Insurance law and regulation
Scope of the domain
IF3 tests the legal skeleton of insurance: formation of the contract, insurable interest, indemnity and its limits, subrogation, contribution, proximate cause, and the statutory regulation of insurers. You need to apply principles to short scenarios, not just define them.
Contract law foundations
An insurance contract needs offer, acceptance, consideration (premium and promise to pay claims), intention to create legal relations and capacity. The proposal may be an offer or an invitation to treat depending on its wording; the insurer's acceptance creates cover, subject to any condition precedent. Insurable interest is required: life policies need interest at inception under the Life Assurance Act 1774; indemnity policies require the insured to have an interest in the subject matter, at least at the time of loss. Insurance is a contract of utmost good faith, but the old duty has been reshaped: consumers are governed by CIDRA 2012 and commercial insureds by the Insurance Act 2015.
Indemnity, subrogation and contribution
Most non-life insurance is indemnity: the insured is restored to the financial position before the loss, no better. Betterment, new-for-old and average clauses qualify this. Subrogation lets the insurer, after payment, exercise the insured's rights against third parties; the insured cannot recover twice. Contribution applies when two or more indemnity policies cover the same loss, same interest and same peril; insurers share rateably or as their policies provide.
Proximate cause and terms
The proximate cause is the dominant, effective cause of loss, not the last event. Warranties and conditions matter: since the Insurance Act 2015, breach of warranty suspends cover rather than automatically ending the contract; basis-of-contract clauses are abolished. Exclusions are construed contra proferentem where ambiguous.
Worked example
A shop insures stock for £400,000; the true value is £500,000. A fire causes £100,000 of stock loss. The policy has a rateable average condition. Claim = £100,000 × 400,000/500,000 = £80,000. Reasoning: average makes the insured its own insurer for the shortfall; indemnity is limited to the proportion of risk actually insured.
Traps
Do not treat every breach of warranty as a total defence; check whether cover was suspended at the time of loss. Do not apply commercial fair presentation to a consumer. Subrogation does not arise before payment, and contribution needs common interest and peril, not just two policies. Watch for policy conditions precedent to liability, which can defeat a claim even where the loss is covered.