Research Handbooks in Financial Law series
Edited by Julian Burling and Kevin Lazarus
Chapter 1: An Introduction to Insurance Contract Law
Malcolm Clarke1 Risk is an unavoidable fact of life. Certainly some actions are riskier than others. Sitting and reading a book about mountain climbing is likely to be less risky than undertaking it. Yet in all walks of life there are risks; the risk that property will be stolen or that an accident will befall one. We may become liable to others if our activities cause them harm. Even things that are certain to happen, such as death, may be uncertain as to their timing. To insurance policyholders, as conceived by the insurance economist, the ‘concept of risk comprises two components – a detriment aspect and an uncertainty aspect’.2 As regards the detriment, by taking insurance, the element in the detriment, although no longer a risk but a certainty, is reduced to the level of the premium; and the inconvenience element is curtailed to the time it takes to ﬁnd insurance, and, if the risk strikes, to obtain indemnity. As for the uncertainty and whether the risk will strike, that is not reduced objectively. Uncertainty is reduced objectively, however, as to the extent of the detriment, notably the cost. Insurance provides a mechanism for the management of risk. It is not the only way to manage risk. One can take other actions in response to risk, including seeking to mitigate the chance of the contingency occurring or being prepared to deal with the consequences of the contingency (such as installing a sprinkler system in a building to put out any ﬁres...
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