomicileThe Brussels ConventionThe Brussels Régulation
Exceptional Cases: Spécial JurisdictionInsurance
Actions Against the InsurerActions Against the Policy Holder, the Insured or
Beneficiary
2-3
2—3A2-3B2-3 C2-3D2-A2-4A2-4 Al2^A22-4A32-4A42-4B2-4B12-4B22-4B32-4B42-4B52-52-62-6A2-6B
2-72-82-8A2-8A12-8A22-8B2-92-9A
2-102-10A2-10A12-10A22-10B2-10B12-10B2
2-10C
2-10C1
2-10C22-10D2-10D12-10D22-10E2-10F2-10F1
2-10F2
Vlll
CONTENTS
Jurisdiction AgreementsProrogation of JurisdictionEntering an AppearanceIntérim ReliefLis Pendens
The Same Cause of ActionThe Response of the Court Seised SecondRelated ActionsThe Court First Seised
2-10F32-10G2-10H2-1012-10J2-10J12-10J22-10J32-10J4
3 INSURABLE INTEREST IN LIFE
IntroductionThe Life Assurance Act 1774The True Insured: Life Insurance for the Benefit of OthersPersons with an Insurable Interest in LifeInterest Presumed Natural AffectionPecuniary Interest in Length of Life
Pecuniary InterestLégal Interest
Contingent RightsContingent Liability
The Time of InterestThe Extent of InterestThe Effect of No Interest
Leading CasesChild ParentParent—ChildGuardian—WardCréditer—DebtorDebtor—CréditerEmployer—EmployéeEmployée—EmployerPartnersRoyal ty
3-13-23-33-43-53-63-6A3-6B3-6B13-6B23-6C3-6D3-6E3-73-7A3-7B3-7C3-7D3-7E3-7F3-7G3-7H3-71
4 INSURABLEINTEREST IN PROPERTY
IntroductionWho is Required to hâve the Interest?The Subject-Matter of the InsuranceThe Extent of the InterestOnus of Proof
The Reasons for Insurable InterestMoral HazardIndemnityWagering
The Meaning of Insurable InterestEconomie Interest
Measurable in Money
4-14-1A4-1B4-1C4-1D4-24-2A4-2B4-2C4-34-3A4-3A1
CONTENTS
Expectation: Probability 4-3A2Légal or Equitable Relation 4-3B
The Time of Interest 4-4Land and Buildings 4-4AContingent Interests 4-4B
Insurable Interest: Cases 4-5Ownership 4-5ATrust 4-5BReceivership 4-5CSale of Land 4-5DSale of Goods 4-5E
Sellers of Goods 4-5E1Buyers of Goods 4-5E2
Leases 4-5FSecurity Interests 4-5G
Mortgage 4-5G1Liens and Rights of Arrest 4-5G2Pledge 4-5G3Equitable Assignment 4—5G4Stoppage in Transit 4-5G5
Possession 4-5HThe Right to Possess 4-5H1
Bailment 4-51Carnage and Warehousing 4-511Construction Sites 4-512Gratuitous Bailment 4-513
Risk 4-5JLiability 4-5K
The Promise to Insure 4-5K1The Supplier's Warranty 4-5K2
Company Shareholders 4-5LDebt 4-5MProfit 4-5N
Subject-Matter 4-5N1Commercial Interest: Future Profit 4-5N2
5 THIRD PARTY RIGHTS
Introduction 5-1Common Law 5-1AThe Contracts (Rights of Third Parties) Act 1999 5-1B
Introduction 5-1 BlContract Provision for Third Party Rights 5-1B2Enforcement 5-1B3Variation and Cancellation of Third Party Rights 5-1B4Loss Payable Clauses 5-1CExceptions to the Privity Rule 5-1D
Express Trust 5-2Group Insurance 5-2A
Resulting Trust 5_3The Married Women's Property Act 1882 5 ^
CONTENTS
The Scope of Section 11The Life of the InsuredThe Range of BeneficiariesThe Proviso: Intent to Defraud CreditorsBenefit ExpressedThe Identity of the Beneficiaries
The Effect of Section 11The Broker's Unnamed PrincipalThe Commercial Trust
The Trustée InsuredInsurance TermsThe Basis of Enforcement by the Third Party
Liability CoverAgencyTrust of the Insurer's Promise to PayTrust of the Insurance MoneyCommercial Specialty
The Fires Prévention (Metropolis) Act 1774The Scope of Section 83Geographical ScopePersons InterestedProcédureThe Effect of Section 83
The Third Parties (Rights Against Insurers) Act 1930A Contract of InsuranceInsolvencyLiability of the InsuredRights against the InsurerDefences to Claims
