Definitions

What is insurance?
An arrangement by which one party accepts to provide a guarantee of compensation
for specified loss or damage as a result of a possible event, in return for payment of
a specified premium.

What is an indemnity policy?
An indemnity policy covers the insured for the actual loss suffered. It aims to put
them in the position they would have been had the event they were insured against,
did not happen.

What does an Insurance Policy cover?
Insurance policies cover specified risks. These risks must be outlined in the policy.


Principles

For an insurance contract to be enforceable the following 5 criteria must be established:

1) Insurable interest

In the law of insurance, the insured must have an interest in the subject matter of
his or her policy, or such policy will be void and unenforceable since it will be
regarded as a form of gambling.
An individual ordinarily has an insurable interest when he or she will obtain
some type of financial benefit from the preservation of the subject matter, or will
sustain pecuniary loss from its destruction or impairment, when the risk one is
insured against occurs.
Insurable interest is not dependent upon who pays the premiums of the policy. In
addition, different people can have separate insurable interests in the same
subject matter or property.
The interest only has to be present at the time of taking out the policy.

Macaura v. Northern Assurance Co Ltd [1925] AIIER 125
Macaura was total shareholder in a company that owned a timber estate. He took
out insurance in his own name to protect against the risk of fire. Fire broke out
across the estate and destroyed all the timber. Northern Assurance refused to
pay up because the tinder was solely owned by the company and because the
company was a separate legal entity, they did not have to pay Macaura any
money.

Mark Rowlands Ltd v Berni Inns Ltd [1985] 3 AllER 473
Landlords let a property to tenants for 30 years. In the contract they stated that
they would take responsibility for any damage caused by fire. Fire broke out and
destroyed the building. Insurers paid the landlords from the insurers but were
Hector Russell-Wilks
Group C
Question 5
K8r@home Case Study

Advise on the insurance claims.
unable to subrogate from the tenants as the original contract meant both parties
had insurable interest as he clearly had an interest in the insurance and it was
made for the benefit of both parties.

Hepburn v. A Tomlinson (Hauliers) [1966]AC 451
Tomlinson Hauliers were transporting tobacco. During the transit the tobacco
was stolen. When it came to the insurance claim the carrier tried to claim that it
had no insurable interest. However the contract stated that the carrier must take
out insurance in case anything happened to the cargo, and thus were liable.


2) Disclosure

Parties have a duty to disclose all material facts to the insurer. They must act
with the utmost good faith (uberrimae fidei).
Sections 13 and 14 of the Insurance Contracts Act (1984)
Material Facts are any facts that may influence a prudent insurer. The failure to
disclose these will result in the insurance policy being void. Moral Hazard.
Risk reducing methods or public knowledge do not have to be disclosed.
The insurer can avoid the policy where information is insufficient or inaccurate.
However if the party taking out the policy did not know the information at the
time, the insurer will still have to uphold the policy.

Roselodge Ltd v. Castle [1966] 2 LL Rep 113
Diamond merchants brought an insurance claim when some of their stock went
missing. However they had failed to disclose that their sales manager was
convicted of diamond smuggling 8 years earlier. As a result they were unable to
claim, as this was information any prudent insurer would want to know.

Woolcott v. Sun Alliance and London Ins. [1978] 1 AIIER 1253
Woolcott attained mortgages on properties. Woolcott also took out insurance on
the properties with Sun Alliance and London Insurance. When he tried to claim
on the insurance the insurers were able to avoid the policy as Woolcott failed to
disclose he was convicted of robbery many years earlier.

Regina Fur Co. v. Bossom [1957] 2 LL Rep 466
Here the policyholder had all-risk cover for a stock of furs. The insurer
repudiated a theft claim as Regina Fur had failed to disclose a 20-year-old
conviction of a director of the company for receiving stolen furs. Usually spent
convictions would not cause prejudice on the proposer for any failure to disclose.


3) Indemnity or Valued

Indemnity is different from a valued policy, as a valued policy pays a fixed sum
(usually involved with life insurance) whereas an indemnity policy pays an
amount equal to the damage caused.
When taking out an insurance policy there must be a specification of the amount
of damage/loss you wish to insure. The rule of average will always apply. This
states that if you under-insure then even if the loss does not exceed this value you
will not be covered for the total amount of damage.
You cannot gain from insurance policies. This raises the issue of double
insurance. If more than 1 insurance company is covering a risk, the insured
cannot claim from both companies.
Most policies have an upper limit, however this does not mean they are valued
policies.
Will only put the insured in the position they would have been had the risk not
occurred. Ie. One will be insured for the loss minus scrap value.
Cannot be double indemnified with indemnity policies.

Ionides v. Pender (1874) LR 9
A cargo had a commercial value of 8,000 but was insured for 20,000. The cargo
went down in fair weather. The insurance of the cargo was valued to include
anticipated profits. In this case however the insurers could avoid the policy as it
was over valued by an extreme amount.

