THE LAW OF

INSURANCECONTRACTS

FOURTH EDITIONBY

MALCOLM ACLARKEMA, LL B, Ph D (Cantab)

Fellow ofSt John's Collège, CambridgeProfessor of Commercial Contract law al the University of Cambridge

WITH THE ASSISTANCE OF

JULIANMBURLINGMA, LL B (Cantab)

of the Middle Temple and Gray's Inn, BarristerCounsel to Lloyd's

AND

ROBERT LPURVESBA, LL B, B Corn (Hons) (Cape Town), Ph D (Cantab)

General Counsel's Division, Insurance, Financial Services Authority

INSURANCE LAW LIBRARY

EDITOR-IN-CHIEF

MALCOLM A CLARKE

LLPLONDON HONGKONG

2002

CONTENTS

PAGE

Préface to the Fourth Edition vBibliographical Abbreviations xxxiTable of Cases xxxiiiTable of Législation, Directives and Conventions cxliii

[AU références are to paragraph number]

1 INSURANCE CONTRACTS By Malcolm A Clarke andRobert L Purves

PARA.

Définition or Description 1-1Contract 1-1AAn Insurer in Business 1-1BMoney or Corresponding Benefit 1-1CAn Uncertain Event 1-1DAn Adverse Event 1-1EPremium 1—IF

Guarantee Insurance 1-2Insurance Contracts 1-3

2 THE CONFLICT OF LAWS By Robert L Purves

The Proper Law of the Insurance Contract 2-1Introduction 2-1AThe Scope of the Proper Law 2-1BRelated Contracts 2-1CThe Search for the Proper Law at Common Law 2-1D

Common Law: Express Choice 2-2Public Policy of the Forum 2-2AConnection with the Law Chosen 2-2BFloating Choice Clauses 2-2CEquity Clauses 2-2DIncorporation 2-2EThe Putative Proper Law 2-2F

vii

CONTENTS

Implied ChoiceJurisdiction or Arbitration ClausesForm and Language of the PolicyCurrency and Place of PaymentInference in Favorem Negotii

Imputed Choice: LocalisationContacts

The Place of ContractingThe Place of PerformanceThe Form of the PolicyValidity

ContractsReinsuranceLife InsuranceVehicle InsuranceFire InsuranceLiability Insurance

AssignmentAgency

The Contract of AgencyThe Contract Mandated

The Applicable Law of the Contract under the RomeConvention

Risks Situated in the ECContracts of General Insurance

The Situation of RisksApplicable Law

Contracte of Long Term InsuranceJurisdiction: Common Law

Forum ConveniensJurisdiction: The Brussels Régulation and the Brussels

and Lugano ConventionsInterprétation

The Brussels ConventionThe Brussels Régulation

PurposeThe Brussels ConventionThe Brussels Régulation

The Scope of the Brussels Convention and the BrusselsRégulation

Forum Non Conveniens under the BrusselsConvention

Forum Non Conveniens under the BrusselsRégulation

Jurisdiction: the Basis of DomicileThe Brussels ConventionThe Brussels Régulation

Exceptional Cases: Spécial JurisdictionInsurance

Actions Against the InsurerActions Against the Policy Holder, the Insured or

Beneficiary

2-3

2—3A2-3B2-3 C2-3D2-A2-4A2-4 Al2^A22-4A32-4A42-4B2-4B12-4B22-4B32-4B42-4B52-52-62-6A2-6B

2-72-82-8A2-8A12-8A22-8B2-92-9A

2-102-10A2-10A12-10A22-10B2-10B12-10B2

2-10C

2-10C1

2-10C22-10D2-10D12-10D22-10E2-10F2-10F1

2-10F2

Vlll

CONTENTS

Jurisdiction AgreementsProrogation of JurisdictionEntering an AppearanceIntérim ReliefLis Pendens

The Same Cause of ActionThe Response of the Court Seised SecondRelated ActionsThe Court First Seised

2-10F32-10G2-10H2-1012-10J2-10J12-10J22-10J32-10J4

3 INSURABLE INTEREST IN LIFE

IntroductionThe Life Assurance Act 1774The True Insured: Life Insurance for the Benefit of OthersPersons with an Insurable Interest in LifeInterest Presumed Natural AffectionPecuniary Interest in Length of Life

Pecuniary InterestLégal Interest

Contingent RightsContingent Liability

The Time of InterestThe Extent of InterestThe Effect of No Interest

Leading CasesChild ParentParent—ChildGuardian—WardCréditer—DebtorDebtor—CréditerEmployer—EmployéeEmployée—EmployerPartnersRoyal ty

