Property and pecuniary

Insurance
 Property
• Out of the various types of property this program covers
Buildings, Money and fidelity , Boilers and machinery ,stock,
electronic equipment…etc
• Pecuniary covers ,fidelity, money and consequential loss
• Causes of loss, or perils, that can damage or destroy
property are sometimes listed in insurance policies called
“Named Perils” policies.
• Other policies called “Special Forms coverage” or “Open
Perils”, provide coverage for any direct loss to property
unless the loss is covered by a peril that is specifically
excluded by the policy.
 Property Insurance
INTRODUCTION
• Property Loss exposures refers to the inherent risks to
which the different types of property are exposed
• The various risks exposures are natural calamities, fire,
floods, theft, etc. All general insurance policies intend
to protect the insured from the financial consequences
of these risks.
• This training deals with property loss exposures and
the ways in which such property loss exposures may be
covered in practice
 Property Insurance
The financial consequences of a property loss
can include:
• A loss of/reduction in the value of the
material property
• Loss to income because the property cannot
be used
• Increased expenses
 Property Insurance
• It is to be noted that, in any loss situation,
there are other parties, in addition to the
property owner, who might be affected by a
property loss.
• These parties include secured lenders, users of
property and other holders of property.
PROPERTY AND PECUNIARY INSURANCE

Therefore ,this training program discusses the

following general insurance covers :
• Fire Insurance
• Consequential loss /fire loss of profits /business
interruption
• Plats glass
• Money an fidelity
• Bonds
• Boilers, construction and engineering insurance
 Fire Insurance
A contract of fire insurance can be defined as a
property insurance agreement whereby the
insurer undertakes to compensate the
financial loss suffered by the insured due to
damage or destruction of the insured property
by fire or other specified perils, during a
stated period.
 Fire insurance contract
• It is a contract of insurance
• The primary object is insurance against loss or
damage caused by fire
• The liability of insurer is limited to the extent of
the sum assured or to the extent of damage
caused by fire, whichever is less
• The insurer has no interest in the safety or
damage of the insured property other than the
liability undertaken
 Characteristics of fire insurance contract
The above discussion implies that a fire insurance
contract like other general insurance contract has
the following specific characteristics:
 Existence of insurable interest
• It is a contract of utmost good faith
• Follows the principles of proximate cause
• It is a contract of indemnity
• It is a personal contract
• It is an indivisible contract
• Subrogation and contribution
 The insurance contract
• Formation of an insurance contracts –general
principles
• Insurable interest
• Utmost good faith
• warranties ,conditions and exclusions
• Indemnity: subrogation and contribution
• Proximate cause
 The insurance contract
• Formation of an insurance contracts –general
principles
• Insurable interest
• Utmost good faith
• warranties ,conditions and exclusions
• Indemnity: subrogation and contribution
• Proximate cause
 Formation of an insurance contracts –general principles

Offer and acceptance in insurance

An insurance contract will come into existence once
the offer made by one party is unconditionally
accepted by the other
Invitations to treat: we need to distinguish
between true offers and invitations to treat which
are merely invitations to the other party to enter
into negotiations.
Who makes the offer: in a typical insurance
transaction, when is the offer made? Who is the
offeror and who accepts?
There is no definite rule as to which party (the proposer or
insurer) makes the offer and which party accepts.
Sometimes the proposal form which is submitted to the
insurer will be the offer and the insurer will accept it by
confirming cover or issuing the policy.
In other cases, the insurer may quote a premium based on
information supplied in the proposal form and, in doing so,
make an offer which the proposer may then accept or
decline.
Frequently, an insurance contract is finalized only after
lengthy negotiations between the proposer and insurer,
often involving a broker or other intermediary. In such cases,
there may be a long series of offers, rejections and counter-
offers before a firm acceptance is made by one party or the
other
 Is communication of acceptance necessary?
• in principle, an offer cannot be accepted by
doing nothing and that acceptance must
generally be communicated to the other party.

