Banking & Insurance II Level 200 Regular - Pentecost University PDF

PENTECOST UNIVERSITY FACULTY OF LAW BANKING & INSURANCE II LEVEL 200 REGULAR BY EMMANUEL DZAGELI  The historical development of insurance law in Ghana, like in many countries, can be traced back to the evolution of commerce, trade, and th...

PENTECOST UNIVERSITY FACULTY OF LAW BANKING & INSURANCE II LEVEL 200 REGULAR BY EMMANUEL DZAGELI  The historical development of insurance law in Ghana, like in many countries, can be traced back to the evolution of commerce, trade, and the need to manage risks associated with economic activities. Insurance law in Ghana has undergone various stages of development, influenced by both indigenous practices and external legal systems. Here is an overview of the historical HISTORY development of insurance law in Ghana: OF Indigenous Practices INSURANCE Before the formal introduction of Western insurance concepts, indigenous Ghanaian communities engaged in various forms of risk-sharing and risk-pooling arrangements. These included mutual assistance systems within families and communities to help individuals in times of need.  Colonial Influence The formal introduction of insurance in Ghana can be attributed to the British colonial administration. During British colonial rule, insurance laws and practices were introduced and adapted to the local context. The HISTORY colonial government established the legal framework for insurance activities. OF Early Legislation INSURANCE The first significant legislation related to insurance in Ghana was the Insurance Ordinance of 1927. This law primarily focused on regulating marine insurance and was based on British insurance law principles.  Independence and Post-Independence Developments After gaining independence from British colonial rule in 1957, Ghana began to develop its own legal framework for insurance. The Insurance Act of 1961 (Act 105) was a landmark piece of legislation that regulated insurance HISTORY activities in the country. It covered various classes of insurance, including life and non-life insurance. OF Amendments and Modernization INSURANCE Over the years, Ghana has made several amendments to its insurance laws to keep up with changing economic and regulatory landscapes. These amendments have aimed to enhance consumer protection, financial stability, and the overall effectiveness of the insurance industry.  Regulatory Bodies The National Insurance Commission (NIC) was established in 1992 to regulate and supervise the insurance industry in Ghana. HISTORY NIC plays a crucial role in setting and enforcing OF industry standards, ensuring compliance with insurance laws, and protecting the interests of INSURANCE policyholders. The Ghana passed the Insurance Act 2006 (Act 724 ) and now the current Insurance Act 2021 (1061). DEFINITION Prof. K.S.N Murthy in his ‘Modern Law of Insurance’ quotes the axiomatic truth “yat bhavati tat nashyati”, it AND means whatever is created will be destroyed. However, a person desires to preserve the subject matter for an indefinite length of time and wishes to be NATURE free from the clutches of the destruction and hence, he prefers to safeguard/preserve the subject matter from the risk of destruction. OF Such a desire to preserve forms the basis for the emergence of insurance. The main object of insurance businesses is the coverage of risk by undertaking to INSURANCE indemnify the insured against the loss or damage.  Insurance is an intangible contractual periodical service obtainable/purchasable DEFINITION for price called ‘premium’. AND There are three personalities operating in NATURE insurance business namely OF i) insurers or insurance companies INSURANCE ii) insuring public / assured / policy holder CON’T iii) insurance intermediaries / insurance agents, brokers etc.   W. Beveridges says that “collective bearing of risk is insurance”.  According to J.B. Maclean, “Insurance is a method of spreading over a large number of persons a possible financial loss too serious to be conveniently borne by an individual”. DEFINITIONS  In the words of Riegel & Miller ‘It serves social purpose; it is a social device whereby uncertain risks of individuals may be combined in a group and thus made more certain; small periodic contribution by the individuals providing a fund out of which those who suffer losses may be reimbursed’   Hardy Ivamy writes in his work - “General Principles of insurance Law” that, ‘A contract of insurance is a contract whereby one person called the ‘insurer’, undertakes in return for the agreed consideration called the ‘premium’ to pay to another person, called the ‘insured’ a sum of money or its equivalent on the happening of a specified event’.  In Prudential Insurance Company v. Inland Revenue DEFINITIONS Commissioner, Channel J. said ‘There must be either some uncertainty whether the event will ever happen or not, or if CON’T the event is one which must happen at some time or another, there must be uncertainty as to the time at which it will happen’.  