MDI-01
Insurance and Business Law (with
reference to Irish law and practice)
Examiner Feedback & Guideline Answers
November 2013
General
Insurance
Important
Exam Tips
In relation to all the examination papers, the following are important.
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It is inadvisable to do some questions well and only half complete the others. Only
spend your allocated amount of time on each question, then move on to the next one.
By spending too long on any one question you are firstly losing the marks that you
could be earning on another question and secondly, you are not increasing your marks
on the first question (you can only get a certain number of marks and after a certain
length of time you are only padding or waffling).
You should allocate some time before you start writing to read the question paper very
carefully, choose your questions and structure your answers, at the end allow time to
go back over unfinished questions or to allow for running over time on a question and
then some time to look over the paper at the end of the exam.
Bring a watch.
Don’t worry about what others are doing e.g. if someone is asking for more paper very
often - don’t panic - the size of people’s writing differs, some people only write on every
second line or every second page.
Make sure that your writing is legible. It is not a good idea to frustrate the examiner by
making them decipher your writing.
Make sure that you have everything that you need biros, pencils, rulers, calculators
etc.
As a rule do not use tippex as it takes too long to dry. Instead, simply cross it out
clearly.
Make sure that you identify what exactly is being asked and that your answer
addresses the question asked. To achieve this it is important to underline the key
words (see ‘what the question is asking for’ section above) and any other important
section of the question to help you to focus on the area involved and to produce the
right kind of answer. This can be done by doing a rough note on the back identifying
what is being asked and your approach to the answer.
It is recommended that you complete the paper section by section, where appropriate,
but within this framework, you answer your ‘best’ question first.
Make sure that you answer all the questions required in each section.
Presentation
The examiners are not looking for literary style. Examiners welcome answers which make
their work simpler. This can be achieved by neat presentation, short sentences and a
different paragraph to illustrate each point. Headings may also help.
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Written
Management Diploma in Insurance
MDI-01 – Insurance and Business Law (with reference
to Irish law and practice)
Saturday 2nd November 2013
2.00pm – 5.00pm
THE EXAM PAPER AND ANSWER BOOK MUST BE HANDED UP AT THE END OF THE EXAM
To be awarded a pass grade in this examination, you must achieve a mark of 55% or
above.
2.
Complete the required details on the front cover of your answer book. Identify and list
the question numbers attempted in the table provided. Write your candidate number at
the top of the answer book and at the top of any additional pages that you may use.
Ask the Supervisor for additional answer sheets should you require them.
3.
To ensure your answers are given appropriate marks, please ensure your answers are
presented well and that your handwriting is clear.
4.
The number of marks for each part of each question, and the total number of marks
allocated for each question is shown in the question paper.
5.
Candidates should answer ALL questions in Part I. Each question in Part I carries 10
marks (140 marks available in total). You are advised to spend no more than two hours
on this part of the paper.
6.
Candidates should answer TWO questions from Part II. Each question in Part II carries
30 marks (60 marks available in total).
7.
Quote relevant statutes and case law in support of your answers, where applicable.
8.
Please note that where a choice of questions exists, the Examiner will correct answers
in the order presented in the answer book and will only correct the required number of
answers. NO excess questions will be corrected.
9.
Mobile phones, electronic devices, books, papers or other aids must not be in your
possession at any time during the exam. Calculators may be used provided they are
silent, non-programmable and incapable of storing text.
10. Hand the exam paper, the answer book and any additional pages to the supervisor at
the end of the exam.
1.
Failure to hand in the answer book and any additional pages will preclude the
correction of your examination.
By signing this EXAM PAPER you declare that you have read, understood and agree to be bound by the
Examination Regulations of The Insurance Institute of Ireland. The Regulations are available online at
www.iii.ie.
CANDIDATE’S NAME (Block Capitals) ………………………………………………....
CANDIDATE’S SIGNATURE ………………………………………………………........
CANDIDATE NO. .........……..…………………….. DATE ……………………………
The Insurance Institute of Ireland
MDI-01
PART I
Answer ALL questions in Part I. All questions carry equal marks. Spend no
more than two hours on this part of the paper.
Note form is acceptable (only in respect of Questions 1 – 14) where this
conveys all the necessary information.
Quote relevant Statutes and case law in support of your answers, where
applicable.
1.
Briefly describe the jurisdiction and function of the Circuit Court in civil actions.
2.
Briefly explain the importance of the Memorandum and Articles of Association
of a Company and the information which must be contained within these
documents.
3.
a)
List the FIVE criteria the Supreme Court requires to be met by a plaintiff
before damages are recoverable for nervous shock.
(5 Marks)
b)
Outline the relevant Irish case law which has dealt with the issue of
nervous shock.
(5 Marks)
4.
Briefly describe the main differences between public nuisance and private
nuisance.
5.
Explain any TWO of the following general defences in tort:
a)
Consent;
b)
Volenti non Fit Injuria;
c)
Contributory Negligence.
6.
(5 Marks)
(5 Marks)
(5 Marks)
Briefly explain the following types of damages that can be awarded to a
claimant for breach of a tort:
a)
Nominal Damages;
(3 Marks)
b)
Exemplary or Punitive Damages;
(4 Marks)
c)
Aggravated Damages.
(3 Marks)
7.
8.
a)
Briefly explain the difference between common law remedies and
equitable remedies available for breach of contract.
(2 Marks)
b)
Outline any FOUR equitable remedies available for breach of contract.
(8 Marks)
An agent has a number of duties to their principal.
Explain what the following duties entail:
a)
to exercise proper care and skill; and
b)
to act in good faith towards his principal.
(5 Marks)
(5 Marks)
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MDI-01
9.
Differentiate between void and voidable insurance contracts and explain the
circumstances in which a contract will become void or voidable.
10.
Explain, with the use of practical examples, how a continuing duty of disclosure
can arise during the currency of a general insurance contract.
11.
Frank was in the process of selling his house to Anne for the sum of €250,000.
A few days after the contract for sale was signed and before completion of the
sale, the house was damaged by a fire. Frank successfully recovered €10,000
from his insurer, Home Sure, in respect of the fire damage but did not use the
money to carry out the relevant repairs. However, the sale of the house was
completed and Anne paid the full price of €250,000.
Outline the principle of insurance that applies to the indemnity provided by
Home Sure to Frank and explain whether Home Sure has any rights against
Frank.
12.
Where a property is destroyed by fire, reconstruction is not always the
appropriate measure of indemnity.
Briefly describe the type of properties for which reconstruction may not be the
appropriate measure of indemnity and the alternative measures of indemnity
available to insurers, citing TWO relevant pieces of case law that have dealt
with this issue.
13.
14.
a)
Briefly explain what is meant by pecuniary insurances and how they differ
from property insurances.
(2 Marks)
b)
Outline THREE types of pecuniary insurances and briefly explain how
indemnity is measured for each of these types of insurance.
(8 Marks)
The Central Bank’s Consumer Protection Code (CPC) sets out the rules which
insurers must follow for the processing of claims.
Briefly explain the requirements of the CPC in this regard.
The Insurance Institute of Ireland
MDI-01
PART II
Answer TWO of the following FOUR questions overleaf.
All questions carry equal marks.
Quote relevant Statutes and case law in support of your answers, where
applicable.
15.
Mark is completing an online proposal form for motor insurance. The
proposal asks:
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Have you been convicted of any offence within the last five years?
Mark states “no”. In fact he was convicted of dangerous driving six years ago.
16.
a)
Discuss if Mark is legally bound to disclose his previous conviction,
making specific reference to the range of facts which proposers do not
need to disclose.
