Insurance Law of Papua New Guinea Common Law Jurisdiction
Insurance may be defined as a contract whereby the Insurer undertakes, in consideration of the regular payment of a sun of money, called the premium, either:-
(a) To indemnity a person against some risk (that is unexpected loss) such as fire,
(b) To pay a fixed sum of the happening of a certain event, such as death.
In this article, we will discuss only legal side of the following areas:
(1) The elements of Insurance contract,
(2) The proposal,
(4) Insurance Interest,
(6) Cover notes and policies, and
(7) Types of insurance contracts.
While other areas of Insurance Law, should we cover them at a later date in another article.
Elements of Insurance Contract
It is important to note that the contract is not than that; an example of a particular form of contract and the usual requisites for a valid contract must exist in relation to an insurance contract.
Mention has already been made of the Consideration-the premium– but certain aspects of this particular form of contract have particular importance.
The party making the offer in a contract of insurance is known as the proponent or proposer: if the offer made in the 'proposal' is accepted by the instance company then the proponent becomes the insured and the insurance company is known as the insurer.
All the normal rules of the offer and acceptance apply to the contract of insuranc for vioe, e.g. lapse of original offer by counter offer, correspondence, and communication of offer and acceptance and so on.
It is of great importance to note that the principles of mistake and mis-presentation play more important role in insurance contracts than in the usual contracts and the principle of GOOD FAITH in disclosures in the proposal is of vital importance. Whereas in the case of ordinary contracts failure to disclose a material fact may not always be grounds for avoiding liability, with regard to insurance contracts non-disclosure has more far reaching effects.
The parties to a contract of insurance are by no means equal with regard to the knowledge of possible risks involved: the proponent has greater knowledge of the risks to be insured against and the proponent is therefore under a duty to disclose ALL THOSE FACTS THAT COULD INFLUENCE THE INSURER AS TO WHETHER TO ACCEPT THE RISK OR NOT. In addition, this duty applies equally to facts the proponent is asked about as to fact about which the proponent is not asked but which are within his or her knowledge and are such that they might influence a reasonable insurer.
Failure to disclose such material facts can lead to the insurer avoiding the contract even after the risk insured against has occurred.
Amount of premium paid & sum assured
Terms of Insurance contract
It is generally accepted that the parties must agree as to:
(a) The commencement and duration of the risk,
(b) The premium to be paid; and
(c) The sum assured.
Apart from these major details the courts are fairly lenient with of minor details. Care should be taken unless; therefore, to read every word of the proposal and other documents put before the proponent at the time of making the offer to ensure that all the terms are fully understood. An innocent mistaken answer could lead to later voiding of the contract.
It is a peculiar rule relating to insurance contracts that no insurance is legal in respect of the life, or property, of any person unless the person for whose benefit the policy is issued has, at some stage, an insurable interest.
What is an "insurable interest" varies according to the type of insurance. This will usually be in the interest a person has in preserving his or her own life or his or her interest in the preservation of his or her property. The rule is applied to prevent insurance by way of wagering or gaming - the presence of an insurable interest in the subject matter or the contract takes away the element of gaming or wagering that might otherwise be present.
Common examples of insurable interest are:
(a) Ownership of a house and its contents, or of a ship or cargo;
(b) The interest of a wife in the life of her husband (and vice versa),
(c) The interest of a creditor in the life of his or her debtor, in such following areas:-
1: a beneficiary in the life of his or her trustee
2: a parent in the life of a child under 21,
3: a partner in a business in the life of his or her partner, and
4: an employee in the life of his or her employee.
Take note that, however that the attitude of the courts is that a contract lacking an insurable interest is voidable only and not void: the insurer may waive insurable interest or demand proof of its existence.
Further also take note that the time at which the insurable interest must exist varies with different types of policy, for example:-
Life Policies - at the date of the proposal,
Marine Policies - at the date of loss, and
Fire Policies - throughout the period of the insurance
Legal profession covered as Indemnity
Indemnity is the basis of all forms of insurance contracts except LIFE and some ACCIDENT insurance. This means that the insured person will be paid such an amount as will cover the damage caused to him or her or to the things insured and he or she must not receive more than this - although he or she may well in some instances receive less. The aim is, however, to place the insured in the same position so far as money will allow as if the loss had not occurred. This may be done by:-
(a) Payment of money,
(b) Replacement of Property, and
(c) Repairing of property
Insurance must be seen as a protection against loss not as a mean of profit from losses sustained.
Cover Notes and Policies
Technically the acceptance of the proponent's offer takes place when the first premium is paid and the POLICY is issued. However, it usually takes some time before the policy can be prepared and to ensure that the risk is covered in the meantime it is the practice of insurers to issue COVER NOTES either before payment of the premium or issue of the policy and these provide evidence, though not conclusive, that the insurer has accepted the offer. However, if the company validly reject the proposal and a loss is suffered in the meantime the cover note will not be binding on the company.
We will cover other areas of Insurance Law in the next article (s) at a later date.