Are You Sure That Your Insurance Is Assured?

Assured InsuranceInsurance Law is a tricky subject – and a very specialised one as well, because commerce and trade depend very much upon it, and therefore sums insured in certain circumstances can be astronomical. Take, for example, the loss that could incur if a large Boeing 757 with 300 passengers aboard crashed in the middle of a city, killing all the passengers and devastating 200 yards square of housing, its occupants, their cars and their furniture. It also affects the pedestrians walking by, the cars, buses, vans and lorries driving through and what have you. No airline could ever cover the loss involved, so they carry insurance to do so. Take another example, of a supertanker capsizing off the south coast of England and spewing hundreds of thousands of gallons of crude oil into the English Channel – insurance must be taken out to cover the cost of the supertanker, the cost of its cargo, the cost of clearing up the mess, the cost of the damage caused by the oil spill to the coastline, property, trade and so on. So complicated is shipping insurance (or ‘marine insurance’, as it is called), that it is ‘controlled’ by Lloyds of London and statutory legislation.

However, at the other end of the scale, most of us (if not all of us) at some time or another take out some sort of policy of insurance to insure ourselves against any loss or liability, for example, arising out of owning a flat or a house, including its contents; of owning a car or any other vehicle (such insurance actually being compulsory by law); of running a business; of taking a holiday or travelling in general; or of owning something valuable, in case we might lose it or it might get stolen. So common is insurance that we usually take it for granted, despite that the insurance policy that we are given contains paragraphs and paragraphs of small printed conditions (which we never bother to read!).
Basically, insurance is part of the general Law of Contract – the offeror (the insurance company), in consideration for a one-off payment of money (called a ‘premium’), promises to reimburse the offeree (the ‘insured’) against any loss or damage suffered by or to the insured as a result of specified events happening. Many people equate insurance as a form of gambling, but of course it isn’t – gambling is ‘illegal’ in that by s. 18 of the Gaming Act 1845 all contracts or agreements, whether by parole (verbal) or in writing, by way of gaming or wagering, shall be null and void (so if you have a successful bet with a bookmaker or anyone else on the winner of the Grand National, and you are not paid your winnings there is, basically, nothing you can do about it!). No, insurance is, in Contract Law, known as a ‘Contract of Indemnity’. An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B.

If you are familiar with the Law of Contract, you will be aware that one of the essential ingredients of a valid contract is ‘consensus ad idem’, i.e., a mutual agreement between the parties. The agreement must not be affected by, for example, mistake or misrepresentation (being a false statement of fact made by one party in the course of negotiations inducing the other to enter into a contract). In this respect, can silence be a misrepresentation?  Well, yes, it can in certain circumstances, one of which is with contracts ‘Uberrimae fidei’ (Latin for ‘of the utmost good faith’ – if you want to remember this maxim think of the words “You bury me if I die” – it doesn’t mean the same but it does sound the same!). Insurance contracts fall into this category and this could have very serious consequences for the unaware.

This is because insurers base the premium on the insurance policy that they issue upon the risk to them that it entails. The greater the risk, the higher will be the premium (that is why an 18-year-old male driver, living in London, who wants to insure his sports car will be charged a considerably higher premium than a middle-aged driver of a basic family saloon, living in the country, with a 20-year history of not having made a claim or been convicted of a motoring offence). It follows, therefore, that the insurer needs to be aware of anything that might affect the risk factor. Take simple life insurance, for example. Before the pre-contractual process of disclosure is commenced, the person who wants to take out the insurance (‘the proposer’) knows all about his own state of health, previous ailments or operations, family history, and his habits such as smoking and exercise. If that person does not make full disclosure of these facts WHETHER HE IS SPECIFICALLY ASKED OR NOT, the insurance company would not be able to make an accurate decision regarding the risk that they will enter into, and could not, therefore, set the proper premium to cover such risk.

