Insurance Law

The Nature of Insurance came about to offset any loss that an individual or those engaged in business may suffer through the occurrence of some unforeseen event. To offset this loss the commercial world developed the contract of insurance. In return for a fee the individual, or the business enterprise, would be indemnified for the loss suffered on the occurrence of the event insured against. Contracts of insurance cover a wide field such as life assurance, personal accident public liability, damage to property and general liability insurance.

A contract of insurance is a contract whereby one party, called the insurer, agrees in return for a payment called the premium to pay a sum of money to another, called the insured, on the occurrence of a certain event, or to indemnify the insured against the loss caused by the risk which is insured against. Policies of insurance are of two broad types: life assurance, which insures against an event that must happen, namely, death; and liability insurance, which insures against events that may happen.

A contract of insurance may be in any form, such as by deed, in writing, or verbal. In practice such a contract is embodied in a written document called a policy, which expressly states all the terms of the contract.

Three elements are essential to an insurance contract:

(a) consideration must pass to the Insurer. This usually takes the form of periodic payments, called premiums;

(b) there must be some degree of uncertainty as to whether the event insured against will happen, or if it is bound to happen, as to when it will happen

(c) the event, if or when it happens, must be adverse to the interest of the insured.

Insurance business in Ireland is carried on principally by registered friendly societies, which deal in life assurance and are governed by the Friendly Societies Acts 1909-1989. Both statutes attempt to provide some supervision by the state so as to safeguard the interest of policy holders. Insurance companies must hold a licence, maintain a bond with the High court and make annual returns.

The usual procedure for a party seeking insurance is to first complete a proposal form and submit it to the insurers. Where the proposal form is rejected that is the end of the matter and there is no contract. The insurer is not bound to give any legal reasons why the proposal was rejected. Where the proposal is accepted a contract may come in to existence. The precise moment of its creation will depend on the particular events. It often happens that the policy does not become operative until the first premium is paid, this occurred in Harney v Century Insurance Co. Ltd (1983), where it was declared that ‘ this policy is not in force until the first premium has been paid to the company..’ In such cases the parties are free to withdraw from their commitments between lodging the proposal form and the payment of the first premium.

The premium is the consideration for the risk undertaken by the insurer. The method and the time of payment depends on the terms of the policy. The insurer may sue for the premium where there is a binding contract to issue the policy. In practice, this is rarely possible because the policy usually provides that the insurers are not on risk until the premium is paid.

An insurance contract is formed in the same way as other contracts i.e. by agreement, consideration and an intention to create legal relations. The person seeking insurance usually completes a proposal form, which generally requires particulars of the proposer, details of the cover sought and any other information considered necessary to enable the insurer to assess the risk involved. The completed proposal form is then sent directly to, or through an agent of, the insurance company. If it is rejected, that is the end of the matter and no contract will come into effect. If the proposal is rejected, the insurer will issue a policy conforming with the proposal. Usually the proposal will be met with a statement that the policy will not become operative until the first premium is paid. Thus, either party is free to withdraw from their commitment between the time that the proposal form is submitted and the first premium is paid.

A person who wishes immediate insurance while the proposal form is being considered is generally given temporary cover by the issue of a cover note. This is in effect a separate contract and is distinct from the policy. A cover note will contain such terms as are appropriate to a short-term contract. The cover note is operative for a given period, usually a month, unless in the meantime the insurers decline the proposal.