Chapter 2 - Basic Insurance legal principles and terminology Flashcards
Contract Law
A law of deals or agreements
“An agreement enforceable by law between two or more persons to do, or abstain from doing, some acts, their intention being to create legal relations and not merely to exchange mutual promises.”
An agreement between insured and insurer
Main purpose of insurance
Pay claims to policyholders should they suffer loss or damage
Restores the insured to the position they were in before the loss (indemnifying the insured)
What are the two most important essentials of a valid contract?
- Offer and acceptance
- Consideration
Name three of the six other important elements of a valid contract
- Intention to create a legal agreement
- Possibility of performance
- Capacity to enter into legal relations
- Consensus ad idum (meeting of minds)
- Legality
- Certainty
Legal term for a contract which may be declared invalid if missing essentials of a valid contract
Void ab initio
From the beginning
Simple contract
Insurance policies are simple contracts
A simple contract does not need to be evidenced in writing
A policy does not have to have been issued for cover to exist
Good practice to have evidence of the agreement - in London Market called Contract Certainty
Contract Certainty in LM
Requires all parties to know terms
Evidence in form of a slip (Market Reform Contract) or Broker Insurance Document
When does a contract come into existence?
When one party makes and offer, and the other accepts unconditionally
Unconditional acceptance
Accepting an offer without altering any of the terms.
Must be the final and unqualified agreement to the offer
Conditional acceptance
Introducing new terms (a counter-offer)
Postal acceptance
Acceptance complete when the letter of acceptance is posted
Consideration
Each persons side of the bargain which supports the contract
Consideration from the insured = Payment of premium
Consideration from the insurer = Promise to pay valid claims
Insurable interest
“The legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject-matter of insurance.”
What are the 3 features of insurable interest?
- Subject-matter
- Need for a legal relationship
- Financial value
What might an insurer do about their own insurable interest?
Purchase reinsurance to protect them from the risks they have written
When must insurable interest exist for the following:
Life assurance
Marine
General insurance
Life assurance - Inception, but not at time of loss
Marine - Time of loss, not necessary at inception
General insurance - Inception & time of loss
Insurable interest in Common Law
We have a duty of care
Law of negligence
Insurable interest such as ownership/exposure to liabilities to others.
Insurable interest- Statutes that impose a positive duty
- Settled Land Act 1925
- Repair of Benefice Buildings Measure Act 2972 (makes tenants responsible for upkeep)
Statutes modifying insurable interest
- Carriage of Goods by Sea 1971: limits liability of a carrier
- Hotel Proprietor’s Act 1956: liability only if a room has been damaged by a guest
- Carrier’s Act 1830: no liability for goods such as jewellery worth more than £10 unless value declared
Good Faith
All parties to a contract must act with good faith - they must not mislead one another.
Good faith in pre-contract negotiations
Both parties should be open and transparent
Share key information
Proposer has duty to disclose all material facts
Insurer must be open and cannot introduce new non standard terms or withhold discounts for improving a risk
What is a consumer?
Someone who is buying insurance wholly or mainly for purposes unrelated to their business trade or profession
Consumer Insurance (Disclosure and Representation) Act 2012
The consumer has a duty to take reasonable care not to make a misrepresentation to their insurers and need to exercise reasonable care
Two types of misrepresentation
Careless
Deliberate/reckless
Misrepresentation is deliberate/reckless if…
The consumer knew it was untrue or misleading or did not care
The consumer knew it was relevant to the insurer or did not care
Insurers remedies for misrepresentation when deliberate/reckless
- Avoidance of contract
- refusing all claims
- no return of premium unless it would be unfair