Chapter 5: Insurance Contract Formation & Insurable Interest Flashcards
When does an insurance contract come into existence?
When the offer made by one party is unconditionally accepted by the other.
What is the Market Reform Contract?
Prior to 2007, contract was formed via a slip presented at Lloyds at that moment the underwriter signed their %.
“Deal now, detail later”.
Led to conflicts between slip and policy, so MRC was introduced. By a broker presenting the MRC / slip, this is the offer. The underwriter signing the slip is the acceptance.
Can an offer be accepted by doing nothing?
No, acceptance must generally be communicated to the other party.
What needs to be agreed to effect a contract? Think about the essential terms.
- the nature off the risk and the subject matter insured.
- the duration of the contract.
- the amount of premium or the rate.
Why is fresh offer and acceptance required at renewal?
Because in renewing an insurance contract, a fresh contract is formed.
The renewal notice can be seen as the offer and payment of the premium by the insured is acceptance. Unless a new prop is required, then it’s just an invitation to treat.
A counter offer arises where the insured notifies the insurers of changes to their risk, so terms need to be amended.
When is a promise legally binding?
When it is supported by consideration i.e the value given in exchange for it.
Can a contract be in effect if the premium is not yet paid?
Yes. A promise to pay is as good consideration as payment itself.
Unless the insurer has stipulated that the risk will not run until the premium is paid.
When may a risk fail to run?
If the proposal is withdrawn after the premium has been paid.
If the policy has been void for mistake if there was no meeting of the minds over what was being insured.
If the policy is void because there was no insurable interest.
If the policy has been avoided ab initio.
If a policy is voided for illegality, is the insured entitled to an RP?
Usually they will have no right to recover the premium.
What is the only type of insurance that must be in writing?
Marine insurance policy under the 1906 Marine Insurance Act.
Doesn’t have to be full though, can be barebones info.
What is an insurers obligation if they grant cover to a minor?
They are obliged and fully liable to meet all valid claims under the policy, even though the minor themselves is not contractually bound (unless beneficial or a necessity). However in practice, this is not really upheld.
Motor insurance is probably the only real “necessary” that a minor may contract into.
What are the two main statutes covering insurance companies?
- Financial Services and Markets Act 2000
2. Financial Services Act 2012
What is Insurable Interest?
The policyholder must be in a position where they will suffer loss if the event which they have insured against occurs.
You have a vested interest in the subject matter.
What are the four key elements of Insurable Interest?
- A subject matter of insurance
- Policyholder must have a financial interest in the subject matter
- The interest must be current
- The interest must be legal
What did the Lucena v Craufurd case decide in 1806?
That mere expectancy that there will be insurable interest in the future is not enough.
It was RE wanting to insure captured enemy ships whilst they were still on the high seas and not in safe port.
Why does the law require insurable interest?
- To reduce moral hazard (i.e. being less careful and trying to actually make the loss occur)
- To discourage wagering (betting / gambling)
What are the two ways in which Insurable Interest arises?
- Common Law - automatically presumed to exist (i.e. ownership of vehicle = ii)
- Contract - legally accepting responsibility for something which they would ordinarily not be liable for
When are Marine Policies void?
Under the Marine Insurance Act 1906, a policy is void if there is no insurable interest.
The Marine Insurance Act 1906 states that Insurable Interest must be in effect when?
At the time of the loss.
There is no requirement of insurable interest when the contract is made or if it has ceased after the time of the loss.
What does the 1774 Life Assurance Act prohibit?
The making of any policy on a life of a person or an event, where there is no interest, for the purpose of gaming or wagering.
What are the four major provisions of the 1774 Life Assurance Act?
- The person benefitting from the policy must have insurable interest
- The person benefitting must be named on the policy
- The amount one can recover is no more than the value of their interest
- The Act doesn’t apply to ships, goods or merchandises
In Life Insurance, when must there be insurable interest?
When the contract is made.
No need to prove ii at the time a claim arises.
What is the effect of having a policy without Insurable Interest?
It will generally be void. If so, the money paid under a void contract is usually recoverable.
If it is illegal as well as void, then money cannot usually be recovered.
What is a criminal offence under the Marine Insurance (Gambling Policies) Act 1909?
To take out or effect a marine insurance policy without insurable interest
