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LM1 > Chapter 2- Principles And Terminology > Flashcards

Chapter 2- Principles And Terminology Flashcards

1
Q

Contract law

A

Creation of legal relations
Premium paid in exchange for protection
This idemnifies the insured

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2
Q

Essentials of valid insurance contract

OCPCCL

A 
Offer/acceptance
Consideration
Possibility of performance
Capacity
Consensus ad idem (meeting of minds)
Legality
Certainty
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3
Q

Contract certainty

A

All parties must know terms

Broker insurance document after inception

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4
Q

Unconditional acceptance

A

No alterations

Insurer now on risk

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5
Q

Conditional acceptance

A

Counter offer

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6
Q

Postal acceptance

A

When letter is posted

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7
Q

Consideration

A

Each side of the bargain
May also be in shares
Premium for loss

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8
Q

What is insurable interest

5 components

A

Legal right to insure from a financial relationship recognised at law
Subject, relationship, financial value, own insurable interest, timing

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9
Q

Insurers own insurable interest

A

Reinsurance

Interest for financial risk taken

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10
Q

Timing of insurable interest

For life, marine, general

A

Life assurance - only at inception
Marine- at loss but not inception
General insurance- inception and loss

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11
Q

Creation of insurable interest (3)

A

Common law
Contract
Statute

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12
Q

Good faith

A

Disclose all material facts

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13
Q

Material fact

A

Influence the judgement of a prudent insurer

Includes physical and moral hazards

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14
Q

Facts that don’t need to be disclosed

A 
Lessen risk
Public knowledge
Waived info
Survey ace missed
Facts the insured doesn't know
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15
Q

ICOBS rules for unreasonable grounds of rejecting claim: (2)

Non commercial

A

Policyholder could not have been expected to disclose

Non negligent misrepresentation

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16
Q

Consequences of non disclosure

A

Ab initio
Fraud, insurer can keep premium
If breach ignored, claim must be paid

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17
Q

Modification of policy wordings to non disclosure

A

Contract may have ongoing disclosure
Needed on renewal
Excl life policies which aren’t renewed

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18
Q

Cancellation of contract

A

7 day cancellation letter

If insurer waives, estopped from avoiding at a later date

19
Q

Materiality

A

No data dumping
Ought to know, presumed to know
No longer a separate duty of disclosure on the broker

20
Q

Remedies for breach of fair presentation

A

Ab initio
Avoid claim but return premium (if different terms)
If higher premium, claim reduced

21
Q

Marine war cover

A

Can be cancelled and deactivated depending on location

22
Q

Policy fulfilment

A

Claims amount reached before policy expiration

23
Q

Proximate cause

A

Original cause of the claim
E.g. Earthquake, rain
If policy excludes the proximate cause could stop claim

24
Q

Indemnity definition

A 
Restoring to previous financial position
Does not apply to liability
Or aviation loss of license
Cash, repair, replacement, reinstatement
Minus wear and tear
25
Q

Application of indemnity
Marine
Property

A

Marine- valued policy, amount agreed between parties, unvalued by marine act

Property- value at loss time. Betterment (repair or replace)

26
Q

Reinstatement memorandum

A

Sum insured must represent the full value at time of reinstatement
Insured value must be 85% + of actual value
Anything over the 85% won’t be paid out

27
Q

Day one reinstatement

A

Insured states reinstatement value on first day of cover
Insurers provide an inflation uplift amount 50% but high premium of 15%
No error margin
Takes into account building costs but could be more than the 50%

28
Q

Machinery and contents reinstatement

A

Second hand value plus transport

Or repair/replacement minus wear and tear

29
Q

Stock reinstatement

A

Stock in trade- value plus labour

Retailers- cost of replacing and transport

30
Q

Farming stock replacement

A

Local market price p, profit allowed

31
Q

Modifying indemnity

Agreed value policy

A

Value fixed at start
Common in marine and fine art where value disputed may occur
Partial loss counted as no agreed value

32
Q

Modifying indemnity

First loss policy

A

Doesn’t cover full loss for unlikely event
Not much premium reduction, but risk more predictable
Payout for insured risks may not cover value

33
Q

3 limiting factors of indemnity

A

Sum insured
Inner limit or item limit e.g 5% gold
Average- underinsured, insured takes responsibility for rest

34
Q

Claim payment equation (average)

A

= sum insured X loss /

Value of goods at risk

35
Q

Farming claims

A

Average not applied if 75% +

Insurance of forward price

36
Q

Difference between excess and deductible, franchise

A

Excess- deducted from claim, paid by insured. Not removed from overall claim limit.

Deductible- deducted from policy limit

Franchise- once franchise value exceeded, insurer pays whole claim

37
Q

Contribution

A

Risk covered by multiple policies, insurers share

Common subject, insurable interest, perils, does not have non contribution clause

38
Q

Contribution - sum insured method

Rateable proportion

A

Policy sum insured X loss / total value at risk

If non contribution clauses cancel out

39
Q

Contribution- independent liability

A

Pretends no other policy exists then shares in proportion

Policy sum insured X loss / total sum insured all policies

40
Q

Subrogation

A

Insurer recovers money from third party

41
Q

Subrogation - tort

A

Insured can claim from individual and insured

Duty to act reasonably

42
Q

Subrogation - statute

A

Riot damages act 1886

Insurer can claim from police district

43
Q

Subrogation - salvage

A

Insurer entitled to any profit selling old broken machinery when replacing new (if cheaper then repairing)

44
Q

When can Subrogation not be used?

4

A

No rights- e.g. Mutual hold harmless agreement
Benefit policies- insured keeps court award and benefit
Waiver
Injury to fellow worker

LM1 (8 decks)

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