C2 Flashcards
What is a contract
A legally binding agreement that the courts are able to enforce
What needs to be in place for a contract to be valid
Offer and acceptance
What is the offeror
The patty making the contract
What is the offeree
The party reviving the offer which they can either accept or reject
What elements need to be present for the formation of a contract to be valid?
Offer and acceptance
Consideration
What are the three types of acceptance?
Unconditional acceptance
Conditional acceptance
Postal acceptance rule (legal acceptance takes place once the letter is posted, regardless of whether it reaches the recipients or not)
What is consideration?
The price that supports the promise
Looking at the benefit that both parties receive under the contract and the detriment that both parties receive under the contract
It is the exchange of promises
Insurance, the promise to pay the premium is good enough consideration for is a valid contract to be formed
What is insurable interest?
The legal right to ensure arising out of a financial relationship recognise that law between the insured and the subject matter of insurance
What is a legal relationship?
Usually formed out of ownership, for example, having insurable interest for your car.
What is the subject matter of insurance?
The thing that is being insured
What is the subject matter of a contract?
The relationship that the insured has with the subject matter of insurance
Life insurance policies, insurable interest
Everyone is deemed to have insurable interest over their own lives there for life. Insurance policies must have insurable interest at inception, but it need not exist at the time of the loss.
Marine policies, insurable interest
Insurable interest must exist at the time of the loss, for example, when the ship sinks, but need not exist at inception of the policy
What is general insurance?
Anything that does not fall under life assurance policy or marine insurance
Insurable interest must exist both at inception, and at the time of the loss
How can insurable interest be created?
Common-law
Contract
Statute
What is a Bailey?
Someone that is responsible for looking after someone else’s goods on their behalf, therefore they will have some sort of insurable interest to ensure nothing happens to those goods while they are in their care
What does good-faith mean?
Both parties in an insurance contract must act in good faith, meaning they must be open and transparent with each other
The insurer cannot withhold information and introduce non-standard times into the contract
The insured must take reasonable care to not make missrepresentation to their insurers
What are the two types of misrepresentation under the consumer insurance disclosure and representations act 2012
Careless
Deliberate or reckless
What is the proposal state of mind was honest and reasonable?
Insurer may have to pay the claim
What is the proposes mind was careless
The insurer will have a compensatory remedy based on what the insurer would have done
What is the proposal state of mind was deliberate or reckless?
Insurer may treat the policy as if it had never existed and decline all claims
What is ICOBS
The insurance conduct of business source book
Which states that insurers must not unreasonably reject a claim unless there was evidence of fraud
What is a fair presentation?
One that makes disclosure of every material circumstance, which the insured knows or ought or disclosure, which gives ensure sufficient information to put a prudent insurer on notice that I need to make further enquiries
What does materiality depend on?
The nature of the risk, but there will be focus on things such as physical hazards and moral hazards
What things do not need to be disclosed to insurers
Information which lessens the risk
Information where the insurer knows it
Information where the insurer ought to know it (should have been passed along)
Information where the insurer is presumed to know it who is (common knowledge)
Something that the insurer waves information
How is a breach of a presentation identified?
Can either be deliberate or reckless, or not deliberate or reckless under the insurance act 2015
What happens if the breach is seen to be deliberate or reckless?
The insured knew it was a breach of the GT author representation and ensure I did not care, whether or not it was a breach
The insurer can avoid the policy and keep any premiums that have been paid
What happens if the breach is not seen as deliberate or reckless
The insurer can prove it would not have been written in the policy and ensure I can avoid the policy, but must return the premiums paid
The insurer would have accepted the risk on different times to contract has treated as if it’s included those times
The insurer would have entered into the contract, but charged a higher premium. Insurer may proportionately reduce the amount to be paid on the claim.
Can you contract out of the insurance at 2015?
Yes, but the marine insurance act 1906 would apply This usually happens in the marine market. or perhaps the insured is in a more knowledgeable position than the insurers in which case, the old law may be more beneficial to use
What is a cancellation condition for insurer
The insurer is allowed to cancel at any time in the policy period provided they send a letter to the insureds last known address, giving 14 days notice
What is a cancellation condition for insured
The insured should then be entitled to some form of pro rata return in premium. The insured is also able to cancel, but the insurer may charge an admin fee or short period rate to represent the amount of upfront cost. The insurer has incurred in setting up the policy.
What is fulfilment?
