insurance

Question 1

what is an insurance contract?

Answer 1

a contract by which one party, the insurer, in consideration of a cum of money called the premium, undertakes to pay another person called the insured, a sum of money, or its equivalent, on the happening of a specified event

basically, every contract of insurance, whatever its nature, provides for the payment of money, or its equivalent, by the insurer on the happening of a specified event:
- re-building a house which has been burnt down

Question 2

formation of a contract of insurance

Answer 2

completed proposal form is the offer:
- the policy is the document which embodies the terms of the contract as agreed upon by the insured and the insurer
- assumed that the conditions agreed upon are those which normally appear in the company’s policy

cover note: an interim contract of insurance which provides immediate temporary protection to the person proposing to insure until completion and acceptance of the proposal

Question 3

basic concepts of insurance law

Answer 3

insurance contracts act 1984 (cth):
- not intended to be a complete doe of insurance law
- superimposed on existing principles of common law and equity
- except to the extent that the Act either expressly or by implication limits their operation, the existing law, as well as other commonwealth and state legislation, apply to insurance contracts s7

Question 4

basic concepts of insurance law

Answer 4

• insurable interest
• duty of good faith
• duty of disclosure
• misrepresentation

Question 5

basic concepts of insurance law

insurable interest

Answer 5

the act provides that:

a contract of general is not void by reason only that the insured did not have an interest in the subject matter of the contract at the time the contract was entered into: s16

where an insured has suffered a pencuniary or economic loss as a result of the insured property being damaged or destroyed
- the insurer is not relieved of liablity because of the insured’s lack of an a legal or equitable interest in the property at the time of the loss: s17

Question 6

basic concepts of insurance law

duty of good faith

Answer 6

the act recognises the basis common law principle that:

an insurance contract is a contract of the utmost good faith

in every insurance contract there is an implied term requiring each party to act with the utmost good faith towards the other in respect of any matter arising under or in relation to the contract: s13

12.120

cgu insurance ltd v amp financial planning pty ltd -> high court stated that the concept of utmost good faith is not limited to circumstances involving dishonesty

Question 7

basic concepts of insurance law

duty of disclosure

Answer 7

duty of the insured under s21(1)(a) is:
- to disclouse what the insured knows is “matter relevant to the decision of the insurer whether to accpet the risk” (1)

an insured has a duty to disclose to the insurer, before the contract is entered into:
- every matter knwon to the isnured that a reasonable person in the circumstances could be expected to know to be relevant to deciding whether to accept the risk: s21(1)(b)

when determing whether a reasonable person could be expected to disclose a matter, regard is to be had to factors including:
- the nature and extent of the insurance cover to be provided; and
- the class of persons who would ordinarily be expected to apply for insurance cover of that kind

the insured is not required to disclose a matter:
- that diminishes the risk
- that is common knowledge
- that the insurer knows, or in the ordinary course of its business as an insurer ought to know
- where compliance with the duty of disclosure is waived by the insurer

12.330 & 12.340 (1)

majoirty of the high court in permanent trustee australia ltd v fai general insurance co ltd held this meant
- disclosure only of a matter which has bearing on the nature and extent of the risk involved
- as opposed to disclosing matters relevant to the insurer’s decision whether or not to enter into or renew the contract of insurance, which might include matters extraneous to a strict assessment of the risk and include matters of a purely commercial or emtional nature

Question 8

basic concepts of insurance law

duty of disclosure

continued

Answer 8

the duty of disclosure under s21 does not extend to:
- any matter unknown to the insured (1)

but duty of disclosure under s21 does extend to:
- “moral hazard”
- matters concerning the honesty of the insured, including disclosure of criminal or dishonest conduct known to the insured even though there has been no conviction or charge in respect of such conduct (2)

12.360 (1) - 12.390 (2)

midaz pty ltd v peters mccarthy insurance brokers pty ltd (1)
naomi marble and granite pty ltd v fai general insurance co ltd (2)