3-13-23-33-43-53-63-6A3-6B3-6B13-6B23-6C3-6D3-6E3-73-7A3-7B3-7C3-7D3-7E3-7F3-7G3-7H3-71

4 INSURABLEINTEREST IN PROPERTY

IntroductionWho is Required to hâve the Interest?The Subject-Matter of the InsuranceThe Extent of the InterestOnus of Proof

The Reasons for Insurable InterestMoral HazardIndemnityWagering

The Meaning of Insurable InterestEconomie Interest

Measurable in Money

4-14-1A4-1B4-1C4-1D4-24-2A4-2B4-2C4-34-3A4-3A1

CONTENTS

Expectation: Probability 4-3A2Légal or Equitable Relation 4-3B

The Time of Interest 4-4Land and Buildings 4-4AContingent Interests 4-4B

Insurable Interest: Cases 4-5Ownership 4-5ATrust 4-5BReceivership 4-5CSale of Land 4-5DSale of Goods 4-5E

Sellers of Goods 4-5E1Buyers of Goods 4-5E2

Leases 4-5FSecurity Interests 4-5G

Mortgage 4-5G1Liens and Rights of Arrest 4-5G2Pledge 4-5G3Equitable Assignment 4—5G4Stoppage in Transit 4-5G5

Possession 4-5HThe Right to Possess 4-5H1

Bailment 4-51Carnage and Warehousing 4-511Construction Sites 4-512Gratuitous Bailment 4-513

Risk 4-5JLiability 4-5K

The Promise to Insure 4-5K1The Supplier's Warranty 4-5K2

Company Shareholders 4-5LDebt 4-5MProfit 4-5N

Subject-Matter 4-5N1Commercial Interest: Future Profit 4-5N2

5 THIRD PARTY RIGHTS

Introduction 5-1Common Law 5-1AThe Contracts (Rights of Third Parties) Act 1999 5-1B

Introduction 5-1 BlContract Provision for Third Party Rights 5-1B2Enforcement 5-1B3Variation and Cancellation of Third Party Rights 5-1B4Loss Payable Clauses 5-1CExceptions to the Privity Rule 5-1D

Express Trust 5-2Group Insurance 5-2A

Resulting Trust 5_3The Married Women's Property Act 1882 5 ^

CONTENTS

The Scope of Section 11The Life of the InsuredThe Range of BeneficiariesThe Proviso: Intent to Defraud CreditorsBenefit ExpressedThe Identity of the Beneficiaries

The Effect of Section 11The Broker's Unnamed PrincipalThe Commercial Trust

The Trustée InsuredInsurance TermsThe Basis of Enforcement by the Third Party

Liability CoverAgencyTrust of the Insurer's Promise to PayTrust of the Insurance MoneyCommercial Specialty

The Fires Prévention (Metropolis) Act 1774The Scope of Section 83Geographical ScopePersons InterestedProcédureThe Effect of Section 83

The Third Parties (Rights Against Insurers) Act 1930A Contract of InsuranceInsolvencyLiability of the InsuredRights against the InsurerDefences to Claims

ArbitrationNotice ClausesPay First ClausesLack of Co-operation with the Insurer

The Effect of Section îThe Transfer of RightsCo-operation with the Third PartyWaiver

The Road Trafic Act 1988, section 151The Scope of Section 151Restrictions on CoverAvoidance

Grounds of AvoidanceCourt Déclaration

The Effect of Section 151The Motor Insurers Bureau

IntroductionCover under Clause 5 of the Uninsured Drivers

Agreement 1999ExceptionsKnowledgeConditions PrécèdentIndemnity

5-4A5^A15-4A25-4A35^A45^A55-4B5-55-65-6A5-6B5-6C5-6C15-6C25-6C35-6C45-6C55-75-7A5-7B5-7C5-7D5-7E5-85-8A5-8B5-8C5-8D5-8E5-8E15-8E25-8E35-8E45-8F5-8F15-8F25-8F35-95-9A5-9B5-9C5-9C15-9C25-9D5-9E5-9E1

5-9E25-9E35-9E45-9E55-9E6

XI

CONTENTS

The Untraced Drivers Agreement 1996 5-9E7TUPE

6ASSIGNMENT

Introduction 6-1The Policies of Assurance Act 1867 6-2The Law of Property Act 1925 6-3

Form and Intention 6-3ACommunications to the Assignée 6-3BNotice to the Insurer 6-3CThe Consent of the Insurer 6-3DThe Assignée 6-3E

Equitable Assignment 6-4Form and Intention 6-4ACommunication to the Assignée 6-4BNotice to the Insurer 6-4CThe Consent of the Insurer 6-4DThe Assignée 6-4E

Assignment by Opération of Law 6-5The Effect of Assignment 6-6Priority between Assignées 6-7

