Insurance Law and Regulation
This domain tests the legal building blocks of an insurance contract and the Sri Lankan regulatory framework that governs insurers, intermediaries and market conduct.
Contract formation and terms
Insurance is a contract: offer through the proposal, acceptance through the acceptance or cover note, consideration through premium, plus capacity and legality. The policy consists of the schedule, wording and endorsements. Warranties, conditions precedent and exclusions determine whether cover responds. Ambiguity is generally construed against the party that drafted the wording.
Agency and disclosure
Agents can bind the insurer within their actual or apparent authority. Brokers usually act for the insured, not the insurer, so their knowledge is not automatically the insurer's knowledge. The duty of utmost good faith requires disclosure of material facts; remedies for breach include avoidance of the contract and, where the law or policy allows, a proportional reduction.
Regulation in Sri Lanka
The Insurance Regulatory Commission of Sri Lanka regulates the industry under the Regulation of Insurance Industry Act No. 43 of 2000, as amended. It licenses insurers, brokers, agents and loss adjusters, sets solvency and capital requirements, supervises market conduct and protects policyholders. Compulsory motor third-party cover arises under the Motor Traffic Act, and the Insurance Ombudsman provides a dispute-resolution route.
Worked example
An applicant for life cover omits a declined application and a recent hospital admission. The insurer would have declined or loaded the premium. The insurer avoids the policy and repudiates the claim. Reasoning: the facts were material, induced the acceptance and would have changed the underwriting decision.
Traps that cost marks
- Treating a broker as the insurer's agent.
- Confusing a warranty with a mere representation.
- Ignoring compulsory motor third-party requirements.
- Assuming a cover note lasts indefinitely.