Basic principles and language of insurance delete?

As a direct result of the legal proceedings and the precedents set by the Courts, there are many words and phrases that have taken on a special meaning in the ‘language’ commonly used in the insurance industry. Some of these words and phrases are explained and listed below with the intention of giving a simple understanding of these principles..

As a direct result of the legal proceedings and the precedents set by the Courts, there are many words and phrases that have taken on a special meaning in the ‘language’ commonly used in the insurance industry. Some of these words and phrases are explained and listed below with the intention of giving a simple understanding of these principles.

• General Insurance A term which distinguishes ‘short term’ insurance, such as property insurance or motor insurance, from ‘long term’ insurance, such as life assurance or pension assurance. The former is normally arranged on a renewable annual contract whereas the latter is a non-renewable contract which remains in force until the assured event occurs or the contract is cancelled or ‘surrendered’.
• Insurable interest Only someone who has a pecuniary interest in the property or event that is being insured is legally entitled to insure this property or event: this interest is known as an insurable interest. If this interest cannot be demonstrated the contract will be treated as an unenforceable gambling contract.
• Utmost Good Faith The general rule of law which governs most standard contracts places an obligation on both parties to the contract to act in good faith, i.e. they must be reasonably honest in their dealings with each other and must not lie or deliberately conceal information. They do not have to reveal information that the other party could be expected to know or readily find out. This general rule is often known as caveat emptor or “let the buyer beware”.Because insurance contracts are essentially contracts of trust, they are one of the exceptions to this rule. Both parties are obliged to act in utmost good faith, i.e. they must be absolutely honest with each other. Not only must they not lie or deliberately conceal information, they are obliged in law to reveal each and every fact that is material to the contract.

  Both parties are subject to this rule but since, in most cases, only the proposer has all the facts and information material to the risk available, the underwriter has to rely on the proposer to pass this information on.

  For most insurances of interest to private landlords, it is accepted that, in practice, only questions asked by the underwriter will normally be considered as being material.

• Material fact Any fact or piece of information of sufficient importance to influence the judgment of the underwriter in accepting a proposal of insurance
• Non-disclosure A failure to disclose a material fact to the underwriter. Non-disclosure entitles the underwriter to summarily void (make unenforceable) the contract.
• Underwriter The person, persons or organisation who assesses the risk and sets the terms and premium charged for a policy of insurance.
• Proposal A request to an underwriter to grant insurance cover. The underwriter is not obliged to accept the proposal until he/she has assessed the risk and set the terms and premium, or at all. Only after the terms and premium have been assessed, communicated and agreed by the proposer will the underwriter accept the proposal.
• Proposer The person, persons or organisation who request insurance. Only after the underwriter accepts the proposal, either verbally or by word of mouth, does the insurance come into force.
• Proposal form The document which insurers send to a proposer to complete before the insurance is assessed and granted. Most require you to sign a ‘declaration’ in which you declare that you have fully completed the form and have answered all its questions truthfully. If you fail to do so any subsequent claim may be refused.In recent years, due to the advent of electronic and call centre quotations, fewer proposal forms are issued. In their place the insurer will send you a written summary of the information they say you gave them. If you do not correct any wrong information at that time, and it later is shown to be incorrect or wrong, the insurer will be entitled to refuse any claim you may make.

  All information given in a written proposal form, electronically or by word of mouth to a call centre, is the basis of the contract between the proposer and the insurer.