7 AGENTS: AUTHORITY TO BIND THE INSUREDBy Malcolm A Clarke and Julian M Burling

The Agents 7-1Introduction 7-1APolarisation 7-1BIncidental Agents 7-1CDual Agency 7-1DSub-Agents 7-1E

Actual Authority 7-2Knowledge and Notice 7-2A

Apparent Authority 7-3Représentation 7-3AReliance 7-3BMisfeasance 7-3C

Ratification 7-4The Appearance 7-4AThe Capacity of the Insured 7-4BForm and Intent 7-4CThe Time of Ratification 7-4D

Ratification After Loss 7-4D1The Effect of Ratification 7-4E

Agency of Necessity 7_5The Agency 7_5AThe Commercial Trustée 7-5B

xii

CONTENTS

8 AGENTS: AUTHORITY TO BIND THE INSURERBy Malcolm A Clarke and Julian M Burling

Introduction g_lActual Authority 8_2

Usual Authority 8-2ALocal Agents of the Insurer 8-2AlHead Office 8-2A2Lloyd's 8-2A3

Apparent Authority 8-3Représentation 8-3A

Authority to Communicate 8-3AlReliance 8-3B

Sufficient Notice 8-3B1Inquiry 8-3B2Constructive Notice of Public Documents 8-3B3

Misrepresentation of Policy Terms 8-3CMisfeasance 8-3D

Ratification 8-4The Appearance 8-4AThe Capacity of the Insurer 8-4BForm and Intent 8-4CThe Time of Ratification 8-4DThe Effect of Ratification S-AE

Warranty of Authority 8-5

9 THE INSURED AND HIS AGENT: RIGHTS ANDDUTIESINTERSE

IntroductionSub-agents

Liability of the Agent in TortNégligent MisstatementAn Informed PersonAn Identifiable Claimant: Proximity and Third Parties

InsurersIntended BeneficiariesDocuments in Circulation

RelianceDisclaimer by the Agent

Liability of the Agent in ContractCare and Skill

The Fiduciary Duties of the AgentBona FidesNo Conflict of Duty and Interest

Competing EmploymentNo Secret Profits

Spécifie Aspects of the Agent's DutyInstructions: DiscrétionChoice of InsurerPolicy Interprétation

9-19-1A9-29-2A9-2B9-2C9-2C19-2C29-2C39-2D9-2E9-39-3A9-49-4A9-4B9^tBl9-4B29-59-5A9-5B9-5C

xiii

CONTENTS

Disclosure to the InsurerNotifying the ClientRenewalAccountsInformationClaims

RemédiesDamages

Causation in FactContributory NégligenceMeasure of DamagesCase Law

Account for ProfitRestitutionRescissionInjunction

The Rights of the Agent against the ClientRémunérationReimbursement and IndemnityLien

Limitation of ActionsContract and Tort

KnowledgeLoss

Breach of Fiduciary DutyDeliberate Concealment

9-5D9-5E9-5F9-5G9-5H9-519-69-6A9-6A19-6A29-6A39-6A49-6B9-6C9-6D9-6E9-79-7A9-7B9-7C9-89-8A9-8A19-8 A29-8B9-8C

10 THE PROPOSAL OFINSURANCE

IntroductionTransferred AgencyThe Importance of Signature

The Vulnérable ProposerThe Industrial Assurance Act 1923

Transmission of the ProposaiNon-Reliance on the Proposai

ClausesNoticeStrict Construction

Fraud by the AgentProposer Unaware of the Agent's FraudProposer Party to the Agent's Fraud

10-110-210-310-3A10-3A110-3B10-3C10-410-4A10-4B10-510-5A10-5B

11 CONTRACT FORMATION

OfferA Certain Arrangement

AmbiguityIncompletenessImplied Terms

11-111-1A11-1 Al11-1A211-1 A3

xiv

CONTENTS

Terms Settled Indirectly: Terms TBADefiniteness

Coupon InsuranceThe Offer must be Open

AcceptanceUnequivocal Acceptance

Formality and CancellationThe Silent ProposerThe Silent Insurer

Mode of AcceptanceCorrespondence between Offer and AcceptanceGenuine AcceptanceUnconditional AcceptanceCommunication of AcceptanceRetraction of Acceptance

The Formation of Contracts at Lloyd'sThe Traditional Course of BusinessThe Moment of ContractOversubscription: Signing Down

The Signing Down Indication: Liability of the BrokerPartial Subscription and Subscription on Différent

TermsReinsurance of a Risk not yet InsuredThe Relationship between Slip and Policy

Contract RenewalVariation of the Insurance ContractContinuation of InsuranceReinstatement after LapseRenewal Notice