ArbitrationNotice ClausesPay First ClausesLack of Co-operation with the Insurer
The Effect of Section îThe Transfer of RightsCo-operation with the Third PartyWaiver
The Road Trafic Act 1988, section 151The Scope of Section 151Restrictions on CoverAvoidance
Grounds of AvoidanceCourt Déclaration
The Effect of Section 151The Motor Insurers Bureau
IntroductionCover under Clause 5 of the Uninsured Drivers
Agreement 1999ExceptionsKnowledgeConditions PrécèdentIndemnity
5-4A5^A15-4A25-4A35^A45^A55-4B5-55-65-6A5-6B5-6C5-6C15-6C25-6C35-6C45-6C55-75-7A5-7B5-7C5-7D5-7E5-85-8A5-8B5-8C5-8D5-8E5-8E15-8E25-8E35-8E45-8F5-8F15-8F25-8F35-95-9A5-9B5-9C5-9C15-9C25-9D5-9E5-9E1
5-9E25-9E35-9E45-9E55-9E6
XI
CONTENTS
The Untraced Drivers Agreement 1996 5-9E7TUPE
6ASSIGNMENT
Introduction 6-1The Policies of Assurance Act 1867 6-2The Law of Property Act 1925 6-3
Form and Intention 6-3ACommunications to the Assignée 6-3BNotice to the Insurer 6-3CThe Consent of the Insurer 6-3DThe Assignée 6-3E
Equitable Assignment 6-4Form and Intention 6-4ACommunication to the Assignée 6-4BNotice to the Insurer 6-4CThe Consent of the Insurer 6-4DThe Assignée 6-4E
Assignment by Opération of Law 6-5The Effect of Assignment 6-6Priority between Assignées 6-7
7 AGENTS: AUTHORITY TO BIND THE INSUREDBy Malcolm A Clarke and Julian M Burling
The Agents 7-1Introduction 7-1APolarisation 7-1BIncidental Agents 7-1CDual Agency 7-1DSub-Agents 7-1E
Actual Authority 7-2Knowledge and Notice 7-2A
Apparent Authority 7-3Représentation 7-3AReliance 7-3BMisfeasance 7-3C
Ratification 7-4The Appearance 7-4AThe Capacity of the Insured 7-4BForm and Intent 7-4CThe Time of Ratification 7-4D
Ratification After Loss 7-4D1The Effect of Ratification 7-4E
Agency of Necessity 7_5The Agency 7_5AThe Commercial Trustée 7-5B
xii
CONTENTS
8 AGENTS: AUTHORITY TO BIND THE INSURERBy Malcolm A Clarke and Julian M Burling
Introduction g_lActual Authority 8_2
Usual Authority 8-2ALocal Agents of the Insurer 8-2AlHead Office 8-2A2Lloyd's 8-2A3
Apparent Authority 8-3Représentation 8-3A
Authority to Communicate 8-3AlReliance 8-3B
Sufficient Notice 8-3B1Inquiry 8-3B2Constructive Notice of Public Documents 8-3B3
Misrepresentation of Policy Terms 8-3CMisfeasance 8-3D
Ratification 8-4The Appearance 8-4AThe Capacity of the Insurer 8-4BForm and Intent 8-4CThe Time of Ratification 8-4DThe Effect of Ratification S-AE
Warranty of Authority 8-5
9 THE INSURED AND HIS AGENT: RIGHTS ANDDUTIESINTERSE
IntroductionSub-agents
Liability of the Agent in TortNégligent MisstatementAn Informed PersonAn Identifiable Claimant: Proximity and Third Parties
InsurersIntended BeneficiariesDocuments in Circulation
RelianceDisclaimer by the Agent
Liability of the Agent in ContractCare and Skill
The Fiduciary Duties of the AgentBona FidesNo Conflict of Duty and Interest
Competing EmploymentNo Secret Profits
Spécifie Aspects of the Agent's DutyInstructions: DiscrétionChoice of InsurerPolicy Interprétation
9-19-1A9-29-2A9-2B9-2C9-2C19-2C29-2C39-2D9-2E9-39-3A9-49-4A9-4B9^tBl9-4B29-59-5A9-5B9-5C
xiii
CONTENTS
Disclosure to the InsurerNotifying the ClientRenewalAccountsInformationClaims
RemédiesDamages
Causation in FactContributory NégligenceMeasure of DamagesCase Law
Account for ProfitRestitutionRescissionInjunction
The Rights of the Agent against the ClientRémunérationReimbursement and IndemnityLien
Limitation of ActionsContract and Tort
