INSURANCE LAW FLASHCARDS

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is generally meant by this?

1.     An insured party has a duty of disclosure when entering into a contract of insurance. 2. This requires a prospective insured to make the prospective insurer aware of certain facts when they enter into the contract. A failure to do so may, depending on the circumstances, entitle the insurer to avoid the insurance contract altogether. 3.The scope of the insured’s duty differs depending on whether or not the policy was entered into or renewed before 12 August 2016:

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is the insured’s duty to disclose for policies entered before 12 August 2016 

What about on or after 12 August 2016 

Insurer’s Duty to Disclose

For policies entered into before 12 August 2016:

1. s17–20 Marine Insurance Act 1906 (MIA 1906) applies.

2. The insured has a duty of "utmost good faith," requiring them to disclose all "material information" to the insurer and avoid misrepresentations.

3. If the insurer can demonstrate that a material non-disclosure or misrepresentation induced it to issue a policy on the terms that it did, the insurer can avoid the contract from inception.

4. The contract will be deemed to have never existed, leaving the insured without cover (s18).

For policies entered into on or after 12 August 2016:

1. The Insurance Act 2015 applies.

2. Insurance contracts remain contracts of utmost good faith, but the 2015 Act modernises the principle to create more balance between insured and insurer.

3. The insured’s duty is to make a "fair presentation" of the risk by disclosing:
   a. Every "material circumstance";
   b. Which the insured knows or ought to know; or
   c. Failing that, sufficient information to put a prudent insurer on notice that it needs to make further enquiries to reveal material circumstances.

4. While the duty largely remains the same as under the MIA 1906 (as clarified by subsequent case-law), the remedies under the new law are significantly less favourable towards insurers:
   a. An insurer can only elect to avoid the policy if the insured’s breach was deliberate or reckless.

5. If the insured’s breach was neither deliberate nor reckless:
   a. The insurer may refuse all claims under the contract (but must return the premium) only if it can show that it would not have entered into the contract at all had the duty of fair presentation been complied with.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is meant by duty of utmost good faith?

How do you demonstrate that the duty has been reached?

Duty of Utmost Good Faith

1. s17 Marine Insurance Act 1906 provides that insurance contracts are contracts of "utmost good faith".

2. s18 Marine Insurance Act 1906 explains the ramifications of this, namely that:
   a. A business that is buying insurance must disclose to the insurer;
   b. Before the contract is concluded;
   c. Every material circumstance which is known to the prospective insured.

3. Every circumstance which, in the ordinary course of business, ought to be known by the insured (i.e., they are deemed to have such knowledge).

How to Demonstrate the Duty Has Been Breached
[1] The insurer must show that:

1. The non-disclosed facts were material; and

2. The non-disclosure of material facts induced the insurer to accept the risk.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When demonstrating that the duty of utmost good faith has been breached, what is meant by there must be ‘material facts’?

[A] There must be ‘Material Facts’

1. s18(2) Marine Insurance Act 1906: a material fact is one “...which would influence the judgment of a prudent insurer fixing the premium, or determining whether he will take the risk.”

2. A fact "influences the judgment" of an insurer if it has an effect on the mind of the insurer in weighing up the risk.

3. It is not necessary to show that the fact would have had a decisive effect on either the acceptance of the risk or the amount of premium demanded (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501).

4. The test of materiality is objective; the question is whether a hypothetical prudent insurer would consider the fact to be material.

5. An insured’s subjective opinion on whether or not the fact is “material” is irrelevant, even if held in good faith. It is no defence for an insured to argue that they genuinely believed a fact was not material, if a court determines that it was objectively material.

6. The insured will comply with the duty if they disclose sufficient information to call the attention of the insurer to the relevant facts in such a way that, if the insurer desires further information, it can ask for it.

7. This means that an insurer cannot simply "turn a blind eye" if the information it receives is sufficient to put it on enquiry, and must ask the proposer for further details.

8. “Facts” are not “opinions”; a misstated opinion is only actionable if it is not given in good faith (Anderson v Pacific Fire & Marine Insurance Co (1872) L.R. 7 C.P. 65).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When demonstrating that the duty of utmost good faith has been breached, what is meant by the non-disclosure induced the insurer to accept the risk?

[B] The Non-Disclosure Induced the Insurer to Accept the Risk

1. The insurer must prove that it was induced to enter into the contract on the terms that it did by the insured’s failure to disclose material facts.

2. It is not enough for the insurer to show that, if full disclosure had been made, a different decision would have been reached; it must be shown that the non-disclosure was an “effective cause” of the insurer’s decision to insure on the terms it did.

   • This means the non-disclosure must be a significant or dominant cause of the insurer’s decision to write the risk (Zurich Insurance plc v Niramax Group Ltd [2021] EWCA Civ 590).

3. If it is shown that the insurer would have entered the contract on the same terms in any event, then inducement is highly unlikely to have been made out (Assicurazioni Generali Spa v Arab Insurance Group (B.S.C.) [2002] EWCA Civ 1642).

4. In practice, it is normally necessary for the insurer to show that had the material fact been disclosed it would either have:
   a. Rejected the risk; or
   b. Written it on different terms.

5. This might be evidenced by underwriting guidelines, or similar files, showing the type of information that would lead the particular insurer to reject the risk or impose additional terms.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

[1] When demonstrating that the duty of utmost good faith has been breached, how can the insured defend themselves against this?

[2] What are the types of knowledge?

[C] Knowledge

1. The insured may seek to defend itself by arguing that it did not, in fact, have knowledge of the material facts.

2. An insured is only obliged to disclose material facts that it:
   a. Knows (actual knowledge); or
   b. Is deemed to know (constructive knowledge) (s18(2)).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When the insurer is relying on their knowledge to defend themselves against a breach of utmost good faith, what is meant by:

1. Actual knowledge 

2. Constructive knowledge 

[1] Actual Knowledge

1. Whether individual insureds have actual knowledge is a question of fact.

2. Corporate insured parties will have actual knowledge of matters known by their directing minds (usually directors, but may also include senior employees and, potentially, employees responsible for arranging insurance).

[2] Constructive Knowledge

1. An insured will not be deemed to know:
   a. Matters that it would have known had its business been run to a hypothetical standard of reasonable prudence or organisation.
   b. It is only deemed to know matters that it ought to have known in the ordinary course of its own particular business.
   c. This means an insured will not necessarily have knowledge if individual characteristics and imperfections of the insured’s business led to information not being learned.

2. An insured will be deemed to know:
   a. Facts which it has deliberately ignored (though it is not obliged to make special enquiries to discover information that might be material).
   b. Information known to agents (e.g., their insurance broker), provided the agent is under a duty to pass information on to the insured (whether or not they in fact did so).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When the insurer is relying on their knowledge to defend themselves against a breach of utmost good faith, 

WHAT ARE THE EXCEPTIONS?

s18(3) provides that the following information does not need to be disclosed, in the absence of a specific inquiry by the insurer:

1. Any circumstance which diminishes the risk.

2. Any circumstance which is known or presumed to be known to the insurer:
   i. Actual knowledge of an insurer is a question of fact.
   ii. An insurer will be presumed to already know matters of common notoriety or knowledge, and matters which an insurer, in the ordinary course of their business, ought to know (e.g., fireworks likely to be stocked by a shop before Bonfire Night: Hales v Reliance Fire and Accident Insurance Corp Ltd [1960] 2 Lloyd’s Rep 391).

3. Any circumstance where information is waived by the insurer:
   i. The insurer may expressly or impliedly waive its right to disclosure.
   ii. This may occur, for example, where the insured discloses facts by answering a question on the proposal form that would prompt a reasonably prudent insurer to make further enquiries, and the insurer fails to do so.

4. Any circumstance which is superfluous to disclose by reason of any express or implied warranty:
   i. An insured does not need to disclose material facts if those facts would amount to a breach of warranty enabling the insurers to avoid liability.
   ii. For example, if a jewellery insurance policy includes a warranty that vehicles must be fitted with locks and an alarm system, the insured does not need to disclose the absence of special locks (because they have warranted that the required locks will be fitted) (De Maurier (Jewels) Ltd v Bastion Insurance Co and Coronet Insurance Co Ltd [1967] 2 Lloyd’s Rep 550).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is the duty on insurance brokers to disclose?

1.     s19 MIA 1906 imposes a duty on insurance brokers to disclose to insurers material facts they know or should know in the ordinary course of business.

2.     This duty applies only to brokers who actually place the insurance.

3.     A breach allows the insurer to avoid the policy, even if the insured was unaware of the non-disclosure (however, in such circumstances, the insured can sue the broker for damages).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is misrepresentation generally?

1. An insurer will often seek to defend a claim on the basis of misrepresentation in addition to non-disclosure.

2. The two doctrines are closely linked; if there has been material non-disclosure, this will commonly also amount to a misrepresentation. The difference between the two has been described as “imperceptible” (Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501).

3. If an insurer can successfully demonstrate misrepresentation, they will be entitled to rescind the contract (in other words, the contract will be set aside as if it never existed) (s2 Misrepresentation Act 1967).

4. In addition, s20 MIA 1906 provides that every material representation made by an insured (or their agent) to an insurer during pre-contractual negotiations must be true. If it is untrue, the insurer may avoid the contract (Rendall v Combined Insurance Co of America [2008] Lloyd’s Rep IR 732).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

How do you demonstrate misrepresentation?

1. To show that there has been misrepresentation, the insurer must demonstrate that the insured made a statement of fact:

   1. Which was untrue; and

   2. Which was material to its appraisal of the risk:

      1. The test of materiality is the same as for material non-disclosure; a fact is material if it could influence the insurer’s decision to issue policy or determine the premium.

         [3] Which is as to present or past fact, and not in relation to the future.

         
         [4] Which induced the insurer to enter into the contract of insurance:

         1. The test for inducement is also the same as that applied in cases of non-disclosure; in short:

            1. The insurer must show at least that, but for the representation, it would not have entered into the contract on those terms; but
               2. Does not have to show it was the sole effective cause of it doing so.
               3. Assicurazioni Generali Spa v Arab Insurance Group (B.S.C.) [2002] EWCA Civ 1642.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

How is the representation of opinion shown?

1. A representation of opinion is a statement where “as it appears or should appear to the person to whom the statement is made, the speaker does not have sufficient information to guarantee its accuracy” (Hubbard v Glover (1812) 3 Camp. 313).

2. Where a proposer makes a representation of opinion, the law only requires that their belief in the opinion be honest. They do not need to have reasonable grounds for it (Economides v Commercial Union Assurance Co Plc [1997] 3 All E.R. 636).

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is an affirmation?

1. An insurer will be prevented from avoiding the policy if it does something to affirm the policy (i.e., the insurer does something where it treats the policy as continuing) (Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391).

2. Before there can be an affirmation, the insurer must have had full knowledge of the facts entitling it to avoid the policy. It then has a reasonable time in which to decide what course of action to take. It cannot be said to have affirmed the policy until after such time.

3. A party will be held to have made an election (to either affirm, or terminate) where:

   1. It has acted in a manner consistent with having chosen one of the options;

   2. With knowledge of the relevant facts.

4. Its election must be communicated either by words or conduct; it will only have effect as a binding election (which is then irrevocable) if it is communicated in clear and unequivocal terms.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is stated for the duty of fair representation under the Insurance Act 2015?

1. IA 2015 introduces a duty that a non-consumer insured must make a ‘fair presentation’ of the risk to the insurer. This duty updates and replaces the duties in relation to disclosure and representations contained in MIA 1906, ss 18(1)–20(1). The duty of utmost good faith remains, but only as a general interpretative principle.

2. s3 of the Insurance Act 2015 has replaced the previous duty of disclosure in the Marine Insurance Act 1906 with a new “duty of fair presentation”.

3. An insured is now required to make a “fair presentation” of the risk to be insured (see below) before entering a contract of insurance (s3(1) and s3(2)).

