This is a dissertation chapter on Insurance:
First and foremost in order to speak of the law of insurance we must first look at its history and its origins. The many principles of the law of insurance derive their origins from the standard insurance contract documents mainly being the proposal form and the policy which have been drafted in a fairly uniform way throughout its existence. Furthermore the reasons for most of the principles of insurance can be found by looking at the history of insurance.
The main origins of modern insurance contracts started during the fourteenth century due to practices adopted by Italian merchants. The practice of medieval insurance started through maritime risks (the risk of losing ships and cargos), in the sixteenth century this practice spread to London merchants. During this time, there were no separate insurers, groups of merchants agreed between them to bear their risks jointly amongst themselves. In 1601 merchants established by statute a chamber of assurance which was at the time outside the legal system, therefore the common law played no parts in the regulation of conflicts concerning insurance. This all changed in the mid eighteenth century during which lord Mansfield was appointed as lord chief justice, this brought about the interest of the common law courts towards insurance contracts. Lord Mansfield was an important pillar in the origin of the insurance contract as he found the solution of disputes over insurance through the application of principles acquired from the law merchant and the more traditional common law concepts. At the time of his retirement in 1788, the jurisdiction of the courts of insurance matters had been established. This change remained prominent in marine insurance, and as the time went by during the late seventeenth century marine insurance had been increasingly translated in the city of London at a coffee house owned by a man named Lloyd. It was here that the main basis of the contract of insurance began. A practice was developed where the merchants wishing to insure will pass the slip of paper containing details of the ship to people willing to provide it and once the total amount of insurance required was ‘under-written’ the contract was complete. The term ‘under-writer’ was derived from this and this term is still in use until date.
Since then, these contracts have ceased to operate in the coffee house and Lloyds of London is now the cooperation form with statutory authority. Lloyd’s influence is of great significance to insurance and insurance law (e.g. the standard Lloyds marine insurance policy was adopted as the statutory form in the marine insurance act 1906). Following these achievements there have been several companies and associations, which transact the business of insurance, marine insurance principles and application further helped develop other types of insurance, which also developed further. These included fire insurance (due to the great fire of London 1666), life and personal accident insurance (due to industrialization and railway services in the 19th century). After these developments, the twentieth century saw a lot of development and it is now possible to insure every conceivable event as well as the risk of damage or loss.
The law of insurance has not changed much since then, marine insurance was codified in the Marine insurance act 1906 and its special doctrines are sui generis. Although non-marine insurance is still based on case law, the Marine insurance act 1906 serves as an occasional reference, which provides authority for a principle also valid in non-marine insurance.
In the insurance industry of today covers various risks for a number of businesses, these risks can be classified in several different ways namely first and third party, life and other insurances, commercial and consumer, contingency and indemnity, and as seen above marine and non-marine (based on MIA 1906).
The two most important classifications are as follows :
First and third party insurance, the distinction between first and third party must be made first of all. First party insurance is when someone insures their own life, house, factory, car, television etc, whereas third party insurance or liability insurance is when someone insures against the potential liability in law to pay damages to another. Also first and third party aspect could be combined in the same policy. The law may reflect this difference by demanding that some third party insurances should be compulsory and also recognizing the fact that in practice the third party insurance involves the third party as much as the insured person.
Life and other insurances is a well-recognized policy in law and in insurance practice, this distinguishes clearly between life insurance and all other forms of insurance. There are various types of life insurance namely pure life insurance, whole life insurance, undertaking to pay a sum on the death of the life insured whenever it occurs and also modern devices which combine elements of life insurance with the more important element of investment in securities or property (life assurance act 1774). Uncertainty is a necessary feature of all insurances, but its different in the case of whichever life policy due to the fact that death is certain, the uncertainty is when it will occur.
Alternatively, a house insured against the outbreak of fire may never burn down. A contract on life insurance and other similar contracts are regarded as “contingency insurance” this basically means that the contracts are formed to pay money when the event which has been insured takes place .In the case of life insurance the proper terminology used in the description of the contract is “life assurance” reason being that death is assured of happening.
The above classification of insurance lead us to the actual definition of insurance which in itself is questionable, in view of the fact that there is a very wide range of risks which may be covered by insurance. However for certain purposes a definition may be useful.
First, persons carrying on an “insurance business” are subject to regulatory control, under the insurance companies act 1982 or in the case of assurance, the financial services act 1986.However in the similar way that there is no definition of banking neither act defines insurance. Secondly, other statutory provisions refer to insurance contracts an example of this can be seen in the unfair contract terms act 1977 in which certain provisions do not apply to a contract of insurance. Thirdly, even though the contract of insurance is a contract governed by the general law of contract, a number of special rules apply to such contracts at common law. The most notable being the fact that a contract of insurance is a contract of “uberrimae fidei” (of utmost good faith).At common law a party to such a contract are imposed to extensive duties of disclosure. In order to decide whether special rules are applicable to contracts of insurance apply to a particular contract, the court must first decide if the contract in question is a contract of insurance.
In the case of Fuji finance ltd v Aetna life insurance ltd, it had to be decided whether a particular contract was a contract of life insurance. This case involved an investment contract between an insurance company and an investor under which a lump sum was payable on the death of a named person but the investor was permitted to withdraw its investments at anytime .The sum payable to the investor on withdrawal was the same sum payable on death .At first instance Nicholls V-C concluded that a contract of insurance is one “under which a sum of money becomes payable on an event which is uncertain as to its timing or as to its happening at all” and due to this concluded that the contract was not one of insurance, although the sum was payable at death the same sum was payable on demand at anytime. The court of appeal reversed this decision, recognizing the fact that over the last 20years new forms of contract had been developed and life insurance was often used as a form of investment. They concluded that it was not fatal to the classification of the contract as one of life insurance that the same benefits were payable on death as on surrender, provided that the event upon on which the policy was payable sufficiently life or death. It was therefore sufficient that the contract will come to an end and the policy value levels become payable on the death of the policy holder.
Bird defined insurance as:” it is suggested that a contract of insurance is any contract whereby one party assumes the risk of an uncertain event, which is not within his control, happening at a future time, in which event the other party has an interest, and under which contract the first party is bound to pay money or provide its equivalent if the uncertain event occurs”. However, whilst this definition may suffice for certain purposes, including the application of regulatory control, it may be that a different definition will be appropriate for different purposes.
Firstly, there evidently has to be a binding contract, also the insurer must be legally bound to compensate the other party. Secondly, uncertainty is a necessary feature of insurance. In most cases it is whether or not the invent insured against will occur and as to life insurance it is when it will occur. Thirdly, the insured must have insurable interest in the life of property or liability that is subject of the insurance. Fourthly, it is essential that the event being insured against must be outside the control of the party assuming the risk. Its been raised before but no English case has directly raised this point. Lastly, there is no reason in principle why it should be necessary that the insurer will have to pay money on the occurrence of the uncertain event as there is clear authority that the provision of something other than money is enough as long as it is of the money’s worth.
Looking back at the topic of discussion, it is evidently clear that insurance has acquired many principles over the years. It now seems standard that insurance law continues to develop at a notable pace. There have been a fair amount of case law development, notably on questions of non-disclosure and misrepresentation, warranties and conditions, co-insurance and indemnity and subrogation. All the above from the very origins of insurance has helped mold the modern law of insurance. Its derived principles over the years have clearly distinguished between the law of contract, which it is generally based upon, and the law of insurance.
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