Of course, most people are asked to fill in a form which asks all kinds of questions, and most of the things that affect risk will be asked about and true and accurate answers must be given – but not everything will be asked about. It is up to the proposer to inform the insurers of ANYTHING that might affect their risk – anything at all, whether it is asked in the proposal form or not. Any previous bankruptcy, criminal offence or court action in which you were the Defendant could affect an Insurer’s decision either to insure you at all, or if they do, what premium to charge.

Just a small example: Say that you wanted to insure your house against the usual risks, and one of the questions asked is, “Have you ever been charged with or convicted of a criminal offence, excluding minor motoring offences?”  In fact, 20 years ago you were convicted of an offence (a minor offence) involving dishonesty (say, shoplifting, theft, receiving stolen goods, etc.) and because you were extremely embarrassed about it and didn’t really want to be reminded of it or for anyone else to know about it, you answer ‘No’. Things being what they are, your house burns down. Insurers (a) being very suspicious people and (b) hating to part with money, start making enquiries and find out about your offence – the chances are that they would rescind the contract on the grounds that it was null and void and you would get nothing (except the return of your premium).

I once lived in a thatched cottage in the midst of Devon, on a small country lane. On the other side of the road was a huge tree. Obviously this was something that affected the insurable risk, and so I had to tell my insurers about this. If the tree, or one of its branches, fell and caved in my roof, they would not have paid out if I hadn’t. As it was, it did affect the premium (as did having a thatched roof – more possibility of fire damage).

However, even once all the questions on a proposal form have been answered accurately and truthfully, there are a lot of misunderstandings about what is covered by a policy. Take a Home and Contents Insurance policy as an example. It will protect you against theft, storm, flood, fire and even, to varying degrees, against accidental damage. However, it does come with lots of exclusions, the main one being maintenance. Any maintenance work is not covered by home insurance. Apparently very few people understand what maintenance really means. Many believe, for example, that a faulty roof or perhaps a cracking wall can be repaired under your insurance policy – this is not necessarily so. If a roof or anything else needs repairing as a result of wear and tear, perhaps due to frequent heavy rain, you have to pay to maintain the roof yourself. If, on the other hand, the damage is caused by what is called a ‘definable event’, such as a fire or storm, you should then be able to make a claim to repair. For it to be a ‘definable event’, the damage must arise from something that is specifically defined in the insurance policy. It may cover you for storm damage, for example, but that wouldn’t apply to water penetration, causing damp, due to excessive rainfall over a period of time.

Other things cause confusion. The two major types of policy that we are normally involved with are those for our home and for our car. You can’t claim the full cost of repairs resulting from an insurable risk if you’ve not insured your home or car for its full amount. Let’s say the full rebuild cost of your home is £200,000 and you’ve insured it for £150,000. If you want to claim for £10,000 of damage, your insurer will pay just £7,500, minus your excess (the amount the Insurers require you to pay yourself on any claim). It follows that the converse applies. If your house cost you £250,000, it may not cost you that to rebuild it if it burnt down. It may only cost £120,000 – in which case that is the only amount that the Insurers will pay you. You cannot make a profit on insurance!

You can’t claim for faulty workmanship and mechanical breakdown, or for damage to hedges, gates and fences unless specifically covered. You might not be allowed to claim or to recover the full cost of anything, even if it is an insured item, if you don’t notify your insurer immediately when you suffer or notice damage from a claimable event.

If you rent your flat or apartment, you also need to tell your landlord immediately when you notice a problem. If you leave it to get worse, it might not be covered by your landlord’s insurance. If your tenancy contract states you must let the landlord know immediately and you haven’t done so, you could theoretically be made to pay some of the costs.

Insurance companies are noted for their unwillingness to pay out anything unless they have to – those of you who work in Civil Litigation and particularly with personal accident claims will know this. If they can get away with anything, then they will, and who, really, is to blame them? If they are not legally bound to pay because of the absence of ‘utmost good faith’ making the policy void, then why should they?