Chapter 2- Principles And Terminology Flashcards
Contract law
Creation of legal relations
Premium paid in exchange for protection
This idemnifies the insured
Essentials of valid insurance contract
OCPCCL
Offer/acceptance Consideration Possibility of performance Capacity Consensus ad idem (meeting of minds) Legality Certainty
Contract certainty
All parties must know terms
Broker insurance document after inception
Unconditional acceptance
No alterations
Insurer now on risk
Conditional acceptance
Counter offer
Postal acceptance
When letter is posted
Consideration
Each side of the bargain
May also be in shares
Premium for loss
What is insurable interest
5 components
Legal right to insure from a financial relationship recognised at law
Subject, relationship, financial value, own insurable interest, timing
Insurers own insurable interest
Reinsurance
Interest for financial risk taken
Timing of insurable interest
For life, marine, general
Life assurance - only at inception
Marine- at loss but not inception
General insurance- inception and loss
Creation of insurable interest (3)
Common law
Contract
Statute
Good faith
Disclose all material facts
Material fact
Influence the judgement of a prudent insurer
Includes physical and moral hazards
Facts that don’t need to be disclosed
Lessen risk Public knowledge Waived info Survey ace missed Facts the insured doesn't know
ICOBS rules for unreasonable grounds of rejecting claim: (2)
Non commercial
Policyholder could not have been expected to disclose
Non negligent misrepresentation
Consequences of non disclosure
Ab initio
Fraud, insurer can keep premium
If breach ignored, claim must be paid
Modification of policy wordings to non disclosure
Contract may have ongoing disclosure
Needed on renewal
Excl life policies which aren’t renewed
Cancellation of contract
7 day cancellation letter
If insurer waives, estopped from avoiding at a later date
Materiality
No data dumping
Ought to know, presumed to know
No longer a separate duty of disclosure on the broker
Remedies for breach of fair presentation
Ab initio
Avoid claim but return premium (if different terms)
If higher premium, claim reduced
Marine war cover
Can be cancelled and deactivated depending on location
Policy fulfilment
Claims amount reached before policy expiration
Proximate cause
Original cause of the claim
E.g. Earthquake, rain
If policy excludes the proximate cause could stop claim
Indemnity definition
Restoring to previous financial position Does not apply to liability Or aviation loss of license Cash, repair, replacement, reinstatement Minus wear and tear
Application of indemnity
Marine
Property
Marine- valued policy, amount agreed between parties, unvalued by marine act
Property- value at loss time. Betterment (repair or replace)
Reinstatement memorandum
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
Day one reinstatement
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%
Machinery and contents reinstatement
Second hand value plus transport
Or repair/replacement minus wear and tear
Stock reinstatement
Stock in trade- value plus labour
Retailers- cost of replacing and transport
Farming stock replacement
Local market price p, profit allowed
Modifying indemnity
Agreed value policy
Value fixed at start
Common in marine and fine art where value disputed may occur
Partial loss counted as no agreed value
Modifying indemnity
First loss policy
Doesn’t cover full loss for unlikely event
Not much premium reduction, but risk more predictable
Payout for insured risks may not cover value
3 limiting factors of indemnity
Sum insured
Inner limit or item limit e.g 5% gold
Average- underinsured, insured takes responsibility for rest
Claim payment equation (average)
= sum insured X loss /
Value of goods at risk
Farming claims
Average not applied if 75% +
Insurance of forward price
Difference between excess and deductible, franchise
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
Contribution
Risk covered by multiple policies, insurers share
Common subject, insurable interest, perils, does not have non contribution clause
Contribution - sum insured method
Rateable proportion
Policy sum insured X loss / total value at risk
If non contribution clauses cancel out
Contribution- independent liability
Pretends no other policy exists then shares in proportion
Policy sum insured X loss / total sum insured all policies
Subrogation
Insurer recovers money from third party
Subrogation - tort
Insured can claim from individual and insured
Duty to act reasonably
Subrogation - statute
Riot damages act 1886
Insurer can claim from police district
Subrogation - salvage
Insurer entitled to any profit selling old broken machinery when replacing new (if cheaper then repairing)
When can Subrogation not be used?
4
No rights- e.g. Mutual hold harmless agreement
Benefit policies- insured keeps court award and benefit
Waiver
Injury to fellow worker