(15 Marks)
b)
Describe the requirements that are placed on insurers in respect of nondisclosure in light of the IIF Non-Life Insurance General Code.
(15 Marks)
Assignment is concerned with the transfer to another person of the rights that
exist under a contract. In some classes of insurance, policies are frequently
assigned and for Marine policies, assignment is governed by special
legislation.
Compare and contrast the THREE types of assignment applicable to insurance
policies, setting out the rules and the limitations which may apply in respect of
general and marine insurance.
17.
a)
Explain the notification requirements that must be met by a policyholder
on the occurrence of a loss and how the policyholder discharges the
burden of proof relating to the loss.
(15 Marks)
b)
STP Foods plc. operates a manufacturing facility close to a river. Due to
an unprecedented period of heavy rain, the river is threatening to burst its
banks and flood the area surrounding the facility causing immeasurable
damage. With a view to preventing such damage, the company decided
to engage a contractor to build flood defences by raising the river bank at
a cost of €20,000, including repairs to the building costing €5,000 for
damage resulting from the work. STP Foods submits a claim to its
insurers for the €20,000, pointing out that its policy covers flood and, if
the preventive work had not been carried out, flood damage to their
premises and stock far in excess of the expenditure would have occurred.
Discus the liability of the insurers for this claim, citing the relevant case
law in support of your answer.
(15 Marks)
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18.
MDI-01
Contribution is the corollary of the principle of indemnity, which effectively
prevents the insured from making a profit from their loss.
a)
Describe the FIVE conditions which must be satisfied before the principal
of contribution arises on two or more policies of insurance, citing relevant
case law and practical examples in support of your answer.
(24 Marks)
b)
Mary and Paul are the joint owners of a house. Mary took out a new
Household Buildings policy with Stellar Insurance Co. but Paul renewed
their old policy with Gemini Insurance Co. There was a flood caused by
an insured peril and the cost of repairs was €20,000. The sum insured
under the Stellar Policy is €50,000, with an excess of €1,000 for water
damage. The sum insured under the Gemini Policy is €40,000, with an
excess of €2,000 for water damage. Neither policy is subject to average.
Calculate, clearly showing your workings, the liability of Stellar Insurance
Co. and Gemini Insurance Co. for the loss of €20,000 using the
Independent Liability method.
(6 Marks)
The Insurance Institute of Ireland
MDI-01
MDI-01 Insurance and Business Law (with reference to Irish law and practice)
Examiner Feedback
November 2013
Feedback from the Examiner
Part I
Question 1
Few candidates scored well in this question which was disappointing considering the
subject matter. Those who scored poorly tended not to provide a lot of information
other than the monetary jurisdiction of the Circuit Court and details of its place in the
hierarchy of the Courts. Too many candidates went into details of how the other
courts operated, rather than the Circuit Court which was not what was requested in
the question. It is important for candidates to carefully read the question to ensure
they are addressing the issues posed.
Question 2
This was a relatively straightforward question and encouragingly, the majority of
candidates did well on this one. This was a question where candidates either knew
the information or not and of the minority that didn't score well, most fell down
because they were not in a position to provide a sufficient number of relevant points
for the marks available.
Question 3
This question was divided into two parts with five marks available for listing the five
criteria required by the Supreme Court for cases involving nervous shock and a
further five marks available for outlining the relevant Irish case law in this area.
Both parts of this question were poorly answered. Few candidates were able to
identify the five criteria relevant to nervous shock and many just recited the general
principles associated with the tort of negligence. While some candidates did identify
at least one Irish case, few referenced both and a number of candidates made
reference to English law where the question had clearly requested Irish case law.
Question 4
This question required candidates to briefly describe the main differences between
public nuisance and private nuisance. There were a number of good attempts in
answering this question but some candidates fell down by not providing sufficient
information, outlining only one or two major differences between the two. A number
of candidates incorrectly discussed the tort of trespass rather than private nuisance
and thus failed to pick up marks.
Question 5
The question related to general defences in Tort and candidates were required to
discuss any two from the list of (a) Consent, (b) Volenti non Fit Injuria and (c)
Contributory Negligence. The answers to part (c) were the strongest but in most
cases candidates tended to provide very limited answers to each part and were
limited in the number of marks that they could pick up as a result. The majority of
candidates failed to distinguish between consent and volenti non fit injuria.
The Insurance Institute of Ireland
MDI-01
Question 6
Question 6 dealt with damages and required candidates to briefly explain each of the
following (a) Nominal Damages, (b) Exemplary or Punitive Damages and (c)
Aggravated Damages. It was disappointing to see a number of candidates treating
the heads of damages as “general” or “special” damages. A majority of candidates
appeared to confuse nominal damages with contemptuous damages, which is a
separate category. The candidates who scored very well in this question did so by
stating the appropriate case law which demonstrated their understanding further
beyond stating the simple facts for each type of damage.
Question 7
This question was divided into two parts and mainly dealt with equitable remedies in
contract law. Part (a) required candidates to explain the difference between common
law and equitable remedies and for the most part was answered well. In part (b),
candidates were required to outline any four equitable remedies for breach of
contract. This question was answered poorly by a majority of candidates. Many lost
out on marks for failing to address the question which requested remedies for breach
of contract. Instead these candidates discussed damages, which are not an equitable
remedy.
Question 8
Question 8 dealt with the area of Agency and was broken into two parts. Part (a) was
worth five marks and required candidates to explain the agent’s duty to exercise
proper care and skill. Answers were disappointing in that a majority of candidates
discussed agency agreements rather than the specific issues in relation to having the
requisite knowledge and skill and the repercussions in professional negligence for
failing to have same. Part (b) was also worth five marks and required candidates to
explain the duty to act in good faith towards the principal. This was answered to a
better standard than part (b). In summary, many answers to both parts of this
question were too general and addressed the area of agency at a very high level
rather than the specific area that was asked.
Question 9
Question 9 required candidates to differentiate between void and voidable contracts
and to explain the circumstances in which a contract would be either void or voidable.
This question was answered reasonably well but a number of candidates
demonstrated a confused knowledge of the subject matter, often outlining
circumstances which would void or allow for the voiding of a contract the wrong way
around. There is an important difference between the two circumstances.
Question 10
Question 10 required candidates to explain, using practical examples, how a
continuing duty of disclosure can arise during a general contract of insurance. Many
candidates chose to describe the duty of disclosure at outset or renewal of the
insurance, rather than the continuing duty. Those that correctly identified this
distinction obtained maximum marks by both explaining what the duty actually is and
listing practical examples.
Question 11
Question 11 was a scenario based question based on the case of Castellain v.
Preston and dealt with the area of subrogation. Encouragingly, most candidates were
able to identify the correct insurance principle of subrogation. After that, however,
either too little or incorrect detail was provided and marks were lost as a result.
The Insurance Institute of Ireland
MDI-01
Question 12
The question concerned the methods of indemnity available for old buildings and the
principles set out in the Reynolds v. Anderson case and the contrasting view in the
Leppard case. This question was reasonably attempted by a majority of candidates
with many picking up on the relevant cases. Candidates fell down by failing to identify
the principles set out in those cases or by simply addressing the issue of how
building claims are indemnified in general without sufficiently addressing the issues
raised in the question.
Question 13
Question 13 was divided into two parts and required candidates to (a) briefly explain
what is meant by pecuniary insurances and (b) outline three types of pecuniary
insurances and explain how indemnity is measured under these. Part (a) was
reasonably well attempted. Candidates who scored poorly in Part (b) tended to do so
because they either failed to correctly identify pecuniary insurances (such as
business interruption or liability insurance) or failed to go on to explain how indemnity
is measured under these.
