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LM1 > Basic insurance legal principles and terminology > Flashcards

Basic insurance legal principles and terminology Flashcards

1
Q

Define ‘Contract’

A

An agreement, enforceable by law, between two or more people to do, or abstain from doing, some acts, their intention being to create legal relations

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2
Q

What are the parts that form an insurance contract?

A

Agreement
Enforceable by law
Two or more parties
Intention to create legal relations
Insurable Interest

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3
Q

How is contract formed?

A

Offer & Acceptance
Consideration

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4
Q

Define ‘Insurable Interest’

A

The legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject matter of insurance. (Needed for insurance contract)

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5
Q

Types of contract acceptance

A

Unconditional
Conditional (Counter)
Postal

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6
Q

How does postal acceptance differ in insurance?

A

Usually contract formed when acceptance received.

Insurance - Contract when acceptance letter sent.

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7
Q

What is consideration in the context of insurance?

A

Insurer agrees to pay claims

Insured agrees to pay premium

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8
Q

Definition of ‘Insurable Interest’?

A

The legal right to insure arising out of a financial relationship recognised at law, between insured and the subject matter of insurance

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9
Q

What is the duty of good faith

A
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10
Q

How does the duty of good faith apply to each party in an insurance contract?

A

Insured - Must disclose material facts about risk

Insurer - Not add new terms or hide info about pricing or deals

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11
Q

What are the two key concepts surrounding the duty of disclosure?

A

Disclosure / Non-Disclosure

Representation / Misrepresentation

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12
Q

What is the legal position regarding the duty of good faith if the insured is a consumer?

A

Consumer has duty to take reasonable steps not to make misrepresentations to insurer.

Insurer must show they would not have entered / would on different terms.

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13
Q

What is the definition of a ‘consumer’ for the purposes of buying insurance?

A

Someone who is buying insurance wholly or mainly for purposes unrelated to business, trade or profession

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14
Q

What makes a misrepresentation in contract negotiations ‘reckless or deliberate’?

A

Knew it was untrue/misleading

&

Knew the matter was relevant to insurance

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15
Q

What is the legal remedy for insurer if misrepresentation is reckless

A

Avoidance of contract
Refuse all claims
No return of premium

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16
Q

Legal remedy for insurer if misrepresentation is merely careless during claims period

A

Depends what insurer would have done if they knew:

Not entered on any terms = Avoidance & Return premium

Different terms = Act as if it was on those terms

If entered but higher premium = Less payout for claims

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17
Q

Legal remedy for insurer if misrepresentation is merely careless & not found during claims period

A

Not entered on any terms = Avoidance & Return premium

Different terms = Act as if it was on those terms

Insurer can give notice of termination / variation (return premium)

Insured can give notice to terminate

*Claims during notice period considered in usual way

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18
Q

What is the legal position if the insured is not a consumer?

A

Insured must make a ‘fair representation’ of risk to insurer

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19
Q

What is the definition of fair representation?

A

Disclosure of facts insured knows or ought to know

Disclosure of info which a prudent insurer would ask further questions on

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20
Q

At what time do you need insurable interest?

A

Life = Inception, but not time of loss
Marine = Time of Loss, Not inception
General insurance = Both (Anticipated interest may suffice at inception)

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21
Q

How is insurable interest created

A

Common Law
Statute (Can also be modified by statute)
Contract

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22
Q

What is the definition for what is considered ‘Material’

A

Material which would influence the judgement of a prudent insurer in fixing the premium or determining whether he will take the risk.

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23
Q

What changes to materiality did the Insurance Act bring in?

A

Insured cannot data dump - Must present info clearly and accessible way

Burden to ask further questions is on insurer

24
Q

What is information the insured ‘ought to know’

A

Anything found by a reasonable search of information available to the insured

25
Q

What does s.6 Insurance Act say classes as what the insured ‘knows’

A

Any information they suspect but deliberately refrain from confirming

26
Q

What does the insured not have to disclose

A

What insurer knows / Ought to know
What insurer is ‘presumed to know’
Anything that lessens the risk
Matters of law

27
Q

What is classed as information the insurer ‘ought to know’

A

If known by employee of insurer and would reasonably be passed on

If accessible within company

28
Q

What is classed as information the insurer ‘presumed to know’

A

Things common knowledge

Things insurer operating in this class of business would reasonably be expected to know

29
Q

What are the steps to determine remedy for breach of duty of fair presentation / disclosure

A
  1. Reckless
  2. When did the breach occur? (Original or Variation)
30
Q

How does compulsory insurance impact the duty of disclosure

A

Law is concerned with ensuring innocent victims are compensated and thus insurers must pay all property damage or personal injury claims from compulsory legislation.

