Jasnoor wishes to arrange insurance policies in her own name covering the following: - A luxury watch that Jasnoor found in the street, the owner of which is yet to be traced. - The life of Jasnoor's eldest daughter, Kaya, who is to take over the family business when she completes her degree course at university. - A sports car owned by Joseph, a friend of Jasnoor's. The sports car is being used by Jasnoor while Joseph is on holiday. - The life of Graham, Jasnoor's part-time cleaner. When Jasnoor applies to the insurer for the insurance policies, she mistakenly tells the insurer that Graham, the parttime cleaner, is 60 years old when he is in fact 70 years old. In order to keep the insurance policy premium as low as possible, Jasnoor deliberately concealed that the sports car has been heavily modied. (a) Identify, with justication, whether Jasnoor has an insurable interest in each of the following: (i) The luxury watch. (4) (ii) The life of Kaya. (4) (iii) The sports car. (4) (iv) The life of Graham. (4) (b) Discuss the potential affect of the mistake regarding the age of Jasnoor's part-time cleaner on the validity of the life insurance policy. (6) (c) Discuss the potential effect of the concealed modications on the validity of the insurance policy for the sports car. Refer to one statute in support of your discussion. (8) Key points The main ideas covered in this chapter can be summarised as follows: Formation of an insurance contract - general principles Like any other contract, an insurance contract comes into existence once the offer made by one party is unconditionally accepted by the other. The rules of consideration apply to insurance in the ordinary way - the consideration given by the insured an insurance contract is the premium (or the promise to pay the premium) and that by the insurer is the promise to pay claims Insurable interest "Insurable interest is required for an insurance contract to be valid. Insurable interest means that the policyholder must have the legal right to insure, arising out of a financial relationship recognised at law between the insured and the subject matter of insurance. The key elements of insurable interest are: a subject matter of insurance; - the policyholder must have an economic or financial interest in that subject matter; - the interest must be a current interest, not an expectancy; and the interest must be a legal interest. The law requires insurable interest to reduce moral hazard and to discourage wagering. Insurable interest may arise: at common law - in which an interest is automatically assumed (e.g. every person is presumed to have an unlimited interest in their own life); or through a contract - a person may agree to accept responsibility for something for which they would not ordinarily be liable (e.g. a landlord, rather than the tenant, is normally liable for the maintenance of the property which they own). The law on insurable interest Marine Insurance Insurable interest is required by the Marine Insurance Act 1906, 8.4. The Marine Insurance Act 1906, s.6 provides that the insured must be interested in the subject matter insured at the time of the loss. There is no requirement of insurable interest when the contract is made, and it does not matter that since the time of the loss the interest has ceased. Life insurance . Insurable interest is required by the Life Assurance Act 1774, s.1. "In life insurance, Insurable interest is required at the time when the contract is made, Le. at inception. However, there is no requirement to prove an interest when a claim arises on death or maturity of the policy. Policies on goods . There is no statutory requirement for insurable interest and, as a consequence of the Gambling Act 2005, a policy on goods without insurable interest is enforceable in theory, even if it amounts to a wager. However, in practice, the principle of indemnity would prevent recovery by a person who had suffered no loss and would generally restrict any recovery to the amount of the loss. Effect of a policy without interest . Where there is no insurable interest, the contract is generally vold.Key points Other insurances * Other policies (such as policies covering land or buildings and liability insurances) may possibly be covered by the Life Assurance Act 1774, s.1. In the case of policies on land and buildings, insurable interest may also be required under common law. However, the position is not very clear and the safest way to deal with it is through the principle of indemnity which requires proof of loss before making a claim under an insurance contract. Application of insurable interest * The main examples of Insurable Interest in life insurance are for family relationships and non-consumer (business) relationships.Key points The main ideas covered in this chapter can be summarised as follows: Introduction Contracts of insurance are contracts based upon utmost good faith. In consumer insurance, there is no duty of disclosure. Instead, there is a duty to take reasonable care not to make a misrepresentation. In non-consumer (business) insurance, the duty to make a fair presentation of the risk Imposes the following on the parties to the insurance contract: a duty not to misrepresent any matter relating to the insurance; and - a duty to disclose all material facts relating to the contract. The test for material misrepresentation in insurance contracts is modified from that in general contracts. Misrepresentation A material fact in insurance is defined according to what a "prudent underwriter' would deem material rather than a reasonable person. In non-consumer (business) insurance, as a matter of strict law, an insurer may seek remedy on the grounds of misrepresentation regardless of whether the misrepresentation is fraudulent, negligent or completely innocent. In consumer insurance, the insurer may only seek remedy for a misrepresentation which is either deliberate or reckless or careless (i.e. negligent). The 2012 Act excludes an innocent breach from its scope as it imposes the duty to take reasonable care not to misrepresent material facts. Duty of disclosure In non-consumer (business) insurance only, there is a positive duty of disclosure going beyond a mere duty not to misrepresent what is in fact disclosed. In both consumer and business insurance, the insurer has to prove inducement before seeking remedy for breach of the pre-contractual information duties. Unlike the MIA 1906, the IA 2015 provides some guidance to determine materiality of a fact. In non-consumer (business) insurance, material facts that should be disclosed include facts relating to physical hazard and moral hazard. In non-consumer (business) insurance, some things need not be disclosed even if they are material. These include: matters of law; factors which lessen the risk; facts known by the insurers and those which the insurers ought to know; information that is waived by the insurers; facts which the proposer does not know and ought not to know; and convictions that are 'spent' under the Rehabilitation of Offenders Act 1974, as amended by the Legal Aid, Sentencing and Punishment of Offenders Act, 2012. The pre-contractual information duties begin at the commencement of negotiations and come to an end once the contract is concluded. A fresh duty arises when the contract is renewed. As contracts of insurance are contracts based upon utmost good faith, the parties must act in good faith throughout their contractual relationship. Remedy for breach of the duty to act in good faith will be determined by common law. The pre-contractual information duties apply to compulsory insurances in exactly the same way as they do to other classes.Key points Breach of the pre-contractual information duties In business insurance, the insurer's remedy for breach of the duty of fair presentation of the risk depends on whether the breach is deliberate or reckless or whether it is neither deliberate nor reckless. In consumer insurance, the insurer's remedy for breach of the duty to take reasonable care not to make a misrepresentation depends on whether the misrepresentation is deliberate, reckless or careless. . If insurers are in breach of the duty of fair presentation of the risk, the remedy will be determined by common law in reference to s.17 of the MIA 1906