Chapter 2- Principles And Terminology

Question 1

Contract law

Answer 1

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

Question 2

Essentials of valid insurance contract

OCPCCL

Answer 2

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

Question 3

Contract certainty

Answer 3

All parties must know terms

Broker insurance document after inception

Question 4

Unconditional acceptance

Answer 4

No alterations

Insurer now on risk

Question 5

Conditional acceptance

Answer 5

Counter offer

Question 6

Postal acceptance

Answer 6

When letter is posted

Question 7

Consideration

Answer 7

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

Question 8

What is insurable interest

5 components

Answer 8

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

Question 9

Insurers own insurable interest

Answer 9

Reinsurance

Interest for financial risk taken

Question 10

Timing of insurable interest

For life, marine, general

Answer 10

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

Question 11

Creation of insurable interest (3)

Answer 11

Common law
Contract
Statute

Question 12

Good faith

Answer 12

Disclose all material facts

Question 13

Material fact

Answer 13

Influence the judgement of a prudent insurer

Includes physical and moral hazards

Question 14

Facts that don’t need to be disclosed

Answer 14

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

Question 15

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

Non commercial

Answer 15

Policyholder could not have been expected to disclose

Non negligent misrepresentation

Question 16

Consequences of non disclosure

Answer 16

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

Question 17

Modification of policy wordings to non disclosure

Answer 17

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

Question 18

Cancellation of contract

Answer 18

7 day cancellation letter

If insurer waives, estopped from avoiding at a later date

Question 19

Materiality

Answer 19

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

Question 20

Remedies for breach of fair presentation

Answer 20

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

Question 21

Marine war cover

Answer 21

Can be cancelled and deactivated depending on location

Question 22

Policy fulfilment

Answer 22

Claims amount reached before policy expiration

Question 23

Proximate cause

Answer 23

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

Question 24

Indemnity definition

Answer 24

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

Question 25

Application of indemnity Marine Property

Answer 25

Marine- valued policy, amount agreed between parties, unvalued by marine act Property- value at loss time. Betterment (repair or replace)

Question 26

Reinstatement memorandum

Answer 26

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

Question 27

Day one reinstatement

Answer 27

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%

Question 28

Machinery and contents reinstatement

Answer 28

Second hand value plus transport | Or repair/replacement minus wear and tear

Question 29

Stock reinstatement

Answer 29

Stock in trade- value plus labour | Retailers- cost of replacing and transport

Question 30

Farming stock replacement

Answer 30

Local market price p, profit allowed

Question 31

Modifying indemnity | Agreed value policy

Answer 31

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

Question 32

Modifying indemnity | First loss policy

Answer 32

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

Question 33

3 limiting factors of indemnity

Answer 33

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

Question 34

Claim payment equation (average)

Answer 34

= sum insured X loss / | Value of goods at risk

Question 35

Farming claims

Answer 35

Average not applied if 75% + | Insurance of forward price

Question 36

Difference between excess and deductible, franchise

Answer 36

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

Question 37

Contribution

Answer 37

Risk covered by multiple policies, insurers share | Common subject, insurable interest, perils, does not have non contribution clause

Question 38

Contribution - sum insured method | Rateable proportion

Answer 38

Policy sum insured X loss / total value at risk | If non contribution clauses cancel out

Question 39

Contribution- independent liability

Answer 39

Pretends no other policy exists then shares in proportion | Policy sum insured X loss / total sum insured all policies

Question 40

Subrogation

Answer 40

Insurer recovers money from third party

Question 41

Subrogation - tort

Answer 41

Insured can claim from individual and insured | Duty to act reasonably

Question 42

Subrogation - statute

Answer 42

Riot damages act 1886 | Insurer can claim from police district

Question 43

Subrogation - salvage

Answer 43

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

Question 44

When can Subrogation not be used? | 4

Answer 44

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