INSURANCE NON-MARINE an Introduction by Margaret Davis, John Hood, Bill Stein First edition published 1997 Reprinted 2009 ISBN 1 85609 110 4 © Witherby Seamanship International Ltd, 2008 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. Notice of Terms of Use All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher and copyright owner. While the principles discussed and the details given in this book are the product of careful study, the author and publisher cannot in any way guarantee the suitability of recommendations made in this book for individual problems, and they shall not be under any legal liability of any kind in respect of or arising out of the form or contents of this book or any error therein, or the reliance of any person thereon. Printed and bound in Great Britain by Bell & Bain Ltd. Glasgow Published in 2009 by Witherbys Insurance 4 Dunlop Square, Livingston Edinburgh, EH54 8SB Scotland, UK Tel No: +44(0)1506 463 227 Fax No: +44(0)1506 468 999 Email: info@emailws.com www.witherbyseamanship.com v PREFACE Despite rapid changes in the market place, and the growth of alternative risk financing strategies, it is probably still true to say that insurance remains the pre-eminent risk transfer mechanism. It is hoped that, on completion of this text, students will have a much greater understanding of both how insurance achieved this pre-eminence and how it has been able to retain it. We have attempted to make the text as comprehensive as possible, but it is -as the title states - an introduction to insurance. Students wishing to develop their learning in areas of specific interest, are referred to some of the texts currently in print which deal with particular aspects of insurance theory and practice. Margaret Davis John Hood Bill Stein Glasgow January 1997 vi The authors Margaret Davis, John Hood and Bill Stein are all lecturers in Risk Management and Insurance at Glasgow Caledonian University. Prior to entering teaching, all had extensive experience in the insurance industry. Acknowledgments As is normal with texts of this nature, it has been necessary to obtain information, assistance and documentation from a wide variety of sources. The authors thank all of those companies and individuals who have contributed to this work. Special thanks go to Mr Trevor Putman of AGF Insurance. vii CONTENTS Preface v Chapter 1 Brief History of Insurance 1 2 The Insurance Market 15 3 UK Regulation of the Insurance Industry 35 4 The Six Principles of Insurance 59 5 Insurance Documentation 95 6 Property Insurance 107 7 Liability Insurance 147 8 Motor Insurance 163 9 Pecuniary Insurance 185 10 Business Related Insurances of the Person 197 11 Insurance Pricing 207 12 Claims Management 229 13 Reinsurance 243 List of Appendices 255 Appendix 1 Combined Commercial Insurance Policy 259 Provincial Insurance Appendix 2 Fleetwise Enhanced Package 439 Appendix 3 Fleetwise Schedule of Vehicles 459 Appendix 4 Fleetwise Policy Schedule 461 Appendix 5 Fleetwise Insurance Proposal 463 Norwich Union Appendix 6 Business Plan for Building and Allied Trades - Proposal 465 Provincial Insurance Appendix 7 Accident, Sickness and Travel Insurance - Proposal 485 viii Appendix 8 Accident and Health - Policy 493 Independent Insurance Company Limited Appendix 9 Statement of Long-Term Insurance Practice 549 Appendix 10 Statement of General Insurance Practice 551 A.B.I. Appendix 11 Arson Alert 553 Appendix 12 Employers’ Liability Insurance - Introduction of a Limit of Indemnity 555 Provincial Insurance Appendix 13 Certi?cate of Employers’ Liability 557 Royal Insurance Appendix 14 Term Assurance Policy 559 Scottish Amicable Appendix 15 Shop Insurance - Prospectus and Proposal 565 Appendix 16 Shop Insurance Policy 579 Eagle Star Commercial Appendix 17 Fidelity Insurance - Proposal 621 Appendix 18 Fidelity Insurance - Policy 623 General Accident Appendix 19 Credit Insurance - Principal Customer Default Policy 627 Appendix 20 Performance Guarantee Bond 635 Credit & Guarantee Insurance Company Pic. Appendix 21 Loss of Licence - Proposal 639 Guardian Insurance Appendix 22 Liability Insurance - Proposal 645 Appendix 23 Professional Indemnity Insurance - Proposal 657 Sun Alliance International ix Appendix 24 Directors’ and Of?cers’ Liability Insurance - Proposal 665 Sun Alliance General Insurance Appendix 25 Directors’ and Of?cers’ Liability Insurance - Policy 671 Sun Alliance General Insurance Appendix 26 Motor Accident Report Form 677 AGF Insurance Appendix 27 Preliminary Report on Fire Claims 705 Thomas Howell Group (UK) Ltd Appendix 28 Home Insurance - Prospectus 715 - Proposal 721 - Policy 727 UAP Provincial Appendix 29 Business Plan Insurance for Trade and Industry 753 Provincial Insurance Index 771 Author Chapters written Margaret Davis 1, 3, 4, 6 John Hood 7, 12, 13 Bill Stein 2, 5, 8, 9, 10, 11 268 s of u MATERIAL DAMAGE SECTION TERRORISM EXCLUSION TERRORISM EXCLUSION CLAUSE This Section does not cover damage in England and Wales and Scotland but not the territorial seas adjacent thereto as defined by the Territorial Sea Act 1987 by fire or explosion occasioned by or happening through or in consequence directly or indirectly of Terrorism except to the extent stated in the SPECIAL PROVISION - TERRORISM For the purposes of