Question 9

duty of disclosure

insurer to inform insured of futy of disclosure

Answer 9

the insurer must, before a contract of insurance is entered into clearly inform the insured in writing of :
- the general nature and effect of the duty of disclosure; and
- that the duty applies until the proposed contract is entered into: s22(1)(a), (d)
- in some circumstances there may be a considerable time between the date of application for a policy and the date it comes into effect

Question 10

duty of disclosure

statutory limitation on insured’s duty of disclosure in certain cases

Answer 10

the insured’s obligation of disclosure is modified in respect of eligible contracts of insurance:
- certain types of insurance contracts that are specified by regulation: s21(a)
- s21(a) is designed to improve the capacity of an insured tocomply with the duty of disclosure by requiring an insurer to ask specific questions regarding the information which the insurer needs to assess the risk in respect of a proposed contract of insurance

Question 11

duty of disclosure

change in circumstances prior to renewal of contract

Answer 11

before each renewal of the insurance contract, the insured is under a duty to disclose any change in circumstances that increases the rick insured against: ss21(1) and 11(9)

12.430

alexander stenhouse ltd v austcan investments pty ltd 1993

Question 12

duty to disclosure

remedies for non-disclosure

general insurance

Answer 12

where the insured’s failure to disclose was innocent:
- the insurer is not entitled (at least directly) to avoid the contract
- the liability of the insurer for a claim in such a case is reduced to the amount that would place the insurer in the same position as it would have been had the non-disclosure not occurred: s28(1), (3)
- eg: if the insurer would have charged a higher premium had the non-disclosure not occurred, it would be entitled to reduce the claim by the amount of the additional premium

Question 13

duty of disclosure

remedies for non-disclosure

general insurance

Answer 13

fradulent non-disclosure:
in the case of a fraudulent breach of duty to disclosre, the insurer may:
- avoid the contract: s28(2); or
- reduce its liability in respect of a claim to the amount that would palce it in the position in which it would have been if the breach had not occured: s28(3)

Question 14

duty of disclosure

liability of co-insureds

Answer 14

where two or more persons enter into an insurance contract in respect of the same subject matter, the high court has held that:
- the duty of disclosure applies to each of the co-insureds
- even if onyl one of the co-insured has been responsible for a fraudulent non-disclosure/misrepresentation, the insurer will be able to avoid the contract of insurance under s28(2)

12.440

advance (nsw) insurance agencies pty ltd v matthews

Question 15

duty of disclosure

non-disclosure - life insurance

s29

Answer 15

where the non-disclosure does not relate to the age of the life insured:
- if the insurer would have entered into the policy even where the insured had made full disclosure, the insurer will have no remedy
- in the case of fraudulent failure to disclose, the insurer may avoid the policy
- in the case of innocent nondisclosure, if the insurer would not have entered into the contract if disclosure had occurred, the insurer may avoid the policy within 3 years after the policy was entered into

Question 16

basic concepts of insurance law

innocent misrepresentation

Answer 16

where themisrepresentation was made innocently:
- the insurer is not entitled to avoid the contract
- the liability of the insurer is reduced to the amount that would place the insurer in the same position as it would have been had the misrepresentation not been made: s28(1) and s28(3)

where an insurer can show that it would not have entered into the contract at all had it known the true situation, then its liability under the contract will be reduced to nil: s28(3)

Question 17

basic concepts of insurance law

fraudulent misrepresentation

Answer 17

in the case of a fraudulent misrepresentation the insurer may avoid the contract: s28(2)

alternatively, the insurer may reduce its liability in respect of a claim to the amount that would place it in the position in which it would have been if the misrepresentation had not been made: s28(3)

the court has power to disregard avoidance of a contract by an insurer as a result of a fraudulent misrepresentation when it would be harsh and unfair not to do so: s31

