Insurance Contract

Question 0

Purpose of insurance?

Answer 0

Offers protection against everyday risks.

Question 1

Sources of Insurance law? 2 points

Answer 1

1. RD law (eng law influence)
2. Legislation
   - LTIA
   - STIA
   - FAIA

Question 2

Insurance contract defined?

Answer 2

• Insurer undertakes to pay insured a sum of money to COMPENSATE the insured;
• for certain RISKS;
• that have MATERIALISED;
• against payment of a PREMIUM by insured.
  (Lake v Reinsurance Corp.)

Question 3

Two forms of Insurance?

Answer 3

1. Capital (non-indemnity) Insurance;

2. Indemnity Insurance.

Question 4

Differences between Capital and Indemnity Insurance?

Answer 4

Indemnity vs. Capital

1. Actual loss vs. Agreed sum
2. Ins. Interest exist? Time of loss/damage vs. Conclusion contract
3. Ins. Interest= Patrimonial vs. May be non-patrimonial
4. Subrogation applicable vs. Subrogation not applicable.

Question 5

Insurable interest: Indemnity Insurance

• What?
• Function?
• Exist?
• When?

Answer 5

What?- interest lost/ damaged must be ECONOMIC VALUE to insured in order for insured to have ins. Interest.

Function?- indicate whether insured suffered damage entitling him to claim under policy.

Exist?- must exist at time at which RISK MATERIALISES.

When?- always Insurable interest where: 1) Real Right; 2) Personal right; or 3) Right to immaterial property.
(Lorcom Thirteen v Zurich Insurance Co.)

Question 6

How does Indemnity Insurance work?

Answer 6

Parties agree on the value of the insured’s interest in a thing.

Principle of Indemnity: Insured can never recover mores than actual loss suffered by him.

The insured and insurer can agree that insurer will replace/repair/reinstate thing that is lost/damaged with new thing.

Question 7

How is the extent of loss/damage assessed in terms of Indemnity Insurance?

Answer 7

• Onus on insured to prove
• Insurance assessors;
• Court: based on expert evidence led.

Question 8

Insurable Interest: Capital Insurance

• What? (Examples)
• Crux?

Answer 8

What?-

• unlimited interest in own life, mental health, physical health and limbs
• Interest in life of fiancé or life of unborn child (case law)
• Interest in life of person responsible for maintenance

Crux: can insure life of 3rd party where insured has an interest in life of 3rd party.

Question 9

What is the basis of Capital Insurance?

Answer 9

Basis of insurance=
~ UNFORTUNATE EVENT which gives rise;
~ to NON-PATRIMONIAL damage and suffering;
~ leading to a need for SOLATIUM.

• No “MARKET VALUE”

Question 10

How does Capital Insurance work?

Answer 10

• Parties agree on a sum (premia adjusted accordingly);

- Insurer obliged to pay out agreed sum if risk materialises.

Question 11

What are the Essentialia of an Insurance Contract?

Answer 11

1) Insurer will compensate Insured for insured loss.
2) Insured will pay periodic premium to insurer.
3) Insurer’s obligation must be dependent on the occurrence of an uncertain future event (“RISK”).

Question 12

What is a “Premium”?

And how is it calculated?

Answer 12

Premium=
“The consideration given or to be given in return for undertaking to provide policy benefits.” (LTIA/STIA)

~ Actuarially calculated, with reference to:

1) Risk;
2) Term/ Period of cover;
3) Extent of insurer’s liability if risk materialises.

Question 13

What happens if an insured contributes to the materialisation of risk?
- Where insured acts intentionally and criminally?

Answer 13

No Cover.

- Illegal (insurance fraud). Against public policy and affects the legality of the contract.

Question 14

What happens if an insured contributes to the materialisation of risk?
- What is the academic argument where insured acts intentionally and NON-criminally?

Answer 14

Eg. Suicide

• Some writers are of the opinion that a person who commits suicide is at the time of his actions not mentally competent and can’t be held liable for his actions. He has to enjoy cover.

Question 15

What is “RISK”?

Answer 15

“RISK”=
-The possibility of the occurrence of an UNCERTAIN EVENT
- leading to an undesirable consequence, such as damage or harm, - to which the insured, his property or his interests are exposed.
(Eg. Theft, damage, injury, death)

Question 16

What significance does “risk” play in insurance contracts?

Answer 16

Agreement as to SCOPE AND CONTENT OF RISK is key in an insurance contract.

• An insurer’s duty to perform under the contract only arises when the risk passed onto him in terms of the contract MATERIALISES.

Question 17

What must an insured prove when making a claim from the Insurer?

Answer 17

Insured must prove that:

1) Risk has MATERIALISED;
2) Claim falls within the scope of the risk taken on by the insurer;
3) Damage has been suffered.

