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Chapter 11 - Insurance law. At the end of this chapter you should understand: how a contract of insurance is made, the term ‘cover note’, the concept of insurable interest at common law and how it has been modified by the Insurance Contracts Act 1984 (Cwlth), the concept of indemnity and its operation in contracts of insurance,...
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Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Copyright © 2000 McGraw-Hill Australia Insurance Law Chapter 11 Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning Insurance contract Premium (consideration) Insurer Insured/Assured (Proponent) Promise of payment by the insurer • The proposal is the offer • The policy is evidence of the contract Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-3 Copyright © 2000 McGraw-Hill Australia Cancellation of insurance policy (via written notice) • A breach of the duty of utmost good faith of disclosure • Misrepresentation before the contract was entered into • Failure to comply with a provision of the contract • A fraudulent claim made under the contract, or under some other contract of insurance in operation at the time • Cover note may be cancelled at any time with three days notice (S60(4)) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-4 Copyright © 2000 McGraw-Hill Australia Cover notes • Contract requiring payment whether proposal accepted or rejected • Contract for interim insurance for up to one month Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-5 Copyright © 2000 McGraw-Hill Australia Australian Prudential Regulation Authority (APRA) • Prudential regulator of banks, insurance companies and superannuation funds • Issues guidelines • Prevents certain promotional material Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-6 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law • Insurable interest: The insurer will benefit from the property being preserved, and will suffer detriment if the property is damaged or destroyed • Code of Practice: “The general Insurance Code of Practice (the Code) is a self-regulatory code to promote good relations between insurers, agents and consumers, and good insurance practice by describing standard of good practice and service” • Resolution of disputes: General insurance – Insurance Enquiries and Complaints Ltd (IEC) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 11-7 by Barron & Fletcher Slides© prepared by Kay Fanning Copyright 2000 McGraw-Hill Australia Life insurance – Life Insurance Complaints Service Fundamental principles of insurance law • Indemnity principle: Insurer agrees to indemnify the insured for loss on the happening of a particular event (Fixed payouts are not included.) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-8 Copyright © 2000 McGraw-Hill Australia Consent FRAUDULENT INNOCENT NEGLIGENT (i.e no intention to deceive) • False statement of fact • False statement of fact • False statement of fact •Knows false or indifferent • Believes true • Duty of care owed •Used to induce party into contract •Used to induce party into contract • Duty breached •Contract entered • Contract entered • Loss suffered •Damage suffered • Damaged suffered •VOIDABLE contract • VALID contract rescinded – at option Rescind without of injured party damages with damages Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 11-9 Copyright © 2000 McGraw-Hill Australia by Barron & Fletcher Slides prepared by Kay Fanning Fundamental principles of insurance law • Duty of utmost good faith: Both parties must act in good faith and disclose all relevant information Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-10 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law • Duty of disclosure: Non-disclosure of a material fact may result in a voidance of the contract NON-DISCLOSURE INNOCENT Limitation of liability Copyright FRAUDULENT Contract void 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-11 Copyright © 2000 McGraw-Hill Australia Disclosure Matters that must be disclosed by an insured: • Matters that the insured knows to be relevant to the insurer’s decision to insure • Matters that a reasonable person could be expected to have known to be relevant to the insurer’s decision to accept the risk Matters that the the insured is not required to disclose: • Matters that diminish the risk • Matters that are of common knowledge • Matters that the insurer knows or, in the ordinary course of the business, ought to know • Matters where the insurer has waived the insured’s duty of disclosure Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-12 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law Doctrine of subrogation • Applies to contracts of insurance that are indemnity contracts (e.g fire and motor vehicle) • Entitles the insurer to “stand in the shoes of the insured” • On payment of a loss, the insured person passes his rights and duties, in respect of the insured’s property against third parties, over to the insurer Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-13 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law Double insurance • Indemnity losses can only be claimed up to the actual loss, preventing the insured from profiting from their loss (Insurers contribute on a pro rata basis.) Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-14 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law Doctrine of proximate cause • The insured is covered against loss only if insured against the “proximate cause of a loss”, i.e the first incident causing the loss Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-15 Copyright © 2000 McGraw-Hill Australia Doctrine of privity of contract • Only the parties to a contract can receive rights and obligations pursuant to the contract, i.e only the parties to a contract can sue or be sued with respect to the contract Exception: General insurance • Specified or referred to in the contract Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-16 Copyright © 2000 McGraw-Hill Australia Classes of insurance Property insurance for • Fire • Life • Accident, sickness or disability insurance • Liability • Comprehensive motor vehicle • Third party property motor vehicle • Marine Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-17 Copyright © 2000 McGraw-Hill Australia Standard cover • Insurer pays a minimum amount, as specified in the regulations Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-18 Copyright © 2000 McGraw-Hill Australia Renewal insurance cover • Insurer must notify the insured in writing within fourteen (14) days before the cover expires Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-19 Copyright © 2000 McGraw-Hill Australia Average clause • Advised in writing • Amount paid = Value of property stated in the policy x amount of loss Actual value of the policy • Insurance Contract Act = Value of property stated in the policy x amount of loss 80% of the actual value of the property Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-20 Copyright © 2000 McGraw-Hill Australia Types of insurance Life insurance • Whole of life policy • Term policy • Endowment policy • Pure endowment policy • Annuity policy Liability insurance • Professional indemnity insurance • Public liability insurance • Product liability insurance • Compulsory third party motor vehicle schemes Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-21 Copyright © 2000 McGraw-Hill Australia Insurance provider’s liability Insurance agent Acts on behalf of a particular insurer • Liability: Insurer will be liable even if acts outside scope of actual or apparent authority Insurance broker Runs independent business to arrange the best rate from an insurer, on behalf of the broker’s client • Liability: Owes a duty to the insured to exercise reasonable skill and care – completing proposal forms Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 11-22 Copyright © 2000 McGraw-Hill Australia ... without of injured party damages with damages Copyright 2003 McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e 1 1- 9 Copyright © 2000 McGraw-Hill Australia by Barron & Fletcher. .. Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 1 1- 10 Copyright © 2000 McGraw-Hill Australia Fundamental principles of insurance law • Duty of disclosure: Non-disclosure of a... McGraw-Hill Australia Pty Ltd PPTs t/a Fundamentals of Business Law 4e by Barron & Fletcher Slides prepared by Kay Fanning 1 1- 12 Copyright © 2000 McGraw-Hill Australia Fundamental principles of