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CII IF3 > Chapter 3: Insurance Policies > Flashcards

Chapter 3: Insurance Policies Flashcards

1
Q

What is the parol evidence rule?

A

Only the contract itself can be relied upon, not the negotiations leading up to it

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2
Q

What form is a policy generally issued in?

A

A schedule form consisting of a pre-printed policy wording and a policy schedule.

The policy schedule indicates which parts of the pre-printed wording are in force, as well as containing all the variable information and details of the specific risk

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3
Q

What sort of language should policy documentation use?

A

Clear, everyday wording with definitions for unfamiliar words

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4
Q

What does contra proferentem mean?

A

When there is a dispute over unclear or ambiguous policy wording it is interpreted against the party that provided the wording (normally for insurance this would be the insurer)

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5
Q

Can the terms of an insurance contract be challenged for being unfair?

A

By default no, however if a term is ambiguous or not prominent enough that can be challenged under the Consumer Rights Act 2015

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6
Q

What happens if an ambiguous or not prominent term is challenged and deemed to be unfair?

A

It is not binding

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7
Q

Generally, what are the 8 sections of a basic general insurance policy?

A
  1. Heading
  2. Recital Clause (preamble)
  3. Signature
  4. Operative Clause (insuring)
  5. Exceptions
  6. Conditions
  7. Schedule
  8. Information/Facilities
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8
Q

What will the heading section of a policy contain?

A

Insurer name, address + logo

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9
Q

What is the purpose of the recital clause/preamble?

A

“Sets the scene” - refers to the two parties coming together to form the contract and outlines the purpose of the contract (the insurer promising to indemnify the insured in return for a premium)

Also makes the proposal form part of the basis of the contract

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10
Q

What is arguably the most important section of a policy?

A

The operative clause

Also called insuring clause

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11
Q

What does the operative/insuring clause do?

A

Outlines the cover provided - may be only one or a number of clauses for different aspects/limits

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12
Q

What is a condition?

A

A term that the insured agrees to comply with during the cover period

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13
Q

What two types of conditions are there?

A

Express and implied

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14
Q

What is an express conditon?

A

A condition with is stated in the policy

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15
Q

What is an implied condition?

A

A condition implied by common law that is not expressly stated in the policy

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16
Q

What would be contained within the policy schedule?

A

The variable parts of the policy, it makes the policy specific to the insured

Insured name + address
Policy period
Premium
Policy number
Subject matter
Sum insured + limit of liability
Special exclusions/conditions
What sections of the policy wording are applicable
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17
Q

What may the information and facilities section of a policy contain?

A

Definitions - words capitalised or in bold
Customer service policies (response times)
Complaints procedures
How to claim

18
Q

What are the two types of exclusions found in most general insurance policies?

A
  1. General exclusions - apply to all sections of the policy

2. Specific exclusions - apply to specific parts of a policy

19
Q

What is a market exclusion?

A

A general exclusion that is common to all (or virtually all) insurance policies

20
Q

What are some common market exclusions?

A
  1. War
  2. Nuclear
  3. Terrorism (for commercial insurance, esp property)
  4. Pollution/contamination (for property insurance)
  5. Cyber risk (except for specialist insurance)
  6. Sonic boom
  7. Contractual liability (liability which only exists due to a contract the insured has entered into)
  8. Marine (property covered by a marine policy is excluded from a property policy)
21
Q

Although terrorism is a common market exclusion, terrorism cover can be purchased. How does this work?

A

Insurer’s can offer terrorism cover but it must be purchased on an “all-risks” basis, cover all the policy and all property locations. The insurer then reinsures it through a mutual re-insurer, Pool Re, which was setup in collaboration with the UK government and backed by a treasure guarantee. The insurer’s liability is capped per event and year and in Northern Ireland is provided directly by the government

22
Q

What are the main express conditions?

A
  1. Duties of the insured
  2. Alteration - extends duty of disclosure
  3. Actions in event of a claim
  4. Fraud
  5. Reasonable precautions
  6. Contribution
  7. Subrogation
  8. Average
  9. Arbitration
  10. Cancellation
23
Q

What is a reasonable precaution condition?

A

States that the insured must act as if they are uninsured - having insurance is not a reason to act carelessly. Instead they must act to minimise all losses

24
Q

What is a contribution condition?

A

Limits an insurer’s liability to their share of the loss in a situation where cover is provided under two or more policies

25
Q

What is the purpose of a subrogation condition?

A

It allows the insurer to exercise it’s subrogation rights as soon as it if notified of a claim, even before payment is made

26
Q

What is the purpose of an average condition?

A

To reduce claims payments where there is underinsurance (ie the value of the subject matter is greater than the value insured)

27
Q

What is a warranty?

A

A promise. Usually relates to something the insured will or will not do, or a promise surrounding certain facts. Can be express or implied

28
Q

Give some examples of express warranties

A

Household - a burglar alarm must be fitted and active
Motor - vehicle kept in a garage overnight
Property - maintained sprinkler system present
Marine - vessel will not travel to a certain place

etc

29
Q

What happens if a warranty is breached?

A

The insurer’s liability is suspended until the breach is remedied

30
Q

There are three categories of conditions based upon when they must be fulfilled. What are these?

A

1, Precedent to the contract (before the contract eg implied conditions such as insurable interest)

  1. Subsequent to the contract (once the contract is in force eg notification of changes in material circumstances)
  2. Precedent to liability (when a claim occurs eg must be notified within a certain timeframe)
31
Q

What was a basis of contract clause?

A

Representations made during proposal/negotiation were made into warranties

32
Q

Are basis of contract clauses valid?

A

No - these were abolished under CIDRA 2012 for consumer insurance and Insurance Act 2015 for commercial

The only exception to this is if the insurer and insured have agreed to contract out of IA 2015

33
Q

What is an excess?

A

The first portion of each and every claim for which the insured is responsible

34
Q

What are the two types of excess?

A

Compulsory - imposed by the insurer

Voluntary - accepted by insured in return for a lower premium

35
Q

What is a deductible?

A

A large excess

36
Q

What is a franchise?

A

A fixed amount or period of time that acts as a threshold or baseline to determine whether a claim is payable. It must be exceeded for there to be a claim

For example a business interruption policy could have a franchise of 7 days. If the business was interrupted for 6 days there would be no claim. If the business was interrupted for 8 days, the whole 8 days become claimable

37
Q

Your business has a policy with a franchise of £10,000. How much would your insurer pay in the event of a claim worth:

A) £5,000?

B) £12,000?

A

A) Nothing

B) £12,000

38
Q

You have a car insurance policy with a compulsory excess of £200 and a voluntary excess of £150. How much would the insurer pay for a claim of:

A) £300?

B) £1,000?

A

A) Nothing

B) £650

39
Q

How can losses arising from radioactive contamination and explosive nuclear assemblies be covered?

A

Through “market pools”

40
Q

What cover for pollution, if any, is provided under a public liability policy?

A

Pollution arising from a sudden, unexpected, identifiable, incident

41
Q

What cover for pollution, if any, is provided under a standard property policy?

A

None

42
Q

How does PoolRe define a Small Medium Enterprise for rating purposes?

A

A business with assets up to £5 million

CII IF3 (11 decks)

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