Introduction
The Australian insurance industry is divided into three parts. There is life, general and health insurance. Australian law that is responsible for the regulation and guidance of insurance policy in Australia has two main acts that it refers to. This is the Insurance Act of 1973 and the Insurance Contracts Act of 1984 that are the main cornerstones of Australian insurance law. However, there are other legislations that have been ratified by other states within the country that provide different insurance cover for all the individuals in the community (Lewis and Mann, 2003).
There are different provisions that determine when it is the correct time to get relief from an insurance policy under the insurance law of Australia. The aim of this essay therefore is to find out the different laws that are present with regards to insurance, when an insurer has the right to get relief from his or her insurance policy and if he or she is covered or not. Some of the insurance policies tend to claim that they do cover everything. In this respect therefore, what are their extents and does the location of the insurer really matter during such a situation and how much information is to be provided by the insured with reference to the Insurance Contracts Act of 1984(Lewis and Mann, 2003).
Insurable Interests and Insurance contracts
The Insurance Contract act of 1984 is an act that is placed by Australian government on the terms and provision of insurance-by-insurance companies. The Insurance Contracts Acts of 1984 contains the different insurance policies, the standard cover provisions, the extent of each cover and when a given insurer is to get relief or not and circumstances that can make the insurance policy invalid (Latimer, 2011).
According to Insurance Contracts Act of 1984 act, before any individual enters into any insurance policy, it is their duty to disclose to the insuring company any details they may know or should know concerning the decision whether to accept the risk of insurance and if so on what terms and conditions. The same duty applies before the policy is verified or reinstated. However, the insurer does not require disclosing any matter that diminishes the risk, is common knowledge, and is an ordinary course of business that is ought to be known. If these duties are not complied with then the contract entered, under the Insurance contract act of 1984, is not valid and the insuring company may default the policy (Australian Government [AG], 1984).
Insurance basics state that the insurer covers the insured and in the event of any circumstances unknown to the insured, the insurer is supposed to pay relief to the insured. The insured to be covered should pay some premium to the insurer and must provide them with all needed information when required. Therefore, an insurance cover is a binding contract between these two parties and follows the principles of contract law.
Insurable interest must be there as insurer is paid premium for covering the insured. The insured benefits from the policy as loss of the item or services insured can be recovered though a claim. For example a home owner has insurable interest on his house. This concept of insurable interest helps to distinguish wagering and insurance contracts (Butt, 1986).In Macuara v. Northern Assurance Co. Ltd2 an assignment of timber was made by Macuara to a limited company which he formed and controlled. The timber however was insured in his own name. Subsequently, a fire destroyed the timber and Macuara himself tried to recover the loss from the insurance company. The Court held that he had no insurable interest as the timber was owned by the company. Macuara had no legal or equitable relation to the timber. The company would have succeeded had it had its own policy (Butt, 1986).In sections 16,17 and 18 of the Insurance Contracts Act alters the common laws required for any insurable interest to exit.
In section 86 of the Life Insurance Act of 1945 it goes out further to set out when other persons can have an insurable interest in another life. This further highlighted in the Insurance Contracts Act of 1984, section 19 is about assurance whereby an event is bound to happen, for example, in life assurance the attainment of the age of 60 or earlier death (AG, 1984).For contracts of indemnity insurance the insured must have the insurable interest at the time of the loss. With regards to life policies the interest needs to exist when the contract is made. Tenants and purchasers of land have equitable rights and interests to the property that they do possess and the landlord or owners can not forcefully do anything to them. They have to follow the law as they have entered into a contract with the occupants of their properties.
In the utmost good faith as dictated in the doctrine of utmost good faith found in the Insurance contract act of 1984, it is the principle of both parties of the contract to provide the necessary required information na failing to do that might result in breach of the contract. Also the doctrine of duty of disclosure by both parties is required by the act. With these principles being followed by the insurer and the insured there will be good grounds for insurable interests by both parties (AG, 1984).
Conclusion
In concluding, the insured needs to be genuine in the terms of his insurance cover as stated by the different laws in regards to his insurance cover or risks involved. It is further established by ownership or possession. A person might not have exclusive right to a property that he has signed for as illustrated in the case Macaura v Northern Assurance Co Ltd [1925] AC 619, where it was held that the insurable interest does not have to be present at the time of the loss. We have also seen that other people with only minimal rights can also insurable interests due to the temporary contracts that they have entered.
Professional Indemnity Insurance
Indemnity is an insurance principle that aims at making sure that the insured does not come out from an insurance claim better than he was, that is, the insured is not supposed to make a profit from the cover. For instance if Tom has insured his house against fire, accident or theft, when his house get burnt, he is not entitled for a whole house but just compensation for the damages cause by the fire. If the house was completely burnt down he will receive compensation for the house according to market prices at the time. The indemnity policy can however be negotiated when there is an agreed upon replacement value policies by both parties stating that the insured is to get a greater relief than the actual loss suffered (Butt, 1986).