• It seems, however, that if the proposer acts in

reliance on an offer made by the insurers this
will be equivalent to an act of acceptance and a
valid contract will be formed
What must be agreed
In insurance, the parties must have reached
agreement on:
• the nature of the risk and the subject matter of
insurance (what is to be insured and what perils
are to be covered);
• the duration of the contract; and
• the amount of the premium (or at least the
method by which the premium is to be
calculated).
• Insurers need not, however, spell out to the
proposer all the other detailed terms of the policy
in advance, as long as it is clear that the insurance
is to be on the basis of the insurer's usual form of
policy for the sort of risk in question (such as
private car or household contents).
• There is, in fact, a presumption in law that the
proposer is applying for a policy in accordance with
the insurer's usual terms and conditions.
• In practice, insurers will usually make this clear by
means of a suitable statement on the proposal
form
 Renewal

 Fresh offer and acceptance are therefore required.

 The renewal notice which the insurer issues can be
regarded as an offer which the insured can accept by payment
of the premium, provided there are no
changes in the risk.
 If the risk has changed in any material way, the insured must
notify the insurers of such changes ( utmost good faith). In this
case, the insured is making a counter-offer which the insurers
mayor may not accept.
 When an insurance contract is renewed, a fresh contract is
formed, normally on the same basis as the old one
 When does the risk begin to run?
• An insurance contract will normally come into
existence once an offer is accepted, the cover
may not operate immediately.
The parties may well agree that the risk will
begin to run at some date in the future ,such
as an existing policy with another insures
[Link] this case, there is a binding contract
to insure but the risk has not yet attached.
 Consideration and payment of the premium

• a valid contract of insurance will come into

force once an offer has been accepted, the
risk may not attach immediately.
• Equally, it is important to understand that
under Ethiopian law a valid insurance contract
can not exist before the insured has actually
paid the premium.
 Return of premium under insurance contracts
The risk may fail to run, resulting in a total failure of
consideration, for a number of reasons:
• the proposal may be withdrawn after the premium
has been paid;
• the policy may be void for mistake or because there
was no consensus ad idem;
• the policy may be void because there is no
insurable interest ;and .
• the policy may be avoided ab initio for
misrepresentation or non-disclosure
Cancellation clauses
Insurers will often allow a partial return of premium when
a policy is cancelled mid-term, even though the risk has
obviously started to run in this case.
• Cancellation by the insurer
Insurers often include a clause allowing them to cancel
the policy mid-term, having given the required period of
notice to the insured. In such cases a pro rata return of
premium is always granted.
• Cancellation by the insured
The insured may also be given the right to cancel the
policy although something less than a full pro rata return
is usually then allowed.( short period rate)
 Insurable interest

• An agreement to insure must satisfy all the

requirements as to offer and acceptance,
consideration, capacity and form.
• However, even if these requirements are
fulfilled, the contract may still fail if the
policyholder has no valid interest which they
can insure. This is 'insurable interest'.
• Definition
There is no single definition of insurable interest
but the following covers its essential elements:
The legal right to insure arising out of a
financial relationship recognized at law,
between the insured and the subject matter
of insurance.
 Key elements
The key elements of insurable interest are as
follows:
a subject matter of insurance;
the policyholder must have an economic or
financial interest in the subject matter of
insurance;
the interest must be a current interest, not
merely an 'expectancy'; and
the interest must be a legal interest
 The interest must
be
a legal interest

There must be an
economic
The interest must be There are four or financial
current and not an basic elements interest in the
\
expectancy(except to insurable subject matter of
Marine ) interest insurance

There must be a
subject matter to
the insurance
policy
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When shall it exist, in relation to each insurance
type?

Fire & lightning at the inception

of the policy, and at the time of
loss; Etc .

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INSURABLE INTEREST IN THE ETHIOPIAN
LAW
According to Article 675 of the Commercial
Code any person interested in the preservation
of an object and any direct or indirect interest
in a risk can insure it.
However, as per Article 689 of the Commercial
Code, this principle does not apply to life
assurance, since it is not a contract for
compensation; and the amount insured may be
freely fixed and shall be due regardless of the
damage.

