AAii 303 Legal Principles of Insurance cheat sheet

Insurable interest: the policyholder must suffer pecuniary loss from the insured event; required at inception (property) or at loss (life), depending on jurisdiction.

Indemnity principle: property and liability insurance restore the insured to pre-loss financial position, no better; life and personal accident are treated as non-indemnity (valued) covers.

Utmost good faith (uberrimae fidei): both parties must disclose material facts; materiality is judged by whether a prudent insurer would be influenced in accepting risk or setting terms.

Utterance of a material misrepresentation or non-disclosure renders a contract voidable at the insurer's election; remedies range from avoidance to proportionate reduction under proportionate-remedy statutes.

Proximate cause: the dominant, effective cause linking peril to loss; remote causes are disregarded unless an intervening cause breaks the chain of causation.

Subrogation: after indemnifying the insured, the insurer acquires the insured's rights of recovery against third parties, limited to the amount paid and never in life policies.

Contribution: where multiple indemnity policies cover the same loss at the same level, insurers share pro rata (or on another agreed basis) to prevent double recovery.

Warranties: a breach discharges the insurer from liability from the date of breach (common law) or entitles the insurer to repudiate (statutory reform), depending on the regime.

Utmost good faith obligations bind the insurer too: disclosure of material terms and fair presentation of cover are now statutory duties in many common-law jurisdictions.

Fiduciary duty of the broker: disclosure of commission and conflicts; failure can render the broker liable for the insured's uninsured loss.

Doctrine of reasonable expectations: ambiguous policy language is construed contra proferentem against the drafter, the insurer, in consumer contracts.

Notice and cooperation clauses are conditions precedent to liability: late notice may bar a claim only if it causes prejudice to the insurer, per modern authority.

Causation in concurrent causation: where an excluded and a covered peril combine, courts apply the efficient proximate cause rule or the concurrent causation doctrine depending on the policy wording.

Estoppel and waiver: an insurer that affirms a contract after learning of a breach, or leads the insured to believe cover continues, may lose the right to avoid.

Claims-made vs. occurrence: claims-made policies respond to claims first made during the policy period; occurrence policies respond to injury or damage occurring during the period.

Statutory regulation: licensing, solvency (capital adequacy), market conduct, and policyholder protection schemes overlay the common-law contract framework.

Limitation periods: contractual and statutory time bars (typically one to six years) run from the loss date or from the date the cause of action accrues.

Average clause: where the sum insured is less than the value at risk, the insurer pays (sum insured / value at risk) × loss.

Salvage: the insurer's right to take over damaged property after paying a total loss; the insured cannot retain salvage and claim full indemnity.

Reinstatement: the insurer may elect to repair or rebuild rather than pay cash; the insured cannot insist on cash where reinstatement is validly elected.

Third-party rights: direct action statutes allow injured third parties to sue the insurer directly in liability covers, bypassing the insured's immunity.

Co-insurance: multiple insurers on one risk share liability severally (each for its subscription) unless the policy provides for joint liability.

Reinsurance: a contract of indemnity between insurers; the original insured has no direct right against the reinsurer absent a cut-through clause.

Good faith at claims stage: fraudulent claims may entitle the insurer to recover payments and avoid the policy from inception, depending on the jurisdiction.

Governing law and jurisdiction clauses determine which courts and statutes apply; arbitration clauses are enforceable under the New York Convention where adopted.

Capacity: the insured must have legal capacity; minors and persons lacking mental capacity may require a guardian or statutory exception.

Offer and acceptance: the proposal is the offer; cover begins on acceptance or on payment of the first premium where the policy so provides.

Consideration: the premium is the insured's consideration; the insurer's promise to indemnify is the return consideration.

Illegality: a policy insuring an illegal act or entered into for an illegal purpose is unenforceable; severance may save the remainder.

Misrepresentation by the insurer: rescission and damages may follow; misrepresentation of policy terms can found an estoppel.

Utmost good faith in life insurance: material facts include health history, hazardous occupations, and other insurance; non-disclosure can lead to avoidance within the contestability period.

Doctrine of proximate cause in marine insurance: perils of the sea, barratry, and jettison are covered; wear and tear and inherent vice are excluded.

Insurable interest in life: the beneficiary must have an interest in the life insured, or the policy is a wagering contract and void.

Burden of proof: the insured proves the loss falls within the insuring clause; the insurer proves an exclusion applies.

Condition precedent vs. condition subsequent: failure of a condition precedent defeats the claim; a condition subsequent may only give rise to damages.

Contra proferentem: ambiguity is resolved against the insurer; clear exclusion wording is enforced as written.

Entire contract clause: the policy and endorsements constitute the whole agreement; prior representations may be excluded unless incorporated.

Doctrine of fortuity: the insured must not have intentionally caused the loss; intentional acts are excluded as a matter of public policy.

