chapter 2 Flashcards
what is a contract?
‘an agreement, enforceable by law, between two or more persons to do, or abstain from doing, some act or acts, their intention being to create legal relations and not merely to exchange
mutual promises.’
what are the essentials to a valid contract?
- offer and acceptance
- consideration.
what are the other elements to a valid contract?
- Intention to create a legal agreement
- Possibility of performance
- Capacity to enter into legal relations
- Consensus ad idem (literally: meeting
of minds) - Legality
- Certainty
what type of policy is an insurance policy?
simple contracts
It follows that a policy does not have to have been issued for cover to exist.
what is contract certainty?
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
offer and acceptance
unconditional acceptance - Tom’s acceptance does not alter any of the terms of Bill’s offer. He has not tried to change any of the terms. A contract is formed, subject to the other essential elements being present. To be effective, acceptance must be the final and unqualified agreement to the offer
conditional acceptance - If new terms are introduced, the so-called acceptance becomes a new offer (a counter-offer)
which is open to be accepted or rejected by the person who made the original offer.
Not until Bill accepts Tom’s counter-offer, without further conditions, is a contract formed. A counter-offer operates as a rejection of the original offer
postal acceptance - where the parties have agreed to use the post as the method of communication, acceptance is complete at the point when the letter of acceptance is posted. This rule applies even if the letter is delayed, or is lost or destroyed in the post and never reaches the offeror,
consideration
‘some right, interest, profit or benefit
accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.’
consideration is each person’s side of the bargain which supports the contract.
The consideration from the insured is generally the payment of the premium and the consideration from the insurers is the promise to pay valid claims
what is insurable interest?
‘the legal right to insure arising out of a financial relationship recognized at law, between the insured and the subject-matter of insurance.’
features of insurable interest.
- subject-matter
- need for a legal relationship, but not necessarily
ownership - financial value
what is subject matter?
Subject-matter of insurance:
This is what is actually being insured, be it a physical thing such as a building, a car, a ship or some livestock, or the potential to be held legally liable for loss or damage to someone else or their property.
Subject-matter of the contract:
It might be ownership of property, responsibility for the safe-keeping of goods stored in a warehouse,
what is legal relationship?
relationship of the insured with the subject-matter must be recognized in law
Merely feeling responsible for something is not adequate
it is important for insurers handling international business to appreciate that the legal position differs from country to country and what is recognized under English law may not be under another country’s law, and vice versa.
what is financial value?
that should something bad happen then the insured may have a financial
downside because something has been damaged or destroyed, or because they have incurred a legal liability which may result in an award of damages against them.
what are insurers own insurable interest?
Insurers have an insurable interest allowing them to purchase reinsurance to protect them from the risks they have written
timings of insurable interest - life insurance?
Insurable interest must exist at inception but need not exist at the time of a loss.
timings of insurable interest - marine insurance
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
timings of insurable interest - general insurance
A general rule that insurable interest must exist both at inception and at loss; however, an anticipated interest may be sufficient at inception.
what are the different ways insurable interest can be created?
common law
contract
statutes
what is common law?
We all owe duties to each other and have certain rights under common law. These give rise to insurable interests
eg. ownership or exposure to liabilities to others under the law of negligence
eg. a local council is responsible for ensuring that pavements are well maintained
what is a contract in the context of the creation of insurable interest?
There are situations when we enter into a contract in which we accept greater
responsibilities and therefore liabilities than those imposed by common law.
eg. a landlord is liable under contract to their tenant to maintain the property; however, they can enforce responsibilities onto the tenant under the same contract.
what is statute in the context of the creation of insurable interest?
There are some statutes which impose a positive duty:
- These statutes make the tenants responsible for the upkeep of the buildings they occupy.
- This gives the tenants an insurable interest in the building.
There are also statutes which restrict liability:
- Hotel Proprietors’ Act 1956 – liability only exists if a room has been booked and
damage occurred during the time the guest was entitled to use the accommodation.
what is good faith in pre contract negotiations?
means that both parties should be open and transparent with each other in the sharing of key information relating to the risk.
It is the proposer who has the duty to
disclose all material facts about the risk to the insurer.
The insurer must be entirely open with the proposer
- introduce new non-standard terms into the contract that were not discussed during negotiations or withhold the fact that discounts are available for certain measures that improve a risk.
Consumer Insurance (Disclosure and Representations) Act
2012
a duty to take reasonable care not to make a misrepresentation to their insurers,
and whether they have exercised reasonable care will be considered in light of all the relevant circumstances.
2 misrepresentations under this Act
- careless
- deliberate and reckless
what makes a misrepresentation deliberate or reckless?
- if the consumer knew that it was untrue or misleading, or did not care whether or not it was untrue or misleading
- knew that the matter to which the representation related was relevant to the insurer, or did not care whether or not it was relevant to the insurer.
If the insurer can prove deliberate or reckless…
their options are:
-avoidance of the contract
and refusing all claims
- not need return any premium unless it would be unfair to the consumer to retain them.