Lowry, Rawlings and Merkin's Insurance Law: Doctrines and Principles

611 Pages·2022·5.274 MB·English

by  Rob Merkin

LOWRY, RAWLINGS AND MERKIN’S
INSURANCE LAW
The fourth edition of this leading introductory text – now under the sole authorship of
Rob Merkin QC – provides a detailed examination of the developing law of insurance,
combining exposition of the law with critical analysis. The book is designed primarily for
undergraduate and postgraduate students, but is also a useful resource for those in the
insurance industry studying for professional examinations and legal practitioners who need
a concise guide to the legal principles. The text is enhanced by extensive citations to case
law and academic commentaries; and a new companion website delivers annual case law
updates.
This new edition has been substantially rewritten in light of the transformation of insur-
ance law in recent years. The text has been revised to include new legislation and the effects
of Brexit. However, the approach and – where possible – the analysis of John Lowry and
Philip Rawlings have been retained.
The first part of the book considers the regulation of insurance business and the general
principles underlying the law of insurance contracts. The second part examines the way
in which those general principles are shaped by the particular insurance context in which
they operate. A new chapter with case studies on COVID-19, earthquakes, and mesothe-
lioma applies the principles to the problems and uncertainties for insurance law revealed by
catastrophic losses. This authoritative text offers a sound grasp of the current realities of
insurance practice.
Online resources to accompany this book are available at
bloomsbury.pub/lowry-rawlings-merkin-4e. If you
experience any problems, please contact Bloomsbury
at: [email protected]
ii
Lowry, Rawlings and Merkin’s
Insurance Law
Doctrines and Principles
4th Edition
Rob Merkin QC
HART PUBLISHING
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Contents
Table of Cases ������������������������������������������������������������������������������������������������������������������xv
Table of Legislation ����������������������������������������������������������������������������������������������������������lxi
1. The Insurance Contract ................................................................................................1
1. The Development of Insurance ............................................................................1
2. What Is Insurance? ...............................................................................................4
2.1. The General Definition of Insurance ...........................................................4
2.2. Regulated Insurance Business ......................................................................8
3. International Aspects .........................................................................................13
3.1. Jurisdiction ................................................................................................14
3.2. Applicable Law ..........................................................................................17
2. Regulation of Insurance Business ................................................................................24
1. Origins of Domestic Regulation .........................................................................24
2. International and European Regulation .............................................................27
3. Regulation of Insurance in the UK ....................................................................31
3.1. The Regulators and their Regulatory Principles .........................................31
3.2. General Prohibition and Authorisation .....................................................34
3.3. Approved Person .......................................................................................36
3.4. Appointed Representative ..........................................................................37
4. High Level Standards .........................................................................................39
4.1. Principles for Businesses ............................................................................39
4.2. Systems and Controls ................................................................................40
4.3. Training and Competence ..........................................................................41
4.4. General Provisions .....................................................................................41
5. Prudential Sourcebook for Insurers ....................................................................41
6. Business Standards .............................................................................................42
7. Regulatory Processes ..........................................................................................43
7.1. Supervision ................................................................................................43
7.2. Enforcement ..............................................................................................44
8. Transfers of Insurance Business .........................................................................45
9. Redress ...............................................................................................................47
10. Lloyd’s of London .............................................................................................48
11. Insurance Intermediaries ....................................................................................49
12. The Insolvency of Insurers .................................................................................52
13. The Financial Ombudsman Scheme ...................................................................54
vi CONTENTS
3. Insurance Intermediaries ............................................................................................59
1. Introduction .......................................................................................................59
1.1. The Use of Agents in Insurance.................................................................59
1.2. Authority of Agents ..................................................................................60
1.2.1. Actual and Ostensible Authority ...................................................60
1.2.2. Ratification ....................................................................................61
1.3. Rights and Duties in an Agency Relationship ............................................61
2. The Insurer’s Agents ..........................................................................................63
3. Insurance Brokers ..............................................................................................64
3.1. The Incidence of a Broker’s Agency ...........................................................64
3.1.1. Brokers and Insurers ......................................................................64
3.1.2. Brokers and Third Parties ..............................................................66
3.2. Remuneration of Brokers ..........................................................................67
3.3. The Broker’s Duties on Placing Insurance .................................................68
3.3.1. Finding the Required Cover ..........................................................68
3.3.2. Advice on Presentation of the Risk ...............................................71
3.4. The Broker’s Post-contractual Duties ........................................................73
3.4.1. The Operation of the Policy ..........................................................73
3.4.2. Claims ...........................................................................................75
3.5. Placing and Producing Brokers ..................................................................77
3.6. Remedies and Defences .............................................................................80
3.6.1. Damages ........................................................................................80
3.6.2. Defences ........................................................................................81
