Tedext

You Claims Handler Insurer Provides Household Combined Insurance Owner Domestic Property

Insured household

You are a claims handler for an insurer who provides household combined insurance for the owner of a domestic property. The insurance comprises buildings and contents cover. The owner moves out of the property and rents it to a close friend. Subsequently, a fire claim has been notified.

You have identified the following facts:

ē The property is occupied by the tenant on an unfurnished contract basis. The insurer finds out that the property owner has never disclosed the change of occupancy to the insurer.
ē The property owner did not disclose to the insurer his recent dangerous driving conviction, which occurred during the policy period but before the fire.
ē The fire caused a large amount of damage to both the building and the tenant's contents. The property owner puts in a claim for both the building and the tenant's contents.
(a) Explain with justification the impact of insurable interest on the claim made by the property owner. Refer to one
relevant case. (12) (b) Explain with justification the extent to which the facts identified are material and the effect they may have on
the claim made by the property owner. Refer to three relevant cases.

Solution to You Claims Handler Insurer Provides Household Combined Insurance Owner Domestic Property

a) Impact on insurable interest

From the analysis of facts in this case, it is observable that the claimant had insurable interest on the property prior to the occurrence of the damage. Insurable interest subsists where a person derives tangible benefit from the existence of the insured object. A person is argued to have an insurable interest on property if its damage or loss would lead to monetary loss or any other loss thereof. With respect to the case at hand, the insurance contract covering the building and the property contained in the building is already validated.

[blur] This shows that there is insurable interest in the building and the contents since insurable interest one of the major principles used in determining the validity of the insurance contract. However, although the claimant has insurable interest on the house, there is a problem in establishing whether he has insurable interest on the contents. In Sadlers Company v Badcock (1743) the court held that claimant should have insurable interest of the property at the time the contract of insurance is created and at the time the peril occurs.† [/blur]

[blur] There was changes regarding the occupancy of the premise but the insurer had not been informed yet before loss occurred. The claimant had entered into a tenancy agreement with another party who had consequently moved into the building while the owner exited. The fire is said to have destroyed the building and the tenantís property contained in the house therein. In this case, holding all the other factors constant, the owner had insurable interest on the building since it was still his at the time of destruction by the fire. [/blur]

[blur] Although the owner had already rented the property at the time when the fire damaged it, the insurable interest on the property had not changed. Instead, the fact that someone else had assumed tenancy of the property is enough indication that the property provided the owner with financial benefit. This shows that the property still had significant insurable interest to the owner at the time of the damage. The owner hence has legitimate insurable interest on the building and hence his claim on compensation of the house is legitimate but the claim on tenantís property may not be successful since he does not have insurable interest on them.† [/blur]

[blur] Although the owner had already rented the property at the time when the fire damaged it, the insurable interest on the property had not changed. Instead, the fact that someone else had assumed tenancy of the property is enough indication that the property provided the owner with financial benefit. This shows that the property still had significant insurable interest to the owner at the time of the damage. The owner hence has legitimate insurable interest on the building and hence his claim on compensation of the house is legitimate but the claim on tenantís property may not be successful since he does not have insurable interest on them.† [/blur]

[blur] The claim on the tenantís property might however not be valid. A person cannot have insurable interest on another personís property. This is because he or she does not accrue any financial benefit from that property. By destruction of the property, the claimant did not suffer any financial loss or injury. This ultimate loss on the property in the building was suffered by the tenant and not the claimant. If the tenant had insured his property, could be compensated. On the basis of insurable interest, the owner has a valid claim for compensation on the building but not the tenantís contents.† [/blur]

b) Effects of the facts think about Insurance Act 2015 Ė remember it is Commercial Client

The main issue involved in this case that may influence the outcome of the claim by the property owner surrounds the duty of utmost good faith in the insurance contract. It is noticeable that the facts of the insurance contracts changed prior to the accident and the insurer was not informed of the same by the insured.

[blur] Both the insurer and the insured owe each other the duty of good faith and are supposed to implicitly disclose any material information regarding the insurance contract (Combe & Cabrelli, 2013).† Facts in this case reveal that the insured did not disclose changes in material facts of the contract. It is observable that crucial details about the insurance agreement had changed at the time the property owner claimed compensation for the damage. During underwriting of the insurance policy, the claimant had indicated that he was the primary dweller of the insured house. However, this had changed later when he rented the building to his friend. The insured owed the insurer the duty of good faith to disclose such changes in the facts surrounding the insurance agreement. [/blur]

[blur] The principle of good faith is a major prerequisite in insurance agreements as it allows for disclosure of all relevant information about the contracts which helps in determining the nature of peril and the premiums (Combe & Cabrelli, 2013). In Carter v Boehm (1776) the Lord of Mansfield pointed out that if the material details for an insurance agreement are obscured in any manner, either fraudulently or not, then the peril taken by the insurance company may differ from the risk that they thought to take. Under such circumstances, the policy is argued to be void. [/blur]

[blur] This was observed as an innate result of knowledge imbalance where the insured has more information of the facts surrounding the policy than the insurer. The undisclosed information would have informed the insurer in assessing the risk while drawing the policy. Further, the good faith principle in insurance was avowed in Marine Insurance Act of 1906. The act emphasizes that utmost good faith should be observed by both parties for the sake of drawing an all-inclusive contract. The act holds that the insurance contract can be avoided by either of the parties is the principle is dishonored. [/blur]

[blur] The contractual obligation in good faith is marked by two main aspects. These include the obligation to reveal material information and the obligation not to make any misrepresentation of the material facts during the formation of the contract as well as within the contract period (Zimmermann & Whittaker, 2000). The test for whether information is material to the contract or not is established in the section 20 sub section 2 of the Act which explain that a material fact is which would influence the decision of a cautious insurer in estimating the premium or taking the risk. [/blur]

[blur] In Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1995) the case involved determination of whether the undisclosed or misrepresented facts would have influenced a prudent insurerís decision in determining the level of risk and the amount of premiums. It was ruled that information is only material if it has the possibility of persuading the decisions of the insurer in underwriting the policy. In Synergy Health (UK) Ltd v CGU Insurance Plc and others (2010) the insured communicated to the insurer that they were going to install an intruder detector alarm four months prior to the policy renewal which was not installed. The court held that this amounted to misrepresentation of key detail to the contract since the insurer perceived a lesser risk in theft with the presence of the detector alarm. [/blur]

[blur] Although the claimant in this case may have disclosed all material information relation the contract during underwriting of the policy, it is observable that there were changes which the insurer needed to be notified about. In this case the claimant failed to disclose two facts. The first one is that he no longer occupied the house and the other is his dangerous driving conviction. [/blur]

[blur] The later, however, may not be considered as a material fact to the contract since there is no direct relationship of the driving conviction with the insurance of domestic property. Change in occupancy is however material to this case and the insured ought to have informed the insurer of the same. The claim could be denied with regard to failure of disclosing material information to the insurance company. There is evidence in lack of good faith on the claimantís side. [/blur]

You Claims Handler Insurer Provides Household Combined Insurance Owner Domestic Property

  • Order

  • Payment

  • Processing

  • Delivery

Validation error occured. Please enter the fields and submit it again.
Thank You ! Your email has been delivered.