Chapter 3

Question 1

What does a policy schedule usually contain?

Answer 1

All variable information concerning the insured, details of risks insured and which sections of policy are operative.

Question 2

Do policy documents have to be worded clearly?

Answer 2

Yes - clear enough for consumers to understand them.

Question 3

What is contra proferentem?

Answer 3

It applies by courts when policy wording is ambiguous

Question 4

Can an insured dispute core terms of a contract?

Answer 4

No but they can complain if they are unclear or badly written

Question 5

In an insurance policy what is a heading?

Answer 5

Includes the name of the insurer

Question 6

What is a preamble and what is it also known as?

Answer 6

It sets the scene and refers to insured/insurer forming a contract and offering indemnity in return for a premium.

A recital clause

Question 7

What will often be below the preamble?

Answer 7

A signature or stamp.

It comes from the time when policies were prepared by hand.

Question 8

What is the operative clause and why is the arguably the most important part of the contract?

Answer 8

It’s also called the insuring clause and this is where the actual cover is outlined «Eg. Axa agrees to indemnify the insured against claims made during the policy period «

Question 9

Are exceptions and exclusions the same thing?

Answer 9

Yes

Question 10

What is the difference between express and implied conditions?

Answer 10

Express conditions are always stated
Implied conditions are implied by common law and are not stated

Question 11

What is the purpose of the policy schedule?

Answer 11

To make the policy specific to the insured

Question 12

List some variable parts of the policy schedule.

Answer 12

• Insured’s name
• Insured’s address
• Policy period
• Premium
• Details of the subject matter
• Location of the risk
• Sum insured or limit of liability
• Policy number
• Reference to special exclusions, conditions or aspects of cover
• Operative sections of the policy

Question 13

What types of information might be included in the ‘Information and facilities’ section of a policy?

Answer 13

• Definitions
• Customer service standards statement
• Complaints procedure
• Claims information

Question 14

True or False: Definitions in an insurance policy only apply if the word begins with a lowercase letter.

Answer 14

False

The definition will apply only if the word begins with a capital letter or is formatted in bold or italics.

Question 15

What does a customer service standards statement provide?

Answer 15

Expected response times from the insurer

This statement informs policyholders about the level of service they can expect.

Question 16

What should a policyholder do if their complaint is not resolved satisfactorily?

Answer 16

Refer to the Association of British Insurers and/or the Financial Ombudsman Services

Question 17

Fill in the blank: The Ombudsman asks firms to try and resolve complaints within ______ weeks of the first complaint.

Answer 17

eight

Question 18

What is typically found in the claims information section of a motor insurance policy?

Answer 18

‘What to do?’ in the event of a motor accident

Question 19

What is a Freephone claims service?

Answer 19

A service provided for reporting claims without charge

Question 20

What are the 8 main things a policy will include

Answer 20

1. heading;
   2 • preamble;
   3 • signature clause;
   4 . operative clause;
   § . exclusions/exceptions;
   6 . conditions;
   7 . policy schedule; and
   8 • information and facilities

Question 21

What is the difference between general and specific exclusions?

Answer 21

General exclusions apply to all sections of the policy

Specific exclusions only apply to parts of the policy

Question 22

Why is war a fundamental risk?

Answer 22

It’s too serious to be insured by an insurance company. The damage would be to widespread.

Question 23

Is radioactive contamination a fundamental risk?

Answer 23

Yes - usually! Potentially losses are considered beyond the capacity of normal insurers. Specialist pools of insurers may cover nuclear installations however.

Question 24

Why is terrorism now generally excluded?

Answer 24

Following major terrorist attacks in London and 9/11 it was clear that significant terrorist attacks could happen from unexpected/insured perils like aircraft’s.

Question 25

What was Pool Re?

Answer 25

A government company set up to deal with commercial property cover for terror attacks.