Contribution and subrogation are equitable doctrines, not contractual rights; they can be modified by policy wording.

Regulatory approval: policy wordings in some lines (e.g., motor third-party liability) require filing or approval before use.

Dispute resolution: complaints to the ombudsman, mediation, arbitration, and litigation are sequential or alternative routes depending on the jurisdiction.

Insurer's duty to defend: broader than the duty to indemnify; triggered by a potentially covered claim, even if ultimately uncovered.

Reservation of rights: an insurer defending under reservation preserves the right to deny coverage later; failure to reserve may waive coverage defences.

Conflict of interest: where the insurer's coverage position conflicts with the insured's defence, the insured may be entitled to independent counsel at the insurer's expense.

Bad faith: unreasonable delay or denial can expose the insurer to extra-contractual damages, including punitive damages in some US states.

Contribution between co-insurers: calculated on independent liability or on the policy limits, depending on the method adopted.

Double insurance: the insured cannot recover more than the loss; excess and escape clauses determine priority among policies.

Doctrine of subrogation in liability insurance: the insurer can pursue third parties who caused the loss, but not the insured's own family members in some jurisdictions.

Limitation and prescription: time bars can be extended by acknowledgement or part payment; check the applicable statute in the governing jurisdiction.

Materiality test: a fact is material if it would influence a prudent insurer's decision to accept the risk or the premium charged.

Duty of disclosure in proposal forms: answers must be substantially true; trivial inaccuracies do not entitle avoidance.

Continuing duty: the duty of good faith continues through the claims process; fraud at the claims stage is a separate ground for avoidance.

Proportionate remedy: under the Insurance Act 2015 (UK), the insurer's remedy for breach of the duty of fair presentation is proportionate to the insured's culpability.

Warranties under the 2015 Act: breach suspends rather than discharges cover; the insurer cannot rely on a breach that is irrelevant to the loss.

Fraudulent claims: the insurer may recover sums paid and treat the policy as terminated from the date of the fraudulent act.

Contractual terms: conditions, warranties, and innominate terms are distinguished by the consequences of breach, not by their labels.

Third Parties (Rights against Insurers) Act: allows a third party to claim directly against the insurer where the insured is insolvent.

Policy interpretation: ordinary meaning of words, read in context and with regard to the commercial purpose of the contract.

Exclusion clauses: construed narrowly but not artificially; the ejusdem generis rule applies to lists of perils.

Coverage grant vs. exclusion: the insured must first establish a prima facie covered loss before the insurer needs to invoke an exclusion.

Waiver of subrogation: a policy may waive the insurer's subrogation rights against specified parties (e.g., tenants, contractors).

Indemnity limits: aggregate vs. per-occurrence limits determine the maximum payable; erosion of limits by defence costs varies by wording.

Doctrine of reasonable care: negligence of the insured short of wilful misconduct is generally covered unless expressly excluded.

Regulatory capital: solvency regimes (Solvency II, risk-based capital) require insurers to hold capital against underwriting, market, and credit risk.

Consumer protection: unfair terms legislation can strike down terms that cause a significant imbalance in the parties' rights.

Contract formation: certainty of terms, intention to create legal relations, and consideration are all required; a quotation is not an offer.

Cover notes: temporary cover pending issue of the policy; their terms bind the insurer to the same extent as the policy.

Misrepresentation remedies: rescission ab initio, damages for negligent misrepresentation, or statutory remedies under consumer protection law.

Frustration: supervening illegality or destruction of the subject matter may discharge the contract; insurance policies rarely frustrate.

Assignment: property policies may be assigned with the insurer's consent; life policies are freely assignable subject to notice.

Trust and beneficiaries: life policy proceeds may be held on trust for named beneficiaries, bypassing the estate.

Jurisdiction: choice-of-law rules determine which statute governs disclosure, remedies, and limitation.

Data protection: processing of health and personal data in underwriting and claims must comply with privacy law.

Burden of proof in fraud: the insurer must prove fraud on the balance of probabilities (or beyond reasonable doubt for criminal allegations).

Proportionality: the remedy for breach of the duty of fair presentation is proportionate to the quality of the insured's conduct.

Terms not relevant to the loss: the insurer cannot rely on a breach of a term that is unrelated to the actual loss.

Contracting out: the 2015 Act allows contracting out for non-consumer contracts only where the term is transparent and the insured is clearly informed.

Good faith in claims handling: insurers must handle claims promptly and fairly; regulators can impose conduct penalties.

Subrogation waiver: a waiver in the policy prevents the insurer from pursuing a negligent third party, which can affect premium.

Contribution method: independent liability method compares what each insurer would have paid alone; the maximum liability method compares limits.

Limitation: the cause of action in contract accrues at the date of loss, not at the date of denial, in most common-law jurisdictions.