I will consider insurance as transferring an uncertain future event (loss, risk, damages, etc.) of an individual or body corporate to the shoulders of a like-minded group of persons (Insurer) for a sum certain called a premium payable by the policyholder within an agreed period.  Section 259 of Act 1061, states that “Insurance Contract” means (a) a contract under which the insurer, in exchange for a premium, agrees with the policyholder, to make a payment, or provide a benefit, to the policyholder or another person on the occurrence of DEFINITIONS a specified uncertain event, the occurrence of which will be adverse to the interests of the policyholder; CON’T or (b) an investment – linked contract, (c) an annuity contract, (d) reinsurance contract, and (e) an index – based insurance contract.   In simple terms, “insurance is a protection against financial loss taking place on the happening of an unexpected event”.  All the persons insured have assets that is DEFINITIONS tangible i.e. the house, car, factory etc. or CON’T intangible like voice of a singer, leg of a footballer, the hand of an author etc.  All these can be insured because they run the risk of becoming non-functional either through a disaster or an accident.   Insurance is a contract Insurance is a contract entered into between two parties and is governed by the law of contracts. Insurance contract must contain the essentials of contract under the contract act 1960. An insurance is a contract in NATURE which, one party agrees to pay a sum of money upon the happening of a particular event contingent upon the OF duration of the policy in exchange of the payment of consideration. INSURANCE  Insurance is a cooperative device The most important feature of every insurance plan is the cooperation of large number of persons who, in effect, agree to share the financial loss arising due to a particular risk which is insured.   Sharing of risk Insurance is a device to share the financial losses which might befall on an individual or his family on the NATURE happening of a specified event. The loss arising from these events if insured are shared by all the insured in OF the form of premium. INSURANCE  Value of risk The risk is evaluated before insuring to charge the CON’T amount of share of an insured, i.e. the premium. If there is an expectation of more loss, higher premium may be charged. So, the probability of loss is calculated at the time of insurance.   Payment of contingency The payment is made at a certain contingency insured. If the contingency occurs, payment is made, otherwise no payment is given to the policy holder. NATURE  Amount of payment The amount of payment depends upon the value of loss OF occurred due to the particular insured risk provided INSURANCE insurance is there up to that amount.  Large number of insured persons CON’T To spread the loss immediately, smoothly and cheaply, large number of persons should be insured because the lesser would be the cost of insurance and so, the lower would be premium.in order to function successfully, the insurance should be joined by a large number of persons.   Insurance is a business not a charity Insurance companies function to get profits and not for social service. The business of insurance is nothing but one of sharing. The insured who NATURE suffer loss get relief because his loss is made OF good. INSURANCE  Contract is ‘Aleatory’ CON’T The term ‘aleatory’ is derived from a Latin term ‘aleator’ which means ‘dice player’. Insurance contract is a contract of speculation. The insurance contracts considered as depending on uncertain event as to both profit and loss.  The fundamental function of insurance is to shift the loss suffered by a sole individual to a willing and capable professional risk-bearer in consideration of a comparatively small FUNCTIONS contribution called premium. OF The functions of Insurance can be classified as INSURANCE below:  Primary Functions,  Secondary Functions and  Other Functions  The primary functions of insurance include (a) Provide protection - The primary function of insurance is to offer protection against future risk, PRIMARY accidents and uncertainty. Insurance is actually a shield against economic loss, by sharing the risk with FUNCTION others. OF (b) Collective risk - Insurance is a device to contribute to INSURANCE the financial loss of a few among many. Insurance is a mean by which little losses are shared among larger number of people. All the insured share the premiums towards a fund and out of which the persons exposed to a particular risk is paid.  (c) Evaluation of risk - Insurance concludes the probable volume of risk by evaluating various PRIMARY factors that give rise to risk. Risk is the origin for FUNCTION determining the premium rate also. OF (d) Provide assurance - Insurance is a device, INSURANCE which helps to modify from uncertainty to certainty. Insurance is a mechanism whereby uncertain risks may be made more certain.  