Question 14
This question required candidates to set out the Consumer Protection Codes (CPC)
rules which insurers must follow for the processing of claims. Most candidates
correctly identified up to about five correct requirements but many failed to achieve
higher marks as they did not have a sufficient number of requirements for the marks
available. Other candidates did not obtain marks due to lack of familiarity with the
CPC, or because their answer was based on the complaints process – which was not
requested in the question.
Part II
Question 15
This was among the most popular of the questions attempted in the second part of
the paper. The question was divided into two related parts.
Part (a) was worth 15 marks and required candidates to discuss if the consumer in
the scenario (Mark) was bound to disclose his previous conviction and candidates
were also required to make reference to the range of facts that proposers do not
need to disclose. The majority of candidates did correctly deal with the issues raised
in the question but many provided general commentary about material facts, rather
than dealing in particular with the topic of facts that do not need to be disclosed. A
number of candidates lost out on potential marks by simply listing the types of facts
that do not need to be disclosed but failing to explain or elaborate on them
considering the 15 marks available. A disappointing number of candidates did not
believe that the insurer had waived their right to disclosure by Mark and were of the
view that he was obliged to disclose the conviction.
Part (b) required candidates to describe the requirements that are placed on insurers
in respect of non-disclosure in light of the IIF Code. A minority of candidates correctly
identified the issues in relation to non-disclosure set out in the Code, the warning that
must be given and who the code applies to. Many seemed to confuse the
requirements of the IIF Code with those general requirements set out in the CPC or
failed to address the area of non-disclosure.
The Insurance Institute of Ireland
MDI-01
Question 16
This question dealt with the area of assignment and was answered by a minority of
candidates. Of those who attempted it, the answers tended to be above average and
those who answered the question appeared to have a knowledge of the subjectmatter. Candidates who fell down did so by not providing sufficiently detailed
information for a question worth 30 marks and in addition, some candidates referred
to life insurance, whereas the question was specific to general and marine insurance.
Question 17
This question was divided into two parts with Part (a) requiring candidates to explain
the notification requirements for a policyholder on occurrence of a loss and to explain
how the policyholder discharges the burden of proof. This question tended to be
poorly answered with many candidates not obtaining valuable marks by failing to deal
with the issue of the burden of proof.
Part (b) was a scenario based question which was based along similar lines to the
mid-term assignment candidates had been given the opportunity to complete. Given
this, the question was very disappointingly answered and those who attempted it
failed to pick up high marks. Most candidates provided a very limited answer and
failed to deal with the issue of mitigation of loss in general and instead just dealt with
the prevention of cost in particular.
Question 18
This question was broken into two parts and dealt with the topic of contribution. This
was the second most popular question in this part of the paper. Answers to this
question tended to be either very strong or weak. Those who failed to pick up marks
did so where they provided limited information in part (a) on the five conditions to be
satisfied considering the 24 marks available.
Part (b) of the question was worth 6 marks and required candidates to calculate the
liability of each of the insurers in the scenario under the independent liability method.
In this question, candidates tended to score either full marks or no marks in
circumstances where the calculations were either right or wrong. Some candidates
applied the Maximum Liability Method in error, when the question was specific to the
Independent Liability Method.
The Insurance Institute of Ireland
MDI-01
Recommendations
It should be emphasised to candidates that the level of detail required for these MDI
exams is higher than most previous insurance exams they would have sat. The
differences in standards between Part I and Part II of the paper need to also be
emphasised. In terms of marking standards, a 'point per point' approach is adopted,
which candidates need to be aware in answering all questions. Under this system,
typically for a 10 mark question, 10 pieces of information will be required. For the
Part II questions attracting 30 marks, 30 pieces of information will be required.
Candidates also need to be reminded that this exam has a strong emphasis on legal
principles, in addition to the core insurance principles. So citing case law and statutes
must always be considered in their answers, whether or not the question specifically
asks for it.
Candidates must understand that this exam cannot be passed without a significant
amount of study and practice. For future sittings of the exam, the examiner
recommends the following:
•
Spend sufficient time in each chapter, so that you will have a good
understanding of the material. While you may have experience in an area, this
is rarely enough to pass this exam.
•
When preparing for the exam, as part of your study regime, use the past
papers as practice questions, and when correcting your work, pay close
attention to the level of detail required in the model answers.
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Good time management on the day of your exam is essential and practice will
help in this regard.
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Regular and active study is critical.
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Read the questions carefully and establish what is required of you (list, explain,
describe, etc). Many potential marks are lost through lack of detail.
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Provide examples where required, they usually carry good marks.
•
Make the assumption that the examiner needs to be told everything you know
about a topic and not take it for granted that the use of terminology
demonstrates that it is understood.
•
Make full use of all of the learning supports available via your iiiConnect
account.
The Insurance Institute of Ireland
MDI-01
Guideline Solutions
The answers set out below show the main points to be considered by the candidates
in answering the questions. In some cases a well reasoned alternative view could
earn good marks
Please note: Bullet points below are to be expanded on in the candidates exam
answer booklet, bullets only represent the key essential points that should be
covered as part of the solution. These should be fully expanded upon in order to gain
the allocated marks.
Part I
Question 1
The Circuit Court deals with cases where the damages sought do not exceed
€38,092 but exceed €6,349.* There are usually no juries in civil matters before the
Circuit Court, and therefore the Circuit Judge will sit alone and will decide all issues
of law and fact him/herself. Exceptions to this include defamation actions and assault
and battery actions which require a jury. The Circuit Court has jurisdiction to grant
equitable relief (a decision based on fairness, not monetary gain) , such as an
injunction (an order of the Court, directing the Defendant or the Plaintiff to do (a
mandatory injunction) or to refrain from doing (a prohibitory injunction) a particular
thing).
From a decision of the Circuit Court, either side has the right to an appeal, by way of
full re-hearing , to the High Court. The Circuit Court has the power to state a case.
However, cases stated from the Circuit Court will be heard directly by the Supreme
Court.
*Marks were awarded to any candidate that noted the new limits set out in Courts Bill
2013
Text Reference – Chapter 1, Section D1B
Total: 10 Marks
Question 2
The Memorandum and Articles of Association are the most important of the
documents which must be filed at the Companies Office. The Memorandum and
Articles include the following information in relation to a company:
1. The Company's name and address and the names and addresses of its officers;
2. The nature and objects of its business;
3. The limits of its members liability;
4. The amount and type of capital which it possesses;
5. The internal rules governing the dealings between the company and its members
(for example, procedures at meetings, voting rights and entitlement to receive
dividend from the company's profits).
The Insurance Institute of Ireland
MDI-01
These documents are held by the Companies Office and are open for inspection by
the public. The most important clause of the Memorandum is the objects clause,
which sets out the main and subsidiary objectives of the company. Traditionally, if a
company enters into a contract in furtherance of business not included in the
company’s objects clause, the company is said to be acting ultra vires (outside its
authority). According to common law, an ultra vires contract is void and
unenforceable against the company.
Text Reference – Chapter 2, Section B2
Total: 10 Marks
Question 3
a)
1.
The plaintiff must suffer a recognisable psychiatric illness.
2.
Such illness must be shock induced.
3.
The nervous shock must be caused by the defendant's act or omission.
4.
The nervous shock must be caused by reason of actual or apprehended
physical injury to the plaintiff, or a person other than the plaintiff.
5.
The defendant must owe the plaintiff a duty of care, in the form of nervous
shock, (as opposed to personal injury), not to cause him or her, a reasonably
foreseeable injury.
