Insurance law
Insurance law
This domain tests the legal framework surrounding a UK insurance contract: the sources of law, the principles that govern cover, and the doctrines that decide who pays and who can recover afterwards. Expect questions that apply rules to a factual scenario rather than simply recite definitions.
Core rules
- Sources. Common law and equity supply contract doctrine; statute modifies insurance specifically, including the Marine Insurance Act 1906, Life Assurance Act 1774, Consumer Insurance (Disclosure and Representations) Act 2012 and Insurance Act 2015. Regulation sits alongside law but is not the same thing.
- Formation. Insurance is a contract: offer, acceptance, consideration and intention to create legal relations. A cover note can create temporary cover before the policy is issued.
- Insurable interest. Life insurance generally requires interest at inception under the 1774 Act; indemnity insurance requires interest at the time of loss. Without it, the insured has nothing to indemnify.
- Indemnity. Property and liability policies aim to restore the insured's financial position, not improve it. Limits, sums insured, excesses and reinstatement terms define the ceiling.
- Subrogation. After paying, the insurer may enforce the insured's rights against a third party, in the insured's name, recovering no more than it paid. The insured keeps rights to uninsured losses and must not prejudice recovery.
- Contribution. Where two insurers cover the same insured, interest and risk, they share the loss equitably; it is not a free choice for the insured to recover twice.
- Proximate cause. The dominant or effective cause of loss determines cover, not merely the last event. Exclusions are read against that cause.
Worked example
A retailer's warehouse is damaged by fire started when a contractor's employee negligently uses a blowtorch. The property insurer pays £200,000. The fire is proximately caused by the contractor's negligence, not by the retailer's later failure to isolate electricity. Having indemnified, the insurer can pursue the contractor by subrogation, in the retailer's name, up to £200,000. If the retailer also suffered £20,000 of uninsured business interruption, that right remains with the retailer. If another property policy covered the same warehouse on the same basis, the insurers would contribute rather than each pay in full.
Traps
Do not treat the last event as the proximate cause. Do not confuse subrogation with contribution. Do not assume insurable interest is needed at inception for every policy. Remember that the Insurance Act 2015 fair presentation regime applies to commercial insureds, while consumers are governed by CIDRA 2012. Do not import regulatory rules into a pure contract-law question.