4. This duty does not significantly reform the previous law, but:

   1. Codifies the case-law developments subsequent to the MIA 1906; and

   2. Changes the remedies for breach (an insurer is no longer entitled to avoid the policy unless the breach of the duty of fair presentation is deliberate or reckless).

5. The “new” regime:

   1. Applies to insurance and reinsurance contracts entered or renewed from 12 August 2016. It does not apply retrospectively; and

   2. Applies to any person or body who is not a consumer.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

What is meant by ‘fair representation’ of the risk under the Insurance Act 2015?

1. s3(4): A fair presentation of the risk is one where the insured:
   a. Gives disclosure to the insurer of every “material circumstance” which the insured knows or ought to know; or
   b. Failing that, gives disclosure of sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances.

2. s3(3): The insured must ensure that:
   a. Disclosure is made in a manner which would be reasonably clear and accessible to a prudent insurer;
   b. Every material representation as to a matter of fact is substantially correct;
   c. Every material representation as to expectation or belief is made in good faith.

3. s3(5): There is no requirement on an insured, in absence of enquiry, to disclose a circumstance if:
   a. It diminishes the risk;
   b. The insurer knows it;
   c. The insurer ought to know it;
   d. The insurer is presumed to know it; or
   e. It is something as to which the insurer waives information.

---

Knowledge:

• Actual knowledge includes what the insured actually knows and what is known by senior management or those responsible for arranging the insurance.

• Constructive knowledge is broader—it refers to what the insured ought to know, which includes information they would have found with a reasonable search (e.g., checking company records or asking relevant employees).

Material Facts:

• Material facts are those that would influence the judgment of a prudent insurer when deciding whether to accept the risk and on what terms (not just whether to insure at all).

The Prudent Insurer Test:

• Courts determine materiality based on whether a reasonable insurer would find it relevant. However, they may consult real insurers, but the court has the final say.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When the insured is filling in the insurance form according to Insurance Act 2015, what are the primary and secondary duty?

Primary duty: the insured must disclose every ‘material circumstance’ which the insured knows or ought to know

Secondary duty: The insured must provide ‘sufficient information to put a prudent insurer on notice that it needs to make further enquiries for the purpose of revealing those material circumstances’.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

When the insured is filling in the insurance form according to Insurance Act 2015, what is ‘material circumstance’ and

[2] what amounts as ‘influence the judgement of the prudent insurer’

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

Material Circumstance; Insurance Act 2015

What amounts as an ‘influence the judgement of the prudent insurer’

PRIMARY DUTY

1. The insured must disclose every “material circumstance” which the insured knows or ought to know.

2. A circumstance is “material” if it would “influence the judgment of the prudent insurer in determining whether to take the risk and, if so, on what terms” (s7(3)).

3. The test for materiality is objective, made by reference to the hypothetical prudent insurer. An insurer’s subjective opinion is irrelevant, even if it is held in good faith.

4. The court will accept evidence of other insurers as to whether or not circumstances are material, but they are not bound by this (Yorke v Yorkshire Insurance Co Ltd).

[a] What amounts as ‘Influence the Judgment of the Prudent Insurer’?

1. A fact “influences the judgment” of an insurer if it has an effect on the mind of the insurer in weighing up the risk.

   • All that is required is to show that the prudent insurer would have wished to know about the circumstance when reaching its decision.

2. It is unnecessary to show that the fact would have had a decisive effect on the insurer’s acceptance of the risk or the amount of premium demanded.

   • Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501: A 'mere influence' was enough. It didn’t have to be as impactful as in Container Transport International Inc v Oceanus Mutual Underwriting Association (Bermuda) Ltd (CTI).

3. Held: The insured is bound to disclose material facts which might influence the judgment of a prudent insurer in deciding whether to accept the risk or in settling the premium.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

Material Circumstance; Insurance Act 2015; what are two examples of material circumstances?

1. Physical Hazards

• Definition: Facts about the insured subject (property, life, liability) that affect risk.

• Examples:

  • Life Insurance: Age, health, hobbies.

  • Buildings: Condition, security.

  • Motor Insurance: Vehicle type, mileage, driver details.

2. Moral Hazards

• Definition: Personal characteristics of the insured.

• Material Hazards:

  • Insurance History: Past claims/refusals.

  • Criminal Convictions: Dishonesty, fraud.

  • Non-disclosure: Must disclose prior convictions (unless "spent").

Key Case Examples:

1. Roselodge Ltd v Castle: Past smuggling conviction material.

2. Locker & Woolf v Western Australian Ins: Non-disclosure of motor refusal was material.

3. London Assurance v Mansel: Multiple declined life insurance policies non-disclosed.

Key Factors for Moral Hazards:

1. Dishonesty: Insurers consider fraud or dishonesty material.

2. Spent Convictions: Not required to disclose "spent" convictions under the Rehabilitation Act.

3. Outstanding Charges: Allegations, even if unproven, are material if related to the risk.

Disclosure Requirements:

• Materiality: Allegations of fraud or dishonesty must be disclosed.

• Good Faith: Insurers must inquire before avoiding policies based on non-disclosure.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

Material Circumstance; Insurance Act 2015; what are not material circumstances?

Non-Material Circumstances (Do Not Have to Be Disclosed)

1. Circumstances That Diminish the Risk

   • Example: Facts that reduce the risk of loss.

2. Circumstances Known or Presumed to Be Known by the Insurer

   • Example: Information already in the insurer’s possession or that they should reasonably know.

3. Circumstances Where the Insurer Waives Disclosure

   • Example: Information explicitly waived by the insurer.

Case Example: Berkshire Assets v AXA Insurance UK

• Situation: The insured failed to disclose that one of its directors was facing criminal charges in Malaysia (which were later dropped).

• Outcome: The failure to disclose was deemed a material circumstance. The insurer could avoid the policy as the internal policies indicated they would not have accepted the risk had they known about the charges, even though the charges were not related to fraud or dishonesty.

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH

Insurance Act 2015; Insurer’s knowledge generally and what are the types of knowledge?

[1] Primary Duty: Actual and Constructive Knowledge

• [A] Actual Knowledge:

  • An insured must disclose what they personally know or what is known to the individual(s) responsible for their insurance.

  • For an individual insured: This includes knowledge personally held by the insured or by individuals involved in procuring the insurance (e.g., employees, agents, brokers).

  • For non-individual insureds (e.g., corporations): The insured is deemed to know what is known to:

    • Senior management (e.g., board of directors, key decision-makers).

    • Individuals responsible for insurance (e.g., risk managers, insurance brokers).

  Case Example: Delos Shipholding SA v Allianz Global Corporate & Specialty SE:

  • Situation: The insurer could not avoid the policy for the alleged non-disclosure of a criminal charge against a director of the vessel's registered owner. The court determined the director had no role in managing the business, thus the insured was not deemed to know about the charges.

  • Conclusion: The court held the insured lacked the requisite knowledge of the criminal charges and did not need to decide on materiality, though it suggested that the charges would likely have been material to a prudent underwriter.

• [B] Constructive Knowledge:

  • Reasonable Search: The insured is deemed to know information that could have been revealed by a reasonable search of available information.

    • A reasonable search depends on the specific circumstances, including the size, nature, and complexity of the business.

    • The insured must also inquire with third parties, such as brokers or agents, to gather relevant information.

  [2] Secondary Duty:

  • The insured must provide sufficient information to alert a prudent insurer that further inquiries are needed to uncover material circumstances.

• Case Example: Young v Royal and Sun Alliance Plc:

  • Situation: The insured falsely answered a questionnaire about bankruptcy, failing to disclose their past involvement with insolvent companies.

  • Outcome: The court held that the insurer’s email did not waive the disclosure requirement because it was not a "limiting question."

PRE-CONTRACTUAL DUTY OF UTMOST GOOD FAITH: Duty of Disclosure and Representation by the Insured

Insurance Act 2015; How must the insured present information to a prudent insurer, and what are the standards for material representations?

KNOWLEDGE OF THE INSURER DURING PRE-CONTRACTUAL DISCLOSURE

Insurance Act 2015; What are the types of knowledge an insurer may be fixed with during pre-contractual disclosure?

KNOWLEDGE OF THE INSURER DURING PRE-CONTRACTUAL DISCLOSURE

CONSEQUENCES OF THESE PROVISIONS

Insurance Act 2015; What are the consequences for insurers regarding their obligations to gather and assess information during pre-contractual disclosure?

1. Onus on Insurers

   • The net effect of the provisions is that insurers bear the responsibility for gathering and assessing information they already have access to, or could reasonably access.

   • Failure to do so may prevent the insurer from exercising a remedy for non-disclosure.

2. Reasonable Search for Relevant Information

   • Insurers must carry out reasonable searches for relevant information within their organization, including the knowledge of their employees and agents.

   • They must also consider any relevant information held by third parties, such as reinsurers.

Active Approach

• Passive approach is not sufficient for insurers. They must be proactive by:
  a. Establishing systems and processes to identify when further inquiries need to be made before underwriting risks.
  b. Reviewing available information to ensure that those deciding on whether to accept risks have access to sufficient information.

• Examples of such processes include:
  i. Keeping internal records of the names and roles of individuals responsible for making underwriting decisions.
  ii. Establishing communication lines to ensure relevant information is shared widely among decision-makers.

Waiver

1. Waiver Due to Blank Responses

   • If a proposer leaves a question on the proposal form blank, and the insurer does not seek further information, this is typically treated as a waiver by the insurer of any duty of disclosure for matters covered by that question.

   • Example: If the proposer does not answer a question about prior claims and the insurer doesn’t ask for clarification, the insurer might be seen as waiving the disclosure requirement for that matter.

2. Exceptions to Waiver

   • The waiver does not apply if the blank answer suggests a negative answer to the question (i.e., if the answer should have been “no,” but is left blank). In this case, the failure to answer may be considered a breach of the duty of disclosure.

   • Example: If the question asks, “Has the insured ever had a claim?” and the proposer leaves it blank, it may imply a negative answer, resulting in a breach of duty.

3. Waiver of Specific Disclosure

   • The insurer may also be deemed to have waived the requirement to disclose certain information if the wording of the question indicates that the insurer is asking for specific details, but not other information.

   • Example: If the question asks only for disclosure of “losses in the last five years”, the insurer might waive the requirement for the proposer to disclose losses that occurred outside of that period.

CONSEQUENCES OF BREACH OF DUTY

Insurance Act 2015; What are the consequences for insurers when there is a breach of the duty of fair presentation, particularly regarding inducement and remedies?

[A] Affirmation

Birds’ Modern Insurance Law, 7-34

1. Prevention of Avoidance

   • An insurer will be prevented from avoiding the policy if it affirms the policy by doing something that suggests it is treating the policy as continuing.

   • Case Reference: Motor Oil Hellas (Corinth) Refineries SA v Shipping Corp of India (The Kanchenjunga) [1990] 1 Lloyd's Rep 391.

2. Conditions for Affirmation

   • Before affirmation can take place: a. The insurer must have full knowledge of the facts that would entitle it to avoid the policy (i.e., actual or constructive knowledge). b. The insurer must have a reasonable time to decide the course of action. It cannot be said to have affirmed the policy until this time has passed.

3. Election and Consistent Conduct

   • A party will be considered to have made an election (to affirm or terminate) if:
     a. The party acts in a manner consistent with its chosen option (either affirming or terminating).
     b. The election is made with knowledge of the relevant facts.

4. Communication of Termination

   • If the insurer wishes to terminate the policy, the election must be communicated clearly through words or conduct.

   • The election will only be binding if it is communicated in clear and unequivocal terms.

5. Determining "Unequivocal" Communication

   • Whether a communication is "unequivocal" depends on how a reasonable person (in the insured’s shoes) would interpret the insurer’s words or conduct.

