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IF1 - Insurance, Legal and Regulatory > Chapter 8 - Contribution & Subrogation > Flashcards

Chapter 8 - Contribution & Subrogation Flashcards

1
Q

8 - Contribution & Subrogation

  1. When does contribution apply?
A

When more than one policy covers the same loss or liability.

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2
Q

8 - Contribution & Subrogation

  1. When does subrogation apply?
A

When the loss is caused by a third party.

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3
Q

A - Contribution

  1. Provided there is no fraudulent intent, can the insured take out as many insurance policies as they wish?
A

Yes, however they can only recover the total amount of the loss sustained.

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4
Q

A - Contribution

A1 Contribution Condition

  1. Does contribution need to be stated in a policy document for it to exist? Why?
A

No, because it supports the principle of indemnity.

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5
Q

A - Contribution

A1 Contribution Condition

  1. Is the insured entitled to choose to claim the whole amount from one of the insurers?
A

Yes, it is the insurers responsibility to then recover appropriate shares from the other insurers.

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6
Q

A - Contribution

A1 Contribution Condition

  1. What does a Contribution Condition restrict the insurer’s liability to?
A

It’s rateable proportion or rateable share of loss.

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7
Q

A - Contribution

A3 How Contribution arises

  1. Under common law, what conditions must be satisfied before contribution arises?
A

Two or more policies exist

The policies cover a common insurable interest

The policies cover a common peril which gives rise to the loss

The policies cover a common subject matter

Each policy must be liable for the loss

Neither policy must contain a non-contribution clause

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8
Q

B - Applying the Contribution Principle

B1 Rateable Proportion

  1. What is the rateable proportion?
A

The share of any claim that an insurer pays when two or more insurers cover the same risk.

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9
Q

B - Applying the Contribution Principle

B1 Rateable Proportion

  1. What are the two ways to determine Rateable Proportion?
A

By sum insured

By independent liability

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10
Q

B - Applying the Contribution Principle

B1A By Sum Insured

  1. How is the rateable proportion of a loss calculated by sum insured?
A

Policy sum insured / Total sum of all policies x Loss

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11
Q

B - Applying the Contribution Principle

B1A By Sum Insured

  1. What type of situation is the by sum insured method used in?
A

Property policies not subject to average.

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12
Q

B - Applying the Contribution Principle

B1B By Independent Liability

  1. How does the by independent liability method calculate the amount payable?
A

Calculates the amount payable under each policy as if no other policy existed. The loss is then shared in proportion to the independent liabilities of the two policies.

Policy Sum Insured / Total Value at Risk x Loss

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13
Q

B - Applying the Contribution Principle

B1B By Independent Liability

  1. When is the method of by independent liability used?
A

Where property policies are subject to average
Where an individual loss limit applies with a sum insured

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14
Q

B - Applying the Contribution Principle

B2A Non-Contribution clauses

  1. How does a non-contribution clause modify a policy?
A

Means the policy would not contribute if there was another insurance policy in force.

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15
Q

B - Applying the Contribution Principle

B1B By Independent Liability

  1. Can Non-Contribution clauses be cancelled out?
A

Yes, if both policies have them non-contribution clauses they cancel each other out.

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16
Q

B - Applying the Contribution Principle

B2B More specific insurance classes

  1. What are the ways contribution can be restricted? Give an example.
A

Certain policies include clauses that restrict cover if a more specific insurance been arranged.

e.g. household contents won’t cover jewellery if separate jewellery insurance has been arranged.

17
Q

B - Applying the Contribution Principle

B2C Market Agreements

  1. Whose policy will pay if a driver has a “driving other cars” extension and drives another person’s car which they are also insured to drive as a named driver under the owner’s policy?
A

The owners policy will pay for any claims.

18
Q

B - Applying the Contribution Principle

B2C Market Agreements

  1. What does the Personal Effects Contribution Agreement (PECA) achieve?
A

States that when travel, all risks, household and the personal effects section of a motor policy overlap, insurers will not insist on applying contribution on modest amounts.