The secondary functions of insurance include: - a. Avoidance of losses SECONDARY Insurance alarms individuals and businessmen to adopt FUNCTION suitable device to prevent unfortunate consequences of risk by observing safety instructions; installation of OF automatic sparkler or alarm systems, etc. prevention of INSURANCE losses causes smaller payment to the assured by the insurer and this will encourage for more savings by way of premium. The condensed rate of premiums motivate for more business and better protection to the insured.  c. Small capital to cover larger risks Insurance relieves the businessmen from security investments, by paying small amount of premium SECONDARY against superior risks and uncertainty. FUNCTION d. Encourage towards the development of larger industries OF Insurance provides development opportunity to those INSURANCE larger industries having additional risks in their setting up. Even the financial institutions may be prepared to give credit to ailing industrial units which have insured their assets including plant and machinery.  The other functions of insurance include: a. Way of savings and investment - Insurance serves as savings and investment, insurance is a compulsory way of savings and it limits the unnecessary expenses by the insured. For the reason of availing income-tax OTHER exemptions also people invest in insurance. FUNCTION b. Source of earning foreign exchange - Insurance is a OF worldwide business. The country can earn foreign exchange by way of issue of marine insurance policies INSURANCE and various other ways. b. Risk-Free trade - Insurance promotes exports insurance, which makes the foreign trade risk-free with the assistance of different types of policies under marine insurance cover.  General principles of insurance Though insurance has been classified into non – GENERAL life and life, there are certain general principles applicable to all forms of insurance. PRINCIPLES These general principles serve as a guide to the OF sound interpretation of the purpose of the INSURANCE insurance contracts in their diversified forms. The principles of indemnity, insurable interest, uberrima fides (utmost good faith) and the existence of risk are some of the principles having common application.  The following are some of the important principles of insurance: (a) Existence of risk It is vital to every contract of insurance that the subject matter GENERAL should be exposed to the contingency of loss or risk. Risk involves the happening of an uncertain event adverse to the interest of the PRINCIPLES assured. OF In marine insurance the ship or cargo is exposed to the loss by perils of the sea. In fire insurance the risk is in the destruction of property INSURANCE by fire. In life insurance, the risk is in the death of the assured, though a certainty, but uncertain as to the time of its happening. CON’T In an abstract sense, risk may be defined as the chance of loss. It can either be an uncertainty as to the outcome of some event or events, or loss as the result of at least one possible outcome. In any case, the promise of the insurer is to save the assured against the uncertain consequences.  (b) Principle of indemnity: Insurance is essentially a contract of indemnity. All the claims of the assured will be adjusted only with reference to the actual loss sustained by him. GENERAL Thus, it is implied in every contract of insurance that the assured in case of a loss against which the policy has the actual loss, is to PRINCIPLES prevent fraud on the part of the assured. OF It checks the temptation to gain by unfair means and the wilful causing of loss. However, the factual basis for the application of the INSURANCE principle of indemnity is not the prevention of crime or consideration of public policy but it derives from the inherent nature CON’T of the bargain. Generally; a contract of indemnity is entered into for the sole purpose of making good a loss incurred. The value of a life, however, is incapable of estimation and except, in a limited sense, cannot be “made good” by insurance.  Subrogation The doctrine was defined in the Castellian case as follows: “The right of the insurer who has paid for the loss to receive the benefit of all the rights and remedies of the insured against the third party...” The doctrine has its foundation in the principle of unjust TWO enrichment. This can be illustrated on two fronts. The first is that an insured cannot recover more than full indemnity of his CONSEQUENCES loss and where he receives more, he should account to the insurer, that is, the insured cannot make profit. INDEMNITY The second is that an insurer who has indemnified the assured is to succeed to all the rights of the assured and proceed against the tortfeaser in contract or tort and sue in the insured’s name. Where the insurer has already paid for the loss, this doctrine permits the insurer to recover from the third party or if the insured having received payment also exercises this right the insurer would be entitled to repayment from the insured.  