Law Defines Property As Anything That Can Be Tangible

Insurable Interest

“The legal right to insure arising out of a financial relationship recognised at law between the subject matter of contract (insured) and the subject matter of insurance (e.g. property)”. [1]

In order for Insurable Interest to exist the following essential elements must be present:

Subject matter of insurance

The insured must stand in a financial relationship

The interest must be a legal one. Macaura v. Northern Insurance Co Ltd (1925)– insured had interest in his shares but none in the timber.

The interest must be a current one. Lucena v. Craufurd (1806)- insured a number of enemy ships when they were still on high seas (mere expectancy doesn’t create insurable interest).

Bartolo Wood Turners Limited v. Middle Sea Insurance plc (2007); the court outlined that an insurable interest exists when the insured “may be said to benefit by the continued existence of the property or life insured and will suffer a loss by reason of its damage or destruction.” [2]

Bertu Camilleri et v. Harold Bartoli et noe (2003); the court outlined that for insurable interest to exist “it is not absolute ownership which is required but the existence of a relationship between the person insured and the thing which could be adversely affected by the happening of the risk insured against.” [3]

There are various individuals which may have an insurable interest in a property:

• Owners of the property
• Part or joint owners
• Mortgages and mortgagors [4]
• Executors and trustees [5]
• Landlord and tenant [6]
• Bailees [7]
• People living together [8]
• Creditor in the life of a debtor
• Business partners
• Finders and people in possession [9]

Utmost Good Faith

Utmost Good Faith is an essential principle when dealing with the buying and selling of insurance policies. The Law imposes a greater duty on the parties to an Insurance contract rather than to other commercial contracts. Thus insurance policies are described as contracts of ‘Uberrima Fides’ (Utmost Good Faith); on the other hand in commercial contract the doctrine of ‘Caveat Emptor’ (let the buyer beware) applies.

Consequently ‘Uberrima Fides’ imposes 2 duties on the parties to the contract:

Insurer to disclose all relevant information and advice and Insured to disclose all material facts [10] .

David Curmi ne v. Martin Mifsud (1992) [11] ; insured had failed to disclose material facts. This case shows that it is the duty of the insured to disclose all material facts.

Rozanes v. Bowen (1928); shows that the underwriter knows nothing about the risk and thus the duty of the proposer is to disclose all material facts.

Duty to tell the truth and not hide anything that is relevant.

Antonio Zammit v. Joseph Micallef ne (1952); [12] the information declared by the insured in the proposal form didn’t matchup with the facts. The court emphasized that a false declaration invalidates the contract.

Margherita Bonnici v. Capital Insurance Services Ltd noe (1998) [13] ; the insured cancelled a holiday due to health problems and was claiming for loss of deposits under travel insurance. The insurer refused to meet the claim as the insured concealed a material fact; the health condition.

Kettlewell v. Refuge Assurance (1908); shows misrepresentation on the part of insurers is also possible.

Joseph Muscat v. Joseph Gasan et noe (1998) [14] 15shows that insurers refused to accept a claim due to misrepresentation and non disclosure. The court concluded that the duty of the insured is to disclose all material facts even if not asked specifically by the insurer, and also the duty of the insurer is to ask for those material facts which in his opinion are relevant. In Re Bradely and Essex and Suffolk Accident Indemnity Society (1912) [16] it was similarly outlined that the principle of Uberrima Fides is required on both parties; both the insurer and the insured.

Condition 1 of GMI outlines that if there is any Misdescription “the Insurer shall not be liable upon this Policy” [17] and thus the policy will become void. Condition 11 of MSI outlines that if there is Fraud in any claim or false declaration is given “all benefits under this Policy shall be forfeited”. [18]

Conditions 6 of MSI outline that if there are any Alterations and Removals, the insurance policy will stop operating unless the insured will inform the insurer about the necessary changes. The intention of this condition is to encourage the insured to disclose all material facts in cases where the risk has changed (e.g. a company used to import aluminium; but now the owner of the firm has decided to start manufacturing the raw material himself. Thus the nature of the risk has changed).