(5 Marks)
b)
In Mullally v. Bus Eireann (1991), the plaintiff's husband and four of her children
were injured in the defendant's bus when it overturned due to the defendant's
negligence. The plaintiff herself did not witness the accident, but saw the scenes of
horror afterwards at the hospital, where her family were taken for treatment. One of
the plaintiff's children subsequently died of his injuries. The plaintiff who had suffered
severe post-traumatic stress disorder was awarded IR£75,000 in damages.
In Kelly v. Hennessy (1995), the plaintiff heard of the accident and went to the
hospital, where she witnessed the horrific injuries sustained by her family; her
husband and daughter suffered brain damage. In the High Court, the defendant
conceded that the plaintiff was suffering from the condition of post-traumatic stress
disorder, but argued that this type of condition was not of the type of injury, which
could attract damages for nervous shock and that the condition was not caused by
the immediate aftermath of the accident, but by the strain the plaintiff was under in
caring for her disabled husband and daughter at home. The plaintiff defended her
decision to mind her disabled husband and daughter without outside help, on the
basis that she felt that to obtain outside assistance would impede her own psychiatric
recovery. The High Court found in favour of the plaintiff on the basis that her injuries
were caused by the defendant and that her failure to engage trained help did not
constitute a failure to mitigate loss. She was awarded IR£75,000, which was reduced
to IR£55,000 by the Supreme Court, on the basis that she might make at least a
partial recovery in the future. On the issue of causation, the Supreme Court held that
the cause of the plaintiff's symptoms was in fact the accident and not the subsequent
stress imposed on her in caring for her severely disabled loved ones and also, that
she had not failed to mitigate her loss.
(5 Marks)
Text Reference – Chapter 3, Section C9
Total: 10 Marks
The Insurance Institute of Ireland
MDI-01
Question 4
•
Public nuisance has been defined as the 'carrying on of an activity, which is
likely to cause inconvenience or annoyance, to the public or a section of the
public, or interference with a right common to all'.
•
For example, public nuisance could arise if toxic fumes from a factory engulf a
whole neighbourhood, or if noise from a nightclub keeps the whole local
community awake.
•
However, by far the most important area of liability is nuisance on the highway,
either by the defendant blocking or obstructing it, or making it unsafe to use for
other road users. The point is that the use of the highway is an important public
right which the law is keen to protect.
•
Public nuisance is treated as a crime, because it affects the public at large and
the only person entitled to sue is the Attorney General, as a representative of
the State and members of the public.
•
However, an individual who suffers 'special damage', (loss or inconvenience),
greater or above that suffered by the general public, may bring a civil action,
against the perpetrator of the nuisance.
•
For example, digging a hole in the road might amount to a public nuisance
(inconveniences the public as a whole), but an individual who suffers injury as a
result of falling in the hole can bring an action in tort for damages.
•
Private Nuisance - Nuisance has been described as: 'a wrong done to a man
by unlawfully disturbing him in the enjoyment of his property, or, in some cases,
in the exercise of a common right'.
•
Private nuisances usually involve the escape of some noxious substance, or
the causing of excessive noise.
•
Evidence of damage is required, and thus, unlike trespass, nuisance is not
actionable per se.
•
The interest, which the law of nuisance attempts to protect, is the use and
enjoyment of land.
•
The interference must be real, not fanciful, and must normally involve
something continuous.
•
This does not mean that the damage must be continuous, as there are many
actions in nuisance involving a single occurrence of damage. However, a state
of affairs must exist, which constitutes a threat of damage.
Text Reference: Chapter 3, Sections E E1 - E2
Total: 10 Marks
Question 5
Candidates were required to answer any TWO of the following:
a)
The defence of consent applies, where the claimant agrees to a deliberate act by the
defendant, which would be a tort if no consent had been given. For example, the
participants in a boxing match consent to being punched by each other and
customers in a hairdresser's salon agree to have their hair cut or treated. If no
consent were given, each of these actions would amount to a battery. It must be
appreciated that consent is primarily a defence to deliberate torts, particularly to
trespass to the person. However, it may also be a defence to other torts, such as,
libel or nuisance.
(5 Marks)
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b)
'Volenti non fit injuria' literally means 'no legal wrong is done to a person who
consents', and it proposes that the plaintiff either expressly or impliedly consented to
the risk of injury or damage. There must be consent, not mere knowledge, of the
risk. The defendant bases the defence on the proposition that the claimant
consented, not to a deliberate act, but to the risk of negligence. For this reason, the
defence is sometimes known as 'assumption of risk'.
The Civil Liability and Courts Act 2004, now governs the law in this area, and
permits the defendant to escape liability, if he/she can prove that the plaintiff made a
contract, or otherwise agreed to waive his/her rights, before the negligent act
occurred - for example, bungee jumping, or taking a lift from a driver that the
passenger knows to be drunk and incapable. The defence will hardly ever apply to an
employment injury.
(5 Marks)
c)
Contributory negligence focuses on whether the defendant can attribute some
responsibility to the claimant, and it may sometimes be open to defendants, to
reduce their liability, by claiming that someone else should share responsibility for the
losses. Where a defendant is of the view that another party should bear some, if not
all, of the blame for the accident, it is open to the defendant to involve that party, by
making an application to the court to join that party, as a Third Party to the
proceedings. Alternatively, sometimes the defendant waits until the main proceedings
are either settled or goes to trial, and will then institute separate proceedings against
the Third Party.
The court will always assess damages in full and then reduce the total award on the
basis of contributory negligence. The test of contributory negligence, unlike
negligence, is subjective. It will depend on whether the individual acted reasonably in
the circumstances. Children will be judged by their age and level of awareness and
not by any objective test. The courts are slow to reduce children's damages in this
way.
(5 Marks)
Text Reference – Chapter 3, Sections L3 & L12
Total: 10 Marks
Question 6
a)
Nominal damages do not intend to compensate a claimant and are usually small.
They recognise that a tort has been committed against the claimant, although, no
real loss flows from the tortious act, for example, a libel or trespass. They are
awarded as a token of the claimant’s legal right.
(3 Marks)
b)
Exemplary or punitive damages are awarded in addition to real damages, based on
public policy, and to express the court's view that the defendant's conduct was
deplorable or outrageous. These damages are punitive or aggravated, rather than
compensatory, and are awarded by the courts, to make an example of the defendant.
Exemplary damages are designed to punish and deter the defendant from repeating
the tortious act, as well as, the general public. They have been criticised on the
grounds that civil courts should not be concerned with punishment. They are rarely
awarded.
(4 Marks)
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c)
Courts will take into account the manner in which, the tortious act was committed and
even the conduct of the defendant after the event, including the actual defence of the
action during the trial. These will include such matters as, the arrogance or outrage of
the act, the refusal to apologise, or repetition of the wrong.
In the Supreme Court case of Philp v. Ryan & Bons Secours Hospital (2004),
McCracken J. awarded €50,000 aggravated damages, on top of general damages of
€45,000, which were already awarded from the High Court. The case involved a
medical negligence action, where the doctor altered the medical records, when the
plaintiff initiated his action for medical negligence.
(3 Marks)
Text Reference – Chapter 3, Section M2
Total: 10 marks
Question 7
a)
Common law remedies are developed in the Common Law courts while equitable
remedies are developed by the Court of Chancery. The distinction is important,
because common law remedies are available as of right , whereas, equitable
remedies are granted only at the discretion of the court and may be refused in some
circumstances, such as, where another remedy is more appropriate.
(2 Marks)
b)
Candidates should outline any FOUR of the following:
•
an injunction to enforce a negative stipulation contained in a contract;
•
an order for specific performance. This will not be granted if personal
services are involved, or generally where the court could not supervise the
carrying out of the order;
•
rectification, to correct a written document, to show the intention of the
parties;
•
rescission, so that the parties are returned to their pre-contract position;
•
quantum meruit, which is an award that embodies the value of definable work
done before the breach.
