Insurance Contract Law and the Contract of Insurance
Insurance Contract Law and the Contract of Insurance tests general contract doctrine as applied to insurance: formation, disclosure, warranties and conditions, interpretation and remedies.
Formation and validity
- A contract needs offer (proposal), acceptance (which may be a counter-offer with altered terms), consideration (premium), capacity and legality.
- Cover may begin before the policy document issues, through a binder, temporary cover note or acceptance wording; check what the question says about inception.
- The policy, proposal and endorsements usually form the entire contract; an entire-contract clause stops the insured relying on oral promises not written into it.
Disclosure and representations
- Insurance is a contract of utmost good faith. Material facts must be disclosed; a fact is material if it would influence a prudent insurer's decision or terms.
- Misrepresentation is a positive false statement. Non-disclosure is silence about a material fact. Remedies range from avoidance (treating the contract as never made) to proportionate reduction of the claim, depending on the regime and on whether the conduct was fraudulent, negligent or innocent.
- Warranties are terms the breach of which discharges the insurer; representations are statements that must be substantially true. Modern regimes often soften warranty breach by suspending cover rather than ending the contract.
Conditions, exclusions, interpretation
- Conditions precedent to liability (notify promptly, submit proof of loss) must be met before the insurer pays. Conditions subsequent end or suspend cover.
- Exclusions are read narrowly against the drafter (contra proferentem), but clear words are enforced.
- Waiver and estoppel can prevent an insurer from relying on a breach it knowingly accepted.
Worked example
An applicant ticks 'no' to a question about prior back surgery, although the surgery appears in the medical records supplied. The insurer issues the policy, then declines a back claim. Because the answer was material and induced acceptance, the insurer may avoid the policy; under a proportionate-remedy regime it may instead reduce the payment. The outcome turns on materiality and inducement, not on whether the back condition caused the loss.
Traps
Assuming a 'warranty' is a product guarantee. Missing that breaching a condition precedent can defeat a claim even for an unrelated loss. Forgetting that the insurer must show it relied on the misstatement.