Renewal Terms

11-1 A411-1B11-1B111-1C1i _211-2A11-2Al11-2A211-2A311-2B11-2C11-2D11-2E11-2F11-2G11-311-3A11-3B11-3C11-3C1

11-3D11-3E11-3F11-411—4A

11-4C11-4D

12 INTERIM INSURANCE: COVER NOTES AND BINDERS

IntroductionIntérim CoverDisclosureCommencement

Authority to Grant Intérim CoverImplied AuthorityApparent Authority

FormTermsTermination of Intérim Cover

Stated PeriodRefusai of the Main ProposaiThe Issue of a PolicyTermination by the Insured

12-112-1A12-1B12-1C12-212-2A12-2B12-3Yl-A12-512-5 A12-5B12-5C12-5D

13PREMIUM

IntroductionThe Amount of Premium

13-113-2

xv

CONTENTS

The Place of PaymentThe Mode of PaymentThe PersonRight to PremiumReceipt of PaymentThe Time of Payment

Days of GrâceThe Effect of Non-PaymentRépudiation by the InsurerRelief

WaiverAppropriationRelief against Forfeiture

The Importance of CertaintyThe Importance of Punctuality of PaymentProprietary and Possessory Rights

No Return of PremiumException: Divisible RiskException: Contract TermsException: No Risk No PremiumOverpayment

13-3

13-513-613-713-813-8A13-913-1013-1113-11A13-11B13-11C13-11C113-11C213-11C313-1213-12A13-12B13-12C13-12D

14 THE INSURANCE CONTRACT CONTENTS

The Contract, and the Paroi Evidence RuleExceptions to the Paroi Evidence Rule

No ContractSpécial MeaningContrary Intention: Collatéral TermsCollatéral DocumentsImplied TermsAmbiguityRectification

RectificationProof: Onus and FormCommon AgreementMistake

Unilatéral MistakeDefencesConséquences

14-114-214-2A14-2B14-2C14-2D14-2E14-2F14-2G14-314-3A14-3B14-3C14-3C114-3D14-3E

15 THE INSURANCE CONTRACT: CONSTRUCTION

IntentionThe Ordinary Meaning

Technical Meaning: PrécèdentTechnical Meaning: Trade, Légal or Scientific Usage

Context

15-115-215-2A15-2B15-3

xvi

CONTENTS

The Context Inside the PolicyEiusdem GenerisExpressio UniusDeleted ClausesSections of the Policy

The Context Outside the PolicyThe Way OutThe Context Outside the Policy

AbsurdityAmbiguity

Libéral ConstructionThe Reasonable Expectations of the Insured

Décisions in the United StatesEngland: Misleading Impression

Construction Contra ProferentemQualification and Inconsistency

Inconsistency: First I n . . .Words Written and Words PrintedThe Main Purpose of the ContractPolicy and ProposaiPolicy and CertificatePromotional Material

15-3A15-3A115-3A215-3A315-3A415-3B15-3B115-3B215-415-515-5A15-5B15-5B115-5B215-5C15-615-6A15-6B15-6C15-6D15-6E15-6F

16 COVER: LOSS AND PROOF OF LOSS

The Nature of Cover and LossLoss

Financial LossThe Time of LossConstructive Total Loss (CTL)The Nature of LossConsequential Loss

Deprivation LossDamage

The General Onus of ProofThe Insured Must Prove Loss Within CoverThe Response of the Insurer

TraverseExceptions: to be Proved by the Insurer

The Distinction between Périls and ExceptionsSpécifie ExceptionsGeneral ExceptionsContract TermsCombined PérilsExceptions to an Exception

16-116-216-2A16-2A116-2A216-2A316-2A416-2B16-2C16-316-3A16-3B16-3B116-3B216-3C16-3C116-3C216-3C316-3C416-3C5

17 COVER: CAUSES O F L O S S

DeathFire

17-117-2

xvu

CONTENTS

IgnitionCauses of Fire

Arson: Fire Deliberately CausedArson by a Co-InsuredArson by a CorporationLegitimate FireArson by the Insured: Onus of Proof

Friendly FiresWaterThe Immédiate Effects of Fire

Adjacent PropertiesExplosion

Fire Causing ExplosionExplosion Causing Fire

Associated Loss: FirefightingAU Risks

FortuityInévitable LossKnowledgeWilful Misconduct

Proof of Ail RisksLiability

LossQC Clauses

The EventOccurrence

The Nature of the OccurrenceThe Time of the Occurrence: Disuse or DamageThe Time of the Occurrence: Conduct

Claims-MadeThe Nature of the ClaimThe Time of the ClaimThe Scope of a ClaimNotification of Claims

The Duty to DéfendConduct of the DefenceInformationCostsConflict of Interests: Insurer and InsuredConflict of Interests: InsurersConséquences of Breach