this Section TERRORISM shall mean an act of any person acting on behalf of or in connection with any organisation with activities directed towards the overthrowing or influencing of any government de jure or de facto by force or violence In any action suit or other proceedings where the Company alleges that by reason of this definition any DAMAGE is not covered by this Section (or is covered only up to a specified limit of liability) the burden of proving that such DAMAGE is covered (or it covered beyond that limit of liability) shall be upon the Insured SPECIAL PROVISION Subject otherwise to the terms definitions exclusions provisions and conditions of the Policy this insurance includes DAMAGE in England and Wales and Scotland but not the territorial seas adjacent thereto as defined by the Territorial Sea Act 1987 by fire or exploaion occasioned by or happening through or in consequence of TERRORISM as defined in the Terrorism Exclusion provided that the liability of the Company for DAMAGE shall not exceed:- (a) (i) £100,000 in respect of DAMAGE to Buildings and Completed Structures (if insured) (ii) £100,000 in respect of Rent (if insured) (iii) £100,000 in respect of DAMAGE to All Other Property (if insured) provided that the liability of the Company under - paragraph (ii) and any Business Interruption Section in this Policy shall not exceed £100,000 in aggregate - paragraph (iii) and any Selected All Risks Contractors All Risks or Hired in Plant Section in this Policy shall not exceed £100,000 in aggregate or (b) any limit of liability or sum insured stated in the Section whichever is the lower Any provision in this Section which provides for any sum insured or limit of liability to be automatically reinstated following a loss shall not apply to losses covered under this Special Provision This clause does not apply to (a) premises situate in the Channel Islands or the Isle of Man (b) private houses insured in the name of an individual (c) contents of private houses 269 PR301B t of u MATERIAL DAMAGE SECTION SPECIAL CLAUSES (Clauses 1-3 applicable only if the Clause numbers are entered in the Schedule Clause 4 applicable only if referred to in the Schedule) 1. Day One Average A Subject to the following Special Conditions the basis upon which the amount payable in respect of the Property Insured under sums insured marked “DA” in the Schedule is to be calculated shall be the reinstatement of the property lost destroyed or damaged For this purpose “reinstatement” means a) the rebuilding or replacement of property lost or destroyed which provided the liability of the Company is not increased may be carried out (i) in any manner suitable to the requirements of the Insured (ii) upon another site b) the repair or restoration of property damaged in either case to a condition equivalent to or substantially the same but not better or more extensive than its condition when new B The Insured having stated in writing the Declared Value shown in brackets below the sum insured for each of the said items the premium has been calculated accordingly “Declared Value” means the Insureds assessment of the cost of reinstatement of the Property Insured arrived at in accordance with paragraph A a) at the level of costs applying at the inception of the Period of Insurance (ignoring inflationary factors which may operate subsequently) together with insofar as the insurance by the item provides due allowance for a) the additional cost of reinstatement to comply with public authority requirements b) professional fees c) debris removal costs Special Conditions (1) At the inception of each period of insurance the Insured shall notify the Provincial Insurance plc of the Declared Value of the Property Insured by each of the said item(s) In the absence of such declaration the last amount declared by the Insured shall be taken as the Declared Value for the ensuing Period of Insurance (2) If at the time of DAMAGE the Declared Value of the property covered by such item be less than the cost of reinstatement (as defined in paragraph B above) at the inception of the Period of Insurance then the Companys liability for any DAMAGE shall not exceed that proportion thereof which the Declared Value bears to such cost of reinstatement (3) The liability of the Company for the repair or restoration of property damaged in part only shall not exceed the amount which would have been payable had such property been wholly destroyed (4) No payment beyond the amount which would have been payable in the absence of this memorandum shall be made a) unless reinstatement commences and proceeds without unreasonable delay b) until the cost of reinstatement shall have been actually incurred c) if the Property Insured at the time of its loss destruction or damage shall be insured by any other insurance effected by or on behalf of the Insured which is not upon the same basis of reinstatement (5) All the terms and conditions of this Policy shall apply a) in respect of any claim payable under the provisions of this memorandum except in so far as they are varied hereby b) where claims are payable as if this memorandum had not been incorporated except that the sum(s) insured shall be limited to 115% of the Declared Value(s) 270 u of u MATERIAL DAMAGE SECTION