Chapter 2: Basic Insurance legal principles and terminology Flashcards
1
Q
Insurance Contract
A
- Insurer agrees to pay insured a sum of money / provide service of monetary value when a claim is submitted
- Insured pays agreed premium and abides by t+cs
2
Q
Criteria for an enforceable contract
A
- Offer and acceptance
- Due consideration
3
Q
Important elements of a contract
A
- Deliberate intention to form legal agreement
- Possible
- Capable (Under 18s/disabled)
- Consensus ad idem
- Legality
- Certainty (clear terms)
4
Q
Void ab initio
A
- Void from the beginning
5
Q
Offer and Acceptance
A
Contract exists when an offer is unconditionally accepted
6
Q
Unconditional acceptance
A
Final acceptance
7
Q
Conditional acceptance
A
Counter offer where new terms are introduced
8
Q
Postal acceptance
A
- If post is an accepted method of communication, acceptance is considered when the letter is first posted
9
Q
Consideration
A
- Each persons side of the bargain which supports the contract
- Insured = premium
- Insurer = promise to pay claims
10
Q
Insurable interest
A
- Legal right to insure something built on the financial relationship recognised by law
- Between the insured and the subject of the insurance
11
Q
Features of insurable interest
A
- Subject matter of the insurance (what is being insured)
- Subject matter of the contract (relationship between insured and item)
12
Q
Legal relationship
A
relationship between insured and subject of insurance must be recognised in law
13
Q
Insurer’s Insurable interest
A
Allows them to purchase reinsurance to protect them from risks
14
Q
Common law insurable interest
A
- Owe duties to one another
15
Q
Statutes which modify insurable interest
A
- Impose a positive duty
- Some statutes restrict liability and therefore restrict the financial value of the insurable interest
16
Q
Principle of good faith in pre-contract negotiations
A
- Applies to both proposer (insured) and insurer
- Must be open and transparent sharing key information
17
Q
Consumer Insurance (Disclosure and Representation) Act 2012
A
- Consumer have a duty of care not to misrepresent themselves to insurer
- Insurer will have to show they would not have entered into the contract with correct representation
- Innocent misrepresentation does not count
18
Q
ICOBS
A
Insurance: Conduct of Business Requirements
19
Q
Section 3 of the Insurance Act
A
- Insured must make fair representation
- Insured cannot data dump
- Insurer has the burden to ask follow up if the presentation invites it
- Sets out the scope of the insureds actual knowledge (including matters known by senior management)
20
Q
Fair representation
A
Disclosure of all material information that an insured knows or ought to know
21
Q
Materiality of physical hazard
A
Information about construction of a people or devices installed
22
Q
Materiality of a Moral hazard
A
Past convictions, previously declined insurance
23
Q
Insurance Act section 4
A
- what the insured ought to know
- Reasonable search of information available to the insured (larger an organisation the larger the internal request will be)
24
Q
Insurance Act section 6
A
- Information the insured suspects but deliberately refrains from including will be included as what they know
25
Information that does not need to be disclosed in negotiations
- Matters of law
- Public knowledge (state of war, natural disasters, industry processed)
- Factors that lessen the risk
- Information waived by insurer (not included on a survey or followed up on)
- Information that a survey should have revealed (not on the insured if the they didnt know to disclose)
Information the insured doesnt know (was it material/reasonable)
26
Rehabilitation of Offenders Act 1974 / LAPSO 2012
- Legal aid, sentencing and punishment of offenders act
- Certain offences will be treated as if they never happened after a differing time scale
27
When would an insurer ought to know something
- If it is known by the employee/agent of the insurer
- If it is held somewhere within the organisation that the decision maker would have access to
28
What is an insurer presumed to know
- Common Knowledge
- Anything insurers in that class of business would be expected to know
29
Role of broker IRO disclosure
- No expressed duty of disclosure
30
Duty of fair representation
- Was the breach reckless or deliberate
- Did the breach take place during the original placement of the risk
31
Options if a breach of representation occured during the original placement
- Policy can be Void ab initio if RECKLESS -> insurer can retain premium
- NOT RECKLESS but would NOT have entered, void contract and return premium
- NOT RECKLESS but would have entered on DIFFERENT terms (higher premium) the contract will be on those terms and any additional premium will instead be taken off claims
32
Variation in contract
- changes can take place at any point after original placement
- Same rules of misrepresentation apply
33
Contracting out - Insurance Act 2015
- Insurer and insured might agree that the provisions in IA15 dont need to apply
- Burden on insurer to be very transparent on the impact of it
34
Road Traffic Act 1988
- Prohibits insurer from avoiding liability because of certain breaches
- Innocent victims should always be adequately compensated
35
Insurer Duty of disclosure
- Must behave in good faith
- Explain clearly the various options/products
- Should be able to reduce premium if changes are made
36
When does duty of disclosure start?