In Mason v. Sainsbury, the plaintiff’s house was demolished in riots. The house had been insured and he successfully claimed compensation from the insurer. The insurers proceeded against the tortfeasers in the name of the insured. The tortfeasers contended that there could be no recovery from them because the insurers have received premium from the insured. They had not suffered by the act of the tortfeasers. The court held that the insurers had the right to exercise the right of Subrogation against the tortfeaser once CASES there is a loss and the loss has been paid. In Lister v. Romford Ice & Storage Co. Ltd., Lister was a driver employed by Romford Ice Co. He drove negligently and injured his father when he was reversing. The insurers of the company paid the damages to Lister’s father and brought this action in the company’s name to claim the damages which was paid to Lister’s father. It was held that the insurers were entitled to the claim. That the driver was in breach of a term in his contract that he would drive with reasonable care at all times.  Where the insurer makes any payment to the insured not knowing that the insured has received a gift which is to mitigate the loss, the insurer is entitled to any sum in the hands of the insured up to but not below the value of the insurer’s own payment. That is the GIFTS insured is to account to the insurer. In Sterns v. Village Main Reef Gold Mining Co,23 the defendant RECEIVED took a policy in respect of Gold belonging to the company. There was a loss in respect of the insured Gold. The company made a claim BY THE and they were paid by the insurer. The company later received from the South African government money in respect of the loss that has INSURED been suffered. The insurance company thus brought an action to recover the payments made to the company by the South African government. It was held that the insurers were entitled to recover the money since the South African government paid the money to diminish the loss incurred by the insured.  EXCEPTION In Burnand v. Rodocanachi, A gift was held by the House of Lords not to be recoverable by the insurers. CASE This was because the money was paid under statute which was intended to benefit the insured over and above any insurance money. This case establishes the exception and not the rule and where the gift is intended as something extra, the insured shall be entitled to same.  Surplus The insurers’ right of subrogation is limited to the actual sum paid to the assured. Any benefit received by way of over payment shall be refunded to the insured else the insurer shall hold the said money in trust for the insured. The principle operates after insurers have recovered from the tortfeaser the money paid to the insured. In Yorkshire Insurance Company v. Nisbett Shipping Co,25 a ship was insured for £72,000. There was a loss which was caused by a ship belonging to the Canadian government. The insurance SURPLUS company paid the £72,000 to the insured. The insurance company however agreed that the insured should proceed personally against the Canadian government. The insured was paid and when the amount was converted the total amount paid was £126,000. The insurance company contended that it was entitled to the extra £55,000 but the insured argued that they were entitled to only £72,000 which they paid out. The court held that the subrogation rights of the insurance company extended only to the sums the company has paid out.  Contribution The principle comes into play where an assured has more than one insurance policy in respect of the same risk. This has come to be known as double insurance. The purpose of the principle is to ensure that an assured does not recover more than what is due him even where the assured holds more than one policy on the same risk. CONTRIBUTION The principle is applied when one insurer calls or demands that the other insurer contribute to the cost which both have insured against their respective policies. The rationale is to prevent unjust enrichment and is basically between two insurers. On the part of the insurer, they would want to be satisfied whether the risk is covered elsewhere; hence most insurance contracts contain conditions of double insurance. The insurer should be informed if there is a double insurance.  In Gale v Motor Union Insurance Co,26 L was driving G’s car when he caused an accident. Prima facie L was insured both by his own motor policy, because that had an extension covering the driving of cars other than his own with the owner’s consent, and by G’s policy on G’s car, because that had a permitted driver extension. However, both extensions had qualifications which in effect provided that they not applicable if the person concerned was otherwise insured. Both policies also had rateable proportion conditions. CASE Roche J. held that the conditions purporting to oust liability were not clear, and that the only way to read them was as referring to cases where the other cover gave complete and full indemnity. Here because of the rateable proportion clauses, neither policy, when looked at from the point of view of the other one, gave complete cover. Therefore, neither clause applied and the insurers were both liable rateably. According to this reasoning, the presence of rateable proportion clauses in both policies was vital. See Weddell v. Road