KnowledgeLoss
Breach of Fiduciary DutyDeliberate Concealment
9-5D9-5E9-5F9-5G9-5H9-519-69-6A9-6A19-6A29-6A39-6A49-6B9-6C9-6D9-6E9-79-7A9-7B9-7C9-89-8A9-8A19-8 A29-8B9-8C
10 THE PROPOSAL OFINSURANCE
IntroductionTransferred AgencyThe Importance of Signature
The Vulnérable ProposerThe Industrial Assurance Act 1923
Transmission of the ProposaiNon-Reliance on the Proposai
ClausesNoticeStrict Construction
Fraud by the AgentProposer Unaware of the Agent's FraudProposer Party to the Agent's Fraud
10-110-210-310-3A10-3A110-3B10-3C10-410-4A10-4B10-510-5A10-5B
11 CONTRACT FORMATION
OfferA Certain Arrangement
AmbiguityIncompletenessImplied Terms
11-111-1A11-1 Al11-1A211-1 A3
xiv
CONTENTS
Terms Settled Indirectly: Terms TBADefiniteness
Coupon InsuranceThe Offer must be Open
AcceptanceUnequivocal Acceptance
Formality and CancellationThe Silent ProposerThe Silent Insurer
Mode of AcceptanceCorrespondence between Offer and AcceptanceGenuine AcceptanceUnconditional AcceptanceCommunication of AcceptanceRetraction of Acceptance
The Formation of Contracts at Lloyd'sThe Traditional Course of BusinessThe Moment of ContractOversubscription: Signing Down
The Signing Down Indication: Liability of the BrokerPartial Subscription and Subscription on Différent
TermsReinsurance of a Risk not yet InsuredThe Relationship between Slip and Policy
Contract RenewalVariation of the Insurance ContractContinuation of InsuranceReinstatement after LapseRenewal Notice
Renewal Terms
11-1 A411-1B11-1B111-1C1i _211-2A11-2Al11-2A211-2A311-2B11-2C11-2D11-2E11-2F11-2G11-311-3A11-3B11-3C11-3C1
11-3D11-3E11-3F11-411—4A
11-4C11-4D
12 INTERIM INSURANCE: COVER NOTES AND BINDERS
IntroductionIntérim CoverDisclosureCommencement
Authority to Grant Intérim CoverImplied AuthorityApparent Authority
FormTermsTermination of Intérim Cover
Stated PeriodRefusai of the Main ProposaiThe Issue of a PolicyTermination by the Insured
12-112-1A12-1B12-1C12-212-2A12-2B12-3Yl-A12-512-5 A12-5B12-5C12-5D
13PREMIUM
IntroductionThe Amount of Premium
13-113-2
xv
CONTENTS
The Place of PaymentThe Mode of PaymentThe PersonRight to PremiumReceipt of PaymentThe Time of Payment
Days of GrâceThe Effect of Non-PaymentRépudiation by the InsurerRelief
WaiverAppropriationRelief against Forfeiture
The Importance of CertaintyThe Importance of Punctuality of PaymentProprietary and Possessory Rights
No Return of PremiumException: Divisible RiskException: Contract TermsException: No Risk No PremiumOverpayment
13-3
13-513-613-713-813-8A13-913-1013-1113-11A13-11B13-11C13-11C113-11C213-11C313-1213-12A13-12B13-12C13-12D
14 THE INSURANCE CONTRACT CONTENTS
The Contract, and the Paroi Evidence RuleExceptions to the Paroi Evidence Rule
No ContractSpécial MeaningContrary Intention: Collatéral TermsCollatéral DocumentsImplied TermsAmbiguityRectification
RectificationProof: Onus and FormCommon AgreementMistake
Unilatéral MistakeDefencesConséquences
14-114-214-2A14-2B14-2C14-2D14-2E14-2F14-2G14-314-3A14-3B14-3C14-3C114-3D14-3E
15 THE INSURANCE CONTRACT: CONSTRUCTION
IntentionThe Ordinary Meaning
Technical Meaning: PrécèdentTechnical Meaning: Trade, Légal or Scientific Usage
Context
15-115-215-2A15-2B15-3
xvi
CONTENTS
The Context Inside the PolicyEiusdem GenerisExpressio UniusDeleted ClausesSections of the Policy
The Context Outside the PolicyThe Way OutThe Context Outside the Policy
AbsurdityAmbiguity
Libéral ConstructionThe Reasonable Expectations of the Insured