SPECIAL CLAUSES (continued) 2. Stock Declaration Conditions The premium in respect of any item in the Schedule where the sum insured is marked “ D” is provisional and subject to adjustment as provided below - The value of the property on the last day of each calendar month shall be declared by the Insured to the Provincial Insurance plc within thirty days thereafter and if a declaration be not so given the Insured shall be deemed to have declared the sum insured as the value On the expiry, of each Period of Insurance the actual premium shall be calculated at the rate applicable on the total of the amounts declared divided by the number of the declarations If the actual premium be greater than the provisional premium the Insured shall pay the difference If it is less the difference shall be paid to the Insured In consideration of the insurance not being reduced by the amount of any loss the Insured shall pay the appropriate extra premium on the amount of the loss from the date thereof to the expiry of the Period of Insurance It is warranted that every insurance on such property covering DAMAGE insured hereby is on a similar basis of adjustment against declarations 3. Temporary Cover The first premium has been calculated to take into account the cost of temporary cover (in accordance with particulars lodged with the Company) pending issue of this Policy 4. Long Term Agreement The discount shown in the Schedule is allowed off the net premiums on this Section in consideration of the Insured having given an undertaking expiring on the date stated in the Schedule to offer annually the insurance under this Section on the terms and conditions in force at the expiry of each Period of Insurance and to pay the premium annually in advance it being understood that - a) the Company shall be under no obligation to accept an offer made in accordance with the above- mentioned undertaking b) where appropriate the Sum Insured may be reduced at any time to correspond with any reduction in value The above-mentioned undertaking applies to any policy (or policies) which may be issued by the Company in substitution for this Section and the same discount shall be allowed off the net premiums on any substituted policy or policies issued by the Company as aforesaid Payment of the premium due at the expiry date shown in the Schedule shall be deemed acceptance by the Insured of the terms of this clause. 271 PR302A n MATERIAL DAMAGE SECTION THE COVER - SPECIFIED PERILS Indemnity The Company agrees that if any of the Property Insured described in the Schedule be lost destroyed or damaged by any of the undernoted Perils which are shown as in force in the Schedule the Company will pay the Insured the value of the property at the time of its loss or destruction or the amount of the damage or at the Companys option reinstate or replace such property or any part of it Provided that the liability of the Company under this Section shall not exceed (i) in the whole the total sum insured or in respect of any item its sum insured at the time of loss destruction or damage (ii) the sum insured remaining after deduction for any other loss destruction or damage occurring during the same period of insurance unless the Company shall have agreed to reinstate any such sum insured adjusted in accordance with the Inflation Protection Clause if applicable This Section incorporates the schedule memoranda and endorsements which shall be read together as one contract Words and expressions to which specific meaning is given in any part of this Section shall have the same meaning wherever they appear Additional Definition The word “DAMAGE” in capital letters shall mean loss or destruction of or damage to the Property Insured Perils A FIRE but excluding DAMAGE caused by a) explosion resulting from fire b) earthquake or subterranean fire c) (i) its own spontaneous fermentation or heating, or (ii) its undergoing any heating process or any process involving the application of heat LIGHTNING EXPLOSION a) of boilers b) of gas used for domestic purposes only but excluding DAMAGE caused by earthquake or subterranean fire B EXPLOSION excluding DAMAGE a) caused by or consisting of the bursting of a boiler economiser or other vessel machine or apparatus in which internal pressure is due to steam only and belonging to or under the control of the Insured b) in respect of and originating in any vessel machinery or apparatus or its contents belonging to or under the control of the Insured which requires to be examined to comply with any Statutory Regulations Such vessel machinery or apparatus shall be the subject of a policy or other contract providing the required inspection service c) by pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds C AIRCRAFT or other aerial devices or articles dropped therefrom excluding DAMAGE by pressure waves caused by aircraft or other aerial devices travelling at sonic or supersonic speeds D RIOT CIVIL COMMOTION STRIKERS LOCKED-OUT WORKERS or persons taking part in labour disturbances or malicious persons acting on behalf of or in connection with any political organisation excluding DAMAGE a) arising from confiscation requisition or destruction by order of the government or any public authority b) arising from cessation of work