Transport & General Insurance Co  (1) There must be at least two or more policies in force at the material time; REQUIREMENTS (2) Each of these policies must insure the FOR INVOKING same subject-matter and the same CONTRIBUTION interest of the same assured; (3) The policies must concern the same peril that caused the loss.  c. Principle of Insurable Interest: The test for a valid insurance contract is the existence of the insurable interest. The ‘insurable interest’ is nothing but an interest of such a nature that the occurrence of the event GENERAL insured against would cause financial loss to the insured and such an interest which can be or is protected by a contract of PRINCIPLES Insurance. This interest is considered as a form of property in the contemplation of law. OF If the assured has no interest at the time the event happens it INSURANCE is clear that he cannot recover anything, because he suffers no loss, and therefore has no claim to an indemnity. CON’T Similarly, if he has an interest which is limited to something less than the full value of the subject-matter, he suffers no greater loss than the value of his interest at the time of the loss, and therefore, his claim to an indemnity cannot exceed the value of his interest.  d. Principle of utmost good faith In the case of ordinary commercial transaction, the legal maxim “Caveat Emptor” (let the purchaser beware) prevails. In the absence of an enquiry the other party to the contract is under no obligation GENERAL voluntarily to furnish detailed information regarding the subject matter of the contract. It is, however, understood that one party to PRINCIPLES the contract should not be misled by the other by any false declaration. OF As a contrast to such commercial contracts the insurance contract is dominated by the legal maxim “the utmost good faith”. The INSURANCE observance of the utmost good faith by the parties is vital to a contract of insurance. Insurance is also called as an uberrima fide CON’T contract because the parties are required to confirm to a higher degree of good faith than in the general law of contract. Good faith and honesty though principles of equity and justice are equally applicable to every agreement, yet in contracts other than insurance, the parties are free to settle their own terms.  Good faith was defined by Lord Mansfield in Carter v. Boehm as follows: “Good faith forbids either party by concealing what he privately knows to draw the other into a bargain from his ignorance of that fact and from his believing the contrary. The policy will be equally void against the underwriter if he concealed some information which he privately knows about the subject matter...” In this case there was a Fort in West Indies which was insured against European enemy attack. The insured was Governor Carter. The Fort was attacked by the French army and the plaintiff claimed for the loss that has resulted. CASE The insurance company raised an objection to the claim and the basis of the objection was that the Governor had earlier on written to his brother-in-law to take the policy on his behalf and in the said letter he had expressed his fear that the Fort would be attacked by the French. This information the insurance company argued was not disclosed at the time of taking the policy. The court held that underwriters in London were more likely to know this fact than the insured and hence ruled against the insurance company. The court held that the state of the French army was better known in England than in West Indies.  LIC v. G.M.C Hannabsemma, (AIR 1991 SC 392) - In a landmark decision the SC has held that the onus of proving that the policy holder has failed to disclose information on material facts lies on the corporation. In this case the assured who suffered from tuberculosis and died a few months after the taking of the policy, the court observed that it is well settled that a contract of insurance is contract uberrimae fides, but the burden of proving that the insured had made false representation or suppressed the material facts is undoubtedly on the corporation. New India Insurance Company v. Raghava Reddy (AIR1961 AP 295) - It was held that a policy cannot be avoided on the ground of misrepresentation unless CASE the following are established by the insurer namely, a. The statement was inaccurate or false. b. Such statement was on a material matter or that the statement suppressed facts which it was material to disclose. c. The statement was fraudulently made d. The policy holder knew at the time of making the statement that it was false or that fact which ought to be disclosed has been suppressed. LIC v. Janaki Ammal (AIR 1968 Mad 324) – it was held that if a period of two years has expired from the date on which the policy of life insurance was effected, that policy cannot be called in question by an insurer on the ground that a statement made in the proposal for insurance or on any report of a medical officer or referee, or a friend of the insured, or in any other document leading to the assure of the policy, was inaccurate or false. THANK END YOU