Insurance Law- Increase in risk

10. Change/Increase in insured risk Would it be a reasonable for the parties to an insurance contract to expect that the insured risk would remain unchanged throughout the entire duration of the policy? -

Surely nothing can remain static forever. What changes in the risk would be regarded as coming within the contemplation of an insurance contract? Examples?  Change in Occupation - Would an insurer be bound if a clerk who takes out a life insurance policy is later retrenched and then becomes a deep sea diver?  Climate Change - Arising from climate change, floods and bush fires have become more frequent. Can an insurer withdraw from the policy on account of these changes in risk?

How do you guard against increase in risk? -

Through the contract! Cannot increase premium. Cannot increase consideration for contract.

Use of prohibited articles Shaw v. Robberds (1837) 112 E.R. 29. -

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Lord Denman C.J.: A description of the insured premises must be accurate at the time it was given but it did not operate to guard against a future change in the use of the premises. Policy: “the buildings insured, be accurately described, .. and if the risk of fire .. be by any means increased, ... such alteration, ... must be immediately notified …” Certain buildings including a kiln for drying corn were insured against the risk of fire.  Insured carried on the trade of drying of corn, but on one occasion, he gratuitously permitted a third party to dry some bark in the kiln.  A fire broke out destroying the insured premises. Insurers: First, the insured had no right to vary his trade from that described in the policy. Secondly, the description constituted a warranty that nothing but corn would ever be dried in the kiln. Held: There was no warranty expressed that prevented the insured from varying his trade.

Glen v. Lewis (1853) 155 E.R. 1496. Pim v. Reid (1843) 6 Man. & G. 1. -

Court of Common Pleas: A mere alteration in an insured risk did not entitle an insurer to avoid liability unless this was expressly guarded against in the policy. Policy: “the building … is to be described; ... also whether any hazardous trade is carried on …”

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 A fire insurance policy covered a machine house, fixtures, paper machine and other machinery.  Insured discontinued his trade as a paper maker after 4 months but allowed his brotherin-law to use the premises for the cleaning and dying of cotton waste.  Fire destroyed the insured premises. Insurers: First, the insured failed to notify the insurers that a furnace was introduced onto the insured premises. Secondly, there was a change in trade and an increase in the insured risk.

Farnham & Ors. v. Royal Insurance Co. Ltd. [1976] 2 Lloyd's Rep. 437. -

Ackner J.: When a term guarding against an increase in risk was made a condition precedent, the insurer was not liable if the insured failed to notify the insurer of a material change in the risk. - Insurer not liable unless notified of : “alteration ... whereby the risk of destruction or damage is increased.” - Insured converted a farmhouse into a transit warehouse.  He allowed cargo clearing agents to store metal cargo containers and to carry out repairs on the containers.  Fire broke out in one of the barns, destroying the barn and its contents. - Insurers: Insured failed to inform insurers of the increase in risk to the insured premises.  Bonner-Williams v. Peter Lindsay Leisure Ltd. [2001] 1 All E.R. (Comm.) 1140 -

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Richard Seymour Q.C.: If an insured was required to take certain precautions when burning and welding equipment were used at the insured premises, the duty extended to an employee who authorised work to be carried out at the insured premises. Public liability policy: “BURNING AND WELDING WORK: In respect of the use of blow-lamps, … the undernoted minimum precautions must be complied with on each occasion.” The precautions were not taken. Insured owned a bingo hall. It engaged a contractor to repair the roof of a single storey lavatory block. A fire broke out while the contractor was using a blow lamp to carry out the repairs. The fire seriously damaged the adjoining premises. Insurers: Compliance with the precautions was a condition precedent to insurer’s liability.

Ansari v. New India Assurance Ltd. [2009] 2 All E.R. (Comm.) 926 -

English Court of Appeal: A material change in a fire insurance policy would include an automatic sprinkler system being permanently switched off. Policy: “This insurance shall cease to be in force if there is any material alteration to the Premises or Business or any material change in the facts stated in the Proposal Form.” “Are the premises protected by an automatic sprinkler system?” he wrote “Yes”. Sprinkler system had not been working at the time, having previously been turned off at the isolating valve at the junction with the main water supply

Occupancy/non-occupancy Marzouca v. Atlantic and British Commercial Ins. Co. Ltd. [1971] 1 Lloyd's Rep. 449.

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Privy Council: When a policy stipulated that the insured premises were not to be left unoccupied, the insured must ensure that there was a daily presence of someone inside the premises. Policy will cease if the “Building insured … become unoccupied … for a period of more than 30 days”.  A hotel at Montego Bay was insured against the risk of fire. Insured decided to convert the building into residential apartments. During the conversion, a fire destroyed the hotel.  Prior to the conversion, premises were left vacant for 51 days, save for the presence of a police constable who acted as a night watchman but who never went inside the building. Insurers: Insured premises were left unoccupied for more than 30 days Held: Breach was fatal to the claim.

Winicofsky v. Army and Navy General Ass. Assoc. (1919) 88 L.J.K.B. 1111. -

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Bray J.: An insured’s answer in a proposal form that the insured premises were occupied did not constitute an undertaking that the premises would be occupied at all times. Question: "Are the premises occupied at night, during holidays, &c., and if so, by yourself or by whom?" The insured wrote, "Yes". A shop in the East End of London was insured against the risk of burglary. Following an air raid one night, insured’s family took refuge at an air raid shelter. The shop was burgled during their absence. Insurers: Answer in the proposal form constituted a warranty that the insured premises would not be left unoccupied at night.