[B] Contracting Out / Excluding Remedies for Breach

Birds’ Modern Insurance Law, 7-33

1. Permitted Exclusion of Remedies

   • Parties are allowed to contract out of the duty of fair presentation and the remedies available to insurers for a breach of that duty, provided the insurer complies with the transparency requirements set out in section 17 IA 2015.

[1] Transparency Requirements

1. Steps for Effective Clause

   • For a clause excluding the IA 2015 to be effective:
     a. The insurer must take sufficient steps to draw the insured’s attention to any clause that places the insured in a worse position regarding any matter covered by the Act.
     b. The clause must be clear and unambiguous in its effect.

2. Factors Considered by the Court

   • When determining if the transparency requirements have been met, the court will consider:
     a. The characteristics of the insured, and
     b. The circumstances of the transaction.

   • Reference: Section 17(4).

3. Knowledge of the Clause by the Insured

   • If the insured or its agent (e.g., broker) knows of the clause excluding the IA 2015, they cannot rely on the failure to follow the transparency clause.

   • Reference: Section 17(5).

REMEDIES FOR THE INSURER DEPENDING ON THE BREACH OF DUTY

Insurance Act 2015; What are the available remedies for the insurer when there is a breach of the duty of fair presentation, and how do they differ based on whether the breach was deliberate or reckless?

REMEDIES FOR THE INSURER DEPEND ON WHETHER THE BREACH WAS DELIBERATE OR RECKLESS
Birds’ Modern Insurance Law, 7-32

The remedy available to the insurer depends on whether the insured’s breach was:

1. Deliberate or Reckless

2. Neither Deliberate nor Reckless

1. Breach of Duty: Remedy under the 2015 Act

• The Act does not prescribe a remedy when:

  • There is a breach, but

  • The insurer is still liable to pay out on the claim.

• This is left to the terms of the contract.

[A] If the breach was deliberate or reckless:

1. The insurer may: a. Avoid the contract of insurance
   i. The insurer will refuse all claims under the policy, including those previously settled. b. Retain any premiums paid
   i. Paragraph 2, Schedule 1, IA 2015
   ii. Contrast with old law: Under the previous law, insurers had to return any premiums to the insured.

[B] If the breach was neither deliberate nor reckless:

1. If the insurer WOULD NOT have entered the contract at all, on any terms:

   • The insurer may: a. Refuse all claims under the contract.
     b. Must return the premium

     • Paragraph 4, Schedule 1, IA 2015

2. An insurer must not unreasonably reject a claim, including by terminating or avoiding a policy.

   • ICOBS, Rule 8.1.1

   • ICOBS 8.1.1R: Requires the insurer to apply legal principles fairly and reasonably when handling claims.

3. If the insurer WOULD have entered into the contract:

   • [B][2][A] But on different terms (other than premium):

     • The contract is treated as if it had been entered on those altered terms.

     • Example: If the insurer would have added an exclusion, the claim will be considered with that exclusion from the outset.

   • [B][2][B] But would have charged a higher premium (but all other terms would stay the same):

     1. The amount recoverable under the policy will be proportionately reduced.

     2. Formula for calculation:

        • If the premium paid is 50% of what would have been required, the insured can only recover 50% of the claim.

   • [B][2][C] But would have charged a higher premium AND imposed different terms:

     1. The contract will be treated as if it had been entered with those different terms.

     2. The insured will only be able to recover a proportionately smaller amount based on the formula set by the Act.

CONSEQUENCES OF BREACH OF DUTY

Insurance Act 2015; What are the consequences for insurers when there is a breach of the duty of fair presentation, particularly regarding inducement and remedies?

1. Insurer's Responsibility

   • To be entitled to a remedy, an insurer must prove it was induced by the breach to enter into the contract of insurance on the terms it did, or at all.

2. Proving Inducement

   • The insurer must prove that, but for the breach, it would have:
     a. Not entered the insurance contract, or
     b. Entered on different terms (s8).

3. Not Necessary to Show Sole Cause

   • The insurer does not have to prove that non-disclosure or misrepresentation was the sole cause of entering into the contract, but it must show that the breach was effective in inducing the insurer to enter the contract on the terms it did.

4. Inducement Cannot Be Made Out If

   • If it is shown that the insurer would have entered the contract on the same terms regardless of the breach, then inducement will not be established.

   • Case Reference: Assicurazioni Generali Spa v Arab Insurance Group (B.S.C.) [2002] EWCA Civ 1642.

5. Presumption of Inducement

   • In cases of obviously material facts, the court may infer inducement even without direct evidence from the insurer.

   • Case Reference: St Paul Fire & Marine Insurance Co (UK) Ltd v McDonnell Dowell Constructors Ltd [1995] 2 Lloyd’s Rep. 116.

---

EXTRA – READING (P. 115)Court's Approach to Inducement

1. Case Reference: March Rich & Co AG v Portman

   • Judge's Ruling: The court narrowed the scope of inducement, stating it triggers only when the insurers fail to give evidence for good reason. The judge emphasized that the insurer must prove that non-disclosure induced the writing of the risk.

2. Inducement Not the Sole Cause

   • Case Reference: Assicurazioni Generali SpA v Arab Insurance Group (BSC)

     • Non-disclosure or misrepresentation doesn’t need to be the sole inducement, but it must effectively cause the insurer to enter into the contract.

3. Clarke LJ's Principles:
   a. To avoid a contract of insurance or reinsurance, the insurer must prove on balance of probabilities that they were induced by material non-disclosure or misrepresentation.
   b. There is no presumption of inducement under the law based on non-disclosure or misrepresentation.
   c. Inducement can be inferred from evidence even in the absence of direct evidence from the insurer.
   d. To prove inducement, the insurer must show that non-disclosure or misrepresentation was effective in causing the insurer to enter into the contract on the terms they did.

   Example: If non-disclosure led to an insurance contract on terms different from what would have been offered, the insurer must show that but for the breach, they would not have entered the contract, or would have done so on different terms.

4. Section 8(1) of the Insurance Act 2015:

   • Adopted for Commercial Insurance

   • Insurers must show that, but for the misrepresentation or non-disclosure, they would not have provided the risk or would have done so under different terms.

   • It doesn’t need to be the sole reason but must be a sufficient cause.

Cases Involving Inducement

1. Case Reference: Drake Insurance plc v Provident Insurance plc

   • Insurer’s Claim: The insured failed to disclose a speeding conviction, and the insurer sought to avoid the policy.

   • The court found that even if the speeding conviction had been disclosed and the insurer had charged a higher premium, the insurer's past accident history would have reduced the premium to normal levels.

   • Conclusion: When determining inducement, the court examined what would have happened had full disclosure been made.

2. Case Reference: Lewis v Norwich Union Healthcare Ltd

   • Facts: The insured failed to disclose a GP visit where they complained of health issues, later leading to lower-back issues that forced them to give up work.

   • The court emphasized that inducement depends on actual underwriting. The insurer failed to prove that the underwriter was induced to enter the contract based on the non-disclosure.

   • Conclusion: Inducement is not based on hypothetical decisions but on the actual underwriter's actions.

3. Case Reference: Assicurazioni Generali SpA v Arab Bank

   • Facts: The court stressed the importance of underwriter evidence and clarified that an insurer cannot claim inducement based on poor evidence or general practice.

4. Case Reference: Berkshire Assets (West London) Ltd v Axa Insurance UK Plc

   • Facts: Insurers could rely on their internal guidelines showing that if the risk had been disclosed, the insurer would have refused it or imposed stricter terms.

   • Outcome: The court found that the insurers had proven inducement due to failure to disclose criminal convictions.

5. Case Reference: Synergy Health (UK) Ltd v CGU Insurance Plc

   • Facts: The insurer failed to prove that the non-disclosure of an intruder alarm had induced them to renew the policy.

   • Conclusion: Past practice where conditions were not strictly enforced undermined the claim for inducement.

Proving Inducement Statutory Requirements

1. Proof of Inducement

   • To establish inducement, the insurer must produce evidence to show that the breach of duty (e.g., non-disclosure or misrepresentation) induced the insurer to enter the contract on the terms it did.

2. Failure to Prove Inducement

   • If the insurer fails to prove inducement, then the insured will not have to provide a remedy under the policy.

3. Causal Link

   • Insurers must demonstrate a causal link between the withheld or misstated information and the insurer’s underwriting decision.

   • Case Reference: Zurich Insurance PLC v Niramax Group Ltd

     • The insurer failed to prove that a misclassification of risk was the cause of the underwriting decision. The court ruled that the insurer had made an error in classification, and there was no causal link between the breach and the premium increase.

CONSUMER CONTRACTS; DUTY OF FAIR REPRESENTATION

What is the overview?

Overview

The Duty of Fair Representation is a fundamental principle in insurance law that requires the insured (the policyholder) to present all material facts truthfully and fully when entering into an insurance contract. This duty is particularly relevant for consumer contracts, where the insurer is a commercial entity and the policyholder is an individual or non-commercial entity.

The purpose of this duty is to ensure that the insurer has a complete and accurate picture of the risk it is underwriting. This allows the insurer to make an informed decision about whether to provide coverage and at what terms.

Key Principles of the Duty of Fair Representation

1. Full Disclosure

   • The insured must disclose all material facts that might influence the insurer’s decision to provide insurance and the terms on which it is provided.

   • Material facts are those that a prudent insurer would need to know to assess the risk accurately.

2. Duty Extends Beyond Specific Questions

   • The duty is not limited to responding to direct questions from the insurer. The insured must also disclose any information that is material, even if not specifically requested.

   • Example: If the insured knows about previous claims or existing risks that could affect the policy, they must disclose that information even if not directly asked about it.

3. Misrepresentation and Non-Disclosure

   • Misrepresentation occurs when the insured provides false or misleading information.

   • Non-disclosure refers to failing to provide relevant information that the insurer would reasonably expect.

   • Effect: If the insurer discovers misrepresentation or non-disclosure, it may lead to the insurer exercising remedies such as avoiding the policy, refusing claims, or reducing claims payouts.

4. Consumer Insurance Contracts Act 2012 (in UK)

   • Under this Act, a consumer policyholder must take reasonable care to ensure the accuracy of the information provided to the insurer, in contrast to the older requirement for full disclosure. This reduces the burden on consumers compared to commercial contracts, which still require the insured to make a full disclosure.

   • If a consumer fails to disclose a fact, the insurer's remedy depends on whether the failure was deliberate or reckless, or whether it was an honest mistake.

Consequences of Breaching the Duty of Fair Representation

1. Avoidance of the Policy

   • If the insured fails to meet the duty of fair representation, the insurer may have the right to avoid the policy. This means the insurer would be entitled to treat the contract as if it never existed.

2. Refusal to Pay Claims

   • The insurer may refuse to pay out claims if they can prove that the non-disclosure or misrepresentation influenced the underwriting process. In cases of deliberate or reckless breach, the insurer is likely to avoid the contract entirely.

3. Reduction in Claim Payment

   • If the non-disclosure or misrepresentation is not deemed deliberate or reckless, the insurer may only reduce the amount payable on a claim in proportion to the premium that would have been charged had the correct information been disclosed.

Statutory Framework for Consumer Contracts

In the UK, the Consumer Insurance (Disclosure and Representations) Act 2012 governs the duty of fair representation in consumer contracts. Some key provisions include:

1. Reasonable Care Standard

   • Consumers must take reasonable care to avoid making false or misleading statements when providing information to insurers.

2. Test of Materiality

   • Whether a fact is considered material depends on whether it would have influenced a reasonable insurer's decision to accept the risk or set the terms.

3. Remedies Available to Insurers

   • The Act outlines the remedies an insurer can seek if a breach of duty occurs, ranging from avoiding the policy to reducing the payout based on the actual premium paid.

Key Differences Between Consumer and Commercial Contracts

1. Consumer Contracts

   • Under the Consumer Insurance Act, the burden of disclosure on the consumer is lighter than on commercial entities. The consumer only needs to take reasonable care to ensure accurate and truthful representation.