Insurable interest in property: ownership, possession, or a legal or equitable interest in the property insured.

Insurable interest in liability: potential legal liability to third parties is sufficient interest.

Indemnity measurement: market value at the date of loss less salvage, or reinstatement cost where the policy provides.

Betterment: deductions for new-for-old replacement prevent the insured from profiting from a loss.

Salvage rights: the insurer may sell salvage after paying a total loss; the proceeds reduce the net loss.

Abandonment: the insured cannot abandon damaged property to the insurer and claim a total loss without the insurer's consent.

Notice of loss: prompt notice is a condition; prejudice to the insurer is the modern test for late notice.

Proof of loss: a sworn statement of loss may be required; false statements can void the claim.

Subrogation limits: the insurer can recover only up to the amount it paid; any surplus belongs to the insured.

Subrogation and underinsurance: where the insured is underinsured, the insurer shares recoveries pro rata with the insured.

Contribution and double insurance: the insured cannot recover more than the loss; the insurer can seek contribution from other insurers.

Co-insurance clause: requires the insured to insure to a stated percentage of value or bear a penalty on partial losses.

Policy limits: defence costs may be inside or outside the limit; check the wording.

Aggregate limits: apply to all claims in a policy period; per-occurrence limits apply to each event.

Reinstatement of limits: some policies reinstate limits after a loss on payment of additional premium.

Cancellation: pro rata or short-rate cancellation depends on who cancels; statutory notice periods may apply.

Insurer's duty to act in good faith: the insurer must not unreasonably withhold consent to settlement or defence.

Conflict of interest: where the insurer's interests conflict with the insured's, independent counsel may be required.

Bad faith damages: extra-contractual damages may include emotional distress and punitive damages in some US jurisdictions.

Regulatory oversight: market conduct examinations, complaints data, and enforcement actions are part of the legal framework.

Policyholder protection: guarantee schemes cover claims against insolvent insurers up to statutory limits.

Cross-border: choice of law and jurisdiction clauses determine which regime applies to international risks.

Data protection: processing of personal data in claims must comply with privacy law.

Limitation: time bars can be extended by acknowledgement or part payment; check the statute.

Materiality: a fact is material if it would influence a prudent insurer's decision to accept the risk or the premium charged.

Disclosure: the insured must disclose all material facts; the insurer must ask clear questions.

Misrepresentation: a false statement of fact that induces the contract; remedies include rescission and damages.

Non-disclosure: silence about a material fact; remedies include avoidance and proportionate reduction.

Warranties: a breach suspends cover under the 2015 Act; the insurer cannot rely on a breach irrelevant to the loss.

Fraud: fraudulent claims allow the insurer to recover payments and terminate the policy.

Contract terms: conditions, warranties, and innominate terms are distinguished by the consequences of breach.

Third-party rights: direct action statutes allow injured third parties to sue the insurer directly.

Policy interpretation: ordinary meaning of words in context and with regard to commercial purpose.

Exclusion clauses: construed narrowly but not artificially; ejusdem generis applies to lists of perils.

Coverage grant vs. exclusion: the insured must first establish a prima facie covered loss.

Waiver of subrogation: a policy may waive subrogation rights against specified parties.

Indemnity limits: aggregate vs. per-occurrence limits determine the maximum payable.

Reasonable care: negligence short of wilful misconduct is generally covered unless excluded.

Regulatory capital: solvency regimes require capital against underwriting, market, and credit risk.

Consumer protection: unfair terms legislation can strike down imbalanced terms.

Contract formation: certainty of terms, intention to create legal relations, and consideration are required.

Cover notes: temporary cover pending issue of the policy; terms bind the insurer.

Misrepresentation remedies: rescission ab initio, damages, or statutory remedies.

Frustration: supervening illegality or destruction may discharge the contract.

Assignment: property policies may be assigned with consent; life policies are assignable subject to notice.

Trust and beneficiaries: life policy proceeds may be held on trust for named beneficiaries.

Jurisdiction: choice-of-law rules determine which statute governs disclosure and remedies.

Data protection: processing of health and personal data must comply with privacy law.

Burden of proof in fraud: the insurer must prove fraud on the balance of probabilities.

Proportionality: the remedy for breach of the duty of fair presentation is proportionate to the insured's conduct.

Terms not relevant to the loss: the insurer cannot rely on a breach unrelated to the actual loss.

Contracting out: the 2015 Act allows contracting out for non-consumer contracts only where transparent and clearly communicated.

Good faith in claims handling: insurers must handle claims promptly and fairly.

Subrogation waiver: a waiver prevents the insurer from pursuing a negligent third party.

Contribution method: independent liability vs. maximum liability methods.

Limitation: the cause of action accrues at the date of loss, not the date of denial.