2: Basic Legal Principles and Terminology

Question 1

Definition: Consensus ad idem

Answer 1

Meeting of minds - do both parties believe they are agreeing on the same thing?

Birmingham, UK vs Birmingham, US

Question 2

Definition: Consideration

Answer 2

Each persons side of the bargain which supports the contract - normally the premium, and claim payment

Question 3

Definition: Deductible

Answer 3

The amount of the policy limit which the insured has to pay.

Question 4

Definition: Duty of fair presentation

Answer 4

One which makes disclosure of every material circumstance which the insured knows

Question 5

Definition: Estoppel

Answer 5

And impediment that precludes a person from asserting a fact or right.

When one party is reliant on another and cannot be misled into a false sense of security (an insurer should share any investigations with the insured)

Question 6

Definition: Excess

Answer 6

The amount the insured must pay before an insurer pays the full policy limit.

Question 7

Definition: Financial value

Answer 7

The financial value of something bad happening

Question 8

Definition: Franchise

Answer 8

Similar to a deductible or excess, but once the franchise limit of the insured is exceeded, the insurer pays the full amount

Question 9

Definition: Fulfilment of a contract

Answer 9

The contract has been fully performed

Question 10

Definition: Good faith

Answer 10

All parties to a contract must not mislead each other

Question 11

Definition: Inception

Answer 11

Post negotiation, once the contract is formed.

Question 12

Definition: Indemnity

Answer 12

Compensation to return the insured to the same financial position as immediately before the loss occurred

Question 13

Definition: Insured perils

Answer 13

Those named in the policy as covered

Question 14

Definition: Unconditional acceptance

Answer 14

When both parties accept all terms without a counter offer (conditional acceptance). Only when does an offer become unconditional is the policy finalised.

Question 15

Definition: Proximate cause

Answer 15

The dominant cause which created the loss (the first domino)

Question 16

Definition: Sum insured

Answer 16

The maximum amount which can be recovered under an insurance policy

Question 17

Definition: Tort

Answer 17

A breach of a persons duty to act in a reasonable way towards others

Question 18

Definition: Underinsurance

Answer 18

If the insured does not insure the full value of the subject matter, meaning they effectively insure the remaining amount

Question 19

What are the features of valid contracts?

Answer 19

Offer and acceptance
Consideration

Consensus ad idem

Question 20

Definition: Void ab initio

Answer 20

A contract that is declared invalid from the beginning

Question 21

Definition: Subject-matter

Answer 21

Of insurance: the thing actually being insured

Of contract: the relationship that the insured has with the thing being insured

Question 22

Definition: Material information

Answer 22

Physical or moral hazards which should be disclosed in order to act with good faith.

Things which do not need to be disclosed:
Matters of law
Public knowledge
Factors that lessen the risk
Waived information
Information a survey should have revealed

Question 23

What are the different types of peril?

Answer 23

Insured: those named in policy as covered

Excepted or excluded: those named in the policy as not covered

Uninsured or unnamed: those not mentioned at all

Question 24

Definition: Benefit policy

Answer 24

Losses which cannot be priced, such as loss of a limb or sight

Question 25

What are the different ways of providing indemnity?

Answer 25

Cash
Repair
Reinstatement
Replacement

Question 26

Definition: Contribution

Answer 26

When the insured has more than one policy covering a particular loss (household and travel when losing a gadget abroad)

There are usually specific conditions which restrict an insurers liability to its rateable proportion of a loss

Question 27

Definition: Subrogation

Answer 27

The right of an insurer to take over the insured rights to recover payment from a responsible third party.

Sometimes, policies can be written to exclude and subrogation such as mutual hold harmless agreements