English Insurance Law:
An Introduction
Dr Michael Schillig
King’s College London
Dickson Poon School of Law
Overview
• Nature and types of insurance
• Insurable interest
• Insurance as a contract uberrimae fidei
• Content and interpretation
• Liability and rights of the insurer
Nature and types of insurance
• Indemnity insurance
• Insurer undertakes to provide the insured with an indemnity
against a possible future loss or liability
• Property insurance
• Liability insurance
• Contingency insurance
• Insurer undertakes to pay a specified sum on the happening of a
named event
• Life insurance
• Personal injury policy
Insurable interest: life insurance
• Life assured does not have to show an interest in his own life
• Interest is presumed in case of a spouse or civil partner
• Dalby v India and London Life Assurance Co (1854) 15 CB 365
• Claimant insured the life of the Duke of Cambridge
• Reinsured with the defendant
• Initial insurance was cancelled, claimant continued to pay
reinsurance premium until the death of the Duke
• Claimant had an interest at the time of taking out the policy; he
did not have to show an interest at the time of the loss
• Generally, some pecuniary interest in the life assured
• Creditor may insure the life of a debtor up to the mount of the
debt
Insurable interest: property
• Lucena v Craufurd (1806) 2 B&PNR 269
• Captured enemy ships were insured when still on high sea
• Some ships were lost before they reached British ports
• Crown commissioners could take charge only after ships reached
British ports, prior to that no insurable interest
• Mere expectancy is insufficient
• Macaura v Northern Assurance Co ltd [1925] AC 619
• Sole shareholder has no insurable interest in the assets of his
company
• Hepburn v ATomlinson (Hauliers) Ltd [1966] AC 451
• Carriers with insurable interest of the full value of the goods in
transit
• Not just their potential liabilities to the owners
Contract uberimae fidei
• Carter v Boehm (1766) 3 Burr 1905
• ‘Good faith forbids either party, by concealing what he privately
knows, to draw the other into a bargain from the ignorance of the
fact, and his believing the contrary.’
• Woolcott v Sun Alliance and London Insurance Ltd [1978] 1
WLR 493
• Fire insurance: insurer refused payment because insured had not
disclosed that he had been convicted of robbery some 12 years
previously
• Was not asked explicitly
• Duty to disclose such facts as a reasonable or prudent insurer
might have treated as material
• Criminal record self-evident
Contract uberimae fidei
• Economides v Commercial Union Insurance plc [1998] QB 587
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Household insurance
Obligation to be honest
Insured’s belief, if made in good faith, to be deemed to be honest
No obligation to make inquiries (expert valuation etc of items)
• Dawsons Ltd v Bonnin [1922] 2 AC 413
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Insurance of a lorry: proposal should be the ‘basis’ of the contract
According to proposal, lorry normally garaged in Glasgow
Actually, normally garage at farm outside Glasgow
Although misstatement was not ‘material’
‘Basis of the contract’ argument allowed insurers to avoid liability
Content and interpretation
• Conn v Westminster Motor Insurance Association Ltd [1966] 1
Lloyd’s Rep 407
• Insurance of a taxi
• ‘To take reasonable steps to maintain the vehicle in an efficient
condition’
• Taxi was damaged in an accident because driver was asleep
• Rundown state did not contribute to the accident
• Insurer could avoid liability
• Warranty: no liability regardless of contribution
• Defining of the risk covered: breach must be causally connected
to the loss; otherwise insurer will remain liable
Content and interpretation
• Farr v Motor Trader’s Mutual Insurance Society [1920] 3 KB
669
• Two taxis; each to be driven in one shift only per 24h
• For two days, one taxi was driven for two shifts per 24h whilst the
other one was being repaired
• Later, when one shift per 24h had been resumed, insurer refused
payment for breach of warranty
• Construction of the contract: mere definition of the risk
• Therefore, insurer was liable
Liability and rights of insurer
• Raynor v Preston (1881) 18 Ch D 1
• P to sell property to R
• After contract and prior to conveyance, property destroyed by
fire
• Risk on buyer (R), therefore payment of price in full
• P was paid by insurers, R had no right to insurance money
• Castellain v Preston (1883) 11 QB 380
• Since P had sustained no loss, he had to repay the money to the
insurers
• The assured shall be fully indemnified, but shall never be more
than fully indemnified.
• ‘That is the fundamental principle of insurance’.
Rights of insurer
• Salvage
• Where insurer has compensated the insured for total loss of the
insured property, all rights to the property are ceded by operation
of law to the insurer, who thereby becomes the owner.
• Subrogation
• An insured cannot ever receive more than a full indemnity for his
loss, if he does receive more he is accountable to the insurer for
it.
• Insurer who has indemnified assured is entitled to succeed to all
the rights of the latter – ‘to stand in his shoes’
• Contribution
• More than one policy covering the same risk; insurer who has
met the claim in full is entitled to contribution on ratable basis
Conclusion
• Parts of insurance law are codified:
• eg Life Assurance Act 1774
• eg Marine Insurance Act 1906
• Common law
• Significant modifications of general contract law principles
• Most of the principles first fleshed out in the context of marine
insurance