Introduction:
Insurance is an instrument by which fatalities of a small number are remunerated out of funds gathered from plenteous. It is insurance against the financial loss incurred by a party in the future on the happening of an unexpected event. The literature concurs that insurance needs to contain both of the accompanying components: (1) risk pooling and (2) risk transfer. The risk pooling makes a large sample of risk exposures and, as the sample gets bigger, the chance of missing future loss predictions gets lower.
As such, insurance is regarded as a social device in which a group of people transfer risk to another party so that the third-party joins or pools all the risk exposures together. Pooling the exposures together allows a more accurate statistical forecast of future losses. There exists another form of contract which isn’t absolute in nature. The performance of this contract is depended on the incident of a predetermined occasion.[1] Such a contract is known as a contingent contract. Contracts of indemnity and guarantee fall under this class.
Meaning
A contract of reimbursement is defined as–”A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity”.[2] The English law meaning of a contract of reimbursement is – “it is a promise to save a person harmless from the consequences of an act”. In this manner, it incorporates inside its ambit misfortunes caused not only by the human agency but additionally those brought about unintentionally or fire or other natural disasters.
Each contract of insurance, other than life insurance, is a contract of indemnity.[3] Therefore, an insurance contract is a legally binding contract between an insurance company (indemnifier) and the insured (indemnity holder). The indemnifier promises to save the indemnity holder in the event that he experiences misfortune coming about the causes encased in the insurance contract. The insurance company has various kinds of policies with fluctuating prescriptions. An applicant is needed to pick the most suitable policy for his requirements. Ordinarily, the candidate describes to the agent of the insurance company the individual or thing which he plans to cover. The agent at that point finds the significant policy that fits the necessities of the candidate. There are various kinds of insurance contracts. They include;
1. Marine insurance
2. Aviation insurance
3. Automobile insurance
4. Aviation insurance
5. Fire insurance
6. Life insurance
7. Health insurance
Insurance contracts are not restricted to the above classification, there are likewise insurance contracts that are arranged by the degree of the insurance cover. It can be specific or comprehensive.
Unique Characteristics of Insurance Contracts
Insurance is a contract between an insurance company (insurer) and a client (the insured). The rule of strict construction is the hallmark characteristic of a contract of which insurance is the classic example.[4] It is drawn by the insurance company and the insured has a minimal choice but to consent to the terms.[5]
a. Absence of liberty of contract
An insurance company is qualified to have the particulars of its contract enforced.[6] Terms of an insurance policy are already made by underwriters Prof. Woodruff in the second edition of his casebook on insurance in 1924, “What do they know of the law of insurance?”[7] Therefore, law-making bodies and Courts have taken an unmistakable fascination to guarantee the interest of the insured public are secured.[8] The methodology of the above arms of government is to regulate the insurance companies by limiting the insurance premiums.[9]
In German Alliance Co. V. Lewis[10], the legislation of the State of Kansas passed the Act which engaged the Superintendent of insurance to restrict the maximum amount of sum for fire insurance premiums. The previously mentioned law was challenged in different courts until it arrived at the apex court. The Supreme court of the United States of America upheld the decision of the state legislature.
b. Duty of disclosure
It is a critical part of English insurance law.[11] The rule was first referenced in the decision of the Court of Appeal in Joel v. Law Union Insurance Company.[12] Applying the rule of uberrima fides, the court bestowed a duty of disclosure on an insured in different cases likewise, the courts maintained the insured’s duty of disclosure.[13] According to the opinion of the law commission, the degree of the obligation of the applicant ought to be restricted to those facts that a reasonable man would think material to the insurance contract.[14]
It isn’t just the insured who owes the duty of disclosure, Lord Mansfield in Carter v. Boehm[15] stressed that the insurer also needs to discharge his duty of disclosure. In another case, Justice Pain set up the insurer’s duty of disclosure in Horry v. Tate and Lyle Refineries Ltd.[16] The insurer should have revealed to the insured that the sum offered to the insured to settle his case for injury was on the lowest side. Most importantly, it ought to have been disclosed to the insured that on the off chance that he acknowledged the offer, he wouldn’t have a chance to raise the matter again. While the principle of uberrima fides at the centre of a contract of insurance, the principle of caveat emptor is at the core of other contracts. This implies that in an insurance contract there is an obligation of disclosure but in other contracts, for example, a buyer is forewarned to play out a broad check prior to consenting to purchase goods on the grounds that the seller owes him no duty of disclosure.
c. Misrepresentation
Misrepresentation in a contract of insurance is not the same as the general law of contracts.[17] Rather than depending on materiality, insurers depended on “the basis of the contract to establish misrepresentation”[18] This gave insurers a slack to void contracts without thinking about whether such misrepresentation is material to the insurance contracts. Despite the fact that Lord Greene M. R criticized such practice in 1942[19], it is still in vogue today. Judicial precedent outlines a divergent interpretation regarding what comprises misrepresentation in general contracts and insurance contracts. For instance, in Dimmock v. Hallet[20] a land that was deserted because of its inefficiency was described as “very fertile and improvable” by the seller. The court held that the above statement was not misrepresentation but rather a simple commendation. Consequently, in general contracts, simple statements don’t add up to misrepresentation.
