Fundametal Principels Of Insurance (chapt 2) Flashcards
Contract law
Agreements between 2 parties
An agreement enforceable by law
Insured pays premium and agrees terms
Insurers pays sum of money on basis event
Essentials of valid insurance contract
Offer/acceptance
Consideration
Possibility of performance
Capacity
Consensus ad idem (meeting of minds)
Legality
Certainty
Contract certainty
All parties must know terms
Broker insurance document after inception
Unconditional acceptance
No alterations
Insurer now on risk
Conditional acceptance
Counter offer
Postal acceptance
Postal acceptance
Consideration
Each persons side of the bargain which supports the contract.
Consideration from insured is payment and insurers pay claim
What is insurable interest
Legal right to insure from a financial relationship recognised at law
Subject, relationship, financial value, own insurable interest, timing
Insurers own insurable interest
Reinsurance
Interest for financial risk taken
Timing of insurable interest
Life assurance - only at inception
Marine- at loss but not inception
General insurance- inception and loss
Creation of insurable interest
Common law
Contract
Statute
Good faith
Disclose all material facts
Material fact
Influence the judgement of a prudent insurer
Includes physical and moral hazards
Facts that don’t need to be disclosed
Lessen risk
Public knowledge
Waived info
Survey ace missed
Facts the insured doesn’t know
ICOBS rules for unreasonable grounds of rejecting claim
Policyholder could not have been expected to disclose
Non negligent misrepresentation
Consequences of non disclosure
Ab initio
Fraud, insurer can keep premium
If breach ignored, claim must be paid
Modification of policy wordings to non disclosure
Contract may have ongoing disclosure
Needed on renewal
Excl life policies which aren’t renewed
Main purpose of insurance
Pay claims to policyholders should they suffer loss or damage
Restores the insured to the position they were in before the loss (indemnifying the insured)
Main purpose of insurance
Pay claims to policyholders should they suffer loss or damage
Restores the insured to the position they were in before the loss (indemnifying the insured)
What are the two most important essentials of a valid contract?
Offer and acceptance
Consideration
Legal term for a contract which may be declared invalid if missing essentials of a valid contract
Void ab initio
From the beginning
Simple contract
Insurance policies are simple contracts
A simple contract does not need to be evidenced in writing
A policy does not have to have been issued for cover to exist
Good practice to have evidence of the agreement - in London Market called Contract Certainty
Contract Certainty in LM
Requires all parties to know terms
Evidence in form of a slip (Market Reform Contract) or Broker Insurance Document
When does a contract come into existence?
When one party makes and offer, and the other accepts unconditionally
Consideration
Each persons side of the bargain which supports the contract
Consideration from the insured = Payment of premium
Consideration from the insurer = Promise to pay valid claims
Insurable interest
“The legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject-matter of insurance.”
Insurers remedies for misrepresentation when deliberate/reckless
Avoidance of contract
refusing all claims
no return of premium unless it would be unfair
Misrepresentation is deliberate/reckless if…
The consumer knew it was untrue or misleading or did not care
The consumer knew it was relevant to the insurer or did not care
Two types of misrepresentation
Careless
Deliberate/reckless
Consumer Insurance (Disclosure and Representation) Act 2012
The consumer has a duty to take reasonable care not to make a misrepresentation to their insurers and need to exercise reasonable care
What is a consumer?
Someone who is buying insurance wholly or mainly for purposes unrelated to their business trade or profession
Good faith in pre-contract negotiations
Both parties should be open and transparent
Share key information
Proposer has duty to disclose all material facts
Insurer must be open and cannot introduce new non standard terms or withhold discounts for improving a risk
Good faith in pre-contract negotiations
Both parties should be open and transparent
Share key information
Proposer has duty to disclose all material facts
Insurer must be open and cannot introduce new non standard terms or withhold discounts for improving a risk
Statutes modifying insurable interest
Carriage of Goods by Sea 1971: limits liability of a carrier
Hotel Proprietor’s Act 1956: liability only if a room has been damaged by a guest
Carrier’s Act 1830: no liability for goods such as jewellery worth more than £10 unless value declared
Insurable interest- Statutes that impose a positive duty
Settled Land Act 1925
- Repair of Benefice Buildings Measure Act 2972 (makes tenants responsible for upkeep)
Insurable interest in Common Law
We have a duty of care
Law of negligence
Insurable interest such as ownership/exposure to liabilities to others.