Condition 3 of GMI (Other Insurances) outline that the insured shall give notice of any other insurance policies. The aim of this condition is to reduce fraud. This condition can be equally related to the principle of Contribution.

In Property Insurance there are various material facts which need to be disclosed, these include:

• greater exposure than expected for its class [19]
• External factors making risk greater [20]
• Previous losses and claims
• Declinatures or special terms imposed [21]
• Existence of other policies [22]
• Full facts relating to the description of the subject matter insured [23]
• Restriction of subrogation rights [24]

Although the cases Carter v. Boehm (1766) and TEG Industries Limited v. Gasan Insurance Agency Limited (2009) represent very different times, both of them show that there was a breach of Utmost Good Faith by Carter and TEG Industries (failed to disclose all material facts).

Proximate Cause

‘the active 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’. [25] Pawsey v. Scottish Union and National (1907).

Thus Proximate cause is the initial act which sets off a natural and continuous sequence of events that produces loss. In the absence of the initial act which produces loss, no loss would have resulted.

Tootal Broadhurst Lee Company v. London and Lancashire Fire Insurance Company (1908) – an earthquake caused a stove to overturn. Spilt oil was ignited and the premises caught fire. The fire spread from one building to another. But the loss was not insured since the policy excluded fire caused by earthquake.

Joseph Gerada v. David Westacott and Vincenza Bonnici (1994)- [26] accident occoured in order to avoid hitting Vincenza Bonnici’s car, David Westacott collided with another car coming from the opposite direction. The court stated that the cause of the loss (Proximate Cause) was the unexpected opening of the door and thus Vincenza Bonnici was liable.

Emanuel Micallef v. Theresa Falzon (1973)- [27] the defendant collided with Emanuel Micallef’s car in order to avoid hitting pedestrians who suddenly crossed the road. The court stated that the proximate cause was the pedestrians who unexpectedly crossed the road and thus the defendant is not liable for the damages.

Bikor Ebejer v. Joseph Attard (1973) [28] ; Ebejer in order to avoid hitting a car which suddenly moved into his lane, drove into the lane where the defendant was driving and unfortunately the defendant was unable to avoid colliding into Bikor Ebejer’s car. The court stated that the defendant didn’t have any fault and the proximate cause was the sudden move of the first car.

Ciappara v. Caruana Demajo noe (1995)- [29] the insured took a personal accident insurance policy with MSI which covered bodily injury resulting externally. Mrs. Ciapparra was hit by a chain feeder and suffered injury to her leg which made her totally unfit for work. The insurer refused to meet the claim as the disability was not caused directly by the hit of the chain feeder but by an infection.

Winicofsky v. Army and Navy Insurance (1919)- during an air raid a group of thieves robbed from a building. The proximate cause was held to be theft which was an insured peril and not the air-raid which was an excluded peril.

Leyland Shipping v. Norwich Union Fire Insurance Society Ltd (1918)- sometimes there is more than one cause operating and thus the most dominant cause must be selected. In this case the Torpedo which hit the ship was the proximate cause.

Wayne Tank and Pump Co. Ltd v. Employers’ Liability Insurance Corporation Ltd (1974); sometimes there is a concurrent cause which produces a loss. Defective equipment and negligence of employee alone could not cause the loss, but both together were enough to produce a loss.

Indemnity

“Placing the insured, as nearly as possible, in the same financial position after a loss, as that occupied immediately before the happening of the insured event”. [30]

Indemnity insurance policies are those where insurers agree to pay when the insured suffers a loss of a particular type and only for the amount of the loss. The main methods of applying indemnity are: repair, replacement, reinstatement and Cash.

Condition 14 of GMI policy states that indemnity may be applied by the method of reinstatement; “the insurer may at its option reinstate or replace the property damaged”. [31] MSI policy in the Condition 19 states that the Basis of Settlement “shall be the cost of replacement after deduction being made for wear and tear or depreciation”. [32] GMI policy in Condition 17 states if Average exists “the insured shall be considered as being his own insurer for the difference, and shall bear a rateable proportion of the loss accordingly”. [33]

Indemnity is applied at the date and place of loss and thus if the value of the property has increased during the running of the policy, the insured will be entitled to be indemnified on the increased value and not on the original value (Re Wilson and Scottish Insurance (1920)) and vice versa.