(8 Marks)
Text Reference – Chapter 4, Section F1-F2
(Total 10 marks)
Question 8
a)
To exercise proper care and skill: Agents must exercise reasonable care and skill
in the performance of their duties as agents. The level of care and skill required will
depend on the circumstances. Experts and professional people must exercise the
care and skill, which is expected of their trade or profession. Again, people who claim
to have some special skill must be able to live up to their claims. For example, an
insurance intermediary must exercise a level of care and skill that is appropriate for
the class of agent that he/she represents.
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The duty to exercise reasonable care and skill includes a duty to act in a timely
manner, and the intermediary will be liable for loss caused by his/her failure to act
with appropriate speed - for example, in the placing of cover or the notification of
claims. Failure to correctly undertake these duties leaves the agent open to a claim
for professional negligence. Where the insured suffers loss as a result of the
insurance broker's negligence, the general measure of damages, is that which will
place the insured in the position that he/she would have been in, were it not for the
negligence.
(5 Marks)
b)
To act in good faith towards the principal
An agent's relationship with their principal is a fiduciary one, which means, that it is
based on duties of good faith. The agent must, therefore:
¾
not allow personal interests to conflict with the interests of the principal;
¾
not conceal any relevant information from the principal;
¾
maintain confidentiality;
¾
not accept secret commissions; and
¾
generally act in the principal's best interest and not his/her own interest at all
times.
If a personal interest conflict arises with the agent it must be disclosed to the
principal. This means, for instance, that an agent is not entitled to personally buy
from or sell personal property to the principal, unless the agent fully discloses to the
principal what is being done.
The agent's duty of good faith to the principal always requires full disclosure, not just
in matters that relate to a possible conflict of interest, but also with any information
acquired in the course of the agent's duties, that might affect the principal's position.
Generally speaking, an agent may not act for both parties to a transaction. However,
there are exceptions to this. Insurance provides an example of a business, where it is
customary for the agent, to act on behalf of both the buyer and seller of insurance at
different times in the transaction.
Agents must not make any form of secret profit from their agency duties.
Text Reference – Chapter 5 Section B
Question 9
Void insurance contracts:
• This means the agreement is completely invalid,
• the contract binds neither party, and
• cannot be enforced in court.
The following would cause an insurance policy to be void:
• no insurable interest.
• fundamental mistake.
• contract is illegal.
• condition precedent never fulfilled.
(5 Marks)
(Total 10 marks)
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Voidable insurance contracts: are contracts, where the agreement is valid and the
contract remains binding, unless and until one party chooses to avoid it.
This could be due to:
• breach of good faith: Like a misrepresentation or non-disclosure.
• improper Pressure: Occurs when somebody enters into a contract under duress
or because of undue influence.
Text Reference – Chapter 7, Section B
(Total 10 marks)
Question 10
A continuing duty of disclosure, in the sense of a duty to disclose new material facts,
affecting the risk , during the currency of the contract , occurs in two cases only.
The two cases where there is an ongoing duty to disclose information relating to the
risk are:
1.
Changes in the contract : this is where there is an agreed change in the
contract, during the period of insurance. In these circumstances, the insured
has a duty to notify material facts, which relate to the change. For example, in
motor insurance, where the insured changes the insured vehicle, or wishes to
add new drivers to the policy, there is clearly a duty to disclose to the insurers,
all material facts, relating to the vehicle or drivers concerned, when making the
change. Similarly, if a policyholder wishes to increase the sum insured under a
fire policy, then there will also be a requirement to disclose details of any new
property, that had been acquired or any other relevant circumstances,
connected with the change.
2.
Increase of risk clauses : the second case, in which a continuing duty of
disclosure exists, is where it is imposed on the insured contractually. In other
words, where the policy requires continuing disclosure. This is usually achieved
through a 'change in risk;' or 'increase in risk' clause, incorporated in the policy
wording. The usual form of wording provides, amongst other things, that if there
is any 'alteration' in the property insured, which increases the risk of damage,
cover on such property will cease, unless the alteration is admitted (that is,
notified to and accepted) by the insurers. It appears that the insured will be in
breach of a condition of this sort, only when the change or alteration is
permanent.
Text Reference – Chapter 6 Section G6C
(Total 10 marks)
Question 11
•
The principle that applies in this case is that of Subrogation.
•
The main purpose of subrogation is to prevent the 'unjust enrichment' of the
insured - in other words, to prevent insureds’ from unfairly profiting from losses
and so to preserve the principle of indemnity.
•
The principle of subrogation can operate in two ways.
•
Insurers, who have indemnified the insured in respect of the loss, may bring an
action, in the name of the insured, against the third party who is legally
responsible for it.
•
Or, the insured may have actually succeeded in 'recovering for the same loss
twice'. That is, he/she may have collected a claim payment from his/her
insurers and also recovered compensation for the same loss from another
source. In this case, the insurers can call upon the insured, to pay back (to
them) the ‘profit’, which has resulted from the double recovery.
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•
•
•
•
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The scenario provided is similar to the facts in the leading case of Castellain v.
Preston (1883) where it was held that the seller had to pay to his insurer part
of the money that he had received from the buyer; otherwise the seller would
have 'made a profit from his loss'.
Applying that finding to this case, Frank would be obliged to pay €10,000 out of
the funds received from Anne to Home Sure.
Frank would be guilty of 'unconscionable (unfair) conduct' if €10,000 from the
sum paid by the Anne were not handed over to the insurer.
Moreover, the courts have held that Home Sure would have an enforceable
equitable ‘lien’ or charge over such money. This means that the Home Sure
may be able to secure an injunction, requiring the money to be paid over to
them.
Text Reference – Chapter 10, Sections B, B1-B2B
(Total 10 marks)
Question 12
With a total loss, or a very substantial partial loss, the cost of rebuilding the structure
to its previous form, may actually exceed the market value of the building, or exceed
the cost of replacing the old structure with a modern building. This occurs with old
industrial buildings, (like textile mills, factories and old farm buildings). These are
often of massive construction, and, therefore, very costly to repair. Such buildings are
often worth relatively little on the open market, because they have outlived their
original purpose and are obsolete. It may be uneconomical to restore or rebuild these
properties, either with the original materials or in the original form. The correct basis
of indemnity may present problems and the appropriate basis depends on a number
of factors, including the intentions of the insured with regard to rebuilding and if
rebuilding is a reasonable course of action.
Candidate should cite any TWO of the following cases:
In Reynolds and Anderson v. Phoenix Insurance Co. Ltd (1978), the claimants
bought an old maltings (buildings used for brewing beer) in 1969, and insured them
for £18,000 (a little more than the purchase price). Subsequently, the sum insured
was increased to £628,000, to cover the probable cost of rebuilding, in the event of
the building being totally destroyed. A fire damaged a large part of the building and a
dispute arose on the appropriate basis of indemnity. The judge gave three
alternatives:
•
the market value;
•
the cost of erecting a modern replacement building (costing around £50,000);
or;
•
the cost of reinstatement, that is, the cost of rebuilding the property in its
original form, (which would have amounted to more than £250,000).
The market value of the building would have been difficult to assess, but would
probably have been far less than the cost of rebuilding. The cost of a modern
replacement would also have been much lower than the rebuilding cost.
Nevertheless, the court held that the appropriate basis of indemnity was the third
alternative: the cost of rebuilding in the original form. This was because the insured
had a genuine and reasonable intention of rebuilding.