Décisions in the United StatesEngland: Misleading Impression
Construction Contra ProferentemQualification and Inconsistency
Inconsistency: First I n . . .Words Written and Words PrintedThe Main Purpose of the ContractPolicy and ProposaiPolicy and CertificatePromotional Material
15-3A15-3A115-3A215-3A315-3A415-3B15-3B115-3B215-415-515-5A15-5B15-5B115-5B215-5C15-615-6A15-6B15-6C15-6D15-6E15-6F
16 COVER: LOSS AND PROOF OF LOSS
The Nature of Cover and LossLoss
Financial LossThe Time of LossConstructive Total Loss (CTL)The Nature of LossConsequential Loss
Deprivation LossDamage
The General Onus of ProofThe Insured Must Prove Loss Within CoverThe Response of the Insurer
TraverseExceptions: to be Proved by the Insurer
The Distinction between Périls and ExceptionsSpécifie ExceptionsGeneral ExceptionsContract TermsCombined PérilsExceptions to an Exception
16-116-216-2A16-2A116-2A216-2A316-2A416-2B16-2C16-316-3A16-3B16-3B116-3B216-3C16-3C116-3C216-3C316-3C416-3C5
17 COVER: CAUSES O F L O S S
DeathFire
17-117-2
xvu
CONTENTS
IgnitionCauses of Fire
Arson: Fire Deliberately CausedArson by a Co-InsuredArson by a CorporationLegitimate FireArson by the Insured: Onus of Proof
Friendly FiresWaterThe Immédiate Effects of Fire
Adjacent PropertiesExplosion
Fire Causing ExplosionExplosion Causing Fire
Associated Loss: FirefightingAU Risks
FortuityInévitable LossKnowledgeWilful Misconduct
Proof of Ail RisksLiability
LossQC Clauses
The EventOccurrence
The Nature of the OccurrenceThe Time of the Occurrence: Disuse or DamageThe Time of the Occurrence: Conduct
Claims-MadeThe Nature of the ClaimThe Time of the ClaimThe Scope of a ClaimNotification of Claims
The Duty to DéfendConduct of the DefenceInformationCostsConflict of Interests: Insurer and InsuredConflict of Interests: InsurersConséquences of Breach
WaiverPersonal Accident
Related QuestionsIntentional InjuryAccident: An Unexpected and External FortuityThe Time and Nature of Assessment
The Time of the AccidentPublic Policy: Relative Recklessness
The Social Utility of the ActivityGeneral PracticeAnti-Social Conduct
17-2 A17-2B17-2B117-2Bl(a)17-2Bl(b)17-2Bl(c)17-2Bl(d)17-2B217-2C17-2D17-2D117-2E17-2E117-2E217-2F17-317-3A17-3A117-3A2
17-3A317-3B17-417-4A17-4A117^ffi17^C17-4C117-4C217^C317^D17-4D117-4D217-4D317^D417^E17-4E117-4E217^E317-4E417-4E517-4E617-4F17-517-5A17-5B17-5C17-5D17-5D117-5E17-5E117-5E217-5E3
XVlll
CONTENTS
Possible VariationsAccidentai Means and Accidentai ResultsIntentional ConductLack of Awareness
DiseaseDisease as Cause of Injury is Not AccidentaiDisease Predisposing to AccidentDisease as Link: The Injury may be AccidentaiAccidents in Hospital
ClausesCover against Bodily Injury by External, Violent
and Accidentai MeansIndependently of ail Other Causes
17-5F17-5F117-5F217-5F317-5G17-5G117-5G217-5G317-5G417-5H
17-5H117-5H2
18 THE PERIOD OF COVER
The Importance of the Insurance PeriodLong Tail InsuranceLoss Before or After the Insurance Period
The Commencement of CoverContract Terms
From 1 January...From 11 am . . .On Delivery of the PolicyOn Payment of PremiumFrom an EventCover During Transit
Termination of CoverExpiryEnd of RiskStated EventTermination by AgreementOption to Terminate
Statute: Second ThoughtsContract Option
Wrongful Termination by the Insurer
18-118-1A18-1B18-218-2A18-2 Al18-2A218-2A318-2 A418-2A518-2A618-318-3A18-3B18-3C18-3D18-3E18-3E118-3E218-3F
19 EXCEPTIONS
Exceptions in GeneralThe Nature of ExceptionsWarranties Compared