What might an insurer do about their own insurable interest?
Purchase reinsurance to protect them from the risks they have written
What are the 3 features of insurable interest?
Subject-matter
Need for a legal relationship
Financial value
Which option is not an essential of a valid contract?
Documentation in English
What word or phrase is the consideration for an insurance contract
Premium
How can insurable interest be best described?
The legal relationship between an insured and the subject matter of insurance
Identify an example of good faith
The insured sharing matters information with insurers
If a client answers a question incorrectly to try and obtain a cheaper premium
Misrepresented the risk
What is meant by proximate cause
The dominant and operative cause of the loss
What is meant by identity
Returning the insured to the position they were in before the loss
Which is not a method whereby insurers can claim money back from other parties following a loss
Subscription
An insured will often have a to bear the first part of loss themselves. What is this?
deductible
What does the principle of subrogation give the insurer the right to do?
Recover the cost of a claim from a responsible third party.
If a contract is declared invalid because the insured deliberately withheld relevant information, it is likely to:
be cancelled from the beginning
A commercial contract has been arranged so that one party pays for it with shares. What would these shares be regarded as?
Consideration
An individual has had a claim on their insurance policy declined due to a failure to comply with a claims condition. What is most likely to happen to the policy?
It will continue for the remaining term.
In the event of a claim, the insurer will look to establish the dominant cause of the loss so that it can check whether this peril is covered by the insurance policy. What is this insurance principle known as?
Proximate cause.
An individual has arranged insurance cover through an insurance intermediary. What is the position if he has NOT received the policy document?
This makes no difference; the contract is still in place.
Anyone applying for insurance is expected to disclose material information they are aware of. This general rule does NOT apply to:
those with spent convictions.
The most likely reason that an individual is unable to insure her brother’s car is because of lack of:
insurable interest
If a policy has a subrogation clause, what action would a insurer typically take with a claim where it believes the loss occurred as a result of the actions of a third party?
Settle the claim for the insured and then pursue the third party.
A policyholder has taken out buildings insurance on her daughter’s new house, which she pays for in full. If she has no financial interest in the property, the policy is:
invalid because there is no insurable interest.
Insurance provides financial compensation to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred. This insurance principle is known as:
indemnity
A policyholder is buying her motor insurance having used an online price comparison site. In contract law, when is the offer made?
When she submits the proposal form.
An insurer has established the proximate cause of a loss and is now in the process of checking whether the peril is covered by the policy. How could a peril be classified?
Excepted peril.
With marine insurance, when must insurable interest exist, if at all?
At the date of a loss.
A policyholder has applied for a motor policy. The insurer has agreed to this but, because of his age, has stipulated an additional compulsory voluntary excess. In contract law, this is an example of a[n]:
conditional acceptance.
What rights does an insurer have to cancel an insurance policy?
Most insurance policies will have a cancellation period that is typically 14 days.
Under the Insurance Act 2015, a company applying for insurance is required to disclose anything relevant that:
is known by the insured’s senior management.
The insurer has no right of recovery with:
personal accident and sickness insurance
If a driver cancels their motor insurance two months into the policy, why is the refund most likely to be less than a pro rata return of premium?
The insurer still needs to recoup the set-up costs of the policy.
Under the Insurance Act 2015, an insurer can avoid a policy from the outset if:
it can prove that the insured knew that they were in breach of their duty of fair presentation when applying and this was deliberate.
Which type of insurance claims are most likely to be settled on a replacement basis?
Glass insurance.
For the principle of contribution to apply, a number of factors need to be present. What would NOT typically be one of these?
Both insurers’ policies have to be identical.
A policyholder has taken out a new insurance policy that results in dual insurance. He is most likely to have arranged:
travel insurance.
Subrogation
The right of an insurer following patient if a claim, to take over the insured’s rights to recover payment from a third party responsible for the loss
What is Tort? In regards to insurer’s subrogation rights
Everyone has a duty to act in a reasonable way towards each other - breach of this is a tort. The person who has suffered damage or injury is entitled to compensation
Riot Compensation Act 2016
Claims can be made against the police in relation to property damaged, destroyed or stolen in the course of riots. Must be made within 43 days
How is Indemnity defined
‘Financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred’
Actual settlement by the insurer depends on…
The nature of the cover
The extent of the cover
Any conditions limiting the amount payable
Options available to insurers to settle
Cash payment
Repair
Replacement
Reinstatement - agrees to restore a building