   • If a consumer breaches the duty unintentionally, the insurer cannot automatically avoid the policy but must consider the severity of the breach.

2. Commercial Contracts

   • In commercial insurance contracts, the insured must make a full and fair representation of the facts, regardless of whether the insurer asks about specific risks. This is a stricter duty compared to consumer contracts, and failure to comply can result in more severe consequences for the insured.

Case Law Examples in Consumer Contracts

1. Hayward v Zurich Insurance Co Ltd

   • In this case, the court found that the insurer had a valid reason to avoid the contract after the consumer failed to disclose certain information. This reinforced the principle that consumers must disclose all material facts.

2. Candey Ltd v Thomas

   • The case reaffirmed that even in consumer contracts, insurers are entitled to avoid the contract for non-disclosure of material facts, even if the consumer did not intend to mislead the insurer.

Practical Considerations for Insurers and Consumers

• For Insurers: It is essential for insurers to establish clear procedures for assessing the risk based on the information provided by the consumer. If the insurer does not act reasonably in evaluating this information, they may face difficulties in avoiding claims or pursuing remedies for non-disclosure.

• For Consumers: Consumers should be proactive in disclosing any relevant information, even if they are not explicitly asked about it. It is also advisable for consumers to ask their insurer for clarification if they are unsure about what information they need to provide during the proposal stage.

1. Duty to take reasonable care not to make misrepresentation to insurers

   • Mainly relevant where a misstatement is made by an insured on a proposal form or in response to a question posed by the insurer.

[A] ‘Reasonable care’ – insured consumer must take
i. ‘Reasonable care’ is judged by the standard of a reasonable consumer in light of all relevant circumstances (Objective test).

[A][1] Relevant circumstances include (s. 3):

• [A][1][a] The type of policy and its target market.

• [A][1][b] Any relevant explanatory material or publicity produced or authorised by the insurer.

• [A][1][c] Clarity and specificity of the insurer’s questions.

• [A][1][d] How clearly the insurer communicated the importance of answering questions or the possible consequences of failure to answer on renewal or variation.

• [A][1][e] Whether an agent was acting for the consumer.

[A][2] The insurer should also consider any

• [A][2][a] Characteristics or circumstances of the actual consumer that they know or ought to know.

[A][3] A dishonest misrepresentation

• [A][3][a] Is always considered as being made without reasonable care.

Insurer only entitled to a remedy if the insured’s misrepresentation is a ‘qualifying misrepresentation’

[A] Qualifying misrepresentation

1. Deliberate or reckless

   • i. This is where the consumer:

     1. Knew that, or did not care whether, the misrepresentation was untrue or misleading; and

     2. Knew that, or did not care whether, the subject matter was relevant to that insurer.

   • ii. If the misrepresentation was deliberate or reckless, the insurer can:

     1. Avoid the contract (i.e. treat it as if it never existed);

     2. Refuse all claims;

     3. Retain the premium

   • iii. UNLESS, it is unfair to the consumer

2. Careless

   • i. The available remedy depends on what the insurer would have done had the misrepresentation not been made:

     1. If the insurer would not have entered into the contract at all: the insurer can:

        • a. Avoid the contract; and reject any claims

     2. If the insurer would have entered into the contract, but on different terms (except as regards the amount of premium):

        • a. The contract is to be treated as if it was entered into on the different terms; and

        • b. The insurer may terminate the contract (note, this is not avoidance, it is termination from the date of discovery of the breach, so the insurer will remain liable for prior claims).

     3. If the insurer would have entered into the contract, but charged a higher premium:

        • a. The insurer will pay a proportion of the claim, reduced in line with the ‘reduced level of premium that has actually been charged’; and

        • b. The insurer may terminate the contract (as above, this is not avoidance, but termination from the date of discovery of the breach, so the insurer will remain liable for prior claims).

3. HOWEVER, Innocent misrepresentation doesn’t amount to qualifying misrepresentation

[A] Burden of proof: on the insurer to show that the consumer acted deliberately or recklessly 

 

[B] Where the insurer asks a clear question, the insured is presumed to have known that a matter was relevant to the insurer 

[1] s7, CIDRA 2012 contains a “group insurance provision”.

 

[2] Where a group policy benefits one or more consumer, a breach by one consumer does not affect the contract concerning other consumer beneficiaries.

1] s8, CIDRA 2012 deals with where someone takes out insurance on the life of another.

 

[2] Information provided by the life insured is treated as if it was provided by the party to the contract.

 

[3] This means that the life insured's knowledge is relevant for determining a breach of duty and the type of breach.

Agency
Birds’ Modern Insurance Law, 7-14

1. Consumer contracts are often effected through an intermediary, such as a broker.

2. It can sometimes be difficult to determine whether that intermediary is acting as an agent of the insured, or an agent of the insurer. Accordingly, s9 and Sch 1 CIDRA 2012 provide rules for determining this (for the purposes of CIDRA 2012 only).

---

If the agent is the insurer’s agent

1. The agent is the insurer’s agent if they do something in their capacity as an appointed representative of the insurer.

2. When they collect information from the consumer, having been expressly authorised by the insurer to do so; and

3. When they enter into the contract as the insurer's agent, having been given express authority to do so.

Indicators that the intermediary is acting for the insurer include:

• [a] Agent places insurance with only a small proportion of the insurers who provide the relevant type of insurance;

• [b] Insurer provides the relevant insurance through only a limited number of agents;

• [c] Insurer permits the agent to use the insurer’s name in providing the agent’s services;

• [d] Insurance in question is marketed under the name of the agent; and

• [e] The insurer asks the agent to solicit the customer’s custom.

---

If the agent is the insurer’s agent

1. This is presumed in all circumstances, unless contrary to the appearance in light of all relevant circumstances.

Indicators that the intermediary is acting for the insured include:

• [a] The agent undertakes to give impartial advice to the consumer;

• [b] The agent undertakes to conduct a fair analysis of the market;

• [c] The consumer pays the agent a fee.

BUSINESS INTERRUPTION INSURANCE 

What is a business interruption insurance?

1.1 Business interruption insurance covers a business where its normal business operations are disrupted or interfered with by a specific event.

1.2 The policy will provide cover for financial losses for an agreed period of time, known as the “indemnity period”, following a trigger event which interrupts the business’s activities.

1.3 The indemnity period estimates the time during which the interruption is likely to cause loss.

1.4 “Interruption” does not require complete closure of a business; for example, if a restaurant is unable to open its doors to the public, but still able to serve takeaways, it still suffers an interruption.
Financial Conduct Authority v Arch Insurance [2021] UKSC 1

BUSINESS INTERRUPTION INSURANCE 

What can be recovered and what does it mean to include a ‘trends’ clause on the policy?

What can be recovered?
MacGillivray on Insurance Law; 24-156 – 24-161

1. The amount recoverable is the loss of business revenue attributable to the insured peril.

2. Determining the loss involves:

   2.1 Estimating the revenue the business would have earned in the indemnity period, had the insured event not occurred.

   2.2 Comparing this with the actual performance of the business during the indemnity period.

3. To calculate the recoverable amount, a ‘trends clause’ may be included.

The policy may include a ‘trends’ clause
MacGillivray on Insurance Law; 24-156 – 24-161

1. A trends clause allows insurers to adjust the claim amount to account for fluctuations in business performance unrelated to the insured peril.

2. The revenue estimate for the indemnity period can be adjusted upwards if, for example, the market was depressed in the year before the event due to external factors.

3. Similarly, the claim amount can be adjusted downwards if the insurer proves that previous years’ revenue was artificially inflated, or if revenue would have declined even without the insured peril.

4. A trends clause should only consider external factors that are unrelated to the insured event.

   • For instance, if Covid-19 caused a business interruption, insurers cannot argue that the underlying trends of the pandemic would have reduced demand regardless of the business’s ability to operate.

Example of a trends clause in action:

1. Before Covid-19, your restaurant was thriving.

2. Covid-19 hits, reducing foot traffic and causing a revenue drop.

3. You file a claim for business interruption insurance.

4. The insurer tries to reduce your payout, arguing that even if you had stayed open, customers would have avoided restaurants due to fear of Covid-19.

5. The court rules that the insurer cannot argue this, as Covid-19 is the insured event, and the payout should be based on what the business would have earned without the pandemic.

6. You receive a payout based on your pre-pandemic earnings, not affected by external fears of Covid-19.

Scenario with pre-existing business struggles:

1. Your restaurant was already struggling due to factors like bad reviews, local competition, or economic downturn before Covid-19.

2. If a fire occurs and forces your business to close, the insurer will reduce the payout, because:

   2.1 The insurance is meant to restore your business to its pre-event state, not improve it.

   2.2 Since your business was already facing a decline, the insurer will adjust the payout based on your recent revenue, not peak earnings.

Example:

• Early 2023: Restaurant revenue is £10,000/month.

• Late 2023: Due to bad reviews and competition, revenue drops to £5,000/month.

• January 2024: A fire forces the business to close for repairs.

• The insurer covers the lost revenue based on £5,000/month, not £10,000/month, as that reflects the actual trend before the fire.

Comparison with the Covid-19 Example:

• Fire scenario: Insurers consider pre-existing struggles (e.g., poor reviews, competition).

• Covid-19 scenario: Insurers cannot argue that Covid-19 would have hurt the business regardless, because Covid-19 itself is the insured event.

BUSINESS INTERRUPTION INSURANCE 

What are the triggers for cover?

What are the triggers for cover?
MacGillivray on Insurance Law; 24-091 – 24-098

1. An insured can only claim on their business interruption insurance if the cover is triggered by a particular event.

2. There are two categories of triggers:

   2.1 Material damage to insured property.

   2.2 Secondary triggers (which do not require material damage), such as disease outbreaks.

Material Damage

1. Business interruption insurance is often part of a broader “property insurance” policy, and typically, a material damage claim under that policy is required to trigger business interruption coverage.

2. The purpose is to ensure that building repairs or replacements (covered by the “material damage” section) are made, allowing the business to resume trading and minimizing the interruption.

BUSINESS INTERRUPTION INSURANCE 

What amounts as ‘damage’?

1. Damage requires:

   1.1 A physical alteration to a product, or
   1.2 Impaired value or usefulness of the property.

2. In the case of Ranicar v Frigmobile Pty Limited [1983] Tas R113, the court ruled that storing scallops at a temperature above what was prescribed for export, causing the scallops to be rejected, amounted to damage because there was a physical change to the product.

3. Damage can also occur when a defective product is mixed with another to create an end product, resulting in a physical change to the insured property.

   • Example: Pilkington UK Ltd v CGU [2004] EWCA Civ 23: The installation of defective windows in a train station did not cause damage, as it did not alter the physical condition of the station itself.

   • Example: Tioxide Europe Ltd v CGU International Insurance plc [2004] EWHC 2116: A defective whitening pigment used in PVC doors caused the doors to turn pink, which was ruled as physical damage to the larger item.

4. What constitutes “damage” depends on the specific wording of the material damage provision in the policy.

5. If the policy does not use the word “physical,” it may imply that a physical change to the property is not necessary, and "loss" could occur due to mere deprivation of use, as seen in TKC London Ltd v Allianz Insurance Plc [2020] EWHC 2710 (Comm).

6. Example of “impaired value or usefulness” amounting to damage:

   • Losinjska Plovidba v Transco Overseas (The Orjula) [1995] CLC 1325: A ship was rendered unusable for a period after acid spilled on it due to negligence. Even though no permanent physical damage occurred, the court ruled it was still damage because the ship's value and usefulness were impaired.

BUSINESS INTERRUPTION INSURANCE 

What are the requirements for damage

1. The damage must arise due to a “fortuity”

   • The damage must be unexpected or unintended.