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Reynolds contrasts with the decision in Leppard v. Excess Insurance Co. Ltd
(1979), where the insured had acquired a cottage from his relatives and insured it for
£12,000. The cottage was destroyed in a fire and the insured claimed the cost of
rebuilding (around £8,600). However, it was evident that the insured never intended
to live in the cottage, and, in fact, was advertising the cottage at a sale price of
£4,500, at the time of the loss. The price was low, because a dispute over rights of
way made the cottage difficult to sell. In view of the insured's intention to sell, (rather
than to live in the cottage), the court held that the market value (the first alternative
outlined by the judge in Reynolds) was the correct basis of indemnity. Some £3,000
was awarded, which represented the advertised price of £4,500, less the site value of
£1,500.
In some cases, the insured may not have had an intention to sell the property, at the
time of the loss, but may decide to do so following the loss, perhaps to find
alternative accommodation quickly, in order to minimise business disruption. This
was the position in Dominion Mosaics & Tile Co. Ltd. v. Trafalgar Trucking Co.
Ltd (1990). The Court of Appeal held that, in this case, the appropriate measure of
loss was the cost of acquiring new premises, thus, mitigating the loss of income that
would otherwise result, while the original premises were being rebuilt. The court took
the view that, in the case of business premises, the need to carry on trading and
minimise loss of earnings was as an important factor. Moreover, in this particular
case, the cost of acquiring new premises was less than the cost of reconstructing the
old building.
Text Reference – Chapter 9, Section C1B
(Total 10 marks)
Question 13
a)
Pecuniary insurances cover various types of financial loss and can be contrasted
with property (material damage) insurances, which cover some form of tangible
property (buildings or goods).
(2 Marks)
b)
Pecuniary insurances include:
• Business interruption, which covers loss of 'profit', resulting from the effect of
physical damage (such as, by fire) to the insured's property;
• With business interruption, a precise indemnity can be difficult to establish, as it is
hard to say exactly what 'profit' would have been made, if the loss or damage had
not occurred.
• The loss will be paid in accordance with a standard formula, set out in the policy
wording and
• the profit generated in the same period of the preceding financial year, will be
used as a guide, to assist in determining the amount payable.
• Credit insurance, which covers bad debts, arising from the insolvency, or default
of the insured's trading partners; and
• Credit insurance indemnity is relatively easy to assess, as it is the amount of the
bad debt, less any possible recoveries that may be made. In practice insurers
rarely grant 100% cover for this line of business.
• Fidelity guarantee, which covers the dishonesty of individual employees.
• In the case of a fidelity guarantee policy, the measure of indemnity is again
comparatively easy to ascertain. It will be the amount of the actual financial loss
suffered by the insured, as a result of the dishonesty of an employee.
Text Reference – Chapter 9, Section C2
(8 Marks)
(Total 10 marks)
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Question 14
Under the Central Bank’s Consumer Protection Code, there are specific rules that
an insurer must follow with regard to the processing of claims:
• the rules of the Code are binding in nature
• and apply to all regulated entities who must:
• Endeavour to verify the validity of a claim received from a claimant prior to
making a decision on the outcome;
• Have in place a written procedure for the effective and proper handling of claims;
• Inform the claimant on paper or on another durable medium
• within 10 business days of making a decision, in relation to the claim,
• inform them of the outcome of the investigation,
• and explaining the terms of any offer of settlement and
• allow the claimant at least 10 business days to accept or reject the offer,
• and if the claim is declined the reasons for that decision must be provided to the
claimant on paper or on another durable medium; and
• Provide the claimant with written details of any internal appeals mechanisms
available to the claimant.
Text Reference – Chapter 8, Section C1
(Total 10 marks)
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Part II
Question 15
In the scenario outlined in the question, the insurer has asked Mark a question of
limited scope . By implication there is a waiver of related information that goes
beyond the scope of the question. As the insurer only asked for details of any
convictions in the last five years, there is no legal requirement for Mark to disclose
his conviction for dangerous driving six years ago
A range of other facts need not be disclosed, even if they are material:
• Matters of law: everyone is deemed to know the law.
• Factors which lessen the risk: there is no requirement to disclose factors that
reduce the risk, that is, make it better than a normal risk of its type. Examples
include: the installation of an alarm system for a theft risk, or automatic sprinklers
for a fire risk.
• Facts known by the insurers: rather obviously, there is no duty to tell insurers
things that they already know. The information does not have to come from the
proposer. In fact, it does not seem to matter where the information comes from,
provided the source is reliable.
• Facts which the insurers ought to know: in some cases, the courts take the
view that, whilst the insurers might not have actual knowledge of the
circumstances, they have 'constructive knowledge'.
• That is, they ought to know of them. This category covers a number of situations,
including the following:
¾ Facts which are notorious (that is, matters of common knowledge): an
insurer is deemed to know about things that are in the public domain, such
as, the fact that a state of war exists in some countries.
¾ Facts about the trade, which the underwriters insure: insurers are
deemed to be aware of the normal trade practices, in the businesses they
insure and the usual risks associated with them.
• Information that is waived by the insurers: in some cases, a court may rule
that it is unnecessary for the proposer to disclose certain material facts, because
the actions of the insurers suggested that they were prepared to waive (that is, do
without) disclosure of them. This covers a number of situations, including the
following:
¾ Facts about which the insurers have been 'put on enquiry': where
insurers have been 'put on enquiry' about things that are material, they may
not be able to plead non-disclosure, if they then fail to follow the matter up.
The most common example is the proposer, who writes a phrase such as
'as per records’ or ‘see your records' on the proposal form, in answer to a
question about their previous claims history. Insurers will be regarded as
having waived their right to the full information, if they do not pursue the
matter further. If a proposer gives no answer at all to a question on a
proposal form, that is, leaves that part of the form blank, the position is less
clear, but if the insurer goes on to issue the policy, this could also be taken
as a waiver. In other words, the issuing of the policy could indicate that the
insurer has put aside the need to make further inquiry, and is happy to
proceed with the contract on the basis of the information received.
¾ Facts which an inspection of the risk should have revealed: if the
insurer carries out a surveyor inspection of the risk, there is no duty to
disclose facts that should have been obvious to the surveyor, or which any
reasonable surveyor would have enquired about. However, this principle
does not extend to unusual features of a risk that, a conventional inspection
would not reveal.
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Facts covered by the terms of the policy: in some cases, the need to disclose
information is made superfluous, by reason of the terms of policy. For example, if
a personal accident policy excludes injury, arising from participation in winter
sports, the proposer would not be obliged to disclose the fact that he or she went
skiing regularly, unless specifically asked to do so. Similarly, there is no need to
disclose matters, however material, which are the subject of an express or
implied warranty in the policy.
Facts which the proposer does not know: as a general rule, there is no duty to
disclose facts, which the proposer does not know.
(15 Marks)
b)
Legally, the right to avoid the contract does not depend upon there being any
connection ('nexus') between the non-disclosure (or misrepresentation) and the
circumstances of the loss. In fact, if insurers discover an actionable breach of good
faith at any time, they can avoid the contract. They do not have to wait for a claim to
happen before doing so.
However, in the event of a dispute of involving a consumer, such as Mark, the IIF
Non-Life Insurance General Code will apply and the claim will usually be dealt with.
The IIF Code affects an insurer's right to avoid a policy for breach of good faith. The
IIF Code also modifies the rules on breach of warranty or condition. It must be
remembered that the Code applies to private insurances, effected by Irish
policyholders only and not to commercial insurances.
Firstly, the IIF Code states that the proposer should not be required to guarantee the
absolute truth of the answers that they give on the proposal form, but should merely
promise, that they are true to the best of their knowledge and belief. Secondly, the
use of 'basis of the contract' clauses is severely limited, so that they will not, in most
cases, have the effect of creating warranties.