Question 18

cover notes

Answer 18

since a cover note is a contract of insurance, the ordinary incidents which apply during the formation of such contract, including the duty of the insured to disclose all relevant facts to the insurer, apply to the cover note

Question 19

the policy and its terms

Answer 19

a policy of insurance, even one required by staute, is a commercial contract and should be given a businesslike interpretation

interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the object which it is intended to secure

12.600

mccann v switzerland insurance australia ltd

Question 20

terms construed: contra proferentum

Answer 20

in the case of ambiguity, the courts will generally construe terms in the policy contra proferentum:
- that is, against the insurer who is responsible for their drafting

12.320 (1) - 12.630 (2) - 12.640 (3)

manufacturer’s mutual insurance ltd v stargift pty ltd (1)
legal & general insurance australia ltd v eather (2)
johnson v american home assurance company (3)

Question 21

exclusion clasues

Answer 21

the policy may contain exclusion clasues which qualify the general risk covered by the policy
e.g. exclude the liability of the insurer for damage caused by certain specifed causes

12.720

the high court has stressed the importance of constuing an exclusion clause with the insurance policy as whole, particulary in conjunction with the insuring clause : selected seeds pty ltd v wbemm pty ltd 2012

Question 22

proximate cause of loss

Answer 22

the onus is on the insured to establish that the loss is covered by the terms of the policy. it is only where the risk insured against was the “proximate” (ie direct, dominant or effective) cause of the loss that the insurer will be liable to indemnify the insured

where the insurer relies on an exclusion clause in the policy, the onus is on the insurer to establish that the loss in question fell within one of the exceptions

if there are two or more proximate causes of the loss, one of which arises from an insured peril and the other arises from an excepted peril, the insured is not entitled to recover: petersen v union des assurances de paris aird (1995)

Question 23

provisions of the insurance contracts act 1984

Answer 23

the act contains a number of important limitations on the right of an insurer to avoid liability for a claim on the ground of breach by the insured of a warranty or condition in the insurance policy:
- ie: the insurer may not refuse to pay
claims in certain circumstances

Question 24

insurer may not refuse to pay claims in certain circumstances

Answer 24

provided the act or omission could not reasonably be regarded as being capable of causing or contributing to a loss in respect of which cover is provided, the insurer may not refuse to pay all or part of the claim by reason only of that act or omission: s54(1)

where the act or omission could reasonably be regarded as capable of causing or contributing to a loss, the insurer may refuse to pay the claim:
- in such a case the insurer may not refuse to pay the claim, or that part of the claim, which the insured proves was not caused by the act or omission: s54(2)-(4)

12.840

maxwell v highway hauliers pty ltd 2014

Question 25

application of s54 to **claims made and notified** professional indemnity policies

Answer 25

**claims made policy:** where the professional indemnity policy is expressed to provide indemnity re claims made against the professional during the period of insurance, which is usually an annual policy (ie, subject to annual renewal) **claims made and notifed policy:** other professional indemnity policies require, in addition, that the claim against the professional person be notifed or reported to the insurer during the period of insurance

Question 26

pre-existing defects or disabilities

Answer 26

the act also deals with provisions in contracts of insurance that exclude or limit liability for loss that occurred as a result of defects or imperfections that existed in a thing before the contract was entered into

Question 27

standard cover

Answer 27

where an insured makes a claim under a **prescribed contract** in respect of loss arising from the event prescribed in the regulations: - insurer must pay the claimant the minimum amount specified in the regulations - this is so even where the amount of the insurance cover provided by the contract is less than the minimum amount, or insurance cover is not provided by the contract at all the categories of insurance subject to the standard cover provisions are: - motor vehicle (property damage) - home buildings - home contents - sickness and accident - consumer credit - travel insurance

Question 28

notification of unusual terms

Answer 28

an insurer cannot rely on provisions of the policy which are of a kind not usually included in policies providing similar cover, unless: - before entering the contract - the insurer had clearly informed the insured - in writing - of the effect of the particular provisions (s37)