The Effect on RiskThe Effect of Waiver
InterprétationMixed Use of PropertyCausation
Exceptions Concerning the Conduct of the InsuredNégligence
Interprétation
19-119-1A19-1B19-1B119-1B219-1C19-1C119-1C219-219-2A19-2A1
xix
CONTENTS
ApplicationWilful Exposure to Unnecessary DangerIntoxicationUnroadworthiness
The Meaning of RoadworthinessThe Degree of Care RequiredThe Timing of the Duty
The Intentional Act ExceptionThe Significance of IntentionThe Courts' ApproachThe ExceptionExpected LossExpectation of Kinds of LossPublic PolicyCriminal Acts
Exceptions: Périls of SocietyWarCivil WarInsurrection and RébellionCivil CommotionRiot
WaiverExceptions and the Unfair Contract Terms Act 1977
The EC DirectiveThe Scope of the RégimePlain and Intelligible LanguageUnfaimessExamples of Unfair Terms in Insurance ContractsThe Enforcement of the Régulations
19-2A219-2B19-2C19-2D19-2D119-2D219-2D319-2E19-2E119-2E219-2E319-2E419-2E519-2E619-2E719-319-3A19-3B19-3C19-3D19-3E19-419-519-5A19-5A119-5A219-5A319-5A419-5A5
20 WARRANTIES
Terminology: The Nature of WarrantiesIdentifying a Warranty
Part of the ContractWarranties in the ProposaiImplied Warranties: Aggravation of Risk
The Language of WarrantyThe True WarrantyThe Contractual Warranty
The Absolute Nature of WarrantiesRiskLoss
Scope of the Warranty: ConstructionPurposeAbsurdityContra Proferentem
Continuing WarrantiesWording
Reasonable PrécautionsChange of Use
20-120-220-2A20-2A120-2A220-2B20-2B120-2B220-320-3A20-3B20-420-4A20-4B20-4C20-520-5A20-5A120-5A2
xx
CONTENTS
OccupancyAltération of Risk
PurposeChange in the Risk: Change of Description
Breach of WarrantyOnus of ProofThe Meaning of Breach
KnowledgeImpossibility
Breach of Warranty: EffectComposite Insurance
Waiver of Breach of WarrantyThe Nature of WaiverProofKnowledge
Apparent KnowledgeUnequivocal and Positive Conduct
ExceptionsRelianceClauses
21 MISTAKE
IntroductionCommon Mistake
Common LawEquity
Mutual MistakeUnilatéral Mistake
Mistake of Identity or of Subject-MatterMistake as to Terms of the Contract
Documents Mistakenly Signed
20-5A320-5A420-5B20-5B120-620-6A2O-6B20-6B120-6B220-6C20-6C120-720-7A20-7B20-7C20-7C120-7D20-7D120-7E20-7F
21-121-221-2A21-2B21-321-421-4A21-4B21-5
22 MISREPRESENTATION
IntroductionMisrepresentation
A Positive StatementImplicationChange of Circumstances
A Statement of FactPromiseOpinionStatements of Law
The Maker of the MisrepresentationMisrepresentation by the InsurerMisrepresentation by Third Parties
UntruthCommon Sensé InterprétationObjective Interprétation
22-122-222-2A22-2 Al22-2A222-2B22-2B122-2B222-2B322-2C22-2C122-2C222-2D22-2D122-2D2
xxi
CONTENTS
Interprétation in ContextTrue at the Time
Three-quarter Truths: Substantial TruthHalf Truths
InducementMaterialityInducement in Fact
Récipient UnawareIndependent Judgement
The Degree of InducementThe Négligent Récipient
Remédies
22-2D322-2D422-2E22-2F22-322-3A22-3B22-3B122-3B222-3C22-3D22-4
23 PART I: NON-DISCLOSURE
IntroductionThe Nature and Justification of the RuleMutuality of the Duty of DisclosureSummary of the Rules Goveming Non-Disclosure
The Onus of ProofThe Presumption of Inducement
The Nature of the PresumptionProof of Inducement
Communication of Material InformationCompréhensionThe Mode of CommunicationThe Meaning of CommunicationThe Target of Communication
The Time of DisclosureNew InsuranceModification or Extension of Existing InsuranceRenewalModification or Renewal?