4. The Duty to Make a Fair Presentation of the Risk ......................................................85
1. Background ........................................................................................................85
1.1. The Doctrine of Utmost Good Faith .........................................................85
1.2. Fair Presentation: The Origins of the Modern Statutory Structure ............87
2. Fair Presentation: Consumers ............................................................................90
2.1. The Elements of the 2012 Act ....................................................................90
2.1.1. Scope .............................................................................................90
2.1.2. Misrepresentation ..........................................................................91
2.1.3. Remedies .......................................................................................92
2.1.4. Group Insurance ...........................................................................94
2.1.5. Insurance on the Life of Another ..................................................95
2.2. Intermediaries ............................................................................................95
3. Fair Presentation: Business Insurance ................................................................99
3.1. Scope of the Duty ......................................................................................99
3.2. Non-disclosure ..........................................................................................99
3.2.1. The Meaning of Non-disclosure ......................................................99
3.2.2. The Insured’s Knowledge ..............................................................100
3.2.3. The Insurers’ Knowledge ...............................................................103
3.2.4. Waiver of Disclosure by Insurers ...................................................105
3.3. Misrepresentation ....................................................................................108
3.4. Materiality and Inducement ....................................................................112
3.4.1. Materiality ...................................................................................112
3.4.2. Inducement..................................................................................115
CONTENTS vii
3.5. Examples of Material Facts .....................................................................120
3.5.1. General Definition .......................................................................120
3.5.2. Moral Hazard Generally .............................................................120
3.5.3. Moral Hazard: The Insured’s Criminal Record and Integrity ......122
3.5.4. Outstanding Charges and Allegations of Criminality ..................125
3.5.5. Physical Hazard .............................................................................128
3.6. Duration of the Duty of Fair Presentation ..............................................129
3.6.1. Change of Circumstances before Contract ..................................129
3.6.2. Renewals......................................................................................130
3.6.3. Change of Circumstances after Contract .....................................131
3.6.4. Open Covers and Declarations ....................................................134
3.7. Remedies for Breach of the Duty of Fair Presentation ............................134
3.7.1. The Statutory Remedies ..............................................................134
3.7.2. Loss of Rights .............................................................................136
3.7.3. Waiver by Affirmation .................................................................136
3.7.4. Waiver by Estoppel ......................................................................140
3.8. Contractual Arrangements Varying the Legal Position ............................140
4. The Insurers’ Duty of Fair Presentation ...........................................................142
5. Formation of the Insurance Contract ........................................................................144
1. The Making of the Contract ............................................................................144
1.1. Offer and Acceptance ..............................................................................144
1.2. Commencement of the Risk ....................................................................148
1.3. Renewals and Extensions .........................................................................149
1.4. Insurance Contracts in the Subscription Market .....................................149
1.5. Formalities ...............................................................................................152
2. Temporary Cover .............................................................................................153
3. Premium ...........................................................................................................156
3.1. Payment of the Premium .........................................................................156
3.2. Effect of Non-payment of Premium ........................................................158
3.3. Return of Premium ..................................................................................159
4. Mistake ............................................................................................................160
4.1. Effect of Mistake on the Contract ...........................................................160
4.2. Rectification .............................................................................................162
5. Illegality ...........................................................................................................163
6. Insurable Interest .....................................................................................................165
1. History and Legal Framework .........................................................................165
2. Insurable Interest in Lives: The Life Assurance Act 1774 .................................167
2.1. Effects of the 1774 Act .............................................................................167
2.2. Time When Interest Must Be Shown .......................................................169
2.3. Defining Insurable Interest in Life Policies ...............................................170
2.3.1. Own Life and Spouse Policies ......................................................170
2.3.2. Other Family Relationships .........................................................170
2.3.3. The Employer–Employee Relationship ........................................172
2.3.4. Creditor and Debtor Insurance ...................................................174
2.4. Naming the Insured in the Policy Document ...........................................174
2.5. Proposals for Reform ...............................................................................176
viii CONTENTS
3. Insurable Interest in Marine and Property Insurance .......................................177
3.1. The Requirement for Insurable Interest ...................................................177
3.2. The Definition of Insurable Interest ........................................................178
3.2.1. General Definition .......................................................................178
3.2.2. Sales of Real Property .................................................................181
3.2.3. Sale of Goods ..............................................................................182
3.2.4. Bailment ......................................................................................183
3.2.5. Marine Insurance: Specific Cases .................................................185
3.3. Towards a Broader Test of ‘Factual Expectation’ .....................................186
7. Third Party Rights ...................................................................................................193
1. Third Parties and Insurance .............................................................................193
2. Insuring on Behalf of Another Person .............................................................194