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 Contd’ (INSURABLE INTEREST IN THE ETHIOPIAN LAW)

Similarly Article 292 of the Maritime Code

states that the subject matter which may be
insured can be any thing which can be valued in
money’s worth and which is exposed to
maritime risk for lawful purposes.
However, the insured or other person can claim
under the policy unless he has proved that he
has suffered damage as a result of casualty
insured by the policy.

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 Contd’ (INSURABLE INTEREST IN THE ETHIOPIAN LAW)

By Article 293 of the same code, an underwriter

(insurer) possesses insurable interest on the
risks which he has agreed to cover and can also
reinsure it.

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Utmost good faith

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 Utmost good faith(uberrima fides)
Objectives:-
Distinguish between misrepresentation and non-
disclosure ;
Explain the duty of discourse
Describe nature of material facts;
Describe the forms which breach of duty of good
faith may take and explain the remedies available

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 Utmost good faith
• Simply means that the insurer and the person
who is applying for insurance have a duty to
deal honestly and openly with each other in
the negotiation that lead to the contract
• This duty may also continue whilst the contract
is in force
• If one party is in breach of this duty the other
party will usually have the right to avoid the
contract entirely

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The doctrine of utmost good faith imposes two
duties on the parties to the contract:

A duty not to misrepresent any matter relating

to the contract-i.e. a duty to tell the truth; and

A duty to disclose all material facts to the

contract-i.e. a duty not to conceal anything that
is relevant

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 Misrepresentation
Misrepresentation is a false statement that induces the other party to
enter into contract
To affect the validity of the agreement the false statement must;
be one of fact( rather than a statement of law ,or of opinion or
belief)
be made by a party to the contract
be material ( i.e. something which would influence a reasonable
person in deciding whether to enter into the agreement)
Induce the contract ( i.e. be something that the other party relied
upon in deciding to enter into agreement) ;and
Cause some loss or disadvantage to the person who relied upon it

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 Innocent and fraudulent misrepresentation
• When a person makes a false statement with the
deliberate intention of misleading another and putting
at a disadvantage there is a fraudulent
misrepresentation
• If the statement is false ,but there is no intention to
mislead the other party it can be described as innocent
misrepresentation
• The law also recognizes the concept of negligent
misrepresentation- where the statement is false
because the person making it did not take sufficient care
to check that it was correct
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 Examples of misrepresentation in insurance

• A proposer for theft insurance says that the

premises are protected by burglar alarm when
they are not.
• A proposer for motor insurance declares that their
car has not been modified in any way when it
has .
• A proposer for life insurance gives their age as 25
when ,in fact ,they are aged 35.

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Misrepresentation on the part of the insurer is
possible
Case example
In kettlewell v. Refuge Assurnce (1908) the insured was thinking
of letting her life insurance policy lapse. However, the agent of
the insurance company persuaded her to keep the contract in
force by telling her, untruthfully, that she would have a ‘free’
policy, with nothing more to pay, if she continued to pay
premiums for a further four years. The court held that the
insured had the right to avoid the policy and to recover the
premiums paid since the date of the mispresentation

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Non-disclosure and misrepresentation
The dividing line between misrepresentation( making a statement
that is false), and non disclosure(failing to disclose the whole
truth) is very fine one
Example
A proposer for life insurance may say that they are in good
health when they know that they are suffering from a
serious illness. This might amount to both
misrepresentation (an untrue statement about the
proposer’s state of health) and non-disclosure (a failure
to tell the insurer about a serious illness).

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 Matters which must be disclosed
Maters requiring disclosure may de divided into
two:
• Those that relate to the physical characteristics
of the risk, which we call physical hazard
• Those that relate to the characteristics and
behavior of the insured, which we call moral
hazard

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 Physical hazard
Factors in this category include :-
 An adequate description of the subject matter of insurance
 Details of any unusual features of the subject matter of insurance
Example
Fire insurance the construction of the building ,the nature of its use,
fire detection and fire fighting equipment
Theft insurance the nature of stock, its value and the nature of
security precautions.
Motor insurance the type of car , whether it has been specially
adapted ,details of its regular drivers
Marine cargo the type of cargo, the terms of sale ,how the cargo is
carried ,its destination ,whether containerized
life assurance age, previous medical history