Professional indemnity insurance for liability covers between partners with issues to deal with financial consequences in case of professional negligence, professional breach of duty due to neglect, error or omission. Indemnity provides cover for any legal representation and other costs incurred in the defense of any claim. Any professional cannot ignore professional negligence allegations. These allegations must be defended in a court of law or otherwise admitted with heavy cost implications in either case (Ace Insurance Limited [AIL], 2010).
In our we have a proposal for a partnership professional indemnity policy whereby the two partners entered into a contract with the firm but one partner was aware of possible claim with the firm while the other firm was ignorant. Due to this fact, the second client cannot make claims against the firm in case of any short negligence on the firms’ side. An indemnity is supposed to protect and at the same time benefit the client but in this case it is not so. Therefore, liability claim by the second partner may be tricky.
A liability clause in an indemnity is applicable where a firm is a sole proprietorship or a partnership. In our case, we have a partnership whereby the liability is supposed to be shared amongst them and this continues even when the firm is non-existent until the contract ends. The individual in this partnership must prove negligence of the other partner to claim liability. The claim might be in the form of contract or tort. A claim brought in tort the plaintiff, in this case, must prove that the other partner owed him a duty of care, the partner breached that duty or that the plaintiff suffered financial loss as a direct result of that breach. If an allegation of negligence is upheld, then the defendant is bound to be liable for the losses incurred by the plaintiff and this also include his legal fees. Direct financial losses which are both economic and consequential losses are a must for an indemnity contract unless stated otherwise by both parties in our case it not agreed upon therefore the second client is bound by contract to the other partner for losses (AIL, 2010).
However, an indemnity insurance cover only provides limited cover against claims of professional negligence only unless a contractual limitation clause is agreed between partners. In our case scenario there was no such agreement thus the liability can be of any unlimited amount and this can extend for any considerable amount of time. A professional insurance policy by contrast should have a limit on the amount of money that the insurer is supposed to pay, this is the limit of the indemnity, and it should operate for asset period of time and is subject policies, limitations and exclusions agreed by both parties (Merkin, 2006).
Professional indemnity insurance operates on a claims basis policy. This means that the policy will come into effect at the time the claim is notified by either party irrespective of when the alleged act of negligence took place. The client can bring a case many years after his completion of service as this policy emphasizes the importance of time for this type of cover (Pooley, 1998).
The limit of the indemnity is the maximum amount that other party of the policy can claim from the firm due to professional damages as liabilities. Defense costs are usually paid in addition to the limit of indemnity. Disclosing the limit of indemnity to a client does not lead to a limitation of liability, which can only be achieved by negotiating a specific financial cap as part of the professional’s appointment. Indemnity limit can be in two ways; that is each and every claim cover and the aggregate cover. In our case we have an aggregate cover for each of the partners (Merkin, 2006).
In general, we can say that the insurer has grounds to deny any liability claims by the insured partners. This is because there was no full disclosure by both partners when they entered the contract. Part IV on Disclosures and Misrepresentation section 21 states that it is the duty of the insured to disclose to the insurer any matter known to him before the contract of insurance is entered and this case, one of the partners did not come forward with the information, this a breach of contract. The other client did not offer good representation of his partner and thus the insurer can see it as misrepresentations by both parties and can default in liabilities claims. However, misrepresentation claims by the insurer cannot stand in a court of law. This is because, the other partner can claim ignorance of not knowing what was required of him. According to section 26 of the insurance contract act of 1984, it shows that if the insured did not fully understand the contract in was entering and that the insurer did not make the case clearer to him, he is liable for his claim. Section 28 goes on to further state that if the failure was fraudulent or the misrepresentation was made fraudulently, the insurer may avoid the contract which is not the case for one of the partner as he was ignorant on the matter (AG, 1984).
The insurer can offer liability claims on the one partner who was forthcoming with his claims and the other partner be left out but this is all in utmost good faith as provided in the insurance contract act of 1984. All in all the insurer can decide to give liability claims or not. The partners who entered into the contract did not fully disclose all the information required and this was some misrepresentation in a way.
References
Ace Insurance Limited (2010). ACE Professional indemnity insurance.Sydney: Sage Publications
Australian Government (1984). Insurance Contracts Act. Web.
Balla, A. and Marks, F. (1998). Guidebook to Insurance Law in Australia.Sydney: Sage Publications.
Butt, N. (1989). Supplement to the Standard Contract for Sale of Land in N.S.W. p. 119
Greg, P. (2003). Australian Insurance Law: A First Reference. Chatswoods:LexisNexis Butterworths.
Latimer, P. (2011). Australian Business Law. Sydney: CCH
Mann, P. and Lewis, C. (2003). Annotated Insurance Contracts Act.4. Pyrmont: Lawbook Company.
Merkin, R. (2006). The way forward for UK insurance law (part 1). Web.
Pooley, G. (1998). Formal Review of the Insurance Council of Australia Ltd’s General Insurance Code of Practice. Canberra: Winston Publishers