WaiverPersonal Accident

Related QuestionsIntentional InjuryAccident: An Unexpected and External FortuityThe Time and Nature of Assessment

The Time of the AccidentPublic Policy: Relative Recklessness

The Social Utility of the ActivityGeneral PracticeAnti-Social Conduct

17-2 A17-2B17-2B117-2Bl(a)17-2Bl(b)17-2Bl(c)17-2Bl(d)17-2B217-2C17-2D17-2D117-2E17-2E117-2E217-2F17-317-3A17-3A117-3A2

17-3A317-3B17-417-4A17-4A117^ffi17^C17-4C117-4C217^C317^D17-4D117-4D217-4D317^D417^E17-4E117-4E217^E317-4E417-4E517-4E617-4F17-517-5A17-5B17-5C17-5D17-5D117-5E17-5E117-5E217-5E3

XVlll

CONTENTS

Possible VariationsAccidentai Means and Accidentai ResultsIntentional ConductLack of Awareness

DiseaseDisease as Cause of Injury is Not AccidentaiDisease Predisposing to AccidentDisease as Link: The Injury may be AccidentaiAccidents in Hospital

ClausesCover against Bodily Injury by External, Violent

and Accidentai MeansIndependently of ail Other Causes

17-5F17-5F117-5F217-5F317-5G17-5G117-5G217-5G317-5G417-5H

17-5H117-5H2

18 THE PERIOD OF COVER

The Importance of the Insurance PeriodLong Tail InsuranceLoss Before or After the Insurance Period

The Commencement of CoverContract Terms

From 1 January...From 11 am . . .On Delivery of the PolicyOn Payment of PremiumFrom an EventCover During Transit

Termination of CoverExpiryEnd of RiskStated EventTermination by AgreementOption to Terminate

Statute: Second ThoughtsContract Option

Wrongful Termination by the Insurer

18-118-1A18-1B18-218-2A18-2 Al18-2A218-2A318-2 A418-2A518-2A618-318-3A18-3B18-3C18-3D18-3E18-3E118-3E218-3F

19 EXCEPTIONS

Exceptions in GeneralThe Nature of ExceptionsWarranties Compared

The Effect on RiskThe Effect of Waiver

InterprétationMixed Use of PropertyCausation

Exceptions Concerning the Conduct of the InsuredNégligence

Interprétation

19-119-1A19-1B19-1B119-1B219-1C19-1C119-1C219-219-2A19-2A1

xix

CONTENTS

ApplicationWilful Exposure to Unnecessary DangerIntoxicationUnroadworthiness

The Meaning of RoadworthinessThe Degree of Care RequiredThe Timing of the Duty

The Intentional Act ExceptionThe Significance of IntentionThe Courts' ApproachThe ExceptionExpected LossExpectation of Kinds of LossPublic PolicyCriminal Acts

Exceptions: Périls of SocietyWarCivil WarInsurrection and RébellionCivil CommotionRiot

WaiverExceptions and the Unfair Contract Terms Act 1977

The EC DirectiveThe Scope of the RégimePlain and Intelligible LanguageUnfaimessExamples of Unfair Terms in Insurance ContractsThe Enforcement of the Régulations

19-2A219-2B19-2C19-2D19-2D119-2D219-2D319-2E19-2E119-2E219-2E319-2E419-2E519-2E619-2E719-319-3A19-3B19-3C19-3D19-3E19-419-519-5A19-5A119-5A219-5A319-5A419-5A5

20 WARRANTIES

Terminology: The Nature of WarrantiesIdentifying a Warranty

Part of the ContractWarranties in the ProposaiImplied Warranties: Aggravation of Risk

The Language of WarrantyThe True WarrantyThe Contractual Warranty

The Absolute Nature of WarrantiesRiskLoss

Scope of the Warranty: ConstructionPurposeAbsurdityContra Proferentem

Continuing WarrantiesWording

Reasonable PrécautionsChange of Use

20-120-220-2A20-2A120-2A220-2B20-2B120-2B220-320-3A20-3B20-420-4A20-4B20-4C20-520-5A20-5A120-5A2

xx

CONTENTS

OccupancyAltération of Risk

PurposeChange in the Risk: Change of Description

Breach of WarrantyOnus of ProofThe Meaning of Breach

KnowledgeImpossibility

Breach of Warranty: EffectComposite Insurance

Waiver of Breach of WarrantyThe Nature of WaiverProofKnowledge

Apparent KnowledgeUnequivocal and Positive Conduct

ExceptionsRelianceClauses

21 MISTAKE

IntroductionCommon Mistake

Common LawEquity

Mutual MistakeUnilatéral Mistake

Mistake of Identity or of Subject-MatterMistake as to Terms of the Contract

Documents Mistakenly Signed

20-5A320-5A420-5B20-5B120-620-6A2O-6B20-6B120-6B220-6C20-6C120-720-7A20-7B20-7C20-7C120-7D20-7D120-7E20-7F

21-121-221-2A21-2B21-321-421-4A21-4B21-5

22 MISREPRESENTATION

IntroductionMisrepresentation

A Positive StatementImplicationChange of Circumstances

A Statement of FactPromiseOpinionStatements of Law

The Maker of the MisrepresentationMisrepresentation by the InsurerMisrepresentation by Third Parties