31
Q

What is the remedy for breach of duty to disclose during original placement?

A

Reckless - Void & Keep premium

Careless
- If insurer had not entered - Void contract but return premium
- If insurer would have entered on different terms - Those terms are used
- If charge higher premium - Less claim payout

32
Q

What are the remedies for breach of duty to disclose during variation of contract? (Same or higher premium)

A

If insurer would not have agreed - Treat original contract as continuing and return extra premium

Agreed variation but on different terms - Contract treated as those changes.

33
Q

What are the remedies for breach of duty to disclose during variation of contract? (Lower premium)

A

If insurer would not have agreed - Treat contract as if changes did not occur & lower claim payout in proportion of the premium

If agreed on different terms - These terms accepted as new contract.

34
Q

Why do insurers have an issue with the duty of disclosure?

A

Insured are under no obligation at common law to provide material information after inception.

35
Q

How is the insurers right to information an issue

A

If insurer fails to ask follow up questions to any information provided, this right is said to be waived.

But… insured is not considered to have failed to disclose material facts.

36
Q

How does Estoppel impact insurance contracts

A

Insurer must not lead insured into false sense of security.

37
Q

When must insurer notify insured they do not intend to renew policy?

A

‘Good time’ to allow them to make other arrangements

38
Q

What are the cancellation rights to insurance policy

A

Insurer - Written notice (14 days)

Insured - Not common, unless insurer entitled to charge short term period rates for term gone

39
Q

What does fulfilment mean

A

The contract has been fulfilled (E.g reached limit) and is ended

40
Q

When is an insurance contract void

A

When insured has breached policy condition

41
Q

Summarise what the insurance act says

A

Insured cannot data dump (Present in clear way)

Insured knowledge extends to broker

Insured ought to know - Reasonable search available

Insured knows anything they suspect but do not confirm

Insurer ought to know anything employee knew and reasonably be expected to pass on

Insurer presumed to know - Insurer operating in that field / Common knowledge

42
Q

Define proximate cause

A

Active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.

43
Q

What are the three categories of perils?

A

Insured Perils - (Named as insured)
Expected Perils - (Named as NOT insured)
Uninsured - Unnamed in policy

44
Q

Define Indemnity

A

Financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred

45
Q

Benefit policy

A

Policy which provides fixed benefits (usually Accident & Sickness) where indemnity is not possible / accurate (E.g loss of leg)

Impossible to place someone in same position as before loss

46
Q

Possible ways of indemnifying someone

A

Whatever is stated in policy:

Cash
Repair
Reinstatement
Replacement

47
Q

Insurers issue with reinstatement as means of indemnification

A

Insurers are their own insurers during this period of reinstatement

Work may go above sum insured, but they must continue

48
Q

What is usually the limit of indemnity

A

Sum Insured (But can have no limit)

49
Q

What is the sum insured?

A

Total value declared by insured

50
Q

What is the principle of Underinsurance / Average condition

A

When the insured has undervalued the risk, they are their own insurer for the uninsured bit

(Even partial losses are split between insurer and insured based on proportion of underinsurance)

51
Q

Formula for underinsurance

A

(Sum insured / Value of all goods at risk) x Loss

52
Q

Contribution

A

‘The right of an insurer to call upon others similarly, but not necessarily equally, liable to the same insured to share the cost of indemnity’

(Insurers contribute to claim on basis or their Rateable Proportion)

53
Q

What is necessary for contribution to exist

A
  1. Common subject matter
  2. Insurable interest is the same (same relation to the risk)
  3. Insured against common perils
  4. Both policies liable for the loss
  5. No non-contribution clause
54
Q

Formula for Contribution

A

(Policy sum insured / Total sum insured) x Loss

55
Q

Subrogation

A

‘Right of insurer following payment of claim, to take over the insured’s rights to recover payment from third party responsible for loss’

56
Q

What is the limit of subrogation

A

The amount paid out for the insurance claim

LM1 (3 decks)

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