#4927 - Insurance Contract Terms - Insurance Law

Insurance Contract Terms

Categories of Insurance Terms

1) Terms that define the insurance cover – Defines whether or not what has happened is within the cover of the policy; i.e. insured interest, SM, insured period and insured risk via conditions precedent, suspensive conditions, warranties and exclusions and condition subsequent.

2) Terms that limit the insurance indemnity – Claim deductibles, policy limits, sum insured and policy excesses.

3) Terms that simply impose obligations – General terms = damages for breach and mere conditions.

4) Terms that make the indemnity subject to conditions – The insurer having to pay out indemnity is made subject to conditions. E.g. Claims compliance, fraud and waiver/estoppel.

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Terms that Define Insurance Cover

Rationale: This categorisation relates to whether or not claims will be paid at all, not to the claim’s value.

1) Condition Precedent – For a particular claim: UWs agree to indemnify but only in the event that certain specific things happen. A claim may be subject to compliance with a particular condition precedent so, if that is not complied with, UWs are released from liability for payment of that particular claim, but must still pay other claims if there is compliance.

Consequences of failing to comply with a condition precedent must be clear:

• Re Bradley; Held that a clause in a liability policy was not a condition precedent as to indemnity. This is because in the case of ambiguity / doubt a clause is construed against the insurer.

• The Zeus V; It is possible to have a condition precedent as to whether the insurance contract comes into place at all. UWs had agreed to insure a yacht subject to an acceptance survey that was never done. Had to be performed before the contract comes into existence.

2) Suspensive Condition – Provides that UWs’ cover will be suspended in the event that the particular circumstances they expect to prevail during the insurance period do not. Insurer may have their liability suspended for such period that the insured is conducting activities they are not covered for. Once the insured stops undertaking their prohibited activities the insurance cover comes into effect again.

• Farr; The insured owned two taxis. It was agreed that each would only be used for one 12 hour shift in every 24 hour period. One taxi broke so the insured used the other taxi all the time the other taxi was being prepared. It was held this was a suspensive condition – insurance was suspensive for the period the insured was in breach. As the insured’s proposal statement was merely descriptive of the risk, it was not a warranty.

• ICC (Air) Clause 6: Insurance continues during the ‘ordinary course of transit’. Cover is withdrawn when not.

3) Condition Subsequent – In the event that a particular occasion happens, the insurance contract will be brought to an end and UWs will have no further liability. It defines the period of the cover so the insured does not have to be in breach to trigger.

• ICC (Air) Clause 8: Cover discharged where the insured changes the destination.

4) Warranty - The insured automatically loses the entire benefit of the insurance contract from the moment of the breach, but the contract subsists and must pay the premium. No election for the insured to make. Causation is irrelevant.

5) Exclusion – This relieves UWs from liability in respect of a particular ‘excluded risk’ being causative of the insured’s loss. Insurer is still liable for losses falling within policy terms. The phrase ‘warranted free from’ means an exclusion.

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Terms that Limit the Insurance Indemnity

Rationale: These types of terms limit the value of the claim.

1) Policy Excess / Claim Deductibles – Require the insured to pay the first initial proportion of any loss before the UWs will pay.

2) Policy Limit / Sum Insured – Puts a cap / maximum sum on the value of claims that UWs will pay out. The insured can claim up to the policy limit, if his loss is that high.

Distinguish from:

• Insurable value – Basis of indemnity; i.e. what you could insure for. How much is required to be paid to achieve a full indemnity.

• Insured value / agreed value – Fixed, pre-assessed value of the SM.

There could also be an aggregate limit in the policy, as well as the policy limit per loss.

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Terms that Simply Impose Obligations – Mere conditions

• Imposed on the insured = A general term; e.g. clause requiring notification of claims but with no time period so cannot be a condition precedent.

Effect of breach...