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 Moral hazard
• Moral hazard refers to aspects of the risk which that depend on
the character and behavior of the insured himself
• Identity of the insured : the identity of the insured and general
background is material
• Criminal acts : a proposer with a history of criminal activity
presents the strongest indication of potential moral hazard
• Previous losses and claims history under other classes: this may
be evidence of extra physical or moral hazard
• Any other adverse claims history
• Details of other policies in force

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 Matters which not to be disclosed
Matters of law; every one is deemed to know the law
facts which the insurer is ought to know;
Facts which lessen the risk;
Facts known by the insures
Facts about which the insurer has been put on enquiry;
Facts which the insurers survey should have noted;
Facts covered by the terms of the policy ;
Facts which the proposer does not know;
Spent convictions .

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 Remedies for breaches
a) To avoid the contract
 repudiating the contract "ab initio", or
 avoiding liability for an individual claim.
b) To sue for damages in addition to (a) if concealment or
fraudulent misrepresentation is involved.
c) To waive his rights to (a) and/or (b) and allow the contract
to carry on unhindered.
Aggrieved party...take action within a reasonable time of
discovery or else... regarded as he waved his rights.

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 Utmost good faith –summary
Insurance contracts are entered into on the basis
of utmost good faith (uberrima fides). While
both parties to the contract are bound by such a
principle, its application was felt to be important
because the precise details of an individual
insured risk are far more likely to be known by
the prospective insured. Recognition of the
unequal position of each party has resulted in
the requirement of utmost good faith.
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 Utmost good faith –summary
For the insurer, this could mean the following:
• They will not accept an insurance which is not
enforceable at law;
• The underwriting must write business only for which
they are authorized to do so;
• The underwriter must know that it has sufficient
funds to pay any potential claims;
• They must advise the policyholder of any changes to
the terms of cover at renewal

45
 Utmost good faith –summary
It effectively imposes two different duties on the parties
to the contract.
For the policyholder:-
• A duty to tell the truth. That is, there must be no
misrepresentation of any matter relating to the
insurance.
• Additionally, there is a duty not to hide anything that is
pertinent to the risk.
• Disclose all material facts pertinent to the risk,failoure
to do so could invalidate the policy
• The proposal form contains a warning to the
policyholder
 Representation And Warranties
• Representation: - written or oral statement
made during the negotiation for a contract
 some materials facts others not.

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 UTMOST GOOD FAITH IN THE ETHIOPIAN LAW

• o Article 667 of the Commercial Code of Ethiopia

provides the duty of the proposer as follows:-
•  On making proposals for a policy, the
beneficiary shall state exactly all the
circumstances within his knowledge and which are
likely to assist the insurer to appreciate fully the
risks he undertake to insure.

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 Contd’ (UTMOST GOOD FAITH IN THE ETHIOPIAN LAW)
• Articles 668 and 669 of the same Code deal with consequences of
breaching this duty.
• If the breach of duty is fraudulent (intentionally concealed facts or
made falls statements) and made the insurer to wrongly appreciate the
risk; the policy shall be of no effect; and the insurer can retain all
premiums paid.
 Where the breach is innocent; the policy shall remain in force with the
additional provisos: -
 Where the breach is discovered before materialization of the risk, the insurer
may terminate the policy by giving one month notice, or maintain the policy
and increase the premium.
 Where the breach is discovered after the risk has materialized the sum to be
paid by the insurer shall be reduced having regard to the difference
between the premiums actually paid and the premium which ought to have
been paid had the beneficiary not concealed the facts or made no false
statement.
• Article 669 of the Code also requires the insured to inform the insurer
of any increase in the risk subsequent to formation of the contract.