Another means of terminating an insurance contract
This is when the contract has been fully performed For example, if you’re insured car written off as a total loss to receive a payout in settlement and choose not to purchase another car then there is nothing left to insure and your policy is fulfilled
How can an insurance contract be voidable
Well, one party can set the contract aside, for example for breach of contract
What is indemnity?
Financial compensation, sufficient to place the insured in the same financial position after a loss as they enjoyed immediately for the loss occurred
How are indemnity policies different from benefit policies?
Benefit policies, mainly surround accident and sickness insurance. Here the insured cannot usually be put back in the same position so the policy pays out on there event of something happening.
What are some methods of providing indemnity?
A payment of money
Reinstatement usually in property insurance
Repair for things like cars and machinery
Replacement
How is indemnity measured?
Property - value of the property at the date of loss and the place of loss
What is betterment?
When something is repaired in better condition than prior to, that thing was lost
Indemnity for machinery and equipment
The cost of repair less wear and tear
The cost of replacement less wear and tear (secondhand market first)
What are the two categories of stock?
Manufactures stock (raw materials, works in progress and finish stock). The cost will be replacement of those materials at time and place of the loss.
Wholesale and retail stock relates to general stock as handling costs and transport costs . It will be the cost of replacing the stock at its wholesale price.
Household goods indemnity
Cost of replacing the items at the time of the loss with a deduction for wear and tear
What is new for old cover?
Where where and tear tends to only apply for linen and clothing but everything else is replaced with something new for something old
Farming stock indemnity
Costa relates to the local market price, which fluctuates on any particular day, that for replacement costs ends up being the same as the selling price
Liability, insurances indemnity
Indemnity is generally based on court awards or out-of-court settlements, as well as any applicable costs
What are agreed value/value policies
Subject matter of insurance is agreed at inception of the policy and doesn’t alter throughout the life of the policy regardless of when the loss occurs (common in marine insurance and fine art)
What is a first loss policy
Likely hood of their being a total loss is rare and they will instead insure the first event of a loss
Sun insured/limit of liability
Policy limits applicable to various losses
Inner limit and item limit
Loss exceeds limit then insured must pay excess
Underinsured
Equitable premium The policyholder has paid into the common pool is not representative of the size of the risk and therefore they are not entitled to a full indemnity under the policy.
Average
(Sun insured/value of goods at risk) x loss
What is an excess
The first amount of any claim that is paid by the insured. To reduce fraud
What is a deductible?
A large access and is usually utilised for commercial risks
What is a franchise?
A franchise value set as a certain amount. If a claim comes in on that amount than the insured is liable to pay the whole loss. If that franchise value is exceeded, even if it’s just £5 then the insurer will pay the whole loss from the ground up.
What is proximate cause?
Dominant cause of a loss an intervening cause can take over and become the dominant cause
The 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.
What is contribution?
The rights of an insurer to court upon others, similarly, but not necessarily equally liable to the same insured to share the cost of an indemnity payment
What is Dual insurance?
Two policies that can provide cover for the same risk
Conditions for contribution
Is there must be two or more policies in existence
There must be a common subject matter
Must be a common peril
Must be a common interest
Is each policy liable for the loss
What is a non-contribution clause
Cause that prevents contribution, and therefore the other insurer will be liable for the whole loss. If they both have it, then the policies cancel each other out and contribution happens as normal
Sum insured method
Loss is shared by the insurers in the proportion to the maximum amount available on the the limits of each policy
(Limit A/sum of both limits) x loss
Indépendant liability method
Liability of each insurer is approached as though their policy is there anyone in force
(Limit A/(Limit A+amount of loss)) x loss
If limit greater than loss only use loss
What is subrogation
Is the right of an insurer following payment of a claim to take over the insurance rates to recover payment from the third-party responsible for the loss What?
What is the rights compensation at 2016?
A property damage claim can be recovered from the police if they did not do enough to protect the property in question during a riot
How can subrogation rights be modified?
Through market agreement, whereby insurers give up their rights to recover from third parties
Companies under a parent group may also waive their rights to claim subrogation from each other
Our benefit policies, subject to the rule of subrogation
No
What are hold harmless agreement?
Restricts insured and therefore insured rights to recover from a contracting party
Can insurers pursue recovery rights against fellow negligent workers
No
What grounds can subrogation come into effect
Tort - wrongdoing
Contracts
Statue
Legal cases