   • If the event was inevitable (e.g., the foundations of a building were flawed due to poor construction), it is not considered accidental damage, as seen in Leeds Beckett University v Travelers Insurance Co Ltd [2017] Lloyd's Rep. IR 417.

2. The damage must occur during the policy term.

   • Material damage must occur during the policy period for a business interruption claim to be valid.

3. Exclusions from the material damage cover.

   • If an event is excluded from the material damage cover under the policy, there can be no business interruption claim, as shown in Whaitiri Potato Co Ltd v IAG (NZ) Ltd (2006) 14 ANZ Ins Cas 61–675.

4. Property that is not owned by the insured.

   • An insured may recover for property used in their business, even if it is not owned by them (e.g., damage to ski lifts as seen in State Insurance Ltd v Ruapehu Alpine Lifts Ltd (1999) 10 ANZ Ins Cas 61–435).

5. Policies covering civil authority actions in “conflagration or other catastrophe.”

   • Some policies cover losses caused by “civil authority actions during a conflagration or other catastrophe,” provided the civil authority’s actions result in physical loss or damage (e.g., Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2021] FCA 907).

   • Note: This would not cover losses from actions like government-imposed lockdowns due to Covid-19, as these do not involve physical damage.

BUSINESS INTERRUPTION INSURANCE 

What amounts as Secondary triggers?

• Business interruption policies may have alternative triggers for cover besides material damage. These secondary triggers typically require a connection to the insured premises and may include:

  • Disease outbreaks (typically limited to outbreaks "in the locality," i.e., within a certain radius),

  • Government-ordered closures,

  • Other events impacting access to the premises.

• The Covid-19 pandemic brought such clauses under close scrutiny, leading to the decision in Financial Conduct Authority v Arch Insurance [2020] EWHC Comm 2448.

BUSINESS INTERRUPTION INSURANCE 

Secondary triggers; what happened during the COVID-19 case?

Facts and Background of the Covid-19 Case

1. Covid-19 outbreak: From March 2020, the UK Government introduced measures to prevent the transmission of the disease, including lockdowns, which required people to stay at home and businesses to close.

2. Impact on policyholders: The scale of the event led to thousands of policyholders seeking to claim business interruption insurance. Without physical damage, policyholders sought to rely on secondary triggers.

3. Claims rejection: Many claims were rejected, as insurers argued the extensions were intended for local events, not events affecting the entire nation.

4. Test case: The Financial Conduct Authority (FCA) worked with insurers on a test case that involved 21 policies representing 7,000 others, covering 380,000 policyholders.

5. Court consideration: The Supreme Court considered three types of "trigger" wording:

   • Disease Clauses

   • Prevention of Access Clauses

   • Hybrid Clauses (combining both elements).

BUSINESS INTERRUPTION INSURANCE 

Secondary triggers; what do the Disease Clauses state?

Disease Clauses

1. Disease clause: This covers business interruption losses resulting from any occurrence of a notifiable disease within a specified geographical radius (usually 25 miles) of the insured premises.

2. Insurers' argument: Insurers argued that Covid-19 was not covered, as it was a national or international disease, not one confined within a local radius.

3. Supreme Court ruling: The court disagreed, interpreting the term "occurrence" to mean something that happens at a specific time, place, and in a specific way. Each case of illness caused by Covid-19 within the radius was considered a separate occurrence, triggering the clause.

4. Causation: Insurers argued that the business interruption would have occurred regardless of the local outbreak, as the wider Covid-19 pandemic affected the entire nation. The court held that "but for" causation was not required. Instead, the insured peril (local outbreak) must be a proximate cause of the loss.

5. Outcome: The policyholder could prove that business interruption was proximately caused by an occurrence of Covid-19 within the geographical area covered by the clause.

BUSINESS INTERRUPTION INSURANCE 

Secondary triggers;What do the prevention of access clauses and hybrid clauses state?

Prevention of Access Clauses and Hybrid Clauses

1. Prevention of access clauses: These cover business interruption when the insured is unable to access their premises due to restrictions imposed by public authorities.

2. Hybrid clauses: These clauses contain both disease and prevention of access elements, and the key issue was whether the clause required the government measure to be legally enforced or if it could be triggered by non-legally binding instructions.

3. Supreme Court ruling:

   • The court held that "imposed" was broader than legal compulsion and could include instructions by public authorities even if not backed by law.

   • The restriction would be considered a "restriction imposed" if it had the imminent threat of legal compulsion or was clearly mandatory, requiring compliance.

4. Impact on the business: If the business was unable to operate fully due to a restriction (e.g., a restaurant unable to serve seated customers), cover would be triggered, even if some activities (e.g., takeaways) could still continue.

5. Physical closure: In cases where the clause required "closure" of the business, physical closure was required, meaning a ban on entry, not merely the cessation of business activities.

6. Causation for hybrid clauses: If there were concurrent insured and uninsured perils (e.g., Covid-19 and other unrelated events), losses were still covered as long as the insured peril (local event) was a proximate cause of the business interruption.

7. If the insured peril wasn't the proximate cause, and the sole cause was the wider Covid-19 pandemic, no indemnity would be paid.

BUSINESS INTERRUPTION INSURANCE 

Secondary triggers; what are the exceptions?

Exceptions to Secondary Triggers

1. Non-material damage triggers often have exceptions that limit coverage.

2. Arch case conclusion: The court ruled that exceptions should not undermine the cover provided by the extension. Even if clauses seemed inconsistent, they should not nullify the coverage unless a reasonable person would interpret them as doing so.

BUSINESS INTERRUPTION INSURANCE 

How are premium dealt with under business interruption insurance?

The Premium

1. Gross Profits Basis:

   • Business interruption insurance is typically arranged on a gross profits basis. This means that the coverage is based on the insured’s estimate of their gross profits for the upcoming year.

   • The premium is calculated based on this estimated gross profit figure.

2. Underinsurance and Proportional Reduction:

   • If the insured's actual gross profits exceed the amount they insured, and a loss occurs, the principle of average applies.

   • Average means that any claim payment is proportionally reduced to reflect the degree of underinsurance. In simple terms, the insured will bear part of the loss themselves, acting as their "own insurer" for the portion of the gross profits that was not covered.

3. Declaration Linked Basis:

   • Alternatively, some policies are declaration-linked. In this case, the insured estimates gross profits for the upcoming year and pays an interim premium.

   • At the end of the year, the premium is adjusted according to the actual gross profits, with the amount being capped.

Example:

• If you predict £10 profit: Insurers cover you for £10.

  • If you actually make £12, you would owe extra premium for the additional £2 profit.

• If you predict £13 profit: Insurers cover you for £13.

  • If you actually make £8, you may receive a refund, but not necessarily for the full £5. Insurers often set a minimum retained premium, such as 75% of the estimated premium.

BUSINESS INTERRUPTION INSURANCE 

What are the losses covered?

Losses Covered

1. Indemnity Period:

   • The policy typically covers financial losses during a fixed "indemnity period", which is often 12 months starting from when the insured peril occurs.

2. Adjustment for Saved Expenses:

   • The total loss of revenue is adjusted to account for any expenses saved as a result of the business shutdown (e.g., utilities, staff costs). These saved costs will not be included in the claim for losses.

3. Mitigation Costs:

   • Some policies cover the costs of mitigation if they were “necessarily and reasonably incurred” to avoid or reduce the impact on turnover. This would include actions taken by the insured to minimize the financial impact of the interruption.

4. Losses Within the Indemnity Period:

   • Losses that are made good (i.e., recovered or compensated) within the indemnity period can be considered by insurers. However, losses recovered outside of the indemnity period will not be accounted for in the claim.

5. Profits After the Indemnity Period:

   • Courts may consider profits made after the indemnity period to determine the trend of profitability of the business and to help quantify the insured’s total loss.

   • A relevant case example is Sugar Hut Group Ltd v AJ Insurance [2014] EWHC 3352 (Comm), where the court evaluated how to handle profits made post-indemnity period in relation to the business's overall profitability.

BUSINESS INTERRUPTION INSURANCE

What does this insurance say about ‘increased costs of working’?

• Coverage for Increased Costs:

  • Business interruption policies will cover the increased costs of working incurred as a result of the insured peril. This could include additional expenses the business incurs to continue operations despite the disruption.

• Coverage Beyond the Indemnity Period:

  • These increased costs are recoverable in full, even if they extend beyond the indemnity period, unless the policy explicitly specifies otherwise.

  • Case Reference: Synergy Health (UK) Ltd v CGU Insurance Plc [2010] EWHC 2583 (Comm), where the court ruled that the insured could recover increased working costs even if incurred after the indemnity period had expired.

BUSINESS INTERRUPTION INSURANCE

What does it say about deductibles?

1. Excess/Deductible Clause:

   • Some business interruption policies include an excess or deductible clause, which means the insured is required to bear the first portion of any loss. Only the amount exceeding the deductible will be covered by the insurance policy.

2. Complexity in Calculating Deductibles:

   • The calculation of the deductible can sometimes be complex. For example, it may be based on the value of the affected site, rather than a fixed amount or percentage.

3. Impact on Extensions of Cover:

   • If the business interruption policy includes extensions of cover (e.g., covering damage to stock or merchandise), it may be ambiguous whether the deductible applies to these extended claims. This requires careful interpretation of the policy wording.

4. Exceeding the Deductible:

   • For the coverage to engage, the loss must exceed the deductible amount. If the total loss does not exceed the deductible, no claim payment will be made.

   • Case Reference: Ted Baker Plc v Axa Insurance UK Plc (No.2) [2017] EWCA Civ 4097, where the insured was unable to recover from the deductible because the loss did not exceed the deductible threshold for any specific event.

BUSINESS INTERRUPTION INSURANCE

What does it say about causation?

1. Causation Requirement:

   1. The insured must prove that the policy trigger (e.g., the specific insured peril, like material damage or disease outbreak) was the cause of the loss. If another cause was responsible for the loss, the claim may not be covered.

2. Proximate Cause:

   1. The trigger must be a proximate cause of the loss, meaning it must be the dominant, effective, or operating cause of the loss, but it does not need to be the immediate or direct cause.

3. Case Reference: Leyland Shipping Co v Norwich Union Fire Insurance Society [1918] A.C 350, which discusses the requirement for proximate causation, clarifying that the proximate cause need not be the immediate cause.

4. Commercial Decisions and Exclusion:

   1. Losses caused by the insured’s own commercial decisions are typically not covered. For example, if a cruise ship company decides to rearrange sailings due to a terrorist attack, this decision would not be covered by business interruption insurance if it was the sole cause of the loss.

5. Case Reference: IF P&C Insurance Ltd v Silversea Cruises Ltd [2004] Lloyd’s Rep. I.R. 696, which ruled that losses resulting from the insured’s own commercial decisions are not covered.

6. Concurrent Insured and Uninsured Perils:

   1. If a business interruption is caused by a combination of an insured peril and other external, uninsured causes, "but for" causation (the idea that the loss would not have occurred without the insured peril) is not required.

   2. The insured must show that the insured peril was a proximate cause of the loss, and the loss from the uninsured peril must not be excluded from coverage.

   3. Case Reference: Financial Conduct Authority v Arch Insurance [2020] EWHC Comm 2448, where the court ruled that the insured peril could still trigger coverage even if concurrent uninsured causes were involved.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

REGULATING INSURANCE COMPANIES

Protection of Policyholders - Financial Services Compensation Scheme (FSCS)

• What are the conditions for FSCS Compensation

Conditions for FSCS Compensation

1. Eligible Claimant

   • To receive compensation, the claimant must be an eligible claimant. This generally excludes certain groups, such as large businesses or entities that contributed to the insurer’s failure.

   • In practice, this means that private individuals and small businesses are most commonly eligible for protection.

2. Persons Who Are Not Eligible

   • Ineligible claimants as specified in Policyholder Protection 7.2 of the PRA Rulebook include:

     • Most firms authorized under FSMA 2000.

     • Certain other financial institutions.