49
Indemnity

50
 INDEMNITY

.Definition for the purpose of insurance

" ...as exact financial compensation sufficient to place
the insured in the same financial position after a loss
as he enjoyed immediately before it occurred"

51
 Link with insurable interest
• Payment not exceeding such interest.

52
 cash

Methods of
Replacement providing Reinstatement
indemnity

Repair

53
 Property insurance
(a) Building
(i) Repair / reinstatement: by insured
 Cost of work (less) depreciation
(ii)Repair / reinstatement: by insurer
Reinstatement cost (less) depression
(iii) Market value by Insurer : -
Then (a) Prove the existence of market
(b) Level of value
in the market
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 [Link].Measurement Of Indemnity
(iv) Insured: at the time of sell
 Market value (less) site value
(b) Machinery& contents
(i) Repair or reinstatement  (less) wear & tear
(ii) If second hand price (plus) carriage and
installation costs.
(c) Manufacturers stock in trade: raw material,
• work in progress and finished stock)
• Raw materials: replacement cost (plus) delivery cost
to site (plus) labour and other on costs:
–  At the prices ruling on the day of loss.

55
 [Link].Measurement Of Indemnity

(d) Wholesalers retailers stock in trade

– Cost at the time of loss (plus) transport and
handling charges / costs to / premises.
 Obsolescence: in stock shall be noted.
 Check If buy > cost.
(e) Household goods:
• Replacement cost less wear and tear
(f) Farming stock:
• Replacement cost (less) any processing, handling or
transport costs saved because of destruction.

56
 [Link].Measurement Of Indemnity
[Link].3 Pecuniary:
– guarantee:  actual financial loss &
– Consequential loss: profit-that would
have been made (less) actually made.
[Link].4. Liability insurance
- Amount of any court award or
- Amount negotiated out of court settlement
(plus) costs and expenses arising from a
claim.

57
 [Link].Factors limiting indemnity.

.Sum Insured
.Average
.Excess
.Franchise
.Limits (house holders policy …% -
on curio pictures)
.Deductibles (large excess.)
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 INDEMNITY UNDER ETHIOPIAN
CONTEXT
 The subject of indemnity has been
dealt under Articles 658(e), 665(2), 678,
689,679,680, of the Commercial Code
and Article 297 and 327 of the
Maritime Code.

59
 Under and Over Insurance
(A) Article 679 provides that if the sum
insured turns out to be less than the value of
the property on the day of the occurrence of
loss, then the insured shall be deemed his
own insurer for the difference and shall
share proportionately in the damage unless
otherwise agreed and stated on the policy.

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– Under insurance own damage
• Sum insured: 100
• Value at risk: 150
• Loss: 30

• Indemnity:
• 100/150*30= 20
» The remaining will be born by the insured himself.
» Retention concept

»Condition of average

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 e. Over insurance
 Over Insurance is a case where the sum
insured exceeds the value of the object
insured. Article 680 deals with this matter.
In such case, three consequences arise
depending on the circumstances of the case:
i. where there is fraud,
ii. where there no fraud and,
iii. where the value of the object is reduced.

62
 Over insurance
a. According to Article 680(1) of the
Commercial Code, where there has been
fraud on the part of either party; the
aggrieved party may require the
termination of the policy and may in
addition claim damages.

63
 Over insurance
[Link] 680 (2) Commercial Code states that,
where there has been no fraud, the policy
shall remain in force, but to the extent only
of the actual value of the object insured.

64
 Over insurance
c. Article 680 (3) Commercial Code states,
where the beneficiary requests the value of
the object to be reduced, the insurer shall be
entitled to retain all premiums paid prior to
such reduction and shall reduce the sum
insured for the remaining period.

65
 3.1.4. Subrogation:
• Subrogation is the right of one person, having
indemnified another under a place of that other
and avail himself of all the rights and remedies of
that other, whether already enforced or not.

• The term is derived from to Latin words; sub,

meaning “under” and rogare, means, “to ask”.
Thus, subrogation literally means, “asking (for a
payment) under another’s name.”

66
SUBROGATION UNDER ETHIOPIAN CONTEXT

• Thus Article 683 (1) of the Commercial Code

provides that once the insurer has indemnified the
insured, he will be subrogated to the rights of the
insured to the extent of the amount paid by him
for the purpose of claiming against third parties
who caused the damage. This right of the insurer
is protected so much so that if the insured
prejudices that right he would forfeit his own right
against the insurer in the same proportion.

