Construction Insurance and UK Construction Contracts
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CHAPTER 2
General rules and principles of insurance law
Definition of insurance
2.1 Before considering the application of insurance to construction contracts it is necessary to consider the basic principles relating to contracts of insurance. This chapter is by no means comprehensive but should give the reader a good understanding.1 References in this chapter to “contract” are references to the contract of insurance. 2.2 Insurance in the construction context is generally a contract to indemnify, i.e. the insured will recover compensation for his actual loss and in order to recover will have to prove his loss. This may occur where judgment has been given, or an award made, against the insured, or where, with the insurer’s consent, the insured has reached a settlement with the third party. The principle of indemnity will be implied into the contract. This type of contract should be distinguished from insurance contracts that promise to pay a specified sum upon the happening of an insured event (for example life insurance, contracts of guarantee or performance bonds). 2.3 Despite the vast amount of legislation regulating insurance companies and the conduct of their business, there is no statutory definition of insurance. However, an excellent general description of the nature of insurance was given by Channell J in Prudential Insurance Co v IRC:2It must be a contract whereby for some consideration, usually but not necessarily in periodical payments called premiums, you secure to yourself some benefit, usually but not necessarily the payment of a sum of money, upon the happening of some event … the event should be one that involves some amount of uncertainty. There must be either uncertainty whether the event will happen or not, or if the event is one which must happen at some time there must be some uncertainty as to the time at which it will happen. The remaining essential is … that the insurance must be against something.