Extension of the Insurance PeriodChange in The Quantum of Risk
Material FactThe Prudent Insurer
The Judgement of the Particular InsurerThe Search for the Prudent Insurer
The Branch of InsuranceGeneral PracticeContextJudicial ControlPublic Policy
Materiality and InducementMateriality: Degrees of InfluenceInducement of the Actual Insurer
Facts Known to the ProposerThe Knowledge of Agents
Contracting AgentsThe Knowledge of Companies: the Alter Ego
23-123-1A23-1B23-1C23-223-2A23-2A123-2A223-323-3A23-3B23-3C23-3D23-423-4A23-4B23-4C23-4D23-4D123-4D223-523-623-6A23-6B23-6B123-6B223-6B323-6B423-6B523-723-7A23-7B23-823-8A23-8A123-8A2
xxii
CONTENTS
The Knowledge of ExpérienceKnowledge of BusinessInferenceUnited States: Fraud
Facts Known to the InsurerThe Actual Knowledge of the Insurer
Reliable SourcesThe Mind of the Insurer
The Constructive Knowledge of the Insurer: BusinessEvents Affecting the BusinessThe Means of Knowledge
Common KnowledgeMaterial Facts; Exceptions
Inferences from FactsWarrantiesFacts fhat Diminish the Risk
Waiver and Non-Disclosure: IntroductionWaiver of the Proposer's Duty of Disclosure
No QuestionsLimited Questions
Questions UnansweredWaiver by the Nature of the Insurance
Waiver of Further InformationDocuments TenderedDocuments MentionedThe Nature of the Risk ProposedInference from Facts Disclosed: Insurer on Inquiry
23-8B23-8C23-8D23-8E23-923-9A23-9A123-9A223-9B23-9B123-9B223-9C23-1023-10A23-10B23-10C23-1123-1223-12A23-12B23-12B123-12C23-1323-13A23-13B23-13C23-13D
23 PART II: THE EFFECT OF MISREPRESENTATION ANDNON-DISCLOSURE
RemédiesDamages
FraudThe Nature of DamagesCausation
The Misrepresentation ActGood FaithTortStatuteBreach of Confidence
Misrepresentation or Non-Disclosure as a DefenceThe Right of Rescission
The Relevance of FraudBasis Clauses
The Mode of Rescission: ElectionThe Effect of Rescission: Total Retroactivity
Limits on RescissionStatuteAffirmation
Knowledge
23-1423-1523-15A23-15A123-15A223-15B23-15C23-15D23-15E23-15F23-1623-1723-17A23-17A123-17B23-17C23-1823-18A23-18B23-18B1
xxui
CONTENTS
Affirmation must be Unequivocal 23-18B2Reliance 23-18B3
LapseofTime 23-18CPerformance 23-18DRestitution 23-18EThird Party Rights 23-18FExclusion 23-18G
24 ILLEGAL INSURANCE
Illégal Contracts 24-1Illegality when Making the Contract of Insurance 24-2
Contracts with Persons Lacking Insurable Interest 24-2AContracts with Enemy Aliens 24-2B
Enemy Connection 24-2B1Time of War 24-2B2
Illégal Mode of Contracting 24-3Unlicensed Insurers 24-3A
Section 2 24-3A1Section 16 24-3A2
Illégal Promises 24-4Indemnity Clauses 24-4APayment to Enemy Aliens 24-4B
Commercial Insurance 24-4B1Life Insurance 24-4B2
Discrimination 24-4CIllégal Purpose 24-5
Rationale 24-5ADeterrence 24-5A1No Man Shall Profit from His Own Wrong 24-5A2Balance of Policy Factors 24—5A3
Wilful or Deliberate Loss or Damage 24-5BThe Acts of Others 24-5B1Wilful or Deliberate 24-5B2
Ulegality and Life Insurance 24-6Murder 24-6AManslaughter 24-6BSuicide 24-6CImmorality 24-6D
Ulegality and Liability Insurance 24-7Compulsory Liability Insurance 24-7AOther Liability Insurance 24-7B
Insurance of Property Illegally Used or Acquired 24-8Past Illegality 24-8AFuture Ulegality 24-8BConcurrent Illegality 24-8C
Illégal Use 24-8C1Illégal Mode of Managing Property 24-8C2Guilt by Association 24—8C3
The Effect of Illegality on the Contract of Insurance 24-9Ulegality When Making the Contract of Insurance 24-9A