     • Pension and retirement funds.

     • Governments and local authorities.

     • Directors of the insurer in default.

     • Persons responsible for or who have contributed to the insurer’s default.

     • Companies within the same group as the insurer in default.

     • Certain companies, partnerships, and mutual associations.

     • Persons convicted of a money laundering offence in connection with the claim.

     • Non-natural persons (such as corporations) making claims under protected debt management business.

3. Application for Compensation

   • The claimant must submit an application for compensation to the FSCS via its online portal.

4. Protected Claim

   • The claim must be a protected claim made under a protected contract of insurance. A protected claim refers to a valid claim under an insurance policy that meets specific criteria.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

REGULATING INSURANCE COMPANIES

Protection of Policyholders - Financial Services Compensation Scheme (FSCS)

• What is the overview

• The Financial Services Compensation Scheme (FSCS) is a statutory compensation fund designed to protect customers of most financial services authorized under the Financial Services and Markets Act (FSMA) 2000. The primary purpose is to safeguard policyholders financially in the event that a financial service provider (including insurers) becomes insolvent.

• The FSCS is funded by levies on authorized firms and provides compensation up to certain limits to eligible customers, including policyholders.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

REGULATING INSURANCE COMPANIES

Protection of Policyholders - Financial Services Compensation Scheme (FSCS)

• What categories do protected contracts of insurance fall under?

Protected Contracts of Insurance

A protected contract of insurance falls into one of three categories:

1. Category 1: Contracts Issued Before 1 December 2001

   • This includes:

     • General, credit, or long-term insurance policies.

     • A UK policy as defined in the Policyholders Protection Act 1975, meaning the insurer was conducting insurance business in the UK at the start of the liquidation.

     • Employer’s liability insurance policies entered into before 1 January 1972, where the claim is agreed after the insurer’s default, and the risk was in the UK.

2. Category 2: Contracts Issued by Insurers from EEA States

   • The insurance must be issued by an insurer authorized in another European Economic Area (EEA) state, with the risk covered being located in the UK.

3. Category 3: Contracts Issued in the UK, with Risk in the UK

   • This includes policies issued through an establishment in the UK, Channel Islands, or Isle of Man, with the insured risk located in these areas.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

REGULATING INSURANCE COMPANIES

Protection of Policyholders - Financial Services Compensation Scheme (FSCS)

[1] When would a claimant be entitled to compensation?

Entitlement to Compensation

• A claimant is entitled to compensation only if it is impossible to continue their insurance cover. This typically arises when an insurer is unable to meet its obligations due to insolvency.

• For long-term insurance policies (e.g., life insurance), the FSCS must attempt to arrange for the continuation of the policy, if reasonably practicable, in cases of:

  • Voluntary creditors’ winding up.

  • Appointment of a liquidator or administrator.

  • Court order for winding up or administration.

  • Approved voluntary arrangements.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

REGULATING INSURANCE COMPANIES

Protection of Policyholders - Financial Services Compensation Scheme (FSCS)

What are the rules Regarding Insurers in Financial Difficulty

Rules Regarding Insurers in Financial Difficulty

1. Measures When an Insurer is in Financial Trouble

   • If an insurer issues a policy while already in financial difficulty, the FSCS will take measures other than compensation if it determines that these measures are likely to be less costly. This could involve transferring the insurance to another insurer or assisting the troubled insurer to continue fulfilling its obligations under its insurance contracts.

2. Indicators of an Insurer in Financial Difficulty
   An insurer is considered to be in financial difficulty if:

   • It is in provisional liquidation.

   • It is determined to be unable to pay its debts during winding-up proceedings.

   • It is the subject of an application under Section 895 of the Companies Act 2006 for a compromise or arrangement to reduce or defer liabilities.

   • The regulator determines that the insurer is unlikely to meet its claims obligations.

3. Measures for Long-Term Insurance Contracts

   • If the FSCS needs to take measures for long-term insurance contracts, the insured’s interest will be reduced to 90% of what would otherwise have been payable. This also applies to future premiums, which will similarly be reduced.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Regulating the Conduct of Insurance Business - ICOBS

overview

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Regulating the Conduct of Insurance Business - ICOBS

What are the ICOBS Rules

1. General Matters, Including Customer Communications and Prohibiting Unfair Inducements
   ICOBS 2

   • Clear, fair, and non-misleading communications must be ensured, especially in financial promotions (advertisements and marketing of insurance)【ICOBS 2.2】.

   • Inducements that materially conflict with customer duties must be avoided【ICOBS 2.3】.

   • Firms must take reasonable steps to prevent offering, giving, soliciting, or accepting inducements that conflict with their duties to customers.

2. Distance Communications
   ICOBS 3

   • Distance contracts are those concluded without face-to-face dealing (e.g., via phone or online).

   • A paper copy of the terms and conditions must be provided to the consumer if requested【ICOBS 3.1.16】.

3. Information About Insurers and Intermediaries, Including Disclosure of Status, Fees, and Commissions
   ICOBS 4

   • Intermediaries must disclose their fees to consumers【ICOBS 4.3】.

   • Commercial insureds must be informed about the commission amount an intermediary will receive if the business is placed with a particular insurer.

4. Identifying Client Needs and Advising
   ICOBS 5

   • This section addresses providing customers with appropriate information, particularly regarding policy renewals.

   • ICOBS 5.4 requires insurers to send out notices to policyholders in good time about renewals or informing them if the insurer will not renew the policy.

5. Product Information, Ensuring Customers Can Make Informed Choices
   ICOBS 6

   • Insurers must take reasonable steps to ensure customers receive appropriate information about policies:

     • The information must be provided in good time.

     • The information must be presented in a comprehensible form for customers to make informed decisions【ICOBS 6.1.5】.

   • Before contract conclusion, customers must be informed about:

     • The applicable law governing the policy.

     • Arrangements for handling complaints.

     • The existence of the Financial Ombudsman Service (FOS)【ICOBS 6.2.2】.

   • The contract must include the insurer's head office or branch address.

   • Customers must be notified of their right to cancel a policy before the contract is concluded【ICOBS 6.2.5】.

6. Cancellation Rights for Consumers
   ICOBS 7

   • Generally, consumers have the right to cancel without penalty within:

     • 30 days for pure protection or payment protection contracts.

     • 14 days for other insurance or distance contracts【ICOBS 7.1.1R】.

7. Handling Claims, Reflecting Insurers’ Legal Rights Relating to Non-Disclosure, Misrepresentation, or Breach of Warranty
   ICOBS 8

   • Insurers must ensure claims are handled fairly and settled promptly.

   • ICOBS 8.1.1 requires insurers to provide customers with reasonable guidance on making claims and appropriate information on the progress of claims.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What are the rules regarding offer and acceptance?

1. An offer to enter into an insurance contract can be made by either the prospective insured or the insurer.

2. The offer is typically made by the insured by completing a proposal form, providing information to the insurer.

3. The insurer may:

   • a. Accept the offer as it stands; or

   • b. Purport to “accept” but with qualifications (which actually amounts to a counter-offer).

4. In online insurance contracts, the situation may differ:

   • The insured's completion of an online form may be an invitation to treat,

   • The insurer then makes the offer by quoting a premium and inviting acceptance.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What are the rules for agreement on material terms?

1. To form a binding insurance contract, the parties must agree on essential terms, which include:

   • a. The premium;

   • b. The nature of the risk and subject matter;

   • c. The duration of the risk.

2. Other terms and conditions are usually incorporated automatically based on the insurer’s standard terms (General Accident Insurance Corp v Cronk (1901) 17 T.L.R. 233).

   • Proposal forms often state that the proposal is subject to the insurer’s usual terms and conditions.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What’s the law on counter-offer?

1. If an insurer states acceptance is subject to payment of the first premium, this usually constitutes a counter-offer.

2. Effects:

   • a. The insurer’s counter-offer is binding, but they can revoke it if there’s a change in the risk before acceptance.

   • b. The proposer can decline the counter-offer.

   (Canning v Farquhar (1886) 16 Q.B.D. 727)

3. If the risk changes before acceptance, payment of the premium by the proposer is treated as a new offer, which the insurer may reject.

4. An insurer may still be estopped from denying the contract where, for example, the policy states the premium has been paid (Roberts v Security Co Ltd [1897] 1 Q.B. 111).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What about changes in risk?

1. The insured must disclose material changes in risk between:

   • the proposal date and

   • the conclusion of the contract.

2. Failure to disclose may:

   • a. Make the contract voidable, or

   • b. Reduce the insurer’s liability.

3. However, if the insurer accepts unconditionally, it is bound, even if the risk changes before the premium is paid.

   • For consumer insurance: Consumer Insurance (Disclosure and Representations) Act 2012.

   • For non-consumer insurance: Insurance Act 2015.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

How do you communicate acceptance and what are the exceptions?

Communication of Acceptance

1. General rule: Acceptance is only effective when communicated to the offeror. Silence or delay does not usually constitute acceptance.

---

Exceptions

[A] Unilateral Offers

• Where the offeror makes an offer “to the world” (e.g., a reward offer), acceptance is constituted by performance.

• Example: An insurance policy sold at an airport counter for a flight — acceptance happens when the insured completes the relevant form.

[B] Policies Issued Under Seal

• A policy issued under seal binds the insured upon delivery, even without communication of acceptance.

[C] Reliance on an Offer

• Where an insured acts in reliance on an insurer’s offer, this may amount to acceptance, even without express communication (Taylor v Allon [1966] 1 Q.B. 304).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What are the general formalities in insurance law

Formalities

(Birds’ Modern Insurance Law, 5-12)

1. English law generally does not require insurance contracts to be in a specific form (though in practice, insurance contracts are usually recorded in a policy).

2. The exception is compulsory motor insurance, which requires specific formalities.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

CONTRACT FORMATION

What are the contract formation rules at Lloyd’s

Contract Formation at Lloyd’s

(Birds’ Modern Insurance Law, 5-13)

1. When the insurer is a member of Lloyd’s, the procedure for contract formation involves a Lloyd’s broker submitting a “slip” with details of the risk to be insured to each underwriter in turn.

2. The underwriters choose to initial the slip, thus accepting the offer. They are bound from the moment they initial the slip, even if later underwriters decline or amend the terms.

   (General Reinsurance Corp v Forsakringsaktiebolaget Fennia Patria [1983] Q.B. 856)

3. This means that the insured may have separate contracts with different underwriters rather than a single contract.

4. The insured has no right to cancel the contract with an underwriter who has accepted the offer, even if a later underwriter refuses to accept or alters the terms. This can lead to the insured being partially covered.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

STATUTORY DISCLOSURE REQUIREMENTS UNDER THE INSURANCE CONDUCT BUSINESS SOURCEBOOK - OVERVIEW

1. The Insurance Conduct of Business Sourcebook (ICOBS) mandates that insurers must provide specific information to a prospective insured when entering into an insurance contract.

2. The most significant of these disclosure requirements are:

   • a. Information that must be provided when two parties enter into a distance contract under the Distance Marketing Directive (Directive 2002/65/EC).

   • b. Product information requirements imposed on general insurance contracts under the Non-life insurance: third Directive (Directive 92/49/EEC).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

STATUTORY DISCLOSURE REQUIREMENTS UNDER THE INSURANCE CONDUCT BUSINESS SOURCEBOOK

what are the key disclosure requirements for product information?

Key Disclosure Requirements

(Birds’ Modern Insurance Law, 5-09)

1. The information must be provided:

   • a. In good time before the conclusion of the contract;

   • b. In a clear and comprehensible manner (ICOBS 3.1.3 and 3.1.5).

2. Customers must be provided with:

   • a. All contractual terms and conditions, and

   • b. The following key information:

3. This information must be provided:

   • i. In writing or in another durable medium;

   • ii. Accessible to the customer in good time before the conclusion of any distance contract.