2.1. Agency .....................................................................................................194
2.1.1. Ordinary Agency Principles .........................................................194
2.1.2. Undisclosed Principal ..................................................................196
2.1.3. Ratification ..................................................................................198
2.2. Trusts .......................................................................................................200
2.2.1. Creating a Trust ...........................................................................200
2.2.2. Married Women’s Property Act 1882 ...........................................202
2.3. Contracts (Rights of Third Parties) Act 1999 ..........................................203
3. The Rights of Co-insureds ...............................................................................204
3.1. The Nature of Co-insurance ....................................................................204
3.2. The Rights of the Parties under Co-insurance Arrangements ..................205
3.2.1. Insurable Interest and Measure of Indemnity ..............................205
3.2.2. Breach of the Duty of Fair Presentation .....................................206
3.2.3. Breach of Other Duties ...............................................................207
4. Assignment ......................................................................................................207
4.1. Forms of Assignment ..............................................................................207
4.2. Assignment of the Policy .........................................................................208
4.3. Assignment of the Proceeds of the Policy ................................................209
8. The Terms of the Insurance Contract ........................................................................211
1. The Classification of Terms of Insurance Contracts ........................................211
1.1. The Perspective of the General Law of Contract .....................................211
1.2. Classification of Terms ............................................................................212
2. Conditions .......................................................................................................214
2.1. Conditions Precedent to the Risk ............................................................214
2.2. Conditions Precedent to Liability ............................................................215
2.3. Terms Not Expressed to Be Conditions Precedent ...................................216
2.4. Distinguishing Conditions Precedent and Other Terms ...........................217
2.5. Breach of Condition ................................................................................218
2.5.1. Construction of Conditions.........................................................218
2.5.2. Waiver of Breach of Condition ...................................................219
2.6. Section 11 of the Insurance Act 2015 .......................................................222
2.6.1. Background to Reform ................................................................222
2.6.2. Scope ...........................................................................................224
2.6.3. Defining the Risk as a Whole ......................................................224
2.6.4. Effect of Non-compliance ...........................................................225
CONTENTS ix
3. Insurance Warranties .......................................................................................226
3.1. The Nature of Warranties ........................................................................226
3.1.1. The Meaning of the Word ‘Warranty’ .........................................226
3.1.2. Creation of Warranties ................................................................227
3.2. Construction of Warranties .....................................................................229
3.2.1. Present and Continuing Warranties .............................................229
3.2.2. The Obligations Imposed by Warranties ......................................232
3.2.3. Severability ..................................................................................235
4. Consequences of Breach of Warranty ..............................................................236
4.1. The Common Law and the Codification ..................................................236
4.2. Suspensory Conditions ............................................................................238
4.3. Statutory Reform .....................................................................................241
9. Construing the Terms of the Insurance Contract .......................................................245
1. The Intentions of the Parties ............................................................................245
1.1. The Approach of the English Courts .......................................................245
1.2. Pre-contractual Negotiations: The Exclusionary Rule .............................248
1.3. The Post-contractual Conduct of the Parties ...........................................249
1.4. Contra Proferentem ..................................................................................250
1.5. Reasonable Expectations of the Insured ..................................................252
2. Specific Rules of Construction .........................................................................254
2.1. Words with Established Meaning .............................................................254
2.2. Context ....................................................................................................256
2.3. Validity ....................................................................................................257
2.4. Superfluous Words ...................................................................................257
2.5. The Format of the Policy .........................................................................258
3. Consumer Rights Act 2015 ..............................................................................259
4. Utmost Good Faith ..........................................................................................260
10. Causation .................................................................................................................262
1. Proximate Cause Rule ......................................................................................262
2. Agreements to Alter the Rule of Causation ......................................................266
3. Concurrent Causes ...........................................................................................270
3.1. The Nature of Concurrent Causes ...........................................................270
3.2. Interdependent Concurrent Causes ..........................................................270
3.3. Independent Concurrent Causes ..............................................................272
4. The Conduct of the Insured .............................................................................273
4.1. Evasive Action Taken by the Insured .......................................................273
4.2. Public Policy ............................................................................................277
4.2.1. Deliberate Intention to Cause Loss .............................................277
4.2.2. Loss Not Intended .......................................................................278
4.3. Deliberate Killing ....................................................................................281
4.3.1. The Forfeiture Rule .....................................................................281
4.3.2. Forfeiture Act 1982 ......................................................................282
4.3.3. Deliberate Killing and Liability Insurance ...................................283
4.3.4. Motor Manslaughter ...................................................................285
4.4. The Relevance of the Insured’s Negligence ..............................................287