Insurance Law Flashcards
Define insurance law:
Insurance is a contract in terms of which one party (the insurer) undertakes, in return for payment of a premium by the other (insured), to pay to the insured a sum of money or render him its equivalent on the happening of a specified uncertain event in which the insured has an interest.
3 types of insurance:
Nature of the peril insured
Nature of the interest affected by the peril
Nature and the extent of the cover provided
Examples of the types of insurance:
- all risky policy
- comprehensive motor vehicle policy
- fidelity policy
- public liability policy
- life policy
Long term vs short term Insurance Acts:
LTIA:
- Includes: life policy, disability policy, health policy
- the amount of compensation received is not directly correlated with the loss.
ie. life insurance is non-indemnity insurance because you cannot place a value or a cost of replacement on a person’s life.
STIA:
- Includes: engineering policy, guarantee policy, liability policy, miscellaneous policy all the short term things.
- indemnity insurance: the insured is entitled to specific amount of compensation for a loss that is tied to a replacement, reimbursement, or fair market value.
Policy Protection Rules:
- to ensure the policies are ‘entered into, executed and enforced in accordance with sound insurance principles and practice in the interests of the parties and in the public interest.
- basic rules for direct marketers:
detail the manner in which insurers must render their services and conduct their dealings with the general public. - direct marketing:
includes the conclusion of a policy by way of telephone, internet, media insert or direct or electronic.
Formation of an insurance contract:
- parties
-formalities - submission of the proposal form and issue of the policy
- invalid terms
- notification required
- role of the broker
- interim cover
Parties (Insurance Contract):
- insured and the insurer
- nomination of a third party as the beneficiary to the policy - stipulatio alteri.
- policy holder = person entitled to be provided with the benefits of the policy.
Formalities:
- common law = none
- in practice = contract reduced to writing
Submission of the proposal form and the issue of the policy:
Submission of the form amounts to an offer to take out insurance cover on the terms fixed by the insurer and the type of insurance.
proposer = offeror
insurer = offeree
the info on the form is used by the insurer to see whether or not they will offer insurance.
What is included in a proposal form for insurance cover?
- personal particulars of proposer
- details of the subject matter to be insured and the hazards likely to happen
- info concerning the proposers history of insurance and financial status
- in the case of life or medical insurance, they may require the medical history as well
Define the proposal form:
- an offer to take out insurance
- contains factual statements on which the insurer bases their decision on
if any of the answers are incorrect, the insurance can void any responsibility to cover the liability.
Invalid terms of an insurance contract:
- the insurer is exempt from any liability
- the insured, or the person who enters into the policy waives a right to which he is entitled to under the Act.
Invalid terms in short term policy (insurance):
- a term where the insured may be compelled to go under a polygraph or do any similar testing.
- a term where if the policyholder agrees to undergo such a test and fails, the insurer will not have to pay out.
- If there is a term that the dispute can only be solved under arbitration.
Notification requirements:
- insurer must inform the policyholder in writing of the issue of the policy, and the details of such a policy.
- short term insurance = ideally in an easily readable manner with reasonable and precise ascertainable meaning, and set out complaints procedure.
Role of the broker and duties:
- they are the betweener
- exercise reasonable care and skill
Duties:
1. receive instructions
2. obtain the required insurance - explain policy to insured
- get best policy terms, and with reasonable speed
- provide insured with a copy of the policy
- inform insured when the policy is terminated or cancelled
Broker may volunteer to assist insured when making a claim
Relationship between the insurer and the broker:
broker = paid commission at the statutory rate
- commission paid if the insurance contract is concluded and insured pays premium.
- STI Regulations allows insurers to permit brokers to receive and deal with premium payments on its behalf - broker must provide security.
- Statutory Control of Brokers:
regulated by the financial advisory and intermediary services act.
financial service provider license
fit and proper, relating to honesty and integrity
Interim Cover (Insurance Cover):
- An insurer, while waiting or considering a proposal may agree to temporary insurance or ‘interim cover’.
- Separate insurance contract for a limited period.
- Purposes: protect the insured during the interval that elapses between finalization or submission of the proposal for insurance and the issuing of the policy.
-common where a person has applied for insurance against property damage (such as damage caused by fire, theft or motor accident), or for an amendment to an existing policy covering such damage, and wishes to be covered against the risks in the meantime. - may issue ‘cover note’ as proof of the insurance
- definite period
Elements of insurance cover:
- payment of premium
- promise by the insurer to pay a sum of money or render its equivalent
- on materialisation risk:
meaning of risk
description of the risk
-insurable interest
Payments of the premium:
- the premium is the consideration in return for which the insurer undertakes its obligation to compensate the insured.
- lump sum, or instalments, in advance or in arears
- grace period for payments - insurer CANT REJECT claim, if the payment was during the grace period.
- insurance contract is binding once its executed, but insured must pay the premium before it can claim. (reciprocal performance)
Valued Policy:
The value of the thing insured is pre-agreed with the insurer and the insurer undertakes to pay-out.
On Materialisation of the Risk:
Insurance = transfer of risk from insured to insurer
Risk = possibility of harm occurring as a result of an event (peril) taking place.
Exists when the event is in the future or uncertain on whether it will, when or how it will occur.
Adequately describe risk
“Qualified promise” = limit risk (onus on insured)
“Promise with exception” = exceptions that absolves insurer from liability (onus on insurer) ie drunk driving
Insurable interest:
To seek insurance against a possible loss the insured must actually have had an interest in that particular occurrence or event.
Indemnity Insurance:
- interest must exist when the risk materialises. If interest is lost by the insured then the contract is void.
- Test: whether the insured will incur a pecuniary loss or fail to derive an anticipated benefit if the risk materialises.
1. ownership
2. risk of loss
Case Law: interest must exist when the risk materialises. If interest is lost by insured then the contract is void.
Commercial Assurance v Kent (father gave his son his car)
Non-indemnity Insurance:
the interest must exist when the contract is concluded. eg life
- insurable interest - debated - insured suffer significant non-pecuniary loss such as pan and discomfort, disfigurement, mental shock, emotional distress.
Duty to disclose material facts (insurance):
- basis of the duty
- ambit of the duty
- time of the disclosure
- disclosure to the insurer’s agent
- insurer’s right of rescission
The duty to disclose material facts:
- full disclosure is required for proper assessment of risk.
- Breach = mala fides = insurer is allowed to avoid liability
Mutual Federal Insurance v Oudtshoorn Municipality
plane damaged electricity lines
public liability claim denied
President v Trust Bank
Test whether information could effect the insurer’s decision on whether to insure the risk or not.
The insurer’s right of rescission:
- non-disclosure of material fact = insurer can void the agreement, contract is voidable at the option of the insurer after the notice of the non-disclosure
- insurer must prove that the undisclosed information was
1. material
2. within the knowledge of the proposed insured
3. not communicated to the insurer or the agent - if insurer terminates the contract, the insurer becomes obliged, in principle, to restore all that it had received by way of premiums
- insurer can waive right to rescind, and continue with agreement.
Cooling off period applicable to long term insurance policy:
insured may cancel the policy within 30 days of receipt of the summary of the policy terms, with a written cancelation notice. (Insurer will then need to refund all premium payments made thus far).
Jordan’s case (1969)
Insurance for motor vehicle - insured misstated age (turning 22 not 23), but misstatement would diminish and not increase the risk as such the insurer can cancel the insurance due to dishonesty under common law.
Duty of insurer to compensate the insured:
Circumstances under which the insurer is liable to pay:
1. the risk materialised
2. liability of the insurer is not excluded by virtue of an exception
3. any claim formalities complied with
