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IF1 - Insurance, Legal and Regulatory > Chapter 4 - Insurable Interest > Flashcards

Chapter 4 - Insurable Interest Flashcards

1
Q

A - What is an Insurable Interest?

  1. What is insurable interest?
A

The legal right to insure arising out of a financial relationship recognized by law, between the insured and the subject matter of insurance.

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2
Q

A - What is an Insurable Interest?

A1 Features of Insurable Interest

  1. What are the three elements of insurable interest?
A

Subject matter
Legal relationship
Financial value

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3
Q

A - What is an Insurable Interest?

A1 Features of Insurable Interest

  1. Name two types of insurable interest.
A

Insurers’ insurable interest
Anticipated insurable interest

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4
Q

A - What is an Insurable Interest?

A1A Subject Matter

  1. What are the two ways the subject matter of the insurable interest can be defined?
A

The subject matter of the insurance (SMI)

The subject matter of the contract (SMC)

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5
Q

A - What is an Insurable Interest?

A1A Subject Matter

  1. What is the subject matter of the insurance (SMI)? Provide examples.
A

The item or event insured e.g. cars, houses, valuables, stock

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6
Q

A - What is an Insurable Interest?

A1A Subject Matter

  1. What is the subject matter of the contract (SMC)?
A

The financial interest a person has in the SMI.

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7
Q

A - What is an Insurable Interest?

A1B Legal Relationship

  1. Why is the establishment of a legal relationship important?
A

The relationship between the insured and the subject matter must be recognized in law.

If there is no legal relationship, there is no insurable interest

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8
Q

A - What is an Insurable Interest?

A1C Financial Value

  1. Why is it important that there be financial value?
A

Insurance contracts are always concerned with financial value

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9
Q

A - What is an Insurable Interest?

A1D Insurers’ Insurable Interest

  1. When does the insurer have insurable interest? Why do they do this?
A

When they reinsure the SMC with reinsurers.

They do this because they have an insurable interest in the risk.

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10
Q

A - What is an Insurable Interest?

A1D Insurers Insurable Interest

  1. When insurers reinsure, what is the insurers financial interest in the original insurance?
A

The subject matter of the contract.

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11
Q

B - When must Insurable Interest exist?

  1. Generally speaking, when must insurable interest exist with a General Insurance contract?
A

Both at inception and at the time of loss,

though some connection other than a full insurable interest may be sufficient at inception.

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12
Q

B - When must Insurable Interest exist?

  1. Generally speaking, when must Insurable Interest exist with a Life Insurance contract?
A

At inception, but need not exist at the time of loss.

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13
Q

B - When must Insurable Interest exist?

  1. Generally speaking, when must Insurable Interest exist with a Marine Insurance contract?
A

At the time of a loss, but need not exist at inception provided there is a reasonable expectation of interest.

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14
Q

B - When must Insurable Interest exist?

B1 General Insurance

  1. What rules did the Gambling Act 1845 introduce?
A

Meant more than just Life Insurance contracts require Insurable Interest

Made gambling or wagering contracts null and void as there is no insurable interest

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15
Q

B - When must Insurable Interest exist?

B1 General Insurance

  1. What did the Gambling Act 2005 do?
A

Repealed legislation that said that gambling contracts are not enforceable

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16
Q

B - When must Insurable Interest exist?

B1 General Insurance

  1. Applying the principle of indemnity, what can a party to a general insurance contract recover?
A

Only the amount of their loss as agreed with the insurer at the time a loss occurs.

17
Q

B - When must Insurable Interest exist?

B1 General Insurance

  1. As a general rule, how is a general insurance policy treated if there is no insurable interest at inception?
A

Void ab Initio

18
Q

B - When must Insurable Interest exist?

B1 General Insurance

  1. Give an example of a general insurance policy where there wouldn’t be a need for an insurable interest for the outset.
A

Car insurance taken out 2 days before the car ownership is transferred.

19
Q

B - When must Insurable Interest exist?

B1A Anticipated Insurable Interest

  1. Can the expectation of acquiring insurable interest at some time in the future be enough to create insurable interest in general insurance?
A

It may not be enough, no.

20
Q

B - When must Insurable Interest exist?

B3 Marine Insurance

  1. What status is given to Marine insurance contracts if there is an absence of insurable interest at the time of a loss?
A

Void.

21
Q

C - How is Insurable Interest created?

  1. How may insurable interest be created?
A

Under common law
Under contract
Under statute

22
Q

C - How is Insurable Interest created?

C1 Common Law

  1. How is insurable interest created under common law?
A

By the right of ownership. If we own something, we stand to lose financially if it is lost or damaged.

23
Q

C - How is Insurable Interest created?

C2 Contract

  1. How are contracts different to common law?
A

Contracts are situations where we accept greater liabilities than those imposed by common law.

24
Q

C - How is Insurable Interest created?

C2 Contract

  1. Provide an example of how a contract can create greater liabilities than those imposed by common law?
A

A landlord is normally liable for the maintenance of the property they own. However, the may make the tenant liable under the terms of the lease.

The imposition of these responsibilities, or potential liabilities, creates an insurable interest.

25
Q

C - How is Insurable Interest created?

C3 Statute

  1. What is a statute?
A

An act of parliament

26
Q

C - How is Insurable Interest created?

C3 Statute

  1. How can statutes create insurable interest? Provide an example.
A

They can impose a particular duty on, or grant some benefit to, certain groups of people thus creating insurable interest.

E.g. statutes can make tenants responsible for the upkeep of buildings, giving them an insurable interest in the building.

27
Q

D - How is Insurable Interest applied?

D1 Property Insurance

  1. How does insurable interest arise with property insurance?
A

Generally arises out of ownership.

The insured is the owner of the subject matter of insurance

28
Q

D - How is Insurable Interest applied?

D1 Property Insurance

  1. Do shareholders in a limited company have an insurable interest in the company’s property?
A

No. Their interest in the company is limited to the value of the shares they own.

29
Q

D - How is Insurable Interest applied?

D1 Property Insurance

  1. How is the insurable interest of mortgage lenders limited?
A

Limited to the extent of the mortgage.

30
Q

D - How is Insurable Interest applied?

D1 Property Insurance

  1. How is the insurable interest of joint or part owners limited? What can they insure?
A

Extent of interest is the limit to their financial interest.

However, as they are considered a trustee for any money that may be paid in the event of a claim, which may exceed their actual interest, they can insure the property for its full value.

31
Q

D - How is Insurable Interest applied?

D1 Property Insurance

  1. What is a Bailee? What can they insure? Give examples.
A

Someone who holds property on a temporary basis on behalf of the legal owner.

May insure for the full value of the property.

e.g. shoe repairer, garage owners, dry cleaners

32
Q

D - How is Insurable Interest applied?

D2 Liability Insurance

  1. What is Liability insurance? How does it differ from property insurance?
A

Under common law a person has an insurable interest in any potential legal liability that they may incur for damages awarded by a court.

This differs from property insurance as it includes potential liability.

IF1 - Insurance, Legal and Regulatory (9 decks)

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