Hayward v. Norwich Union Insurance Ltd. [2001] 1 All E.R. (Comm.) 545. -

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English Court of Appeal: When a policy excluded liability if the ignition key was left inside an insured vehicle, the exclusion covered a situation where the insured left the key in the car by choice or inadvertence and had moved away from the key. Exclusion: “Loss or damage arising from theft whilst the ignition keys of your car have been left in or on the car.” Insured was the owner of Porsche 911 Carrera. Car was fitted with an alarm and an immobiliser as required by the policy. Insured left the ignition key in the car believing that the immobiliser offered greater security against theft. While queuing at petrol station, someone drove the car away.

Uni Asia General Insurance Bhd. v. Norashikin Uzir [2011] 2 C.L.J. 360. -

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Hadhariah Syed Ismail J.C.: An insured’s conduct in leaving an insured car in an open public parking bay for several days constituted unreasonable conduct and amounted to an act of gross negligence. Policy: “If in the event of any accident or breakdown, Your Vehicle is left unattended without proper precautions being taken to prevent further loss or damage”. Condition Precedent that “You have taken all reasonable precautions to safeguard your vehicle from loss or damage.” Car broke down along the North-South highway and the driver arranged for the car to be towed to the rest area car park at a toll plaza.

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A week later, the car was missing from the car park and the respondent made a claim against the insurer for the loss of the car.

Location of property Pearson v. Commercial Union Assurance Co. [1876] 1 App. Cas. 498. -

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House of Lords: When a policy specified where insured property was to be located, the insurer was not liable if a loss took place at a non-specified location. A paddle steamer "lying in the Victoria Docks, London” was insured under a fire insurance policy. Owing to its size, the steamer was unable to get into Victoria Docks for repairs but was placed in another dock called Lungley's Dry Dock some two miles up the Thames from Victoria Docks. After the repairs, the steamer was towed some 600 to 700 yards down the river from Victoria Docks where her paddle wheels were refitted. Steamer was there for about 10 days when it caught fire. Insurers: Loss did not take place at the location specified in the policy.

Rapp v. McClure (1955) 1 Lloyd's Rep. 292. -

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Delvin J.: When insured property was required to be kept in a warehouse, the insurer was not liable for a loss at a depot surrounded by high brick walls and topped with barbed wires as the property was not at a location specified in the policy. Stockists of non-ferrous metals insured goods against: “[L]oss or damage by burglary, housebreaking, theft ... on stock of iron, steel, non-ferrous metals, whilst in warehouse anywhere in the United Kingdom”. One of the plaintiffs' lorries made a transit stop in London. The lorry was left in a depot in an enclosed compound surrounded by high brick walls and topped with barbed wires. Thieves broke into the compound and drove the lorry away. Insurers: At the time of the theft, the lorry was not kept in a warehouse.

Additional policies/double insurance What is the additional risk here? -

Temptation to cheat? Excessive Insurance - What specific concerns would an insurer have when an insured is excessively insured? Insurer’s Rights - In what ways would an insurer’s rights be affected when there is more than one policy insuring against the same risk? Contribution - How is an insurer’s right of contribution affected if there are other insurers insuring the same risk? Is the fact material? Is there a duty of disclosure?

What to do?

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Forfeiture provisions?  Renders null and void. No benefit for the insured even though he has paid.  Courts do not like this. Seen as punitive. Must show that you are FULLY entitled. Exclusions?

Equitable Fire & Accident Insurance Co. v. Ching Wo Hong [1907] A.C. 96. -

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Privy Council: Under a term guarding against double insurance, an additional policy effected by an insured would not constitute double insurance if the policy was unenforceable. Policies provided that no: “additional insurance on the property hereby covered is allowed … Breach of this condition will render this policy null and void” Insured took out two fire insurance policies with the Equitable Fire and Accident Office. Insured took out a third policy with the Western Assurance Company but they did not inform the first insurers about the policy. The third policy provided that the insurers were not liable “before, the premium or deposit on account thereof is actually paid". No premium was paid on the third policy. First Insurer: They were not notified of the third policy.

Australian Agricultural Co v. Saunders (1875) E.R. 10 C.P. 668. -

Exchequer Chamber: An incidental overlap between two policies taken out to insure the same property did not constitute double insurance. A fire insurance policy insured wool against land risks while "in any shed or store, … until placed on ship". Policy stated: “No claim shall be recoverable if the property insured be previously or subsequently insured elsewhere” Insured took out a marine policy to insure the goods "at and from the River Hunter to Sydney per ships and steamers, and thence per ship or ships to London”. First insurers were not informed about this policy. Wool was damaged by fire while in a warehouse in Sydney. First Insurer: The insured failed to notify them about the second policy PCC says reasonable in the circumstances. Otherwise drastic.

Thames & Mersey Insurance Co. v. "Gunford" Ship Co. (1911) P.C. 529. -

If both a marine policy and a ppi policy are effected upon maritime property and, in the event of a loss, the insurer chooses to ‘honour’ the ppi policy, the indemnity, when added up under both policies, would amount to over insurance.

Steadfast Insurance Co. v. F. & B. Trading Co. (1972) Aust. L.J.R. 10. -

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Australian High Court: When two policies insuring the same risk provided for forfeiture if the insurers were not notified of the other policy, the first policy remained in force while the second policy was rendered ineffective. Respondent’s fire insurance policy with Steadfast Insurance Co. required “notice in writing to the Company of any Insurance … already effected, or which may subsequently be effected”

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Insured took out a further cover note with the Queensland Insurance Co. Queensland policy terms similar to Steadfast’s policy. No notice was given by the insured. Property was damaged by fire. First Insurer: Benefits under the policy were forfeited as the insured did not notify them about the Queensland policy. ASK: Why did the Court not allow the term and render both insurers not liable?  Doesn’t seem fair? How about making both liable?  Is it fair to first insurer?