Fundametal Principels Of Insurance (chapt 2) Flashcards by Imogen Smith

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

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Essentials of valid insurance contract

Offer/acceptance
Consideration
Possibility of performance
Capacity
Consensus ad idem (meeting of minds)
Legality
Certainty

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Contract certainty

All parties must know terms

Broker insurance document after inception

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Unconditional acceptance

No alterations

Insurer now on risk

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Conditional acceptance

Counter offer

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Postal acceptance

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Consideration

Each persons side of the bargain which supports the contract.
Consideration from insured is payment and insurers pay claim

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What is insurable interest

Legal right to insure from a financial relationship recognised at law
Subject, relationship, financial value, own insurable interest, timing

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Insurers own insurable interest

Reinsurance

Interest for financial risk taken

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Timing of insurable interest

Life assurance - only at inception
Marine- at loss but not inception
General insurance- inception and loss

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Creation of insurable interest

Common law
Contract
Statute

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Good faith

Disclose all material facts

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Material fact

Influence the judgement of a prudent insurer

Includes physical and moral hazards

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Facts that don’t need to be disclosed

Lessen risk
Public knowledge
Waived info
Survey ace missed
Facts the insured doesn’t know

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ICOBS rules for unreasonable grounds of rejecting claim

Policyholder could not have been expected to disclose

Non negligent misrepresentation

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Consequences of non disclosure

Ab initio
Fraud, insurer can keep premium
If breach ignored, claim must be paid

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Modification of policy wordings to non disclosure

Contract may have ongoing disclosure
Needed on renewal
Excl life policies which aren’t renewed

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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)

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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)

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What are the two most important essentials of a valid contract?

Offer and acceptance
Consideration

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Legal term for a contract which may be declared invalid if missing essentials of a valid contract

Void ab initio

From the beginning

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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

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Contract Certainty in LM

Requires all parties to know terms

Evidence in form of a slip (Market Reform Contract) or Broker Insurance Document

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When does a contract come into existence?

When one party makes and offer, and the other accepts unconditionally

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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

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