• Peril Any event that could cause loss or create a liability to the insured, e.g. fire, storm, negligence, etc.
• Risk Strictly, a term that describes the chances of an event taking place. Sometimes it is used loosely to describe the event itself. The statistics needed to make the risk-assessment are collected from the experience gathered by each individual insurer. This is one of the reasons that premiums vary from insurer to insurer.
• Risk assessment A process whereby the underwriter calculates the probability and frequency of a particular event happening, generally and in particular. To make this risk assessment accurately, the underwriters need large volumes of statistics going back over a number of years. The premium charged will be calculated from this assessment.
• The Insured/Policyholder Terms commonly used to describe the person or persons who are insured by a policy of insurance.
• Premium The sum of money charged in return for providing the insurance. A proportion of all premiums collected are placed into special funds called underwriting reserves. These funds will be called upon to pay future claims. From time to time underwriters are asked to insure risks/perils which are new to them and to the insurance market as a whole. Since historical statistics will be limited or non-existent, the underwriters’ risk-assessment for the new risks/perils is likely to be conservative. This inevitably means that to begin with premiums are set at a level that may, or may not, prove to be high.
• Sum insured It is one of the factors used by underwriters to calculate the premium chargeable. Broadly speaking, it represents the full ‘value’ of the property being insured. Although it can, and often does, represent the maximum amount payable for that property, it does not necessarily do so. Check the wording of the policy document. See also Average and Limit of Indemnity.
• Policy of Insurance Together with the Schedule of Insurance the policy document (Policy of Insurance) is the written evidence of a contract of insurance. It is not, of itself, the contract between the parties. The contract exists and is legally enforceable from the moment the insurer agrees to provide the insurance and the insured party pays the premium. Nevertheless, in the event of a dispute between the insured party and the insurer, the policy document, along with the Schedule of Insurance, will be assumed to represent the agreement reached by both parties.
• Schedule of Insurance A document that always accompanies the Policy of Insurance. It contains all of the specific details relevant to the insurance contract in question, i.e. the name and address of the insured party; the period of the insurance; the nature of the property or peril being insured; the sum insured if relevant, the sections of the policy which apply; and any special terms, exclusions or conditions imposed. In law, it forms an integral part of the Policy of Insurance document and will be read as such.
• Exceptions/Exclusions The insurer may want to exclude certain things or events relating to the insured peril. For example, damage to a property that has been unoccupied for more than x days. These are called ‘exceptions’ or ‘exclusions’ and will be brought to your attention in the policy document. N.B. No policy covers everything that might possibly happen. Only the perils written in the policy are covered and nothing else.
• Condition A clause in or in addition to the policy document, which places on the insured party an obligation. Failure to carry out this obligation could make the contract unenforceable. For example, theft cover may be a conditional on multiple tenanted properties having a separate lockable entrance for each tenanted property. Should it be found that one or more of the properties does not have a separate lockable entrance, in the event of a claim for theft, the insurer could refuse the claim.
• Claim The act of seeking redress from another.
• Claimant Anyone who is making a claim. Specifically in this context, the insured person claiming on their insurance policy or someone claiming against the insured.
• Proximate Cause In the event of a claim, the proximate cause of the damage or liability suffered must be shown to have been an insured event. That is to say, there must be an unbroken chain between the insured event and the loss without the intervention of any other excluded or uninsured event. If there is an intervention, and that event is not insured by the policy, only the damage or liability caused directly by the original event will be covered.For example, a fire causes relatively minor damage to the insured property until it reaches a store of butane gas cylinders, which then explode causing extensive and major damage. It is found that, being aware of the increased risk of the butane gas, the insurers of the property had excluded explosion damage. In this event, only the damage caused by the fire before the intervention of the explosion will be met by the policy.
• Indemnity, Indemnify Insofar as insurance practice is concerned, indemnity has been described as “Placing the claimant into the same financial position after the insured event as he enjoyed immediately before the event”. In respect of property insurance for instance, this means meeting the cost of repairing an item, or of replacing it, or by paying a sum equal to the value of the damaged item. Check the policy wording in all cases.
• Limit of Indemnity The maximum amount that will be paid under the terms of the policy per claim, per series of claims or for a fixed period of time.
• Insurers Right of Subrogation In certain circumstances, someone who suffers loss or damage as the result of another’s actions may have a right of recovery from some other source. It is not lawful to recover and retain the same amount from more than one source. For example, an insured person cannot recover and retain his/her losses from both an insurance policy and from any other party who may be liable. However, an insurer who has accepted and paid the insured party’s claim has the right to recover their loss from the third party direct. This is called the insurers right of subrogation.
• Territorial Limits The geographical area(s) in which an incident that may give rise to a claim must occur for the insurance to operate. In policies written in the UK, these limits are invariably stated in the policy document. The most common areas listed are Great Britain, Northern Ireland, the Isle of Man and the Channel Islands. Some may include Eire (Southern Ireland) but this must not be assumed. On request it is possible to extend the limits shown in the policy, but if the insurer agrees to the request it is likely that an additional premium will be involved.
• Excess The sum of money that you must pay towards the eventual cost of your claim. Strictly this is due at the beginning of the claim but is most often deducted at the end. The amounts involved vary from insurer to insurer and from section to section of your policy depending on your personal circumstances. It is important to check your policy in this regard.
• ‘White goods’ Used commonly as a generic term to describe kitchen and bathroom apparatus, such as washing machines, refrigerators, cookers etc. There is no legal backing for these terms and the apparatus need not be white.
• ‘Brown goods’ As above but in respect of electronic goods such radios, televisions and computers etc.