INSUARANCE

Insuarance Law

•  Insurance law is concerned with the relationship between two persons. One person (the insurer) agrees to compensate or indemnify the other (the insured) for any loss sustained on the happening of a particular event. 

•  Insurance is regulated by common law and legislation.

•   Relevant federal legislation includes:

–Insurance Contracts Act 1984

–Life Insurance Act 1995

–General Insurance Reform Act 2001

•The contract of insurance

  Premium (consideration)

 

Insurer  Insured/assured (proponent)

    Promise of payment by the insurer

•The proposal is the offer.

•The policy is evidence of the contract.

•Cover notes

•A form of interim insurance

•Contract requiring payment whether proposal accepted or rejected

•Contract for interim insurance for up to 1 month

•Prudential regulation of the
insurance industry

•Insurance is also defined as a financial product under the Corporations Act 2001 and the insurance market is regulated by ASIC.

•The Australian Prudential Regulation Authority (APRA) took over the role of the Superannuation Commissioner in July 1998.

•Prudential regulator of banks, insurance companies and superannuation funds

–Issues guidelines

–Prevents certain promotional material

•Codes of practice

•Set out minimum standards with which insurers must comply

•Produced by insurance companies in conjunction with APRA

•Voluntary, but the industry is committed to compliance

•Most recently reviewed General Insurance Code of Practice came into operation on 1 May 2010

•Resolution of disputes

•Every insurance company should have an internal dispute resolution service.

•If a dispute cannot be resolved or an insured is unhappy with the decision an insured may refer the matter to the Financial Ombudsman Service.

•FOS is an independent body providing a single national complaint handling service for banking, insurance and investment disputes.

•A referral notice must be lodged within three months of the final decision of the insurance company.

•Fundamental principles of insurance law

•Insurable interest:

  The insurer will benefit from the property being preserved, and will suffer detriment if the property is damaged or destroyed.

•Indemnity principle:

  The insurer agrees to indemnify the insured for loss on the happening of a particular event.

  (Fixed payouts are not included.)

•Fundamental principles of insurance law (cont.)

•Duty of utmost good faith:

Both parties must act in good faith and disclose all relevant information.

•Duty of disclosure:

–Non-disclosure of a material fact may void the contract.

Non-disclosure

  Innocent       Fraudulent

  u Limitation of liability     u Contract void

•Disclosure

•What must be disclosed by an insured:

–Matters that the insured knows to be relevant to the insurer’s decision to insure.

–Matters that a reasonable person could be expected to have known to be relevant to the insurer’s decision to accept the risk.

•Matters the insured is not required to disclose

–Matters that diminish the risk.

–Matters that are of common knowledge.

–Matters the insurer knows or, in the ordinary course of the business, ought to know.

–Where the insurer has waived the insured’s disclosure duty.

•Effect of non-disclosure

•Innocent—insurer cannot avoid the contract but can have the payout reduced to return them to the position they would have been in had they known the information prior to forming the contract.

•Fraudulent—as above, but the insurer has the additional option of avoiding the contract.

•Fundamental principles of insurance law (cont.)

•Doctrine of subrogation

–Applies to contracts of insurance that are indemnity contracts (e.g. fire and motor vehicles)

–Entitles the insurer to 'stand in the shoes of the insured’

–On payment of a loss, the insured person passes his/her rights and duties, in respect of the insured’s property against third parties, over to the insurer.

•Fundamental principles of insurance law (cont.)

•Double insurance

  Indemnity losses can only be claimed up to the actual loss, preventing the insureds from profiting from their loss. (Insurers contribute on a pro rata basis.)

•Doctrine of proximate cause

  The insured is covered against loss only if insured against the 'proximate cause of a loss', i.e. the first incident causing the loss.

•Fundamental principles of insurance law (cont.)

•Doctrine of privity of contract

Only the parties to a contract can receive rights and obligations pursuant to the contract, i.e. only the parties to a contract can sue or be sued with respect to the contract.

–Exception:

§general insurance

§specified or referred to in the contract.

•Standard cover

Insurer pays a minimum amount, as specified in the regulations.

•Renewal and cancellation of insurance contracts

•Renewal:

–Insurer must notify the insured in writing within 14 days before the cover expires.

•Cancellation:

–The insurer can cancel a contract of general insurance for a number of breaches, such as:

§a breach of the duty of utmost faith

§a breach of the duty of disclosure

§misrepresentation before contract entered into.

•Classes of insurance

Property insurance for:

–Fire

–Life

–Accident, sickness or disability insurance

–Liability

–Comprehensive motor vehicle

–Third party property motor vehicle

–Marine

–Theft

•Average clause

Advised in writing

Amount paid =

  Value of property stated in the policy x amount of loss

  Actual value of the policy

•

Insurance Contracts Act

  Value of property stated in the policy x amount of loss

  80% of the actual value of the property

•Insurance Contracts Amendment Bill 2010

•Proposed amendments:

–To cover:

§marine insurance

§insurance that covers Australian insureds

•Australian risk:

–Will not cover worker’s compensation

–Notices can be in an electronic format

–ASIC to be given powers of intervention in matters under the Act

•Insurance Contracts Amendment Bill 2010 (cont.)

•Clarifies issues of disclosure and misrepresentation

•Insurers must give information that is ‘clear, concise and effective’

•Notion of ‘utmost good faith’ extended to cover provisions that the Act implies or imposes into a contract

•Restrictions on insurers’ contractual rights and remedies

•Change to the allocation of monies under subrogation

•Types of insurance

•Life insurance

–Whole of life policy

–Term policy

–Endowment policy

–Pure endowment policy

–Annuity policy

•Liability insurance

–Professional indemnity insurance

–Public liability insurance

–Product liability insurance

–Compulsory third party motor vehicle schemes

•Insurance provider’s liability

•Insurance agent

  Acts on behalf of a particular insurer

–Liability:

  Insurer will be liable even if agent acts outside scope of actual or apparent authority.

•Insurance broker

  Runs independent business to arrange the best rate from an insurer, on behalf of the broker’s client.

–Liability:

  Owes a duty to the insured to exercise reasonable skill and care in completing proposal forms.

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