UntruthCommon Sensé InterprétationObjective Interprétation

22-122-222-2A22-2 Al22-2A222-2B22-2B122-2B222-2B322-2C22-2C122-2C222-2D22-2D122-2D2

xxi

CONTENTS

Interprétation in ContextTrue at the Time

Three-quarter Truths: Substantial TruthHalf Truths

InducementMaterialityInducement in Fact

Récipient UnawareIndependent Judgement

The Degree of InducementThe Négligent Récipient

Remédies

22-2D322-2D422-2E22-2F22-322-3A22-3B22-3B122-3B222-3C22-3D22-4

23 PART I: NON-DISCLOSURE

IntroductionThe Nature and Justification of the RuleMutuality of the Duty of DisclosureSummary of the Rules Goveming Non-Disclosure

The Onus of ProofThe Presumption of Inducement

The Nature of the PresumptionProof of Inducement

Communication of Material InformationCompréhensionThe Mode of CommunicationThe Meaning of CommunicationThe Target of Communication

The Time of DisclosureNew InsuranceModification or Extension of Existing InsuranceRenewalModification or Renewal?

Extension of the Insurance PeriodChange in The Quantum of Risk

Material FactThe Prudent Insurer

The Judgement of the Particular InsurerThe Search for the Prudent Insurer

The Branch of InsuranceGeneral PracticeContextJudicial ControlPublic Policy

Materiality and InducementMateriality: Degrees of InfluenceInducement of the Actual Insurer

Facts Known to the ProposerThe Knowledge of Agents

Contracting AgentsThe Knowledge of Companies: the Alter Ego

23-123-1A23-1B23-1C23-223-2A23-2A123-2A223-323-3A23-3B23-3C23-3D23-423-4A23-4B23-4C23-4D23-4D123-4D223-523-623-6A23-6B23-6B123-6B223-6B323-6B423-6B523-723-7A23-7B23-823-8A23-8A123-8A2

xxii

CONTENTS

The Knowledge of ExpérienceKnowledge of BusinessInferenceUnited States: Fraud

Facts Known to the InsurerThe Actual Knowledge of the Insurer

Reliable SourcesThe Mind of the Insurer

The Constructive Knowledge of the Insurer: BusinessEvents Affecting the BusinessThe Means of Knowledge

Common KnowledgeMaterial Facts; Exceptions

Inferences from FactsWarrantiesFacts fhat Diminish the Risk

Waiver and Non-Disclosure: IntroductionWaiver of the Proposer's Duty of Disclosure

No QuestionsLimited Questions

Questions UnansweredWaiver by the Nature of the Insurance

Waiver of Further InformationDocuments TenderedDocuments MentionedThe Nature of the Risk ProposedInference from Facts Disclosed: Insurer on Inquiry

23-8B23-8C23-8D23-8E23-923-9A23-9A123-9A223-9B23-9B123-9B223-9C23-1023-10A23-10B23-10C23-1123-1223-12A23-12B23-12B123-12C23-1323-13A23-13B23-13C23-13D

23 PART II: THE EFFECT OF MISREPRESENTATION ANDNON-DISCLOSURE

RemédiesDamages

FraudThe Nature of DamagesCausation

The Misrepresentation ActGood FaithTortStatuteBreach of Confidence

Misrepresentation or Non-Disclosure as a DefenceThe Right of Rescission

The Relevance of FraudBasis Clauses

The Mode of Rescission: ElectionThe Effect of Rescission: Total Retroactivity

Limits on RescissionStatuteAffirmation

Knowledge

23-1423-1523-15A23-15A123-15A223-15B23-15C23-15D23-15E23-15F23-1623-1723-17A23-17A123-17B23-17C23-1823-18A23-18B23-18B1

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CONTENTS

Affirmation must be Unequivocal 23-18B2Reliance 23-18B3

LapseofTime 23-18CPerformance 23-18DRestitution 23-18EThird Party Rights 23-18FExclusion 23-18G

24 ILLEGAL INSURANCE

Illégal Contracts 24-1Illegality when Making the Contract of Insurance 24-2

Contracts with Persons Lacking Insurable Interest 24-2AContracts with Enemy Aliens 24-2B

