Posted on November 19, 2013
A contract of insurance is governed by the general law of contract but with additional legal principles specific to insurance.
The essential elements of every contract are:
From an insurance perspective you would have the offer of cover by an insurer at a particular price and with specific conditions, acceptance would occur when the proposer accepts the price and conditions and the premium would represent consideration.
The additional legal principles specific to insurance contracts are:
Insurable Interest – This means that the proposer must have a financial relationship recognised at law with the subject matter to be insured. Whilst the subject-matter of the insurance under a property owner’s policy would be the building, the subject-matter of the contract of insurance is the insurable interest therein.
Utmost good faith – Duty of disclosure – Contracts of insurance are contracts of utmost good faith as the insurer has to rely predominantly on information provided by the proposer to decide whether a risk is acceptable and to assess the premium for the risk. A proposer has a duty to disclose any facts that an insurer might consider to be material to their acceptance of the risk.
Duty of disclosure under common law starts when negotiations begin and ends when the contract is incepted. A property policy will usually require continuing disclosure of circumstances that increase the risk of damage.