Question 28

fraudulent claims

Answer 28

where a fraudulent claim is made: - the insurer cannot avoid the contract but may refuse the claim - the court has the power to order an insurer to pay in respect of a fraudulent claim an amount that it assesses is **just and equitable in the circumstances** provided that only a **minimal or insignificant** part of the claim is made fraudulently and non-payment of the remainder of the claim would be **harsh and unfair**: s56

Question 29

third paty beneficiaries

Answer 29

a third party beneficiary under a contract of general insurance has a right to recover from the insurer, in accordance with the contract, the amount of any loss they have suffered even though they are is not a party to the contract: s48(1)

Question 30

postion under a joint policy of insurance

Answer 30

where the co-insureds are insured under a joint policy of insurance, fraudulent conduct on the part of one of the co-insureds will generally prevent the innocent co-insured from recovering under the insurance policy | 12.1050 ## Footnote mmi general insurance ltd v baktoo

Question 31

postion under a joint policy of insurance | continued

Answer 31

under a composite contract of insurance, the interests of the co-insured are regarded as several or separate: - ie: the insurer is treated in effect as having undertaken separate and distinct obligations to each of the co-insureds | 12.1070 ## Footnote accordingly, the fraudulent conduct of one co- insured will not prevent the other innocent co- insured from recovering under the policy: gilmore v smp general insurance co ltd (1996)

Question 32

classes and types of insurance

Answer 32

- fire insurance - standard cover for home buildings and home contents insurance - **average** clause - life insurances (1) - personal accident and sickness insurance - workers compensations insurance (2) - public liability insurance - third party motor vehicle (3) - comprehensive car insurance - professional indemnity insurance - consumer credit insurance - travel insurance - marine insurance (4) | 12.1370 (1) - 12.1400 (2) - 12.1410 (3) - 12.1420 (4)

Question 33

# check questions the insurance contracts act 1984 (cth) operates alongside which other sources of law in australia?

Answer 33

common law, equity and other commonwealth and state legislation - insurance law draws from multiple legal sources working together

Question 34

# check questions a cover note provides permanent insurance protection for the duration of the insurance policy

Answer 34

qfalse - cover notes provides only temporary, interim protection

Question 35

# check questions sarah applies for home insurance. she completes the proposal form but forgets to mention that her house has a history of flood damage. a month later, her house is damaged by a flood and she makes a claim

Answer 35

sarah's moission may breach the duty of disclosure, allowing the insurer to deny the claim - the duty of disclosure requires the insured to reveal all relevant information - failing to disclose a history of flood damage may allow the insurer to deny the claim

Question 36

# check questions kai must disclose to their insurer that they installed a new security system in their home, even though this reduces the risk of theft

Answer 36

false - matters that diminish risk don't need to be disclosed as they benefit the insurer

Question 37

# check questions drag the words into the correct boxes

Answer 37

**innocent non-disclosure:** ahmed forgot to mention a minor fender-bender from two years ago **fraudulent non-disclosure:** sofia deliberatly concealed her diabetes diagnosis **unknown matter:** marcus didn't know his apartment building had previous flood damage ## Footnote types of non-disclosure and consequences: - **unknown matter:** no breach of duty - **innocent non-disclosure:** contract remains valid, claim may be reduced - **fradulent non-disclosure:** insurer may void contract or reduce liability

Question 38

# check questions fatima is applying for home insurance. she mentions that they had a break-in last year, but doesn't mention that her partner alex has a gambling addiction that recently led to some minor theft charges that were dropped. she also doesn't mention the new smoke detectors installed last month. what should fatima disclose? select all that apply

Answer 38

alex's theft charges (evem though dropped) alex's illegal gambling addiction the break-in last year

Question 39

# check questions when an insured makes an innocent misrepresentation, the insurer cannot avoid the contract but may reduce liability to nil if they can prove they would never have entered the contract with full disclosure

Answer 39

true - under s28(1) and 28(3), innocent misrepresentation keeps the contract valid but allows liability reduction

Question 40

# check questions rosa, a graphic designer, fails to install security software on her laptop as required by her professional indemnity policy. her laptop is later stolen, but the theft was due to a break-in at a secure office building, not the missing software. under s54 of the insurance contracts act, can the insurer refuse to pay rosa's claim for the stolen equipment?