The IIF Non-life Insurance General Code states that the insurer will not unreasonably
repudiate liability to indemnify a policyholder in the following circumstances:
• where the insured has failed to disclose a material fact, (or there has been a
misrepresentation of such a fact), but knowledge of the fact would not materially
have influenced the insurer's judgment, in the acceptance or assessment of the
insurance; or
• where there is a breach of warranty or condition, but the circumstances of the
loss are unconnected with the breach, unless fraud is involved.
In an effort to clarify and modify the burden of 'the duty of disclosure', the codes
provide that if the proposal form calls for the disclosure of material facts, a statement
should be included in the declaration, or prominently displayed elsewhere on the
form, or in the document of which it forms part :
(a) drawing attention to the consequences of failure to disclose all material facts
and explaining that these are facts, that an insurer would regard as likely to
influence the assessment and acceptance of a proposal;
(b) warning that if the signatory is in any doubt about whether certain facts are
material, these facts should be disclosed.
It also contains the following very important declaration:
‘Those matters which insurers have commonly found to be material should,
as far as practicable, be the subject of clear questions in proposal forms’.
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This requirement is being taken to have a very wide meaning. If the insurer is going
to ask an ordinary member of the public a question, then this question should be
clear and unambiguous. If the insurer for example wants to know about all kinds of
convictions, this should not then ask only about motor convictions. Particularly in
consumer contracts it is felt that insurers should be in a position to ask all questions
that might be relevant.
One particular section of the Central Bank Consumer Protection Code deals
specifically with the provision of Insurance products and services and of particular
importance and relevance to the issue of disclosure are a number of specific rules in
respect of quotations, proposals and policy documentation:
Quotations, proposals and policy documentation
When providing a quote to a consumer, a regulated entity must:
• Explain to a consumer, the consequences of the failure to make full disclosure on
the proposal form, of all material facts, such as, the consumer’s medical details or
claims history.
Text Reference – Chapter 6, Section G5; Chapter 7 - A6-A7
(Total 30 marks)
Question 16
Assignment is concerned with the transfer to another person of the rights that exist
under a contract, and, in some cases, the transfer of duties. This topic is important,
because in some classes of insurance (particularly marine), policies are quite
frequently assigned. In fact, the assignment of marine is governed by special
legislation: - Section 50 of the Marine Insurance Act 1906.
It is important to first distinguish between the three types of 'assignment:
• assignment of the subject-matter of the contract;
• assignment of the benefit of the contract;
• assignment of the contract itself.
Assignment of the subject matter, does not usually transfer any rights under the
policy, and, indeed, will normally terminate the contract automatically. Again, whilst
the benefit of an insurance contract can be freely assigned the contract itself usually
cannot.
Assignment of the Subject Matter
There are many day to day examples, where the subject matter of an insurance
contract will often be transferred from one person to another. For example, a motor
policyholder may sell a car to another, or the insured under a household buildings
policy may sell the house. Assignment of the subject matter does not, however, carry
with it any automatic assignment of the insurance policy in question. Therefore, a
person, who buys a car or a house from another, does not automatically take the
place of the insured, under the seller's policy. In fact, if the insured disposes of the
subject matter of the insurance, the usual effect will be to bring the insurance
contract to an end, because the insured will no longer have any insurable interest in
the property, which has been disposed of, and therefore can no longer suffer a loss.
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Assignment of the Benefit of the Contract
The right to recover money under an insurance contract is a contractual right, which
can be assigned to another person. The fundamental point is that the entire contract
is not assigned, but merely the benefit of it. There is no change in the subject matter
of the contract, (such as, the property which the policy covers), or in any other aspect
of the risk; the insurance money is payable on exactly the same event or events. The
assignor is simply stating that the proceeds of any valid claim that he / she may have,
should go to the nominated assignee in question.
The rules connected with assignment are:
• notice must be given to the insurer, if the insurer is to be liable directly to the
assignee.
• if no notice is given, the assignee can only enforce his/her rights, by bringing an
action against the assignor.
• although notice should be given to the insurer, the consent of the insurer is not
necessary.
• the assignment can take place either before or after the loss.
• the assignee need have no insurable interest in the subject matter of the
insurance.
For example, an insured assigns the benefit of a household policy to a builder, as a
means of paying for storm damage repairs. The insurer must be notified of this
arrangement and is under no legal obligation to pay the builder directly, unless they
are notified of this assignment to the builder. If the insurer is not notified, the builder
can only enforce the agreement against the insured. The insurers do not have to
consent to the arrangement, but merely have notice of it.
The assignment of an entire insurance contract is subject to some limiting factors.
Personal Contracts are Not Freely Assignable
Many insurance contracts are of a 'personal' character; in that, the terms of the cover
granted to the insured, by the insurer will often depend, to some extent, on the
insured's own personal characteristics. For example, an insurer's willingness to
provide motor insurance cover and the terms of the cover granted (including the
premium payable), will depend not only on the type of vehicle to be insured, but also
on the age, occupation, experience and driving record of the insured and any other
persons who may drive the insured’s vehicle.
Most property insurances will also be 'personal' contracts, because the risk is likely to
depend partly on the nature of the person, who controls and manages the property,
and the particular use that the insured makes of it will also be a relevant rating factor.
For example, if the ownership of a factory changes, the standard of 'housekeeping'
may decline, which represents a moral hazard and therefore has the effect of making
the fire risk worse. Again, liability insurance is very much of a personal character,
because most claims arise from the carelessness, or negligence of the insured.
Therefore, an insured, who takes personal interest and responsibility for the risk and
the avoidance of hazards, represents a far superior risk, than the insured who takes
little or no interest.
Since the risk depends on the identity of the insured in these cases, the policy cannot
be assigned, without the consent of the insurer.
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If A sells his/her car, or house, or business to B, A's insurers will usually ask B to
submit a new proposal, if he/she requires them to cover the risk, and a new contract
will be formed, involving a fresh offer, acceptance and consideration. Where, the
policy expressly states that assignment is permitted; it may also impose contractual
terms, as to how and/or when notice of assignment is given.
Assignment must take place at the time when the property is transferred
If a policy is assigned when the property it covers is sold, the assignment must take
place at the same time as the sale. This is because the policy will normally lapse
automatically, if the subject matter is disposed of, and, therefore, there will be no
contract to assign, once the sale has taken place. On the other hand, if assignment is
attempted before the sale, the assignee may not have sufficient insurable interest in
the property to make the insurance valid.
Marine Insurance
Due to the limitations mentioned above, few insurance contracts are freely
assignable in practice. However, marine cargo policies are an exception. The
ownership of cargo may change several times in the course of a voyage, and it is
obviously convenient if the insurance cover can be easily transferred at the same
time. Normally, the risk will not alter, as a result of a change in the ownership of the
goods, because they will usually remain on the same ship. A cargo policy is,
therefore, not a 'personal' contract and there is no reason why such assignments
should not take place. Marine hull policies, however, are not freely assignable,
because the ownership of a vessel will obviously affect the risk. Assignment of
marine policies, as already mentioned, is governed by Section 50 of the Marine
Insurance Act 1906.
Assignments of Insurance Contracts by Operation of Law
On the death or bankruptcy of a person, his/her property generally, including any
rights under insurance policies, passes to his/her personal representatives, or trustee
in bankruptcy, as the case may be. Policies often specifically provide that cover will
continue following this sort of involuntary assignment, even though they may
expressly prohibit any voluntary assignment by the insured.
