Policy Conditions,Endorsement, Warranties and Clauses

uses in Miscellaneous Insurance Policy

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POLICIES a policy issued to clear the agreement

between insured and insurer Policy contains all details of cover, period of

cover, exceptions, conditions, the premium and other relevant information

It is evidence of contract.

The Cover Note is a binding contract of insurance

Purpose is to provide immediate insurance cover

Cover usually for 30 days

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Document spell out the period of cover, property covered, type of risk insured against and the agreed premium

Subject to company’s usual terms and conditions

The same principles of insurance applies for the interim cover

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Where insurance is compulsory by law, the certificate is issued to prove that a policy is in force

E.g motor insurance

There are two parts to the policy : - policy jacket - policy schedule Policies will often comprise of : - definitions - conditions - clauses/warranties - exclusions/exceptions

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◦Words used in the policy have to be defined at the beginning of the policy and are considered to have the same meaning throughout the policy document

◦List of typical words/phrases defined eg you/your/policyholder Excess We/us/our

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As a general rule, the basic structure of all general insurance policies is the same, incorporating the following:◦ Heading◦ Recital clause◦ Signature◦ Operative clauses◦ Exceptions◦ Conditions◦ Policy schedule◦ Information and facilities.

Heading◦ each policy has a heading which includes the

name of the insurer and, in some cases, the address and company logo

• Recital clause- sets the scene for what follows in the policy by referring to the two parties, insured and insurer, coming together to form the contract by which the insurer, in return for the premium, undertakes to indemnify the policyholder in accordance with the cover detailed in the policy.

Signature - under the recital clause, will be the

signature of an official from the insurer. Naturally the signature is pre printed on the document

Operative Clause◦ Describe the scope of cover in detail. They are the

heart of the policy, specifying what is covered by the policy.

◦ They may be just one clause outlining cover or more commonly, a number of such clauses, each dealing with a different aspect of the insurance and often containing exceptions that are specific to each individual operative clause

Exceptions - Insurance policies of all kinds contain a

number of general exclusions, or exceptions, which apply to the entire contract and therefore to all sections of the policy in addition to those specifically stated in the operative clauses.

Conditions - conditions are essentially of two types.

i. implied condition ii. Express conditions

Conditions i. implied condition - the insured must act as if uninsured and not use

the insurance as an alternative to acting prudently

- the insured may be required to advise the appropriated authorities, depending upon the circumstances

- the insured must take reasonable action (eg. Attempt to extinguish a fire) but not if this endangers the insured

- the insured must not hinder the insurers in their investigation of a claimImplied conditions exist whether or not they appear in the policy. In practice, many are stated in order to clarify matters for the insured

Conditions ii. Express conditions- Those stated in the policy Policy Schedule This is the place where the policy is made

personal and specific to the insured. Within the schedule are the variable details of the policy:

- insured’s name; insured’s address; policy period; premium ; details of the subject matter; sum insured or limit of liability; territorial limits; policy number; reference to special exclusions, conditions or aspects of cover and operative sections of the policy.

Information and facilities increasingly common for policies to provide

information on a number of topics, particularly where booklet policies have been developed. They may include some or all of the following :i. Customer service standards statement

- the details what the insured may expect in respect of the service provided, perhaps in terms of courtesy and response times.

ii. Complaints procedures - reference to internal procedures by encouraging policyholders to write to a nominated person

within the insurer’s organization in the first instance. If matters are still unresolved to the satisfaction of the insured, reference can be made to Insurance Ombudsman

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iii. Claims information- Common to have a section advising the

policyholder that to do in the event of claim. Usually also include a claims help- line number.

◦A Warranty is defined as an undertaking by the insured that a certain state of affairs will or will not be continued during the duration of the policy

◦Non-compliance of these warranties that increase the damage allows an insurer to avoid a claim.