Enemy Connection 24-2B1Time of War 24-2B2

Illégal Mode of Contracting 24-3Unlicensed Insurers 24-3A

Section 2 24-3A1Section 16 24-3A2

Illégal Promises 24-4Indemnity Clauses 24-4APayment to Enemy Aliens 24-4B

Commercial Insurance 24-4B1Life Insurance 24-4B2

Discrimination 24-4CIllégal Purpose 24-5

Rationale 24-5ADeterrence 24-5A1No Man Shall Profit from His Own Wrong 24-5A2Balance of Policy Factors 24—5A3

Wilful or Deliberate Loss or Damage 24-5BThe Acts of Others 24-5B1Wilful or Deliberate 24-5B2

Ulegality and Life Insurance 24-6Murder 24-6AManslaughter 24-6BSuicide 24-6CImmorality 24-6D

Ulegality and Liability Insurance 24-7Compulsory Liability Insurance 24-7AOther Liability Insurance 24-7B

Insurance of Property Illegally Used or Acquired 24-8Past Illegality 24-8AFuture Ulegality 24-8BConcurrent Illegality 24-8C

Illégal Use 24-8C1Illégal Mode of Managing Property 24-8C2Guilt by Association 24—8C3

The Effect of Illegality on the Contract of Insurance 24-9Ulegality When Making the Contract of Insurance 24-9A

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Illégal PromisesIllégal Purpose: Partial EnforcementPlaintiff Not in Pari Delicto

InnocenceRelative TurpitudeClass ProtectionRépudiationIndependent and Untainted Cause of Action

24-9B24-9C24-9D24-9D124-9D224-9D324-9D424-9D5

25 CAUSATION

IntroductionCauses and Conditions: Relevant EventsThe Proximate CauseProximity: Inévitable Loss

The Extent of LossNégligence of the InsuredReasonable Efforts to Avoid or Minimise Loss

Damage LimitationAvoiding the Péril

Successive Connected Causes: Exception—Péril—LossConcurrent Causes

Concurrent and Interdependent CausesConcurrent and Independent Causes

Successive Connected Causes: Péril—Exception—LossWilful MisconductThe Flexible Chain: Bending the Rules

Causes, Consécutive or ConcurrentStretching the Cause to Cover Weakness in the Chain

AccidentParticular Wording

The Proximate Cause Bypassed: Areas of RiskThe Proximate Cause Restricted: Sole Cause

25-125-225-325-425-4A25-4B25-4C25-4C125-4C225-525-625-6A:25-6B25-725-825-925-9A25-9B25-9B125-9C29-9C129-9C2

26 CLAIMS PROCEDURE

IntroductionNotice of Loss

The Basis of the DutyThe Form of NoticeThe GiverThe RécipientThe Time of Loss

ImpossibilityPréjudice to the Insurer"Immédiate" Notice; Notice "As Soon as Possible"Reasonable Time

ParticularsProof of Loss

The Effect of Breach of Procédural Condition

26-126-226-2A26-2B26-2C26-2D26-2E26-2E126-2E226-2E326-2E426-2F26-2F126-2G

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ArbitrationThe New York Convention

Waiver of Procédural ConditionsWaiver and Estoppel

Waiver and Estoppel: The DistinctionWaiver and Estoppel: When do they Apply?

Proof of WaiverKnowledgeUnequivocal ConductRelianceThe Effect of Waiver

Time of SuitIgnoranceAccrual of the Cause of Action: QuantificationInvestigation and Suspension

26-326-3A26-426-4A26-4A126-4A226-4B26-4C .26-4D26-4E26-4F26-526-5A26-5B26-5C

27 CLAIMS CO-OPERATION AND GOOD FAITH

The Continuing Duty of Good FaithThe Nature of the Duty

The Time of DutyThe Level of Duty

To Whom the Duty is OwedA Duty of Care in Tort

Fraudulent ClaimsProving Fraud

The Onus of ProofSurveillance

The Meaning of FraudSubstantial FraudWilful FraudExaggerationMaterial Fraud

The Effect of Fraud

Rejection of ClaimsTermination of Cover: the LawThe Meaning of TerminationTermination of Cover: Terms of the PolicyDamages

Single, Joint and Composite InsuranceNotice of LossCo-operation

The Co-operation ClauseBreach of the Duty of Co-operationThe Reinsurer's Duty to Follow Settlements

Cutting LossesReasonable StepsEntry on Premises

Subrogation

27-127-1A27-1A127-1A227-1B27-1C27-227-2A27-2A127-2A227-2B27-2B127-2B227-2B327-2B427-2C27-2C127-2C227-2C327-2C427-2C527-2C627-32 7 ^27-4A