It is now a re-insurer of terrorism cover. Following the Manchester bombings and London Bridge attack, it extended its cover it BI. (Not just physical property damage.)

Question 26

How does the insurance industry cover terrorism cover now?

Answer 26

The insured can purchase it separately and buy it as additional cover. Premium rates are now decided by individual insurers.

Question 27

Name two other risks that are excluded as standard in property insurance.

Answer 27

• Pollution / Contamination
• Sonic Bangs

Question 28

What are conditions (expressed or implied)

Answer 28

Conditions are terms written into the policy that have to be adhered to by the insured for cover to be valid. They imposed obligations onto the insured.

Question 29

What is the condition ‘duties of the insured?’

Answer 29

The insured must observe and fulfil all terms of the policy.

Question 30

What is the condition of alteration?

Answer 30

Insured has a continuing duty to notify insurers of any changes to the risk.

Question 31

What is the condition ‘action of the insured in the event of a claim?’

Answer 31

The insurer may stipulate a specific timeline/method any claim needs to be notified in.

Question 32

What is the condition of fraud?

Answer 32

If a claim is in anyway fraudulent, it won’t be covered.

Question 33

What is the condition of reasonable precautions and why is it often not valid in court?

Answer 33

The insured has a duty to take reasonable care not to cause a claim due to carelessness. Courts often see this as a way for insurers to try and get out of paying claims.

Question 34

What is the condition of contribution?

Answer 34

If there is dual insurance in place, insurers can call on other insurers to pay towards part of the claim costs.

Question 35

What is the condition of subrogation?

Answer 35

Insurers can recover costs from third parties if they are responsible or party responsible for the loss on the behalf of the insured.

Question 36

What is the condition of average?

Answer 36

The amount insurers have to pay to the insured in the event of a claim is less if there is underinsurance.

Question 37

What is the condition of arbitration?

Answer 37

It concerns quantum disputes.

Question 38

Is there a condition of cancellation?

Answer 38

Yes! Often there is, which sets out when the insured or insurers can cancel cover.

Question 39

What are warranties?

Answer 39

Promises made by the insured to do something / not do something.

Question 40

What is an example of a warranty in marine insurance?

Answer 40

A promise to not travel to certain parts of the world.

Question 41

What 3 outcomes can happen if a warranty to breached in a non-consumer contract?

Answer 41

1. The cover could be waived ab initio
2. The breach could waived
3. The cover could be suspended and incepted again once the breach has been remedied

Question 42

Do warranties have to strictly complied with and do they have to be written into policy?

Answer 42

Yes and yes!

Question 43

What is a condition precedent to the contract?

Answer 43

A term that must be fulfilled prior to the formation of the contract itself.

Question 44

What is a condition subsequent to the contract?

Answer 44

It must be complied with once the contract is in force.

Question 45

What is a condition precedent to liability?

Answer 45

A term that must be complied with for a claim to be valid.

Question 46

What is a representation?

Answer 46

Written or oral statements made during the negotiations for the contract.

Question 47

Does representation need to be accurate and does it appear in the policy?

Answer 47

Yes and no.

Question 48

What happens if an insured breaches a condition subsequent to the contract?

Answer 48

Insurers may be able to avoid cover.

Question 49

What happens if an insured breaches a condition precedent to liability?

Answer 49

The insurer can avoid the claim but not the whole contract/cover.

Question 50

What is an excess?

Answer 50

The first amount of each claim for which the insured is responsible.

Question 51

Who is the insurer for the value of the excess?

Answer 51

The insured!

Question 52

What is a compulsory and voluntary excess?

Answer 52

A compulsory excess is fixed by the insurer. A voluntary excess is accepted by the insured in return for a discount.

Question 53

What is a deductible?

Answer 53

A very large excess.

Question 54

What is a franchise? And give an example.

Answer 54

A fixed amount of time before a claim is valid/paid out. For example, in a PA policy often the illness must last 7 days or more before any claim is paid.