Chapter 2

Question 1

Consensus ad idem (meeting of minds)

Answer 1

Do both parties believe they are agreeing to the same thing

Question 2

Good faith

Answer 2

Both parties must not mislead one another.

Question 3

Contract certainty

Answer 3

Requires all parties involved in the contract to know exactly what the terms are before inception and that some sort of evidence of the contract is issued to the insured a short time after inception.

Question 4

Evidence of contract (2)

Answer 4

1) Market reform contract - slip
2) Broker insurance document

Question 5

Unconditional acceptance

Answer 5

When terms re not changed by the potential insured

Question 6

Conditional acceptance

Answer 6

When there is an acceptance but conditional to a change to the proposed cover proposed by the insured

Question 7

Postal acceptance

Answer 7

Acceptance is complete when letter is posted

Question 8

Insurable interest

Answer 8

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

Question 9

Life insurance contracts

Answer 9

Insurable interest must exist at inception but need not exist at
the time of a loss.

Question 10

Marine insurance contracts.

Answer 10

Insurable interest must exist at the time of a loss but need
not exist at inception although a reasonable expectation of acquiring one is required.

Question 11

General insurance contracts.

Answer 11

A general rule that insurable interest must exist both at
inception and at loss; however, an anticipated interest may be sufficient at inception.

Question 12

Estoppel

Answer 12

legal term used for a bar or impediment that precludes a person from
asserting a fact or a right

Question 13

Proximate cause

Answer 13

there are occasions when the cause of the loss is not so easily defined, either because there is a chain of events or there is more than a single cause.

Question 14

Indemnity

Answer 14

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

Question 15

Agreed value policies

Answer 15

In agreed value policies the value of the subject-matter of the insurance is agreed at the start of the contract and the sum insured is fixed accordingly.

Question 16

First loss policies

Answer 16

the insured believes that the full value of the insured property is not really at risk, in other words, a total loss or even a very substantial loss is unlikely at least in relation to some perils that are being insured against. In this case, the insured may

Question 17

Sum insured

Answer 17

The maximum amount that can be recovered under a property insurance policy is limited to the sum insured.

Question 18

What is an excess

Answer 18

An excess is an amount that is deducted from each claim and is paid by the insured.

Question 19

Deductible vs Excess vs Franchise

Answer 19

Policy with limits of US$1m and a $100,000 deductible.Insurers will only ever pay US$900,000 any one loss and the insured will pay US$100,000 (plus any amount over and above US$1m).

1 mill limit and 100,000 excess - insurer will pay 1 mill and insured will pay US$100,000 (plus any amount over and above US$1m).

Policy of 1 mill and franchise of 100,000 - if above franchise level insured will pay 1 mill and insured pays nothing

Question 20

Contribution

Answer 20

Contribution is defined as ‘the right of an insurer to call upon others similarly, but not necessarily equally, liable to the same insured to share the cost of an indemnity payment’.

Question 21

Subrogation

Answer 21

the right of an insurer following payment of a claim, to take over the insured’s rights to recover payment from a third party responsible for the loss.