Answer 40

no, because the breach couldn't reasonably be regarded as causing the loss - s54(1) prevents insurers from refusing claims when the breach couldn't reasonably be regarded as causing or contributing to the actual loss

Question 41

# check questions insurance companies can rely on unusual policy provisions that aren't typically included in similar policies without providing written notification to customers before the contract is formed.

Answer 41

false - s37 of the insurance contracts act requires insurance companies to clearly inform customers in writing of unusual provisions before entering the contract

Question 42

# check questions match each insurance type with its type with its primary coverage focus

Answer 42

**professional indemnity insurance:** coverage for professional negligence claims **consumer credit insurance:** protection for loan repayments during financial hardships **public liability insurance:** coverage for third-party injury or property damage claims **workers' compensation insurance:** employee injury and disability benefits **marine insurance:** protection for watercraft and maritime cargo

Question 43

# check questions liam and alex are married and own their family home under a standard home insurance policy. liam fraudulently inflates a claim for storm damage. based on typical policy structures for married couples with shared home ownership, what is the most likely outcome for alex's ability to recover under the policy?

Answer 43

alex cannot recover due to liam's fraud as it's likely a joint policy - married couples with joint home ownership typically have joint policies where their interests are combines, meaning one spouse's fraudulent conduct affects the other's ability to recover

Question 44

# knowledge quiz under the Insurance contracts act, the duty of good faith applies to:

Answer 44

both the insurance company and the insured customer - s13 of the insurance contracts act established that both parties must act with utmost good faith

Question 45

# knowledge quiz jamal's motorcycle insurance policy contains an ambiguous clause about coverage during "recreational use." the insurer argues this excludes his weekend touring, while Jamal believes it's covered. how will an australian court likely interpret this ambiguity?

Answer 45

against the insurer using the contra proferentem rule - courts apply the contra proferentum rule, interpreting ambiguous terms against the drafter (the insurer) who had control over the policy langauge

Question 46

# knoeledge quiz which three elements are fundamental to any insurance contract in australia?

Answer 46

insurer, insured, and premium

Question 47

# knowledge quiz according to the insurance contracts act 1984 (cth), what happens if an insured person lacks a clear legal interest in the insured property?

Answer 47

the contract remains valid and the insurer cannot avoid liability solely on this basis - s16 and 17 protect consumers from this defence

Question 48

# knowledge quiz when renewing an insurance policy, chen discovers that their neighbourhood crime rate has increased significantly. what is chen's obligation?

Answer 48

must disclose as it increase the risk insured against - s21 requires disclosure of any changes that increase the insured risk before renewal

Question 49

# knowledge quiz zara purchases home insurance from northern insurance company. the policy provides $180,000 coverage for building damage, but regulations specify a minimum of $200,000 for prescribed events. when zara's home suffers $195,000 damage from a prescribed event, how much must the insurance company pay?

Answer 49

$200,00 (the regulatory minimum) - under standard cover provisions, insurance companies must pay the minimum amount specified in regulations for prescribed events, even when the policy provides less coverage

Question 50

# knowledge quiz amara and chen jointly own a café and both are named as insured parties on their commercial property insurance policy. If amara fraudulently fails to disclose that she has previously filed three insurance claims for kitchen fires at other businesses, what is the likely outcome under the Insurance contracts act?

Answer 50

the insurer can avoid the entire contract, affecting both amara and chen - under s28(2) of the insurance contracts act, fraudulent non-disclosure by one co-insured affects the entire contract, even if the other co-insured acted innocently