   • Exceptions:

     • If the contract has been concluded at the customer’s request using a means of communication that does not allow for the provision of the information in that form in good time before the conclusion of the contract, then the information must be provided immediately after the conclusion of the contract.

   • Telephone Contracts:

     • If a contract is concluded by telephone, abbreviated information must be provided during the conversation.

     • The full information must then be provided before the contract's conclusion, unless an exception applies.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

STATUTORY DISCLOSURE REQUIREMENTS UNDER THE INSURANCE CONDUCT BUSINESS SOURCEBOOK - What are the Distance Marketing Requirements?

Distance Marketing Requirements

1. Distance marketing requirements apply to "distance contracts," which refer to contracts concluded over:

   • a. The internet,

   • b. By telephone, or

   • c. By post.

2. ICOBS 3 governs the disclosure requirements for these contracts:

   • Presentation of information must be in accordance with the standards laid out in the regulations.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Cancellation and Renewal of Insurance Policies

What are the Statutory Cancellation Rights?

1. Insureds have statutory rights to cancel an insurance policy under ICOBS for general insurance contracts, and under the Conduct of Business Sourcebook (COBS) for life contracts.

2. These rights allow customers to cancel a policy within a specified time frame without providing any reason:

   • For general insurance contracts:

     • Customers have a 14-day cancellation period starting from the later of:

       • a. The conclusion of the contract; or

       • b. When the customer receives the required information (under ICOBS 6 and, if applicable, ICOBS 3 – see Statutory Disclosure Requirements).

     • Reference: ICOBS 7

   • For life insurance contracts:

     • Individual customers have a cancellation right for a minimum of 30 days from the date they receive the appropriate notice sent by the insurer.

     • If the customer is not informed of their right to cancel, there is no time limit on when the cancellation right expires.

3. Upon cancellation, the insurer must refund any premiums paid within 30 days, subject to the customer paying for any services already provided by the insurer (provided the customer was informed of any costs incurred if the contract is canceled).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Cancellation and Renewal of Insurance Policies; Termination After the Initial Period;

What is the Duration of insurance policies

1. The duration of an insurance policy is determined by the terms of the policy itself.

2. Life contracts typically last until either:

   • The death of the insured, or

   • A fixed date (in the case of endowment or term policies).

   As a result, the insurer will not have the opportunity to refuse to renew and generally cannot allege non-disclosure of material facts after the contract is first concluded.

3. Most other policies, however, have a limited duration, often one year, after which the policy needs to be renewed as a fresh contract, requiring the disclosure of material facts again. There is no obligation on either party to renew.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Cancellation and Renewal of Insurance Policies; Termination After the Initial Period; What are the rules for cancellation during the policy term

1. Many non-life policies allow either party to cancel the policy upon giving notice.

2. Some policies may require the insurer seeking to cancel to show cause, but this is not essential, and an absolute right to cancel is enforceable.

3. There will typically be a standard condition that entitles an insured, upon cancellation, to a pro-rata return of the premium.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Cancellation and Renewal of Insurance Policies; Termination After the Initial Period; what are the rules for life policies

1. Life policies generally do not have cancellation clauses like non-life policies. However, they may allow the insured to:

   • Surrender the policy after a certain number of years, receiving a lump-sum surrender value; or

   • Let the policy become paid-up, meaning no more premiums are due, but the benefits payable on death are reduced.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

Cancellation and Renewal of Insurance Policies; Termination After the Initial Period; What are the Renewal and Days of Grace?

1. There is no automatic right to renew an insurance contract unless specified in the contract.

   • If the insured is a consumer, ICOBS 5.3 requires that insurers take reasonable steps, not less than 21 days before the expiry of the policy, to send out notices inviting renewal or informing the consumer that they are not prepared to renew.

   • If the insured is not a consumer, ICOBS 5.4 requires that insurers take reasonable steps “in good time” before the expiry of the policy, to send out notices inviting renewal or informing the insured that they are not prepared to renew.

2. Renewal of non-life policies creates a new contract.

3. Insurers may allow days of grace for renewal premium payment, but the insured may not be protected during this period. This means that any loss before the payment of the renewal premium will not be covered.

4. For life policies, payment within the grace period is effective even if the death of the insured has already occurred, unless the insurer has a right to refuse payment after the renewal date.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

TEMPORARY COVER AND COVER NOTES

What is the overview?

• Temporary cover is a short-term insurance contract provided upon receipt of a proposal while the insurer evaluates the proposal for a formal policy.

• Cover notes are documents issued as evidence of this temporary insurance.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

TEMPORARY COVER AND COVER NOTES

What does it mean when the insurer grants authority to issue cover notes?

1. An insurer may grant authority to an agent to issue cover notes.

2. This authority can be express (explicitly granted) or implied, such as when the agent is entrusted with blank cover notes.

   • When an insurer provides blank cover notes to an agent, the agent is generally deemed to have authority to bind the insurer (Mackie v European Assurance Society (1869)).

3. This principle applies to both agents and brokers, even though brokers are typically agents of the insured.

4. An agent not entrusted with blank cover notes typically does not have the authority to bind the insurer.

   • Exception: Insurance brokers may have implied authority to issue interim contracts if there is a pre-existing arrangement between the insurer and broker, and the broker has acknowledged it.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

TEMPORARY COVER AND COVER NOTES

What are the terms typically incorporated into the cover note?

1. The general rule, which implies that a proposer’s offer includes the usual terms of the policy, does not apply to cover notes.

2. Insurers should:

   • Explicitly state that their acceptance of the proposer’s offer is subject to the usual terms and conditions for the insurance class, or

   • Incorporate the relevant terms directly into the proposal form.

3. Conditions placing obligations on the insured apply to cover notes only when explicitly incorporated (Re Coleman’s Depositories Ltd and Life & Health Assurance Association [1907]).

4. The scope of the cover defined in the usual policy must be impliedly incorporated into the cover note.

5. In some instances, a binding insurance contract may be concluded orally (e.g., over the telephone) before the insured is aware of the express terms.

   • In such cases, the insurer may face challenges in relying on express incorporation of policy conditions (Mayne Nickless Ltd v Pegler (1974)).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

TEMPORARY COVER AND COVER NOTES

When can a cover note be terminated and what are its rules?

1. The cover note can be terminated by the insurer only if it includes an express right to terminate. The insured must be given notice of the cancellation.

2. Without an express termination right, the cover note cannot be terminated until it expires.

3. If a formal policy is issued before the cover note expires, the policy takes over from the date it is issued.

   • Even if the policy is expressed to be retrospective, a claim arising before its issuance is likely to be governed by the cover note only.

   • This distinction becomes significant if there is a difference between the terms of the cover note and the formal policy.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES

OVERVIEW

1. The sale and renewal of insurance policies heavily rely on intermediaries — individuals who act as "go-betweens" between insurance providers and prospective insureds.

2. For example:

   • A Lloyd’s underwriter can only act through the agency of a Lloyd’s broker, who are recognised by Lloyd’s as the only persons through whom a policy can be effected.

3. General insurance business also depends on intermediaries such as insurance brokers, who advise insureds and arrange insurance cover on their behalf.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES

WHAT ARE THE AGENCY PRINCIPLES AND WHAT ARE THE TYPES OF AUTHORITY

Principal and Agent

(Birds’ Modern Insurance Law, 12-06)

1. Agency law governs the relationship where one person (the agent) is authorised to act on behalf of another (the principal).

2. The agent represents the principal and can bind the principal, creating rights and obligations, as long as the agent acts within their authority.

TYPES OF AUTHORITY

1. Actual Authority

2. Apparent Authority

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES - what is actual authority

1. An agent binds the principal when acting with actual or apparent (ostensible) authority.

2. Actual Authority can be:

   1. Express: Authority explicitly given by the principal.

   2. Implied: Authority inferred from the circumstances or conduct.

3. Examples:

   1. Providing an agent with blank cover notes implies authority to make temporary insurance contracts (Mackie v European Assurance Society (1869)).

   2. Consistent adoption by an insurer of temporary oral contracts entered into by its agent implies authority (Murfitt v Royal Insurance Co (1922)).

4. For insureds:

   1. The insured can be bound by their broker’s actions if authority was given to negotiate on their behalf (Zurich General Accident and Liability Insurance Co Ltd v Rowberry [1954]).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES - what is apparent authority

1. Apparent authority arises where:

   1. The principal holds out the agent as having a wider authority than actually granted.

   2. The agent acts within this apparent authority.

   3. A third-party relies on this representation.

2. Examples in insurance:

   1. An agent is perceived as having authority to accept premiums even if they aren't formally authorised (Stone v Reliance Mutual Insurance Society Ltd [1972]).

   2. An agent, who typically handles the insured's business, receives a notice of loss, binding the insurer unless there is contrary indication (Brook v Trafalgar Insurance Co (1946)).

   3. An agent is seen as having authority to alter a policy or waive breaches of conditions (Wing v Harvey (1854)).

   4. Entrusting an agent with cover notes gives them apparent authority to conclude temporary contracts even if prohibited internally (links to earlier notes on Temporary Cover and Cover Notes).

3. Agents will not normally bind unless properly authorised when:

   1. Issuing a formal policy (Stockton v Mason [1978]).

   2. Filling in a proposal form (Newsholme Bros v Road Transport & General Insurance Co [1929]).

   3. Interpreting the meaning or construction of a policy (Re Hooley Rubber & Chemical Manufacturing Co [1920]).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES - what is ratification

1. Ratification occurs when a principal approves an unauthorised act done by their agent after it has been carried out.

2. In non-marine insurance, it remains unclear whether ratification is effective after a loss has occurred (Grover & Grover v Mathews [1910]).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES -what is the general rule when deciding whether the agent is of the insurer or insured?

1. What is the general rule?

2. What are the rules for the purposes of pre-contractual disclosure only?

• Subject to limited exceptions, only agents who are directly employed or controlled by the insurer are agents of the insurer.

• All other agents are agents of the insured, including, as a general rule, Lloyd’s brokers.

General Rule

• Subject to limited exceptions, only agents who are directly employed or controlled by the insurer are agents of the insurer.

• All other agents are agents of the insured, including, as a general rule, Lloyd’s brokers.

For the purposes of pre-contractual disclosure only:

1. In consumer insurances, section 9 and Schedule 1 of the Consumer Insurance (Disclosure and Representations) Act 2012 provide that an agent is the insurer's agent:

   • When they do something in their capacity as an appointed representative of the insurer;

   • When they collect information from the consumer, having been expressly authorised by the insurer to do so; and

   • When they enter into the contract as the insurer's agent, having been given express authority to do so.

   • (See notes on The Duty of Fair Presentation and Consumer Contracts.)

2. For general insurance, section 4 of the Insurance Act 2015 provides that the insured is deemed to have knowledge of:

   • Information that is actually known to the one or more individuals responsible for their insurance, which includes anyone who "participates on behalf of the insured in the process of procuring the insured's insurance" whether as employee, agent or employee of an agent. This would include brokers.

   • Information which should “reasonably have been revealed by a reasonable search of information available to the insured” (s4(6)). The information available to the insured includes information held by third parties, such as an insured's agent or broker.

   • (See notes on The Duty of Fair Presentation Under the Insurance Act 2015.)

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES

What are the duties of the agent and what are the consequences for breaching this:

1. Breach of fiduciary duty

2. Negligence/ breach of contract

3. Duties regarding pre-contractual disclosure

If an agent performs unauthorised acts that result in liability for the principal, the principal may have a remedy against the agent on the following bases:

1. Breach of fiduciary duty

1.1 Agents are fiduciaries and owe their principal fiduciary duties.

1.2 The agent, in particular, must not:

• a. Act outside the scope of their authority;

• b. Bind an insurer to a contract that they could have avoided for misrepresentation or non-disclosure;

• c. Put themselves in a position where their interests conflict with their duties to the principal.

