#4929 - Insured Risks And Perils - Insurance Law

Insured Risks / Perils

Fortuity

What? Concept at the heart of insurance. Insurers will only pay out for a claim where the insured’s loss was caused by an insured risk. These insured risks will be listed in the policy.

An insurance contract is one of speculation (i.e. chance). It is based on whether or not (or when) a loss will occur. Chance must be involved.

Test: The key issue is whether the insured risk caused the loss, or whether the loss was bound to happen?

The onus is on the insured to prove: the occurrence of the insured risk; and that the insured risk caused the loss suffered.

• Objective test (absolute): Is the risk objectively bound to happen? If the loss is caused by a fortuitous event then it might be one of the insured risks.

• Subjective test (relative): Must look within the context of the particular insurance policy. Did the UWs intend to underwrite the policy knowing that risk?

• Syarikat; The issue of what percentage chance of something happening makes it ‘bound to happen’ was discussed.

Defined Benefit: The concept of fortuity applies to this too. When somebody will die has an element of fortuity.

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Generic Risks

What? A large category of risks; e.g. ‘all risks’, ‘contractual liability’ or ‘perils of the sea’.

For this type of risk the insured must prove:

1. One of the risks in the category caused the loss – would that loss have happened but for a generic peril?

2. The loss was caused by some fortuity to the SM insured and not bound to happen; and

3. Not caused by a deliberate act of the insured to cause the damage; and

4. Not excluded by the policy.

= Once the insured proves the loss falls within ‘all risks’ then the burden switches to the underwriter to prove that the risk is a specific, excluded peril to prevent their liability to pay.

• British and Foreign Marine; Once a fortuitous event has been proved that caused loss within an ‘all risks’ policy, then the burden switches to the underwriter to prove / identify a specific excluded peril.

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Named Risks

What? Every named peril has a very defined concept so it is necessary to check case law for defined meanings of certain terms.

E.g. ‘Fire’: Everett; For fire to have occurred there must have been ignition – ‘visible light’.

E.g. ‘Accident’: De Souza; Must be a result of some unexpected, fortuitous, external occurrence. This means ‘external’ to the person injured.

Test: Here the insured must prove on the balance of probabilities that the loss would not have occurred but for the specific peril.

Regarding included and excluded risks:

• S.55(1) MIA: Insurer liable for any loss proximately caused by a peril insured against.

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Proximate Cause

Situation: The ‘proximate cause’ test is used if: there is an included and excluded risk in the policy and the ‘but for’ test is satisfied for each of them; i.e. the insured can prove the loss would not have happened but for an included risk, and the insurer can prove it would not have occurred but for a risk which is excluded.

In that case we must balance which of the included and excluded risk is the actual and dominant effect of the loss.

• Leyland Shipping; The SS Icaria was insured against ‘perils of the sea’, but ‘war risks’ were excluded. During WW1 the ship was hit by a German torpedo. The ship reached the port but the authorities were concerned it would sink and so moved it outside to a more exposed anchorage. Two days later the boat sank. There was a dispute regarding the proximate cause of the sinking – was it being hit by a torpedo during war or the perils of the sea?

Held by Lord Dunedin that it was the torpedo. He made clear:

1. Must identify the proximate cause – which is the dominant and effective cause?

2. Issue not solved by the mere order of time in which the risks occurred.

Following the decision a ‘but for’ test must be applied to determine the financial consequences of that loss. Did anything else break the chain of causation?

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Implied Exclusions

1) Wilful Misconduct of the Assured – Generally applicable in marine insurance.

• S.55(2)(a): An insurer is not liable for any loss attributable to the wilful misconduct of the assured, but is liable for any loss proximately caused by a peril insured against, even though the loss would not have happened but for...