2 - Basic Insurance Legal Principles and Terminology Flashcards
What are the three essential elements of a contract?
Offer
Acceptance
Consideration
What is ‘meeting of minds’?
When both parties believe they are agreeing to the same thing.
What is ‘consideration’?
Each person’s side of the bargain, ie. promise to pay premium and pay for a claim.
What is ‘insurable interest’?
The legal relationship between an insured and the subject-matter of insurance.
Does ‘insurable interest’ require ownership
No.
What is the ‘subject matter’ of the insurance?
What is being insured
What is ‘good faith’?
Two-way concept where both insured and insurer disclose material information to each other.
Under good faith, what can the insurer NOT do?
- Introduce new non-standard terms that were not discussed during negotiations
- Withhold the fact that discounts are available for mitigating risk
Under good faith, what must the insured do?
- Disclose all material information
- Know what is material
What act covers the obligation of the parties in commercial insurance?
Consumer Insurance Act 2012
Why do insurers on long-term policies only require disclosure ‘at inception,’ whereas short-term policies require it at every renewal?
Each renewal is the creation of a new policy of insurance.
What is ‘fulfilment’?
Contract has been fully resolved, all paid out.
If there is a deliberate breach of duty of disclosure, what can the other party do?
Cancel the contract.
what is ‘proximate cause’?
The dominant and operative cause of the loss.
The concept of putting the insured in the position they were in before the loss is known as:
Indemnity.
What is a benefit policy?
Policies where you cannot return to state before loss, eg. loss of limb, life insurance.
How do you calculate an average claim?
(sum insured/value of goods at risk) x loss
what is an excess?
An amount deducted from each claim, paid by the insured.
What is the purpose of an excess/deductible?
To reduce the price of the premium
What is the term given when two or more policies cover the same item and the loss should be shared?
Contribution.
What is subrogation?
The right of the insurers to claim against a third party having first indemnified the insured.
is subrogation limited?
Yes - it can be no higher than the policy total.
If a client answers a question on a proposal form incorrectly to try and obtain a cheaper premium, what have they done?
Misrepresented the risks.
What are three methods insurers have to claim back money after a loss?
Reinsurance
Subrogation
Contribution