Acme Wood Flooring Co Ltd. v. Marten 90 LT 313
4,000 worth of timber holdings was insured. The value of the timber was
actually 12,000. A fire caused 4,000 worth of damage. However only one third
of the loss could be recovered of the 4000 as the rule of average applies.

4) Proximate Cause

Proximate cause was defined in the case of
Pawsey v Scottish Union & National Insurance Company (1908) as:
The active and efficient cause that sets in motion a train of events which brings
about a result, without the intervention of any force started and working actively
from a new and independent source.
The first test for proximate cause therefore is whether the event is the first in the
chain.
However to determine the proximate cause the but for test can also be used.
Despite this where an injury/loss results from two separate acts of
negligence, either of which would have been sufficient to cause the injury,
both actors are liable.
Proximate cause is the cause having the most significant impact in bringing about
the loss under an insurance policy, when two or more independent perils operate
at the same time (i.e., concurrently) to produce a loss.
Proximate cause produces particular, foreseeable consequences without the
intervention of any independent or unforeseeable cause that enhances risk.
Also known as legal cause.
Courts employ a set of proximate cause rules to resolve causation disputes when
an insurance policy states that it covers or excludes losses "caused by" a peril and
there is more than one peril at work in a the case.
Under common law, whether the policy provides coverage depends on which
peril is chosen as the proximate cause. If the peril selected as the proximate cause
is covered, courts consider the loss to have been caused by the covered peril and
will hold that the loss is covered.
Proximate Cause excludes wear and tear.

Leyland Shipping Co Ltd v. Norwich Union Fire Ins Soc Ltd [1918] AII ER 443
A cargo ship was lost to the perils of the sea. However damages from war were
not covered in the insurance policy. The ship was torpedoed but managed to get
to le Harve. Here however it suffered serious damage by the perils of the sea. The
proximate cause of the damage was the torpedo and thus the policy was avoided.

Wayne Tank and Pump Co Ltd v. Employers Liability Assurance Corpn. Ltd
[1974] QB 57
A liquid wax factory was destroyed by fire due to the supply of faulty plastic pipes
to convey hot wax and secondly the negligence of employees leaving machinery
unattended. It stated in the insurance policy that insurers were not liable for
failure of equipment. This being the proximate cause of the damage meant any
insurance claims would not be successful.


5) Subrogation

A term denoting a legal right that is reserved by most insurance carriers.
Subrogation is the right for an insurer to pursue a third party that caused an
insurance loss to the insured. This is done as a means of recovering the amount of
the claim paid to the insured for the loss.
Subrogation only applies to indemnity policies. Once an insurance company has
paid a sum to the insured, they can then bring any claim the insured may have
brought to cover their loss.
Right to subrogation can be modified in the insurance contract.
The majority of policies will include an express condition permitting insurers to
commence a subrogated claim in the insured's name even if negotiations over the
extent of the entitlement to an indemnity have not been concluded. If not, such
terms may need to be specifically agreed if urgent action needs to be taken in
pursuing the recovery.
Lister v. Romford Ice and Cold Storage Co. Ltd [1957] 1 AIIER 125
Lister father and son worked for Romford Ice. The son was a truck driver, and
accidently ran over the father one day whilst at work. The father sued the
company and was paid by Romford Ices insurers. Under subrogation the insurers
then attempted to claim from the son.
Caledonia North Sea Ltd v British Telecommunication Plc. [2002] AllER (D)
In an appeal by a contractor involved in the explosion on the Piper Alpha oil
platform the House of Lords gave concurring opinions that the operator of the
platform was to be indemnified by contractor in respect of fatal accident and
person injury claims settled by the operator's insurers.







The Issues

What Happened?
The delivery was late and thus the driver was compelled to find accommodation for
the night. When he returned his vehicle had been vandalized and one of the
containers had been destroyed by fire, which had also affected the refrigeration
system.
When the driver attempted to deliver the goods the next day, he was forced to take
them to Bumbles depot instead as Gamfield did not have to accept delivery of a part
consignment.
Bumble did not have space for the goods so they were left in a local cold storage unit
from where they were stolen.

Who is Claiming on Insurance?
K8r@home, Maylie Distribution and Oliver Bumble are all lodging insurance claims
in respect of damaged and lost goods but the insurers are resisting the claims. Lets
deal with each one individually.

In the Case Study there is little mention of the insurance contracts. Therefore I will
conclude with what terms would usually be in a typical insurance contract but also
consider any permutations. There is no mention of the monetary cost of the damage, or any
information regarding how much those claiming on insurance are insured for. The
exception is K8r, who have an all risk cover insurance policy. Thus I am assuming that they
are fully covered for any damage that may have occurred.