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De Hahn v Hartley (1786) 1 Term Rep 343at pp 345 and 346), Lord Mansfield described awarranty as :“A warranty in a policy of insurance is a

condition or a contingency and unless that can be performed, there is no contract. It is perfectly immaterial for what purpose a warranty is introduced, but, being inserted, the contract

does not exist unless it be literally complied with.

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Breach of Warranty non compliance with a warranty constitutes breach of

warranty and the insurer is discharged from liability under the policies as from the date of the breach.

the contract is voidable at the option of the insurer from the date of the breach.

the insurer is still liable for insured losses occurring before the breach.

Repair of the breach does not reinstate the liability of the insurer

If the warranty relates to past or present facts, rather than performance, the insurer is able to repudiate to contract ab initio (from the beginning) since the breach exists from the start of the contract

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Express warranties Specified in the policy Always express warranties in general insurance. Eg. Of such warranties:

Fire insurance warranties: that all oily rags are placed in metal receptacles and remove, daily, from the building; that not more than a specified amount of paraffin is kept on the insured’s premises at any one time

Theft insurance warranties: that premises are not left unoccupied at night; that certain types of approved locks are fitted.

non compliance with the express warranties may be excused by insurers if they have prior notification and if required, an additional premium is paid.

However, insurers will have the right to avoid the whole contract from the date of breach.

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Implied warranties Warranty which does not appear in the policy but

which is understood by both parties to be automatically applicable to the contract of insurance.

Implied warranties are only found in marine insurance e.g of such warranty is that the vessel insured is seaworthy

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Example of warranties◦The intruder alarm system has a maintenance agreement in force

◦For flood risk, it could be a warranty that stocks of goods are kept above a certain height off the floor

◦Premium warranty that requires the premium to be paid within a certain time frame

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◦These are risks which the insurers do not wish to insure

◦Usually TWO types of Exclusions General or Specific

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General exclusions◦Claims arising out of nuclear and radioactive contamination

◦Political risks ◦War risks

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These are risks that should be insured under the more specific policies eg the burglary policy will not pick up losses arising from theft committed by own employees There are risks that insurer is prepared to insure at an additional premium eg providing full theft cover in a burglary policy

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Some risks that the insurer is not willing to insure at all eg any claims against public policies like fines and penalties

Insurers will not allow backdating of cover and will exclude any losses prior to commencement of risk

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Conditions that are printed on the policy are known as expressed conditions while those not printed are known as implied conditions.

They may be divided into: Conditions precedent to contract Conditions precedent to liability

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Conditions precedent to contract◦ These condition must be fulfilled PRIOR to the

formation of the contract itself.◦ They may also be ongoing conditions◦ The implied condition (insurable interest, UGF) are

the conditions precedent to the contract.◦ If such conditions are not complied with, there is

doubt as to the validity of the entire contract.◦ E.g if there is no insurable interest there can be

no effective insurance contract. Means that it is void.

Conditions precedent to contract◦ Difference between void and voidable?

Voidable – a breach of condition will render the policy be voidable at the option of insurer.

void – no insurable interest, a fundamental mistake or an illegal contract• Conditions precedent to liability- Must be complied with if there is to be a valid claim.- Generally these are the conditions often listed in a

policy as the “claim conditions”.- If the condition is not observed, insurer may avoid

liability for a particular loss, but they may not repudiate the contract as a whole.

- If a subsequent loss occur, the insurers must pay, provided that the insured complies with th condition in this instance

In common law, the Insured has a duty to read the policy. However, in Gaunt v John Hancock Mutual Life Ins Co:

‘ A man must indeed read what he has signed and he is charged if he does not, but insurers who seek to impose upon words of common speech an esoteric significance intelligible only to their craft, must bear the burden of any resulting confusion’

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Application of Contra Proferentem Rules Contract wordings – drafted by Insurer Policyholders – no control/do not draft nor negotiate the policy provisions

In practice, the Insured only receives policy document after risk has been accepted

Any ambiguity will be construed against the Insurer

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