One should also note that an insured in the case of property insurance can only recover the amount of the property itself:

And thus the insured cannot claim for loss of future/consequential profits unless these are insured specifically. Re Wright and Pole (1834)- the insured could not recover the loss of trade and costs of hiring new premises.

The insured cannot recover any amount of sentimental/personal value Richard Aubrey Film Productions Ltd v. Graham (1960).

Mifsud Mario v. Montaldo Insurance Agency Limited Noe (2004) [34] ; Mr.Mifsud suffered a motor accident with his ‘new’ car (purchased 1 month before). The insurer of the other party (which was at fault) agreed to pay Mr.Mifsud for damages but refused to pay him in full since according to the same insurer there were deductions for depreciation. The court concluded that the insurer should indemnify Mr.Mifsud in full without any deductions for depreciation.

Subrogation

“The right of a person who has provided an indemnity to another to stand in the shoes of that person to recover from some third party”. [35]

Subrogation supports indemnity by ensuring that the insured is not better off or worse off. Castellain v. Preston (1883); shows that the aim of subrogation is make sure that the policyholder is indemnified but should not be over-indemnified. Moreover the insurer cannot recover more than the sum paid to the insured and thus should pay any profits to the insured.

Subrogation operates by means of:

• Tort [36]
• Contract law [37]
• Statute law [38]

Salvage – The case Holmes v. Payne (1930) shows that if the insured finds his lost property after he has been fully indemnified, the new owner of the property will be the insurer. This condition is listed in the GMI Fire Policy “Rights of Insurer re Salvage” [39] .

Condition 15 of the MSI policy outlines the principle of Subrogation; insured shall permit “all such acts” that are required by the Insurer “for the purpose of obtaining a relief or indemnity”. [40] In simple terms this states that on the behalf of the insured the insurer will be able to recover from some third party. One should also note that GMI policy in condition 12 states that “on the happening of any loss/damage the insurer may; enter and keep possession of the building or premises where the loss or damage has happened” (salvage).

Subrogation does not apply to non-indemnity contracts (Bradburn v. Great Western Railway (1874)). The company argued that the liability claim can be reduced by the amount of the Personal Accident payment.

Scottish Union and National Insurance v. Davies (1970); the insurers attempted to claim £350 by way of subrogation but failed since they had paid for useless and no satisfaction note had been signed by the insured.

Middlesea Insurance P.l.c. Noe v. Pss Holdings Limited (2010)- [41] shows how the principle of subrogation operates. After being presented with the claim, MSI had indemnified the insured. But when the insurer went to recover the costs from the Third Party (Pss Holdings) there wasn’t any agreement and thus everything was to be decided by the court. The final judgement was that PSS Holdings were responsible for the damages and MSI could then recover the costs.

Contribution

“The right of an insurer to call upon others (similarly, but not necessarily equally, liable to the same insured) to SHARE the cost of an indemnity settlement”. [42]

For Contribution to be present there must be at least two indemnity policies which cover; same subject matter, same peril, same period and same interest.

King and Queens Granary (1877)- [43] both the owner and the bailees had insured the grain. Following damage to the grain, the bailees’ insurer paid the claim and tried to recover their part according to the principle of contribution from the owner’s insurer. But this was not possible since the interest insured by the two policies were different. It was concluded that the bailees were responsible for the damages and thus their insurers were liable to pay.

American Surety Co. Of New York v. Wrightson (1910)- [44] insurers accepted that contribution should apply since there were 2 policies which covered a common peril (dishonesty of employees).

Condition 3 of GMI outline that the insured is obliged to inform the insurer about other existing insurance policies; otherwise all benefits under the policy will be removed. This is done with the intention of minimizing fraud.

Condition 16 of GMI named Contribution outlines that in case contribution arises, the insurer shall only be responsible to pay his proportion of the loss. If the insured has more than one policy he cannot receive more than strict indemnity.