The Claims

For the insurance contracts to be enforceable, the 5 criteria mentioned earlier must be
established. We also must consider what a normal insurance policy would cover.

K8r@home

1) Obviously have insurable interest, as it is their products that have been
damaged.
2) They did not disclose the fact William Sikes (a director) is under investigation
for accounting fraud and has a conviction for assault 10 years ago.
3) Have all commercial risk cover.
4) Here we have to consider what an insurance policy will normally cover. The
proximate cause was that Maylie distributors were late to deliver because of
negligence. However it is likely K8r will be insured for the risk of goods not
being delivered to the buyer.
5) It appears that if the insurers did pay any insurance money to K8r@home they
may consider trying to subrogate from Maylie or Bumble.

K8r@home are unlikely to be successful with their insurance claim. Relating to cases such
as Roselodge Ltd v. Castle and Regina Fur Co. v. Bossom, the failure to disclose the fact a
director was convicted of assault and is still under investigation for accounting fraud will
void the insurance policy.

Maylie Distributors

1) We are not told who is responsible for the goods whilst they are in transit. It is
reasonable to assume that Maylie do have an insurable interest in the goods
however.
2) There is no information that suggests Maylie have not acted with the utmost
good faith when it comes to disclosure. An evaluative point could be whether
they disclosed that they were delivering to an unusual location.
3) Assuming that Maylie and fully covered for any insurance claims they may have.
4) The goods were not delivered on time. This was Maylie distributions own fault
and is thus the proximate cause. Other events did occur but the fact they were
late is the cause that has the most significant impact.
We have to consider what an insurance policy would normally cover. If Maylie
are insured for lateness then they will be able to recover the entire cost of the
consignment minus salvage. However if they were not, and only insured for fire
and theft, then they would not be able to claim. But for them being late the fire
and theft would not have occurred.
5) The rights of the insured can be transferred to the insurer, but it is unlikely that
any misconduct has occurred, as there was heavy traffic.

Maylie Distribution could fulfill all of the 5 insurance criteria.
Like in Hepburn v. A Tomlinson they do, and should have insurable interest in the goods.
It is not indicated that they have failed to disclose any material facts, assuming they did not
have to disclose they were delivering to an unusual location.
However the usual insurance policy would cover fire and theft but not lateness. The fact
that they were late to deliver is the proximate cause for the chain of events, and like in
Leyland Shipping Co Ltd v. Norwich Union Fire Ins Soc Ltd. the proximate cause is not
covered. Thus they are unlikely to be successful with their claim.


Oliver Bumble

Before even considering the 5 criteria, we need to think what would be in a normal
insurance policy. In Bumbles case it is unlikely that he will be insured for the risk of
goods that he has received outside the course of business.

1) Bumble becomes an involuntary bailee and thus has responsibility for the goods.
Therefore he does have an insurable interest as he also wants to claim costs
from k8r for storing the goods
2) Bumble may have failed to disclose that he stores goods in a local storage unit,
and thus may not be insured.
3) Assuming that Bumble is fully covered when it comes insurance. Remember that
no one can gain from insurance policies.
4) Again we need to consider the terms of the insurance contract. In identifying the
proximate cause the late delivery was the first in the chain of events. But for the
late delivery he would have never received the goods. However it could be
argued now that the theft was an unforeseeable event and the theft is now the
proximate cause. However the fact Bumble is an involuntary bailee raises issues.
5) If Bumble could claim then the insurers would definitely attempt to subrogate
from Maylie distribution insurers either because of the fire or late delivery.
When becoming an involuntary bailee, this means that one has made no intentional act of
becoming a possessor of the goods. Therefore as long as there is no malicious or intentional
harm then one can divest themselves from responsibility regardless of a duty of care.

Despite having an insurable interest therefore, the insurers may argue that Bumble is
attempting to gain from an insurance policy, as one would not normally be insured for theft
after becoming an involuntary bailee. It would not be normal that Oliver Bumble would
be insured for goods he has received outside the course of business.


Conclusions

It is very important to consider what a normal insurance policy would cover. That is what
determines the answer to this case study.

K8r will be unable to claim as they have not acted with the utmost good faith and failed to
disclose information any prudent insurer would want to know.

It is likely Maylie will only be covered for fire and vandalism but not late delivery. Thus it is
unlikely they will be able to claim, as the proximate cause risk is not insured against.
However if it was, they could claim for the monetary value of damaged goods minus scrap
value. An evaluative point could be as the refrigeration system was damaged they would be
able to claim for the entire value of the containers minus scrap value.

It is not normal for Bumble to be insured for goods that he has received outside the course
of business. No one is able to gain from an insurance policy and Bumble being an
involuntary bailee is unlikely to be successful with his insurance claim.

As a result none of the insurers have to pay any money. It will be up to the parties involved
to consider civil action against one another.