19
Q

C - Subrogation

  1. Is subrogation a common law right?
A

Yes.

20
Q

C - Subrogation

  1. Can insurers try to reduce losses by exercising recovery rights up to the amount that the insurer paid out?
A

Yes.

21
Q

C - Subrogation

  1. Can the insured claim an indemnity payment from an insurer and then pursue further payment from a negligent third party?
A

No, this would result in a profit.

22
Q

C - Subrogation

  1. What powers are granted to an insurer with a subrogation condition? What is the only limit?
A

The power to pursue subrogation claims before the claim is paid.

The insurer cannot recover from a third party before it has actually settled its own insureds claim.

23
Q

C - Subrogation

  1. Motorbike crashes into your car, your insurer and their insurer both issue cheques to you. What can you do?
A

Can’t keep both cheques.
The third party cheque should go to your insurer by right of subrogation.

24
Q

D - Insurer’s Subrogation Rights

  1. What happens if the insurer recovers more from the third party than was paid to the insured?
A

The insured is entitled to the difference.

25
Q

D - Insurer’s Subrogation Rights

  1. What are the three ways Subrogation rights may arise?
A

Tort

Contract

Statute

26
Q

D - Insurer’s Subrogation Rights

D1 Tort

  1. What is tort?
A

A breach of the duty under common law to act in a reasonable way towards others.

27
Q

D - Insurer’s Subrogation Rights

D1 Tort

  1. How do Subrogation rights arise from tort?
A

If the insured suffers from a tort, they are entitled to compensation. Insurers assume the rights of the insured.

28
Q

D - Insurer’s Subrogation Rights

D2 Contract

  1. How do Subrogation rights arise by contract?
A

Breach of contract may entitle the insured to compensation from a third party. The insurer can assume these rights.

29
Q

D - Insurer’s Subrogation Rights

D3 Statute

  1. When must claims for riot, civil commotion and malicious damage be notified to the insurer?
A

Within seven days if the event.

30
Q

E - Insurers’ rights arising from the subject-matter

  1. What happens if the insurer regards the property that is the subject matter of insurance as being beyond economic repair?
A

They may offer a total loss settlement.

31
Q

E - Insurers’ rights arising from the subject-matter

  1. What typically constitutes ‘beyond economic repair’?
A

Repairs exceeding 60% of market value.

32
Q

E - Insurers’ rights arising from the subject-matter

  1. When property is considered beyond economic repair there may be some residual value in the remaining property. What is this called? Who is entitled to it?
A

Salvage

If the insurer make a full loss settlement they are entitled to the salvage.

33
Q

E - Insurers’ rights arising from the subject-matter

  1. Are the insured always entitled to retain the salvage?
A

Yes, provided a suitable discount is made from the claim payment.

34
Q

E - Insurers’ rights arising from the subject-matter

  1. What happens if jewellery is stolen, full settlement is paid, and the jewellery is later recovered?
A

The insured will be given the option to take back the jewellery in exchange for the return of the full value of the settlement.

35
Q

E - Insurers’ rights arising from the subject-matter

  1. If salvage is retained by the insurer, who later sells it for a greater sum than the insurer originally assumed, is there an obligation to pass any profit on to the insured?
A

No, this is how rights from salvage differ from Subrogation rights.

36
Q

G - Precluded Subrogation Rights

  1. When are insurers barred from exercising Subrogation rights, and when do they agree not to exercise them?
A

Insured has no rights - can’t pursue rights the insured isn’t entitled to.

Benefit policies - not subject to indemnity, therefore the insurer can’t pursue.

Subrogation waiver - usually designed to prevent the insurer from pursuing against a parent or subsidiary company of the insured.

Negligent fellow employees - insurers have agreed not to pursue here.

IF1 - Insurance, Legal and Regulatory (9 decks)

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