Insurance Law: Contract, Principles and Remedies
Formation and terms
The insurance contract is a contract of utmost good faith (uberrimae fidei). The proposer must disclose all material facts that a prudent underwriter would consider relevant to acceptance or rating. Non-disclosure or misrepresentation may render the contract voidable, subject to statutory remedies that distinguish deliberate or reckless from careless conduct. Know the difference between warranties (strict conditions) and representations, and how breach of warranty affects cover.
Insurable interest and indemnity
Insurable interest must exist at inception for life and at the time of loss for property. Indemnity, subrogation and contribution are legal mechanisms that prevent recovery exceeding actual loss. Subrogation transfers the insured's right of recovery against a third party to the insurer after payment.
Policy interpretation
Courts interpret ambiguity contra proferentem (against the drafter). Conditions precedent, exclusions and excess clauses require careful reading. Distinguish conditions (which may allow the insurer to refuse a claim) from mere procedural requirements. Note the effect of fraud on claims and the duty of fair presentation.
Traps in questions
A common trap is treating a warranty breach as automatically voiding the whole policy when statute may only suspend cover. Another is confusing subrogation (insurer's recovery right) with salvage (insurer's right to damaged property). Questions may also test whether the duty of disclosure applies to facts the insurer ought to know; the test is materiality plus inducement.
Worked example
A proposer fails to disclose a previous declined application. If the underwriter would have rated the risk differently, the insurer may have a remedy; if the insurer would have accepted on the same terms, there is no inducement and no remedy. Always apply materiality and inducement together.
Exam technique
Identify the legal principle, apply the statutory or common-law test, and state the remedy available to the insurer.