67
 Subrogation and under insurance example

- A= insured person
– B= Insurer
– C= Wrong doer (third party)
• A has the right to claim either directly from C or B
• For simplicity:
– A claim from the insurer B
– Then the insure take the rights of A to sue and exercise the
rights of A on C, the wrong doer
» Subrogation

68
 Subrogation and underinsurance Example

• For example:
– Insured value= 100
– Value at risk= 150
– Loss = 30
– T/p c paid= 25
• How could the payment made by the t/p can be
distributed between the two?

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 Subrogation and underinsurance Example……

• The maximum A should get is 30

– From the insurer = 20
– 100/150*30
– From T/p= = 10
– The remaining 15 to the insurer
• Purpose:
– The insured receive from only one party
– Held the wrong doer liable
– Reduces social cost

70
 1.1.5. Contribution:
• Contribution is the right of an insurer to
call upon others similarly, but not
necessarily equally liable to the same
insured to share the cost of an
indemnity payment.

71
 [Link].How it arises:
only if
(i) Two or more policies of indemnity exist.
(ii) The policies cover common interest.
(iii) The policies cover a common peril which
gave rise to the loss.
(iv) The policies cover a common subject matter.
(v) Each policy must be liable for the loss.

72
 Contribution summary

• Two or more insurers

• The same subject matter
• The same peril
• Active policy
• When loss occurs they contribute towards the loss

73
 Contribution Example:
Insurer sum insured
A 100
B 150
Loss 50

Instruction:
1. Distribute the loss between the two insurers
2. What should the insured receive from the two insurers

74
 Contribution summary

Solution 1:
A’s share = 100/250*50= 20

B’s Share = 150/250*50= 30

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 CONTRIBUTION UNDER ETHIOPIAN
CONTEXT
• Cumulative (double/multiple) Insurance
Cumulative insurance is a case where the insured insures
the same property against the same risk with several
insurance so that the property is over insured. Where this
is the case, two possibilities arise:
a) Where there has been fraud on the part of the beneficiary in
having the property doubly insured, the insurer may require the
termination of the policy and may in addition damages. (Article 681
(1) Commercial Code);
b) Where the beneficiary was in good faith, then each insurer shall
where the risk materialises, pay compensation to the value insured by
him (Commercial Code Article 681 (2).

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Causation

77
 Causation
• In an insurance policy where there is no dispute
about the meaning of words used a dispute may
arise on the true cause of the loss
• Example : a policy may cover fire but exclude fire
caused by earthquake. What happens if fire breaks
out during an earthquake ?
• There may not be a dispute about the meaning of
‘fire’ or ‘earthquake’ but about whether or not the
fire resulted from the earthquake

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• When an accident occurs many things may help
to bring it about.
Example : a road accident may be combined
result of careless driving, bad weather, poor
road surface, inadequate warning signals, a
vehicle of poor safety features and many other
chance factors
In insurance we consider only the insured perils
and perils excluded by the policy
 Insured, excluded and uninsured perils
• Specified or named perils
• All risks basis of insurance

Named peril policy Peril

Insured perils Fire

Excluded perils Fire caused by earthquake ,or war

risks, or nuclear risks

Uninsured perils Loss by theft

All risks policy peril

(1) Excluded perils Wear and tear, gradual deterioration
(2.) Insured peril s Any form of loss other than above
PROXIMATE CAUSE

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 Proximate cause
• To be covered, the loss in question must result
directly from the operation of an insured peril.
• One of the most accepted definitions :that the
proximate cause is the main cause of the loss - or
the cause that is most powerful in its effect.
• Each loss will turn on its own facts and so the
claims handler needs to apply common sense.
• Then it becomes necessary to choose the most
important ,the mot powerful cause which has
brought the loss.
 Simple and single cause
Finding the proximate cause of a loss is not
difficult when the circumstance of a loss are
simple and little time passes between the
event which brings about the loss and the
damage that results
Example :when thieves break into a shop and
steal electrical cable or when slates are
stripped from a roof in a violent storm
 MORE THAN ONE CAUSE
• Where two or more events
operate to produce loss (e.g.),
these events may be either a
– chain/train of events or
– concurrent events.