Text Reference – Chapter 7 Section C1-C3
(Total 30 marks)
The Insurance Institute of Ireland
MDI-01
Question 17
a)
When a loss occurs, the insured will always be required, by a policy condition, to give
notice of the loss to the insurer. Often, (and especially in the case of liability
insurances), the condition will also require the insured to give notice of any incident
or event, which may give rise to a claim, so that, the insurers are forewarned, where
a claim may be forthcoming. This enables the early investigation of the loss by the
insurer’s claims department.
Time limits for notification of claims or incidences (perhaps 15 or 30 days) may be
specified by the insurer. If the insured fails to comply with the stated time limit, the
insurers may, in theory, have the right to deny liability for the loss, as this provision is
a condition precedent to liability . Insurers rarely exploit this right, unless the delay in
notification has seriously prejudiced their handling of the claim. Specific time limits
are now less common than they used to be. The Irish Insurance Federation’s NonLife Insurance General Code requires that the claimant should be asked to do no
more than to report the claim 'as soon as reasonably possible'.
An insurance policy may specifically state that the insured must give full particulars of
the loss suffered, or provide 'such proofs and information as may reasonably be
required'. Regardless of what formalities (if any) the policy lays down, the burden of
proving the loss remains with the insured. It is in the insured’s best interests to
complete the claim form and provide as much information as possible to the insurer.
In general terms, the insured must co-operate with the insurers in their investigation
of the loss.
To discharge the burden of proof, the insured must be able to establish two things:
• that the loss was caused by the operation of an insured peril; and
• the value of the loss.
These are the basics that must be established by the insured 'on the balance of
probabilities'.
For example, in the case of a theft claim, the insured must prove that it is more likely
than not that the property has been stolen and the insured must provide good
evidence of value to support the amount claimed. Finally, they must be able to
provide proof that they owned it.
(15 Marks)
b)
Insurance policies usually require the insured to take reasonable precautions, to
avoid loss or damage and also to take reasonable steps to mitigate (minimise) any
loss, which actually occurs. That is, to act prudently, as though uninsured. The latter
duty to mitigate loss may even apply automatically, as a matter of law. Provided the
steps taken constitute a reasonable effort to prevent or limit the operation of an
insured peril, the insurers are liable for any damage to the subject matter that results.
The Insurance Institute of Ireland
MDI-01
The insured peril must however exist and it must either be actually operating or
imminent (about to operate). In the case of the scenario, although STP Foods have
taken preventative measures, the actual peril (flood) was not operating or imminent.
Although damage to the insured subject matter is covered, if it is the result of
reasonable efforts to avoid or reduce the impact of an insured peril, the courts have
refused to allow recovery for mere prevention costs. That is, expense incurred to
prevent damage being caused to the subject matter, by an insured peril.
The scenario resembles Yorkshire Water Services Ltd v. Sun Alliance and
London Insurance PLC (1997). In this case the claimants incurred expense in
repairing an embankment, in order to prevent sewage sludge from escaping into the
adjacent river. They argued that the defendant liability insurers should bear this cost,
because, if the remedial work had not been done, the claimants would have been
legally liable for damage caused by the sludge and the insurers would then have had
to indemnify them. The court rejected the claim on a number of grounds. In particular,
the subject matter of the contract was not property, but 'legal liability to pay
damages,' and this was neither operating nor 'imminent'. The court was also
influenced by the policy clause requiring the insured to take reasonable precautions
to avoid loss, and this made it clear that any prevention costs were to be at the
insured's own expense.
Given that ruling, it would be likely the STP Foods claims would be rejected on a
similar basis.
Candidates may also reference the cases of Stanley v. Western Assurance Co.
(1868) and Canada Rice Mills v. Union Marine and General Insurance Co. (1941)
(15 Marks)
Text Reference – Chapter, 8 Sections B1-B3; D3A - D3B
(Total 30 marks)
Question 18
Contribution will arise only when the following conditions are satisfied:
• two or more policies of indemnity exist;
• each insures the subject matter of the loss;
• each insures the peril, which brings about the loss;
• each insures the same interest in the subject matter; and
• each policy is liable for the loss.
Two or more policies of indemnity
Cases where there are more than two policies are not unknown, but for the purposes
of illustration, it will be assumed that only two policies are involved. More important,
however, is the fact that the policies in question must be indemnity contracts.
Contribution does not apply in the case of life or other non-indemnity insurances
contracts.
The Insurance Institute of Ireland
MDI-01
A common subject matter
The subject matter that is affected by the loss must be common to both policies.
However, the policies need not cover exactly the same subject matter. For example,
a person may have one policy covering goods in a particular warehouse only and
another policy covering goods in all warehouses, which he/she owns. Alternatively, a
person might have a household policy covering all personal possessions and a
separate 'all risks' policy covering a small number of specified items only. To put it
another way, the range of the property covered by the policies does not have to be
the same, provided there is some overlap in what they cover. Finally, the subject
matter may be something other than property. Liability policies or pecuniary
insurances may be drawn into contribution, where each policy covers the source of
legal liability or financial loss in question.
A common peril
Just as the range of property or other subject matter covered by the two policies
need not be the same, so the range of perils need not be identical, provided there is
overlap between the two. Therefore, an 'all risks' policy may be drawn into
contribution with a fire policy, where the source of the loss is fire, despite the broader
cover provided by the former.
American Surety Co. of New York v. Wrightson (1910)
A Common Interest
North British and Mercantile Insurance Co. v. London, Liverpool and Globe
Insurance Co. (1877), known as the 'King and Queen Granaries case'.
Different interests in the same property may exist, for example, in the case of
landlord and tenant, mortgagor and mortgagee or seller and purchaser of a building.
If each takes out a policy, which covers their own interest only, there will be no double
insurance, and, therefore, no contribution.
Zurich v. Shield (1988) - Although both policies indemnified Quinnsworth for its
liability to the injured employee, the motor policy went further and indemnified the
negligent employee as well. Thus, it was technically possible for the EL insurer to
recover, the full amount of the claim if it had paid it from the motor insurers, on the
basis of an action against the negligent employee, which was covered only by the
motor insurers.
In addition, if either (or both) of the parties (that have an insurable interest in
property) insures for the benefit of the other as well as him/herself, contribution may
arise. It was held in an American case that where husband and wife insure property
jointly, and a second insurance is subsequently arranged by one of them, to cover
his/her own interest only, there is double insurance: Graham v. American Eagle Fire
Insurance Co. (1950).
Each policy is liable for the loss
Contribution will only arise, where both insurers can be called upon to pay under their
policies. This may not be the case if one insurer has the right to avoid the contract,
for example, for breach of condition.
Legal and General Insurance Society v. Sphere Drake Insurance Co. Ltd (1992).
(24 Marks)
The Insurance Institute of Ireland
MDI-01
b)
Stellar Policy
sum insured
€50,000
Gemini Policy
sum insured
€40,000
Loss
€20,000
(Neither policy is subject to average, but Stellar policy is subject to a
€1,000 excess and Gemini policy is subject to a €2,000 excess).
Step 1
Calculate independent liability of Stellar policy, (the amount payable if
Stellar was the only policy in force). This is €19,000 (€20,000 less the
€1,000 excess).
Step 2
Calculate independent liability of Gemini policy. This is €18,000 (€20,000
less the €2,000 excess)
Step 3
The loss is shared in proportion to the combined two independent
liabilities - €37,000 (€18,000 + €19,000).
Therefore, Stellar pays:
Gemini pays:
€19,000 x €20,000 = €10,270
€37,000
€18,000 x €20,000 = €9,730
€37,000
(6 Marks)
Text Reference – Chapter 10, Section E, G1-4
(Total 30 marks)