1.3 So, for example:

• a. They must not act for another party related to their principal without full disclosure and consent from the principal;

• b. A Lloyd’s broker must not act for both the insured (who they are agents for, by law) AND an underwriter — this is a breach of fiduciary duty (Callagban and Hedges v Thompsons [2000] Lloyd’s Rep. I.R. 125).

2. Negligence / breach of contract

2.1 Insurance brokers owe their clients a duty of care and skill in both contract and tort. In particular, they must take due care when advising their client with whom to insure.

2.2 A broker may be liable if they:

• a. Recommend an insurer who is known to be in serious financial difficulties and do not sufficiently warn the client of this (Osman v J Ralph Moss [1970] 1 Lloyd’s Rep. 313)

• b. Fail to exercise sufficient care and skill as to the suitability of particular policies, or fail to account for an insurer’s generosity (or lack of) in paying claims;

• c. Fail to warn the insured of any special terms incorporated on renewal (Mint Security Ltd v Blair [1982] 1 Lloyd’s Rep. 188);

• d. Fail to obtain effective cover for the risk to be insured (FNCB Ltd v Barnet Devanney (Harrow) Ltd [1999] Lloyd’s Rep. I.R. 459);

• e. Fail to warn the insured of particular terms under the policy, and the consequences of breaching these (Harvest Trading Co Ltd v Davis Insurance Services [1991] 2 Lloyd’s Rep. 638);

• f. Fail to warn of the significance of conditions precedent to the insurer’s liability under the policy (J W Bollom & Co Ltd v Byas Mosley & Co Ltd [2000] Lloyd’s Rep. I.R. 136).

2.3 A breach of the rules under ICOBS to provide the insured with sufficient information (see Regulation of Insurance Intermediaries below) will entitle the insured to bring a claim under section 138D Financial Services and Markets Act 2000.

3. Duties regarding pre-contractual disclosure

3.1 Where an insured is dealing with a broker, the insured often will not communicate directly with insurers. The broker hence has a duty to facilitate the communication of material facts from the insured to the insurer, to ensure that the insured complies with their duty of disclosure.

3.2 Brokers are under a duty to:

• a. Advise their clients on the duty of disclosure;

• b. Explain the consequences of failing to do so

• c. Indicate the sort of matters that should be disclosed as being material (or arguably material);

• d. Take reasonable care to elicit matters which ought to be disclosed.

3.3 (Jones v Environcom Ltd [2010] EWHC 759 (Comm).)

3.4 As part of this, brokers must ensure that they ask the insured questions about facts that they know are material.

• If a broker fails to inquire about this, and the insurer subsequently avoids liability on the basis of inadequate disclosure, the broker may be liable in damages to the insured (McNealy v Pennine Insurance Co [1978] 2 Lloyd’s Rep. 18).

3.5 A broker may be liable to the insured if:

• a. They fail to disclose facts which they know to be material (Woolcott v Excess Insurance Co [1979] 1 Lloyd’s Rep. 231);

• b. The broker makes misrepresentations to the insurer (Warren v Sutton [1976] 2 Lloyd’s Rep. 276).

3.6 A broker will not generally be liable if:

• a. They are not in possession of the relevant information; or

• b. If they are in possession of relevant information, specific facts are not within their knowledge.

3.7 Primary responsibility for compliance with the duty of disclosure remains with the insured, not the broker (Kapur v J W Francis & Co [2000] Lloyd’s Rep. I.R. 361).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

How are Damages measured?

1. If a broker is found liable in damages to the insured, the measure of damages will usually be:

   • a. The sum that the insured would have recovered from the insurer had the insurer been liable.

2. If a broker’s negligence results in a failure to effect insurance at all:

   • a. The broker may argue that even if they had obtained the cover, the insurer would still not have been liable due to some breach by the insured.

   • b. However, this argument will not be available if evidence suggests that the specific insurer would not have repudiated liability even if they were legally entitled to do so (Fraser v Furman [1976] 1 W.L.R. 898).

3. If the insurance that the broker should have effected would have been void, or if the claimant is virtually uninsurable:

   • a. The damages payable by the broker may be reduced (Thomas Cheshire & Co v Vaughan Bros & Co [1920] 3 K.B. 240; O & R Jewellers v Terry [1999] Lloyd’s Rep. I.R. 436).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

How to determine if the proposal form will bind the insured:

1. What is the general principle?

General Principle:

1. An insurance agent might fill in a proposal form on behalf of a prospective insured ("the proposer").

2. If the proposer signs the proposal form, the proposer will generally be bound by the information that the agent has included, even if this is inaccurate.

SPECIFIC SCENARIOS:

1. If the information provided by the agent is inaccurate, and the proposer knows this:

   • a. The insurer will be entitled to avoid liability.

2. If the proposer provided the agent with accurate information, but the agent falsified the information (and the proposer did not check this):

   • a. If the agent was acting, in law, as the proposer’s agent at all times:

     • i. The proposer will normally be bound by the agent’s actions (i.e., bound by the inaccurate proposal form, potentially entitling the insurer to avoid liability).

3. If the agent is a full-time agent of the insurer (e.g., a canvassing agent or another full-time employee):

   • a. According to Newsholme Bros v Road Transport & General Insurance Co [1929] 2 K.B. 356:

     • i. Knowledge will not normally be imputed to insurers where an agent signs the proposal form, because if the agent fills in the form at the request of the proposer, they are acting as the proposer’s agent for that purpose, not the insurer’s.

     • ii. Insureds will be bound by what they have signed, following general principles governing the signature of documents.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

What is the overview for how the insurance intermediaries are regulated?

1. Insurance intermediaries are regulated to ensure their:

   a. Suitability,
   b. Qualifications, and
   c. Proper handling of conflicts of interest.

2. The major regulations impacting intermediaries cover the following areas:

   1. Authorisation

   2. Insurer Liability

   3. ICOBS

   4. Complaints under the Insurance Distribution Directive

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

What is the information on complaints for how the insurance intermediaries are regulated?

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

What is the information on ICOBS for how the insurance intermediaries are regulated?

1. ICOBS requires intermediaries to disclose certain information to insureds, including:

   • a. Their name, address, and FCA registration;

   • b. Their complaints procedure;

   • c. The basis of their advice.

2. Additional ICOBS provisions:

   • a. Provisions aim to mitigate potential conflicts of interest between insurance brokers.

   • b. Since brokers may develop close commercial relationships with insurers (creating incentives to recommend certain policies), they must inform the insured:

     • i. Whether they are advising based on a fair analysis of the market;

     • ii. Whether they are under a contractual obligation with an insurer to conduct business exclusively with one or more insurers;

     • iii. Whether they are not under such an obligation but do not give advice on the basis of a fair analysis of the market.

   • c. If they do not advise based on a fair market analysis, brokers must inform customers of:

     • i. The name of each insurer with which they may and do conduct business.

3. Brokers must also disclose:

   • a. Their fees, before customers incur liability or before the insurance contract's conclusion.

   • b. That commercial customers have the right to know the commission intermediaries receive.

4. The information must be disclosed:

   • a. Clearly, accurately, and comprehensibly;

   • b. In a "durable medium" (e.g., paper or email);

   • c. Before the conclusion of the insurance contract, unless:

     • i. The customer requires immediate cover, or

     • ii. The contract is made by telephone — in which case oral disclosure suffices.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

What is the information on insurer liability for how the insurance intermediaries are regulated?

Insurers may be liable for their appointed representatives' actions under:

• a. Section 39(3) of the Financial Services and Markets Act 2000.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE INTERMEDIARIES; CONSEQUENCES OF A BROKER’S BREACH OF DUTY

What is the information on authorisation for how the insurance intermediaries are regulated?

Independent intermediaries selling long-term insurance must be authorised by the Financial Conduct Authority (FCA).

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

WARRANTIES AND CONDITIONS IN INSURANCE CONTRACTS

What are warranties?

1. A warranty is a contractual promise made by the insured.

2. For instance, the insured may warrant:

   a. That a particular fact exists or does not exist,

   b. That a condition has been fulfilled, or

   c. That a particular position may continue throughout the term of the policy.

3. They are the most fundamental terms in an insurance contract and must be strictly complied with.

4. The effect of a breach of a warranty depends on whether the policy was entered into or amended before 12 August 2016, as the Insurance Act 2015 changed the law of warranties in relation to business and consumer insureds.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

WARRANTIES AND CONDITIONS IN INSURANCE CONTRACTS

How are warranties created?

Is the term a warranty?

1. In non-marine insurance, all warranties must be express.

2. Express warranties may be in any form or words from which the intention to warrant is to be inferred (s35(1) Marine Insurance Act 1906).

3. There are three tests to determine the intention of the parties, to be deducted from the terms of their contract:

   1. a. Is it a term that goes to the root of the contract?

   2. b. Is it descriptive of the risk or does it bear materiality to the risk of loss?

   3. c. Would damages be an unsatisfactory remedy?

   4. d. HIH Casualty & General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA 735.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

WARRANTIES AND CONDITIONS IN INSURANCE CONTRACTS

What were ‘basis of the contract clauses’ in warranties under the Insurance Act 2015?

1. Before the Insurance Act 2015 came into force, it was possible to create warranties in non-consumer insurance contracts by:

   • a. Including a clause in the proposal form;

   • b. Which had the effect of converting all pre-contractual representations made by a prospective insured into warranties.

2. These are known as “basis of the contract” clauses, however, these were abolished:

   • a. In relation to consumer insurance contracts by s6 Consumer Insurance (Disclosure and Representations) Act 2012 (CIDRA 2012); and

   • b. In relation to non-consumer contracts by s9 Insurance Act 2015 (IA 2015).

3. It is not possible for the parties to contract out of these provisions.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

WARRANTIES AND CONDITIONS IN INSURANCE CONTRACTS

What is the effect of a breach of warranty?

• Before the Insurance Act 2015

• After the Insurance Act 2015

Before the Insurance Act 2015

1. If the policy was entered into before 12 August 2016:

2. a. Warranties within it must be exactly complied with, whether material to the risk or not (s33 Marine Insurance Act 1906).

3. A breach automatically discharges the insurer from liability from the date of the breach, unless this is waived by the insurer.

4. This is the case even where the warranty breached is not connected to the loss actually suffered by the insured.

5. The insurer remains liable for losses incurred before the date of the breach.

After the Insurance Act 2015

1. If the policy was entered into or renewed on or after 12 August 2016:

   • a. A warranty must still be exactly complied with under the Insurance Act 2015;

   • b. However, the Act has abolished the rule of automatic discharge, so a breach of warranty no longer automatically discharges the insurer from liability from the date of the breach.

2. Instead, where there has been a breach of warranty:

   • a. The general position is that all cover under the insurance contract is suspended from the time of breach until the breach is remedied (s10(2)).

   • b. If the insured remedies its breach of warranty, the insurer is liable for subsequent losses unless they were attributable to something happening before the breach was remedied (i.e., during the period of suspension).

   • c. Where the breach is not, or cannot be, remedied, liability remains suspended, and the insured will, in effect, not have any insurance cover from the date of breach.

   • d. An insurer remains liable for losses before the breach of warranty (s10(4)(a)).

   • e. The insured continues to be liable to pay premium after a breach of warranty.

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

WARRANTIES AND CONDITIONS IN INSURANCE CONTRACTS

What is the effect of a breach of warranty?

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

INSURANCE CONDITIONS

[CH 3 Insurers, Lloyd’s of London and Terms of the Insurance Contract]

LLOYD’S OF LONDON

[CH 4 COVERAGE 1]

STATUTORY PROTECTION IN THE EVENT OF THE INSOLVENCY OF THE INSRED

[CH 4 COVERAGE 1]

LIABILITY INSURANCE

[CH 4 COVERAGE 1]

NOTIFICATION OF CLAIMS UNDER LIABILITY POLICIES

[CH 4 COVERAGE 1]

DEFENDING CLAIMS AGAINST AN INSURED