27-4C27-527-5A27-5B27-6

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28INDEMNITY

Actual LossThe Sum Insured: Independent LossLimited Interests

The Basis of AssessmentReal PropertyOther Property

The Mode of AssessmentReinstatementMarket ValueBetterment

The Time of AssessmentSalvagePartial LossThe Valued Policy

ExceptionsOwn Insurer

Under Insurance AverageThe Excess ClauseThe Franchise ClauseWarranted Part UninsuredConsequential LossLoss of ValueMinimising Loss

DutyCost in the Absence of a DutyCosts in Performance of a Duty to Avoid Loss

Double Insurance: Contribution or Co-insurance ClausesRateable Proportion ClausesExcess of Loss InsuranceNotice and Consent: Escape Clauses

28-128-1A28-1B28-228-2A28-2B28-328-3A28-3B28-3C28-128-528-628-728-7A28-828-8A28-8B28-8C28-8D28-8E28-8F28-8G28-8G128-8G228-8G328-928-9A28-9B28-9C

29 REINSTATEMENT

IntroductionReinstatement: Contract

The Act of ElectionThe Effect of ElectionImpossibility of PerformanceThe Quality of ReinstatementThe Co-operation of the Insured

Reinstatement: StatuteThe Request of Persons Interested

29-129-229-2A29-2B29-2C29-2D29-2E29-329-3A

30 PAYMENT AND NON-PAYMENT

PaymentThe Time of PaymentThe Mode of Payment

30-130-230-3

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The PayéeThe Loss Payée

Payments by MistakeMistake of FactEssential MistakeExcusable Mistake

CarelessnessAssumption of RiskReliance

Settlement or Compromise of ClaimsGood Faith: Disclosure

Good Faith between InsurersUndue Influence

IntroductionMotive and EffectThe Classification of InfluenceUnfairnessNotice or Awareness—of Influence and UnfairnessRebutting the Presumption: Independent Will and

Independent AdviceIs Independent Advice Always Enough?Abuse of Bargaining Power: VictimisationRescission

Settlement by MistakeFundamental MistakeAssumption of RiskFaultBars of RescissionDocuments Mistakenly Signed

ConsidérationEconomie Duress

CompulsionIllegitimacyThe Source of PressureInducement

Non-PaymentIndemnity Insurance

When is the Insurer Obliged to Pay?Non-Indemnity Insurance

InterestThe Amount of InterestThe Interest Period

Spécial DamagesContingency InsuranceIndemnity Insurance

Failure to PayLiability Insurance: Failure to Défend or to Setûe

Inconvenience and Mental DistressTime of Assessment

The Tort of Bad FaithThe Policyholders Protection Act and the Financial Services

Compensation Scheme

30-430-4A30-53O-5A3O-5B3O-5C3O-5C130-5C23O-5C330-630-6A30-6A130-6B30-6B130-6B230-6B330-6B430-6B5

30-6B630-6B730-6B830-6B930-6C30-6C130-6C230-6C330-6C430-6C530-6D30-6E30-6E130-6E230-6E330-6E430-730-7A30-7A130-7B30-830-8A30-8B30-930-9A30-9B30-9B130-9B23O-9C30-9D30-10

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Action Against an Adjuster or Investigator 30-12

31 SUBROGATION

IntroductionThe Légal Basis of Subrogation

EquityImplied TermExpress Term

When? The Conditions of SubrogationIndemnity Insurance

Benefit PurchasedObjective: Compensation

The Insurer must PayFull IndemnityDoubtful Insurance Claims

Contractual ExclusionThe Rights of the Insurer

The Nature of the Insurer's RightsRights in ContractRights in TortStatuteInterestCostsGifts to the Insured

Limits on the Insurer's RightsContractual Exemption or Limitation

The Benefit of InsuranceEstoppelTimeEarlier Proceedings

WindfallsNo Rights Against the InsuredNo Rights Against the Co-InsuredPublic Policy

Labour RelationsConflict of Duty and Interest

The Duties of the InsuredCommencement of SuitConduct of Suit

Suit Initiated by the InsurerSuit Initiated by the InsuredCosts

Information and AssistanceAbandonnantSettlement

Why Subrogation?The Case for Subrogation

Preserving the Principle of IndemnityDeterrence

The Case Against Subrogation

31-131-231-2A31-2B31-2C31-331-3 A31-3A131-3A231-3B31-3B131-3B231-3C31-431-4A

31-4C31-4D31-4E31—4F

31-531-5 A31-5A131-5A231-5 A331-5 A431-5B31-5C31-5D31-5E31-5E131-5E231-631-6A31-6B31-6B131-6B231-6B331-6C31-6CI31-6C231-731-7 A31-7A131-7A231-7B

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„ . 31-7B1Cost aConflictsof Interest

page 1061Index

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