In opposition to general contracts, statements in contracts of insurance regardless of whether they concern the health of an individual or estimation of property are imperative in setting up in establishing misrepresentation. In the event that such statements are discovered to be wrong, they entitle the insurer to avoid the policy as held in Thompson v. Weems[21] and West v. Public Union and Accident Insurance Co.[22]
d. Agency
By and large contracts, the principal is held liable for the acts of the agent in the course of his employment, in any case, this isn’t generally the situation in insurance contracts as sketched out in Newsholme Road Transport General Insurance.[23] An applicant gave a statement of replies to the questions in the contract application form. The agent noted down the replies in the application form in spite of the fact that he knew the assertions of the candidate weren’t true. The applicant contended that in spite of the fact that his statement was false, the agent of the insurance company also realized this fact yet composed the statement accordingly he followed up in the interest of the principal (the insurance company). In his decision, Scrutton LJ commented that the act of the agent recording the communication from the agent wasn’t in the interest of the insurance company yet the applicant. Further, the applicant should have perused the statement cautiously before signing that the statement was nothing else but the truth.[24]
In Re Hooley Hill Rubber Co[25], it was held that an insurance company can’t be held liable for statements made by agents which aren’t important for existing facts of such insurance companies. The contention was that during negotiations of the insurance contract, the agent was found out if the policy covered harm brought about by a blast following ablaze to which the agent answered yes. From that point, the applicant consented to the contract. After some point, the industrial facility of the insured was damaged by an explosion coming about because of a fire. When he filed a claim to be indemnified for the damage caused, the insurance company contended that it doesn’t cover harm brought about by a blast following a fire. Bailhache J in his choice commented that the articulation of the agent was not within the existing facts of the insurance company. Along these lines, the insured wasn’t entitled to his claim.[26]
Capacity of Minor to Contract
In Rousseau v. Norton[27], a minor entered into a contract to insure his life without the consent of any of his parents. The minor borrowed the premium amount from an attorney who later sued him for inability to restore the cash lent. The court examined the insurance contract and commented that considering his age, the contract was burdensome on the minor and wasn’t bound to the cash loaned. Notwithstanding, it didn’t void the insurance contract entered by the minor.
In Halima Abdinoor Hassan & Ors v. Corporate Insurance Company Limited[28], the Kenyan court held that; “In law, a minor might not have the ability to enter into a contract but he can do as such through legal guardians or trustees.” In the above case, the father insured his plane in the name of his minor daughter. When the daughter had attained an age of maturity, the plane crashed consequently killing her father. The insurer refused to indemnify the daughter contending that the contract was void ab initio.
The learned Judge in his decision commented that he was unable to comprehend why the insurer continued to receive payments for a premium of the insurance if he realized that the insured was a minor. His Lordship alluded to Halsbury’s laws of England fourth edition volume 16 passage 1609 which subtleties that: “Thus the acceptance of premiums with the knowledge of circumstances entitling the insurer to avoid the policy stops him from averring that for that reason it is not a valid policy”.[29]
Conclusion
In conclusion, the scholarly articles, books, papers and judicial precedents have clearly established that insurance possesses peculiar characteristics. Hence, it cannot be grouped in a similar category with a general contract. The legislature, Courts of law and legal scholars should think about this while enacting the law, interpreting statutes and when commenting on insurance contracts or relevant statutes.
References:
[1] The Indian Contracts Act, 1872, § 31, No. 9, Acts of Parliament, 1872, India.
[2] The Indian Contracts Act, 1872, § 124, No. 9, Acts of Parliament, 1872, India.
[3] Gajanan Moreshwar Parelkar vs Moreshwar Madan Mantri AIR 1942 44 BOMLR 703.
[4] Patterson, The Delivery of a Life-Insurance Policy, Vol 33 HARV. L. REV 198-222 (1919).
[5] Ibid.
[6] Drilling v. New York Life Ins. Co, 234 N. Y. 234, 241, 137 N. E. 314, 316 (1922).
[7] Selection of cases on the law of insurance 2nd edition, 1924.
[8] Whitfield v. Aetna Life Co. of Hartford, 205 U.S. 895 (1907), New York Life Insurance Co. v. Deer Lodge County, 231 U.S. 495 (1913).
[9] Volume 47 No.5, The Modern Law Review, sept 1984. THE SPECIAL NATURE OF THE INSURANCE CONTRACT: A COMPARISON OF THE AMERICAN AND ENGLISH LAW OF INSURANCE.
[10] 233 U.S. 389 (1914).
[11] Treitel’s Law of Contract, (6th edition, 1983) pp. 304-306, Atiyah’s introduction to the law of contract, (3rd edition, 1981) pp. 216-223.
[12] (1908) 2 K.B.863 (C.A).
[13] Bates v. Hewitt (1867) L.R.2 Q. B 595, London Assurance v. Mansel (1879)11 Ch.D. 363.
[14] LAW COM. No. 104, The report of the English law commission on Insurance Law: Non-Disclosure and Breach of Warranty, cmnd.8064 (1980).
[15] (1766) 3 Burr. 1905.
[16] (1982) 2 Lloyd’s Rep. 416.
[17] Volume 47 No.5, The Modern Law Review, sept 1984.
THE SPECIAL NATURE OF THE INSURANCE CONTRACT: A COMPARISON OF THE AMERICAN AND ENGLISH LAW OF INSURANCE.
[18] Hasson, “The Basis of Contract Clause in Insurance Law” (1971) 34 M.L.R.29.
[19] Zurich Insurance Co. V. Morrison (1942) 1 All E.R. 529,537 (C.A.).
[20] (1866) 2 Ch. App. 21.
[21] (1884) 9 App. Cas. 671.
[22] (1954) 2 Lloyd’s Rep. 461.
[23] (1929) K.B.356.
[24] Newsholme Road Transport General Insurance (1929) K.B.356.
[25] (1920) K.B. 257.
[26] Court of Appeal upheld the decision in (1920) 1. K.B.264.
[27] (1908)18 CTR 621).
[28] (2015) e KLR.
[29] Volume 16 Halsbury’s laws of England fourth edition paragraph 1609.
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