84
 [Link]. NATURE OF PERILS
• Perils relevant to an insurance claim can
be classified under three headings;
Insured perils – those mentioned in the policy
as insured
Excepted or excluded – Specifically excluded
in the policy
Uninsured or other perils – e.g. smoke &
water

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 PROXIMATE CAUSE UNDER ETHIOPIAN
CONTEXT

• It is necessary to state the perils against

which cover is being provided as this
identifies the intention of the parties Art.
(663(1); and it is essential to determine the
cause of a given loss in order to decide
whether or not the loss is covered by the
policy

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 IN THE CONTEXT OF ETHIOPIAN
INSURANCE LAW
Provide details or particulars on:-
– i. An insurance policy;
– ii. The rights and duties of parties;
– iii. The limitation period for an insurance
claim;
– iv. Provisions on insurance of objects;
– v. Insurance of liability for damages;
– vi. Life insurance and insurance against
accidents and illness.
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Warranties
 Warranties
Warranties can take many forms but can be
classified as :
• relating to past facts;
• relating to present facts; or
• as relating to a continuing state of affairs (a
continuing warranty).
 Warranties:-
In ordinary contracts (commercial) a warranty is a
promise, subsidiary to the main contract … for a
breach... the aggrieved party. .can sue for damages
only
In insurance contracts: are fundamental conditions
aggrieved party to repudiate the contract.
Is undertaking by the insured that:-
something shall be done or
shall not be done
a certain state of fact exists or
doesn't exist.

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 Warranties:-
Are imposed
To ensure some aspect of "good house keeping"
or management;
To ensure that certain features of higher risks
are not introduced without the insurer's
knowledge.
Types :-expressed and implied:-
 Marine-seaworthy vessel
 Proposal form - basis of contract.
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 Case law on warranties
Marine policy for Yacht
Warranted fully crewed at all times
 Case law on warranties
• Marine case 3/16
Warranted Owner and/or owner’s experienced skipper
on board and in charge at all times
 Case law on warranties
• Restaurant
Here, the insured restaurant had an 'all-risks' policy and,
following a serious fire, sought to claim for material
damage and business interruption under that policy. The
material damage section of the policy wording included
an endorsement in which the insured warranted that:
(i) all greasy cloths would be placed in lidded metal bins;
(ij) all trade waste would be swept up and bagged daily following
or by the end of the day's trading and removed to a secure waste
disposal area or designated storage building pending removal
from the premises
 Restaurant case …continued