- When negotiations begin and end when contract incepts
- Only exception is if there is a specific policy condition which extends duty of disclosure
37
Duty of disclosure at renewal
- revived for general insurance policies (non-life)
- even if material fact changes after renewal, it does not need to be declared outside the disclosure period
38
Duty of disclosure continuing requirement
- DoD revived at MTA
39
Uses of slips in the London Market for representation
Market reform contract
- drawn up by broker and does not include any questions (can be asked following presentation)
Could prevents claims of of duty of care breaches if their conduct is bad
Cannot delay decision unnecessarily to avoid/cancel the policy
40
Cancellation of insurance contracts
- Contracts are expected to continue until agreed expiry/renewal date (different contracts have different periods)
- No obligation to offer renewal terms
41
Insurer's right to cancelleation
- Most GI have cancellation conditions
- Allows insurer to cancel provided a letter is sent with 14 days notice to the insured
42
Policyholders right to cancel
- less common
some may be permitted in wordings (also may allow a portion fo the premium to be returned)
43
Fulfilment of contract
- cancellation of contract after it has fully performed
44
Voidable Contracts
- Contract can be set aside by one party (e.g. insured may have breached policy conditions)
- Policy may never have been in force
45
Proximate cause
- Dominant cause of an occurence (Initial domino)
- Direct link between it and the loss
46
What must an insurer determine if a loss occurs and claim is made
- Was the contract valid
- What was the proximate cause
47
Insured Perils
Named in the policy as covered
48
Excepted or excluded perils
Named as specifically not covered
49
Uninsured/unnamed perils
Perils not mentioned
50
When is it necessary to establish the nature of perils
- If not all the events leading up to the loss are insured perils
51
Indemnity
Compensation sufficient enough to place the insured back to the same financial position as before the loss
52
Benefit policies
- Policies where the principle of indemnity cannot apply
53
What are the settlement options for indemnity
- Cash
- Repair
- Reinstatement
- Replacement
- an option applies only if it is stated on the policy
54
Settlement: Cash payment
Insurer directly pays money to the insured
55
Settlement: Repair
- Insurer may opt to repair damage to insured item
- May have lower cost than insured due to power of large orgs
56
Settlement: Replacement
Glass insurance
57
Settlement: Reinstatement
- Insurer may agree to restore a building or piece of machinery
58
Indemnity of property insurance
Measure of indemnity is the cost minus wear and tear value
- Partial damage is cost of repair minus wear and tear allowance
59
Indemnity of liability insurance
- Covers legal liability to pay damages and legal costs of both insured and the claimant
60
Indemnity for Agreed value policies (Marine)
Insurable value is agreed between insured and insurer
61
Property indemnity
- Value at the date/place of loss
- A basic buildings cover would cover the cost of repairs/reconstruction
- Reinstatement conditions cover on the basis of full reinstatement at the value at the time of the reinstatement
62
Reinstatement memorandum
- Insured pays higher premium
- Sum insured must represent full value at the time of reinstatement
63
Day One reinstatement
- Insured must state reinstatement amount on first day of cover
- Applies an automatic inflation uplift (usually 50%)
64
manufacturers stock in trade
- Raw materials
- Work in progress
- Finished stock
- Indemnity = raw materials at the time/place of loss + labour and other costs incurred
65
Wholesaler/retailer stock in trade indemnity
- Cost of replacing stock at time of loss
- Includes cost of transport and handling costs
- Cant insure stock on a reinstatement basis
66
Household basic indemnity
based on cost of replacing item with wear and tear accounted for
67
New for old cover
- makes no allowance for wear and tear
68
Farming stock indemnity
Local market price
69
Liability insurance indemnity
Amount of any court award (settlement) plus the costs and expenses in connection with the claim
70
Modifying the indemnity in a Agreed value policy
- Value is reviewed at renewal
- Event of claim, value doesnt need to be proven
71
Modifying indemnity of a first loss policy
- Insured may request to be covered for some perils less than the total value
- would receive full indemnity but only for the percentage they insured
72
Limiting factors
- Factors where the insurers may provide less than full indemnity
- Policies contain limits with sum insured
73
Excess
- Amount deducted from each claim and is paid by the insured
- Most are voluntary, insured receives discount on premium for taking excess
74
Deductible
- Amount deducted from the limits
- If a policy is underinsured, excess and deductible deducted last
75
franchise
- Operates in the same way as an excess or deductible
- If claim value exceed franchise value, insurers will pay the whole claim
76
From the Ground up
- Figures quoted have not taken into account any deductible/franchise/excess that might apply
77
Underinsurance
Where the insured understates the value of the subject matter
78
Contribution
- Right of the insurer to call upon other insurers to share the cost of an indemnity payment (may not be equally liable)
- Policies dont need to be identical but there must be some overlap
79
Rateable proportion
- Insurers contribute to a claim
- Based on sum insured
- Sum insured / Total sum insured x Size of loss
- Independent liability method
80
Modifications of principle of contribution
- Non-contribution clauses
- Market agreements
- More specific insurance clauses
81
Subrogation
Right of the insurer to take over insured's right to chase any third party payments after the settlement of a claim
- limited to the amount paid under the policy
- Insured cant claim indemnity and 3rd party payments
82
Riot Compensation act 2016
Claim can be made by a property owner or anyone else with legal interest
- claims must be made within 43 days of the riot
- claims must be made within 43 days
83
Salvage
- residual value left after an insurable interest is all but destroyed so the cost to repair damage exceeds sum insured limits
- If insurer meets the loss in full they are entitled to the salvage value
- Insured can keep salvage but will be deducted from claim
84
Precluded subrogation rights
- Insured has no rights (subrogation relies on insured having negligent 3rd party to claim from)
- Benefit policies (insured is entitled to keep both PA benefits and the court award)
85
Subrogation waiver
Insurers waive their rights to subrogation
86
Lister v Romford Ice and Cold storage 1957
- Insurers took the decision not to purse recovery rights in cases of negligent fellow workers
- except in extreme circumstances insurers agree not to pursue
