Under general law, a warranty is a promise by one party that a particular state of affairs is true or that a particular thing will be done. In most non-insurance contexts, breach of warranty gives rise to a claim for damages for breach of contract only. In relation to the sale of goods, a warranty is contrasted to a condition. Breach of a condition gives rise to a right for the innocent party to terminate the contract.
Under the Marine Insurance Act, which codifies marine insurance, and has influenced insurance law generally, a warranty is a promise or condition which must be complied with, whether or not it is material to the risk. Unlike the warranty under general contract law, breach of a warranty will commonly entitle the insurer to be discharged. A basis of contract clause may provide that breach of warranty is deemed a fundamental breach of a contract and entitles the insurer to avoid it.
Particular types of insurance may have warranties which are relevant to the particular insured risk. For example, in the context of theft and burglary, the presence or absence of an intruder alarm will be material. Similarly, in the context of material damage, the presence of sprinkler systems and fire protection may be warranted. Warranties may require that particular care and attention is taken, as a condition of cover.
Policies may contain conditions. They commonly contain relatively standard types of terms and conditions, which have gradually developed over time. Certain types of terms and conditions are commonly found in insurance contracts
There may be pre-conditions to the insurer’s liability. There may be conditions governing subsequent conduct. Generally, breach of the condition will dis-entitle the insured to cover. Some conditions are conditions precedent to cover unless they are complied with; there is never any valid cover at all. It is a matter of interpretation as to whether a condition, is a condition precedent, or a condition of liability.
Insurance policies may oblige the insured to take reasonable precautions and care. The courts have sought not to interpret such conditions overly restrictively. In some cases, where possible, they have been interpreted to the effect that the insured should avoid being reckless.
Almost all insurance policies contain an arbitration condition. See generally the provisions on arbitration. Generally, the arbitrator’s decision will be final and binding on all matters relating to the insurance contract, including the insurer’s liability.
Fraud and Non-Disclosure
Insurance policies usually exclude cover where any fraudulent means or device is used to obtain a benefit under the policy. Fraud usually requires knowledge or recklessness on the part of the insured, as to a false or misleading matter. In practice, it may be very difficult to prove fraud, as it can be usually rebutted by honest opinion. Because fraud may be difficult to prove, the insurer may seek to rely on other grounds, where possible.
The general duty of good faith under insurance contracts continues from the inception of the policy through to claims and beyond. The level of disclosure required under a claim is different to that required at the time the contract is made. An innocent misrepresentation or non-disclosure would not defeat the policy at claim stage. Any deliberate untruth or misleading may entitle the insurer to avoid the policy.
Fraud applies to the maintenance of a claim which has a valid basis, but which the insured knows to be exaggerated. The traditional view was that exaggeration of itself is not fraud. However, any lying or untruth directly relevant to the claim or which may improve the prospects of a settlement or on winning the case may be fraudulent. Although there may be elements of fraud or apparent fraud the insurer may waive it by not exercising its rights to avoid the policy.
The insurance policy generally requires the insured to give notice of claims and loss within a stated period or immediately. Notice of particulars may be required. A notification may be a condition precedent to liability on the part of the insurer. A written claim may be required. Proof of loss might be required to be submitted. Steps may be required to be taken in order to minimise loss. This may require cooperation with the insurer and the making available of all documents and records. The insured may be required to notify the Gardai.
The policy may oblige the insured to give notice as soon as he is aware of the relevant facts. If reasonable notice is required, it is a question of interpretation as to what is reasonable in the circumstances. Where the insurer’s interest is jeopardised, it is more likely that strict time limits will be upheld. It is not necessarily required that the insurer has to prove that their interest has been prejudiced by the delay in notification. In Ireland, it appears that unless the noncompliance was trivial or had been waived, the insured need not necessarily show prejudice.
Cooperation and Insurer’s Control
Insurance policies will usually prohibit the insured from admitting liability or offering to settle, without the consent of the insured. The insurer’s right to withhold consent to a settlement must be exercised in good faith, having regard to its interest and those of the insured. The insurer should not have regard to extraneous consideration. A settlement or agreement that is reasonable, not improvident, unreasonable or done in bad faith, without consent may not be a bar to cover.
Failure to cooperate or furnish the requisite information may entitle the insurer to disclaim or to refuse cover. The obligation to cooperate may extend to the investigation of any defence. There is support in Ireland for the view that where an insurer wishes to disclaim liability on the basis of the failure of compliance, it should first give notice to the insured in order to give him the opportunity to mend his hand. Other cases suggest that this is not necessary where the insured is a commercial entity or where there is any deliberate wrongdoing and failure to cooperate.
Where the insurance policy is cancelled on the basis of fraud, nondisclosure or misrepresentation, it is void from the inception. It never existed and no rights exist under it. to terminate it.
The English Courts have rejected the notion that the right to cancel the policy must be exercised on reasonable grounds. The courts will not look at the motive or reasons for exercising the right, where the right I clearly provided. The courts will not imply a term that a reason must be given for the cancellation, provided that the right of cancellation is properly exercisable.
The general principles of the interpretation of contracts apply to the construction and interpretation of insurance policy. The intention of the parties, as expressed in the documents, determines the position. The document must be interpreted as a whole. Phrases and words should not be interpreted in isolation. The insurance policy being put forward or proffered by the insurer should be construed against its interests, in the event of doubt or ambiguity.
Manuscript written parts prevail over printed parts, on the supposition that they have been negotiated. The ordinary meaning applies unless the effect is contrary to the manifest intentions of the party. Where a word is used in its technical sense, this may be taken to imply that the technical meaning applies. A reasonable and workable interpretation is preferred to one which creates an anomaly.
Many insurance policies have used standard terms and language over many years. In some cases, policies have become encrusted with amendments and may lack clarity. However, there is a reluctance on the part of courts to deviate from the meanings of certain well-established wording and phrases, many of which have been the subject of received interpretation over time.
Joint and Composite Policies
There is a distinction between joint and composite policies. A policy may be joint so that a failure of disclosure or breach of a condition on the part of one insured renders the entire policy void. In contrast, a composite policy is in effect, two separate policies. Generally, the fraud or the fault of the other party will not be available as a ground for denying cover to the non-defaulting party.
Where the interest is the same and they are insured together, so that the rights of the parties are identical, the policy is joint. Where the interest of the parties are distinct and separate, but they are insured under the one policy, it is composite.
Where the parties are the same, it may be provided that one only can claim so that their rights stand and full together. If one party can claim only where the other is precluded by contract from so doing, the rights of the primary insured and the contingent insured stand together. If a defence prevails over the primary insured, it holds against the contingent insured.
The insurer is liable to indemnify loss, of which the insured risk is the cause or the proximate cause. Cause refers to an effective or dominant cause of the relevant event. In difficult questions, a common sense is applied to the principle of causality.
The extent of cover is dependent on the terms of the policy. In some cases, the damage may be too remote. It may not arise directly or indirectly from the risk insured against. The cause of the damage may be is something done by the insured or another.
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