Question 18

What is the DUTY OF DISCLOSURE?

Answer 18

A duty to disclose means that:

• Prospective-insured must disclose relevant facts to proposed insurer;
• To enable insurer to accurately assess risk.

THUS: it is a pre contractual duty by operation of law.

The duty is both:

• Postive (answer Q’s honestly and in good faith); and
• Negative (disclose other material facts not covered by Q’s)

Question 19

Is the Duty to Dislose a reciprocal duty?

Answer 19

Joubert JA in Mutual and Federal case believes the duty to disclose should be a reciprocal one, where insurer must disclose to insurer all info that will decrease or increase risk.

Question 21

Duty of disclosure:

What happens when a prospective-insured fails to fully disclose/ answer or gives false information?

Answer 21

Non-compliance with a pre-contractual duty to disclose amounts to MISREPRESENTATION.
It influences consensus and makes the contract voidable.

The misrepresentation can be:

• Positive or
• Negative.

Question 22

Duty to disclose:

What is a POSITIVE MISREPRESENTATION?

Answer 22

Positive misrepresentation=
A positive act consisting in a false pre-contractual statement of fact made by one of the parties to a contract of insurance.

• it must be wrongful, it may be accompanied by fault or may be completely innocent.
• Positive act: express or tacit, oral or in writing.

Question 23

Duty to disclose:

What must be disclosed?

Answer 23

Oudtshoorn Municipality case:
- Insured must disclose all info that the REASONABLE PERSON would consider to be MATERIAL. (Objective test)

Quilingele case:

• Insured must disclose those facts that are necessary, in the view of the reasonable man, to enable insurer to assess the specific risk and whether he wants to accept that risk.
• Expanded Oudtshoorn test.

Question 24

Duty to disclose:

What does the LTIA and STIA state about the duty to disclose?

Answer 24

s59(1) LTIA/ s53(1) STIA:

• Policy not invalidated; insurer’s obligations not excluded; insured’s obligations not increased (premia) on account of misrep/ non-disclosure by insured.
• UNLESS: such misrep/ non-disclosure is like to have MATERIALLY AFFECTED the insurer’s assessment of risk.
• misrep/ non-disclosure= material, if REASONABLE PERSON would consider that info should have been correctly disclosed to the insurer to enable him to assess the risk.

Question 25

What is “SUBROGATION”?

Answer 25

Subrogation is applicable where a 3rd party is responsible for loss/damage.

Insured then has a choice to claim:

• against Insurer; OR
• against 3rd party.

Subrogation= a Naturale of an insurance contract.
- Automatically (ex lege) applicable to indemnity insurance contracts.

Question 26

Subrogation:

What is the Indemnity Principle?

Answer 26

The insured can never recover more than his actual damages.

Ie. insured CAN’T claim from Insurer and then claim again from 3rd party- Indemnity Principle

Question 27

Subrogation:

What happens when the insured claims from the insurer over the 3rd party?

Answer 27

The Insurer has ex lege right to claim from 3rd party the amount that is paid to the insured.

Question 28

Subrogation:

What requirements have to be met for Subrogation to take place?

Answer 28

1) There must be a VALID CONTRACT OF INSURANCE;
2) The insurer must have INDEMNIFIED the insured;
3) The Insured’s loss must have been FULLY COMPENSATED;
4) The right must be SUSCEPTIBLE TO SUBROGATION.

Question 29

Subrogation:

What are the duties of the insured under Subrogation?

Answer 29

1) Insured has an obligation not to interfere with the right to Subrogation.
2) Insured may not settle with the 3rd party or relieve a 3rd party of his liability in respect of damage/loss.

Question 30

Subrogation:

What defenses are available to the 3rd party against the insurer?

Answer 30

A 3rd party may use any defence against the insurer that he would ordinarily have had against the insured.

Eg. That the insures is guilty of contributory negligence,

Question 31

What is the right to Salvage?

Answer 31

An insurer has an automatic right to Salvage when there has been a TOTAL loss. (Naturale of Insurance Contract).

There has been a total loss when:

1) risk object totally destroyed;
2) risk object damaged or deteriorated to such an extent that object no longer of type that was insured originally;
3) When insured has been deprived of object, eg theft.

THUS: once insurer compensated insured under policy, insurer has right to salvage remaining property.

Question 32

Duty to disclose:

What is a NEGATIVE MISREPRESENTATION?

Answer 32

Negative misrepresentation:
= a WRONGFUL failure by one of the parties to disclose certain facts within his knowledge, during the course of negotiations preceding the contract, as a result of which one party is induced to enter into the contract or agree to specific terms in a contract.

• May be accompanied by fault or may be innocent.