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CONTENTS
Illégal PromisesIllégal Purpose: Partial EnforcementPlaintiff Not in Pari Delicto
InnocenceRelative TurpitudeClass ProtectionRépudiationIndependent and Untainted Cause of Action
24-9B24-9C24-9D24-9D124-9D224-9D324-9D424-9D5
25 CAUSATION
IntroductionCauses and Conditions: Relevant EventsThe Proximate CauseProximity: Inévitable Loss
The Extent of LossNégligence of the InsuredReasonable Efforts to Avoid or Minimise Loss
Damage LimitationAvoiding the Péril
Successive Connected Causes: Exception—Péril—LossConcurrent Causes
Concurrent and Interdependent CausesConcurrent and Independent Causes
Successive Connected Causes: Péril—Exception—LossWilful MisconductThe Flexible Chain: Bending the Rules
Causes, Consécutive or ConcurrentStretching the Cause to Cover Weakness in the Chain
AccidentParticular Wording
The Proximate Cause Bypassed: Areas of RiskThe Proximate Cause Restricted: Sole Cause
25-125-225-325-425-4A25-4B25-4C25-4C125-4C225-525-625-6A:25-6B25-725-825-925-9A25-9B25-9B125-9C29-9C129-9C2
26 CLAIMS PROCEDURE
IntroductionNotice of Loss
The Basis of the DutyThe Form of NoticeThe GiverThe RécipientThe Time of Loss
ImpossibilityPréjudice to the Insurer"Immédiate" Notice; Notice "As Soon as Possible"Reasonable Time
ParticularsProof of Loss
The Effect of Breach of Procédural Condition
26-126-226-2A26-2B26-2C26-2D26-2E26-2E126-2E226-2E326-2E426-2F26-2F126-2G
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CONTENTS
ArbitrationThe New York Convention
Waiver of Procédural ConditionsWaiver and Estoppel
Waiver and Estoppel: The DistinctionWaiver and Estoppel: When do they Apply?
Proof of WaiverKnowledgeUnequivocal ConductRelianceThe Effect of Waiver
Time of SuitIgnoranceAccrual of the Cause of Action: QuantificationInvestigation and Suspension
26-326-3A26-426-4A26-4A126-4A226-4B26-4C .26-4D26-4E26-4F26-526-5A26-5B26-5C
27 CLAIMS CO-OPERATION AND GOOD FAITH
The Continuing Duty of Good FaithThe Nature of the Duty
The Time of DutyThe Level of Duty
To Whom the Duty is OwedA Duty of Care in Tort
Fraudulent ClaimsProving Fraud
The Onus of ProofSurveillance
The Meaning of FraudSubstantial FraudWilful FraudExaggerationMaterial Fraud
The Effect of Fraud
Rejection of ClaimsTermination of Cover: the LawThe Meaning of TerminationTermination of Cover: Terms of the PolicyDamages
Single, Joint and Composite InsuranceNotice of LossCo-operation
The Co-operation ClauseBreach of the Duty of Co-operationThe Reinsurer's Duty to Follow Settlements
Cutting LossesReasonable StepsEntry on Premises
Subrogation
27-127-1A27-1A127-1A227-1B27-1C27-227-2A27-2A127-2A227-2B27-2B127-2B227-2B327-2B427-2C27-2C127-2C227-2C327-2C427-2C527-2C627-32 7 ^27-4A
27-4C27-527-5A27-5B27-6
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CONTENTS
28INDEMNITY
Actual LossThe Sum Insured: Independent LossLimited Interests
The Basis of AssessmentReal PropertyOther Property
The Mode of AssessmentReinstatementMarket ValueBetterment
The Time of AssessmentSalvagePartial LossThe Valued Policy
ExceptionsOwn Insurer
Under Insurance AverageThe Excess ClauseThe Franchise ClauseWarranted Part UninsuredConsequential LossLoss of ValueMinimising Loss
DutyCost in the Absence of a DutyCosts in Performance of a Duty to Avoid Loss
Double Insurance: Contribution or Co-insurance ClausesRateable Proportion ClausesExcess of Loss InsuranceNotice and Consent: Escape Clauses
