Insurance contract law: formation, terms and conditions
Insurance contract law: formation, terms and conditions tests how cover is created and how policy terms operate at claim time. The exam focuses on warranties, conditions precedent and the Insurance Act 2015.
Formation and policy terms
- Cover may arise through a proposal, acceptance, premium payment and a cover note before the full policy is issued.
- Conditions precedent to liability must be satisfied before the insurer is liable; conditions subsequent affect continuation of cover after a loss or a change.
- Innominate terms are intermediate: the remedy depends on the seriousness of the breach.
- A warranty is a term whose breach historically discharged the insurer. Under the Insurance Act 2015, breach of warranty suspends cover rather than automatically discharging the contract; if the breach is remedied, cover resumes.
- Section 11 of the Insurance Act 2015 limits reliance on a term not relevant to the loss, where breach did not increase the risk of that loss.
- 'Basis of contract' clauses are restricted; they cannot turn every answer into a warranty.
Worked example
A commercial property policy contains a warranty that sprinklers are maintained. The insured breaches it for two months, repairs the system, and a fire occurs three weeks later. Under the Insurance Act 2015, the breach suspends cover only while it continues. Because the loss occurs after remedy, the insurer cannot rely on the breach to decline, unless a separate condition precedent applies. If the fire had occurred during the breach, the insurer could refuse that claim.
Traps that cost marks
- Saying any breach of warranty automatically ends the policy forever.
- Confusing a condition precedent with a warranty.
- Assuming the Insurance Act 2015 applies to consumers in the same way as commercial insureds.
- Forgetting that a term irrelevant to the loss may not be relied on.
Exam focus
State the type of term first, then the statutory rule, then the effect on the claim.