• The policyholder disagreed with the insurer's assertion that the

fire started in a bin containing trade waste, which had been left
overnight in breach of the warranty. He also argued that, even if
evidence existed that he had not complied with the warranty
requiring daily removal of trade waste, that scenario would not
perceptibly increase the risk of damage by fire such that the
resultant claim could be barred. The insured effectively tried to
introduce an implied qualification to the warranty that the
increase in risk by non-compliance would have to be more than
minimal in order to allow the insurer to escape liability
• Class discussion
 Restaurant decision
• The court disagreed with the insured's argument and held that the
purpose of this warranty relating to waste was to afford the insurer a
measure of protection against the risk of fire whilst the premises
were unoccupied.
• The court did not need to imply any qualification into the wording of
the warranty: had the warranty been complied with then the waste
which caused the fire would have been removed from the premises
and so non-compliance did increase the risk of loss or damage caused
by fire.
• The insurer's express intention in including such a warranty was to
ensure that it would not be liable for a loss in these exact
circumstances. The warranty had been breached and the insured was
not entitled to indemnity
 Case law on warranties
• Claims handlers need to understand the
purpose of the warranty and to assess the
facts of the loss against that warranty, to see if
there is a possibility that the claim may not be
covered.
Conditions
 condition precedent
• a condition precedent within a policy means that
compliance with the condition is strictly required if the
obligation tied into it is to be binding.
• if notification of a claim is a condition precedent to
the insurer's liability, and that condition is not
followed, the outcome could be a refusal to provide
an indemnity in respect of the claim
• It is clearly important for the claims handler to be able
to identify within the policy those terms which do
have the potential to produce this draconian result.
 Case law on condition
• In Pioneer Concrete (UK) Ltd v. National Employers' Mutual
General Insurance Association Limited (1985) the handling
of the third party liability claim was in no way affected by the
insured's failure to notify promptly in compliance with the
condition precedent within the policy.
• Nevertheless, the court found this of no relevance.
• The insured had breached what the court confirmed was
indeed a condition precedent by delaying notification for
ten months.
• Consequently cover was not triggered, whether or not the
insurer had been prejudiced by the failure to notify.
Exclusions
 Exclusions
• The underwriter will narrow the scope of the
cover through exclusions, setting out the risk
areas or perils they do not intend to include
within the remit of the policy. Checking
whether the policy excludes a claim is a crucial
part of the claims handler's job
 Key points
Insurable interest
• The insurance contract is void if there is no
insurable interest as required by law. If the
contract is void, then no claim can be paid.
Formation of contract
• The insurance policy is a contract and so the
basic rules of contract will apply as they will to
any other contract.
• The insurer provides consideration through its
promise to pay claims and the insured’s
consideration of payment of the premium
 Utmost good faith
• Both insurer and insured must deal with each other in an honest
and open manner whilst negotiation the insurance contract. It
the duty of utmost good faith is breached, then the only remedy
is avoidance.
• To identify any misrepresentation or failure to disclose material
information look at the fact surrounding the loss and compare
these to the information provided in the proposal form,
presentation or other documents on the underwriting file.
• At renewal the policyholder owes the insurer the usual duty of
disclosure imposed by the general law
• Even if the matters misrepresented or undisclosed are material,
the insurer has to prove that it had actually been induced by the
non-disclosure to enter into the policy on the relevant terms.
Proximate cause
• To be covered, the loss in question must really
directly from the operation of an insured peril. This
is the doctrine of proximate cause.
• An accepted definition is that the proximate cause is
the main cause of the loss-of the cause that is most
powerful in its effect. Each loss will turn on its own
facts and so the claims handler needs to apply
common sense.
• To make a sound decision upon cover, the claim
handler needs to understand the substance the
claim.
Warranties
• a breach of warranty terminates cover
automatically from the date of breach.
• The exact wording of the warranty is
important. The court will look at each
individual situation for the reason behind the
warranty when deciding if it has been
breached.
Conditions
 If a condition precedent to the insurer’s liability is
not followed, the outcome could be a refusal to
provide and indemnity in respect of the claim.
 It is important for the claims handler to be able
to identify within the policy those terms which if
not adhered to allow the insurer to avoid liability.
• If the insured breaches a conditions precedent to
liability under the policy, then the claim is simply
not covered
Exclusions
 Checking whether the policy excludes a claim is a crucial part
of the claims handler’s job.
 A loss caused by independent perils, is one in which either
peril would have caused some loss on its own (and that one
did not lead to the other).
 Where only a combination of perils causes a loss. I.e. neither
peril would have caused damage on its own and one did not
lead to the other, then the perils are interdependent.
 It there is a combination of excluded and insured perils, the
exclusion prevails and there is no cover.
 If, however, the combination is one of insured peril and
uninsured peril, then the insurers are liable in full.
Impact of fraud on legality of claims
• The claims handler needs to know and understand the law on
policy coverage where fraud is suspected or proven.
• The duty of good faith exists throughout the policy period and is a
requirement which extends to the claims process.
• There must be actual fraud in the claims proves to enable an
insurer to repudiate the claim (and to avoid the contract).
• Exaggeration can be regarded as fraud by the courts, regardless of
any underlying genuine claim. The fraudulent aspect of a claim can
taint the whole claim.
• The rationale of the rule of law relating to fraudulent claims is that
an insured should not have the expectation that, even if the fraud
failed, they would lose nothing.
• The common law rule is that the whole of the claim to which the
fraud related is forfeited, with the effect that any interim payments
made on that claim were recoverable.
 .
Coming together is a beginning
keeping together is a progress
working together is a success.’
Henry Ford

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