28-128-1A28-1B28-228-2A28-2B28-328-3A28-3B28-3C28-128-528-628-728-7A28-828-8A28-8B28-8C28-8D28-8E28-8F28-8G28-8G128-8G228-8G328-928-9A28-9B28-9C
29 REINSTATEMENT
IntroductionReinstatement: Contract
The Act of ElectionThe Effect of ElectionImpossibility of PerformanceThe Quality of ReinstatementThe Co-operation of the Insured
Reinstatement: StatuteThe Request of Persons Interested
29-129-229-2A29-2B29-2C29-2D29-2E29-329-3A
30 PAYMENT AND NON-PAYMENT
PaymentThe Time of PaymentThe Mode of Payment
30-130-230-3
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CONTENTS
The PayéeThe Loss Payée
Payments by MistakeMistake of FactEssential MistakeExcusable Mistake
CarelessnessAssumption of RiskReliance
Settlement or Compromise of ClaimsGood Faith: Disclosure
Good Faith between InsurersUndue Influence
IntroductionMotive and EffectThe Classification of InfluenceUnfairnessNotice or Awareness—of Influence and UnfairnessRebutting the Presumption: Independent Will and
Independent AdviceIs Independent Advice Always Enough?Abuse of Bargaining Power: VictimisationRescission
Settlement by MistakeFundamental MistakeAssumption of RiskFaultBars of RescissionDocuments Mistakenly Signed
ConsidérationEconomie Duress
CompulsionIllegitimacyThe Source of PressureInducement
Non-PaymentIndemnity Insurance
When is the Insurer Obliged to Pay?Non-Indemnity Insurance
InterestThe Amount of InterestThe Interest Period
Spécial DamagesContingency InsuranceIndemnity Insurance
Failure to PayLiability Insurance: Failure to Défend or to Setûe
Inconvenience and Mental DistressTime of Assessment
The Tort of Bad FaithThe Policyholders Protection Act and the Financial Services
Compensation Scheme
30-430-4A30-53O-5A3O-5B3O-5C3O-5C130-5C23O-5C330-630-6A30-6A130-6B30-6B130-6B230-6B330-6B430-6B5
30-6B630-6B730-6B830-6B930-6C30-6C130-6C230-6C330-6C430-6C530-6D30-6E30-6E130-6E230-6E330-6E430-730-7A30-7A130-7B30-830-8A30-8B30-930-9A30-9B30-9B130-9B23O-9C30-9D30-10
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CONTENTS
Action Against an Adjuster or Investigator 30-12
31 SUBROGATION
IntroductionThe Légal Basis of Subrogation
EquityImplied TermExpress Term
When? The Conditions of SubrogationIndemnity Insurance
Benefit PurchasedObjective: Compensation
The Insurer must PayFull IndemnityDoubtful Insurance Claims
Contractual ExclusionThe Rights of the Insurer
The Nature of the Insurer's RightsRights in ContractRights in TortStatuteInterestCostsGifts to the Insured
Limits on the Insurer's RightsContractual Exemption or Limitation
The Benefit of InsuranceEstoppelTimeEarlier Proceedings
WindfallsNo Rights Against the InsuredNo Rights Against the Co-InsuredPublic Policy
Labour RelationsConflict of Duty and Interest
The Duties of the InsuredCommencement of SuitConduct of Suit
Suit Initiated by the InsurerSuit Initiated by the InsuredCosts
Information and AssistanceAbandonnantSettlement
Why Subrogation?The Case for Subrogation
Preserving the Principle of IndemnityDeterrence
The Case Against Subrogation
31-131-231-2A31-2B31-2C31-331-3 A31-3A131-3A231-3B31-3B131-3B231-3C31-431-4A
31-4C31-4D31-4E31—4F
31-531-5 A31-5A131-5A231-5 A331-5 A431-5B31-5C31-5D31-5E31-5E131-5E231-631-6A31-6B31-6B131-6B231-6B331-6C31-6CI31-6C231-731-7 A31-7A131-7A231-7B
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CONTENTS
„ . 31-7B1Cost aConflictsof Interest
page 1061Index
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