PENTVARS LAW
Teacher: COUNS3L DZAGELI
Banking and Insurance II
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Notes
Formation of Insurance Contract
A contract under insurance is known as a "policy" which is expected to be in writing. The parties
are the insurer and/or underwriter and the client is the insured, assured, or policy holder.
Consideration under insurance is called "premium".
The Proposal form varies from company to company, but is a form that the insurer gives to the
assured to fill. The contents of the proposal form must have the name, address, occupation, etc.
of the policy holder. The type of risk (life: i.e., personal; non-life: i.e., car, house, etc.).
General and Special Elements of Contract
General Elements of Contract
* Offer: The policy holder is the one who makes the offer to the insurer.
* Acceptance: Is made by the insurer.
* Consideration/Premium: Is made/paid by the assured.
* Intention to create legal relations: Subject to both.
* Capacity: This is subject to both parties.
* Consent: Voluntary agreement, i.e., both entry or exit.
The contract to be entered into has to be legal; i.e., the object must be legal and it must not be
against moral or public conduct.
Case Summaries
1. Merchants & Manufacturers Insurance Co. Ltd v Hunt
Facts:
The defendant obtained a motor insurance policy from the plaintiff insurance company. After a
motor accident occurred which resulted in claims by third parties, the insurance company
alleged that the insured had failed to disclose certain material facts when applying for the
policy. The insurer therefore sought a declaration that it was entitled to avoid the policy and
escape liability.
Issue:
Whether or not the insurer could avoid the contract on the ground of material non-disclosure or
misrepresentation by the insured.
Holding:
The court held that the insurer failed to establish the alleged non-disclosure sufficiently and
therefore the policy could not be avoided.
Principle:
Insurance contracts are contracts of utmost good faith, requiring disclosure of all material facts.
Burden lies on the insurer to prove the material non-disclosure before avoiding the policy.
2. Roberts v Avon Insurance Co. Ltd
Facts:
The insured completed an insurance proposal form which required him to disclose whether he
had suffered any previous losses or claims. Instead of answering the question fully, he left the
relevant space blank. Later a loss occurred and the insurer refused to pay, arguing that the
insured had failed to disclose previous losses.
Issue:
Whether or not leaving the question blank amounted to a misrepresentation or non-disclosure
of a material fact.
Holding:
The court held that leaving the answer blank amounted to a representation that no such losses
existed. If the statement was untrue, the insurer was entitled to avoid the policy.
Principle:
In insurance proposal forms, failure to answer a question may amount to a representation. The
insured must disclose all material facts relevant to the risk.
3. Lucena v Craufurd
Facts:
During a war, certain ships captured from the enemy were placed under the control of the
Commissioners acting on behalf of the British Crown. Before the ships reached England, the
Commissioners insured them against loss. The ships were subsequently lost at sea and the
Commissioners claimed under the insurance policy. The insurers argued that the
Commissioners had no insurable interests in the ships.
Issue:
Whether or not the Commissioners had a sufficient insurable interest in the ships at the time
the insurance was effected.
Holding:
The House of Lords held that the Commissioners did not have an insurable interest, because
they only had a mere expectation that the ships might later become crown property.
Principle:
Insurable interest exists where a person benefits from the preservation of property or will suffer
loss from its destruction. A mere expectation or hope of benefit is not sufficient to constitute
insurable interest.