Intro, formation and insurable interest

Question 1

What is an insurance contract?

Answer 1

A contract between an insurer/assurer and an insured/assured, whereby the insurer undertakes in return for the payment of a price or premium to render to the insured a sum of money, or its equivalent, on the happening of a specified uncertain event in which the insured has some interest.

Question 2

Which case defines an insurance contract?

Answer 2

Lake v Reinsurance Corporation Ltd.

Question 3

What is indemnity insurance?

Answer 3

Compensation for the exact extent of loss or patrimonial loss.

Question 4

What are examples of indemnity insurance?

Answer 4

Fire, motor vehicle insurance, theft.

Question 5

What is non-indemnity insurance?

Answer 5

Compensation for non-patrimonial loss.

Question 6

What are examples of non-indemnity insurance?

Answer 6

Life and disability insurance.

Question 7

What is insurance?

Answer 7

Policies protecting against patrimonial loss.

Question 8

What is assurance?

Answer 8

Policies protecting against non-patrimonial loss.

Question 9

What is microinsurance?

Answer 9

Policies with low premiums and low coverage. E.g. funeral insurance.

Question 10

What is the requirement of specific agreement?

Answer 10

There must be agreement on:
1. Person/property insured against
2. Peril insured against
3. Amount recoverable
4. Amount of premium
5. Period of cover
6. Any other terms either party plans to place reliance on

Question 11

Does failure to pay a premium negate the contract?

Answer 11

No, Lake NNO v Reinsurance Corporation Ltd.

Question 12

What is temporary cover?

Answer 12

The period between the proposal and the insurance.

Question 13

What is a cover note?

Answer 13

A temporary document issued by an insurance company that provides proof of insurance coverage until a final insurance policy can be issued.

Question 14

How is temporary cover achieved?

Answer 14

Through a cover note.

Question 15

Which case confirmed that granting a cover note does not constitute a guarantee of permanent cover being granted?

Answer 15

Bushby v Guardian Assurance.

Question 16

If temporary cover is not for a fixed period, when does it cease?

Answer 16

Once the proposal is accepted.

Question 17

Will temporary cover terminate if the proposal is rejected before the temporary cover elapses?

Answer 17

No.

Question 18

Which case developed the objective test for insurable interest?

Answer 18

Littlejohn v Norwich Union Insurance Society.

Question 19

What is the objective test for insurable interest?

Answer 19

1. Does the insured stand to lsoe something of appreciable financial/personal value if the peril eventuates?
2. Does the person benefit from the peril not occurring but suffer prejudice if it does?

Question 20

What are types of insurable interest?

Answer 20

1. Property owned
2. Personal right
3. Interest in an event or performance
4. Moral obligation
5. Employees actions

Question 21

What are the facts of Lake NNO v Reinsurance?

Answer 21

Reinsurance Corp reinsured the liability of Parity which was being liquidated in respect of its motor vehicle insurance business.

Question 22

What is the legal principle in Lake NNO v Reinsurance?

Answer 22

Logic and equity demand that the insured should pay or tender to pay the premium against payment by the insurer of the loss.

Question 23

What is the holding in Lake NNO v Reinsurance?

Answer 23

There is no basis for saying that payment for the loss can be demanded without paying or tendering to pay the premium.

Question 24

What did the court hold in Littlejohn v Norwich?

Answer 24

1. An insurable interest is sui generis and does not depend either upon a real right or a right to a thing.
2. If the insurer can show that he stands to lose something of an appreciable commercial value by the destruction of the thing insured, then even though he has neither a real right or right to a thing (right to a thing insured) his interest will be an insurable interest.

Question 25

What are the facts of Steyn v Malmesbury?

Answer 25

Insured insured stacks which did not belong to him but increased the letting value of his property, said stack were destroyed by fire, issue was whether insured had an insurable interest.

Question 26

What is the holding in Steyn v Malmesbury?

Answer 26

Where an applicant for insurance of property has such an interest in the property that he will derive a benefit from its preservation, but has not a proprietary interest in it, his correct course, if he is insuring his own interest only, is to insure his interests and not the corpus of the property.

Question 27

What are the facts of Phillips v General Accident?

Answer 27

Wife handed over jewellery (diamond engagement ring) to a palm-reader in the bona fide belief that he would return it.

Question 28

What are the facts of Richards v Guardian Insurance?

Answer 28

Buildings insured were described as dwelling-house when they were actually brothels, buildings were destroyed by fire.

Question 29

What is the rule in Richards v Guardian Insurance?

Answer 29

A person seeking insurance must observe the strictest good faith- disclosure.

Question 30

What are the facts of Refrigerated Trucking v Zive?

Answer 30

Plaintiff was involved in a collision with a vehicle driven by deceased.

Question 31

What did the court hold in Refrigerated Trucking v Zive?

Answer 31

1. An insurable interest must be the economic interest of the insured 2. Where the relationship between the person with the legal right in the property and the insured is such that the insured will be worse off, the court will recognise he has an insurable interest 3. An insurable interest is an economic interest which relates to the risk which a person runs in respect of a thing which, if destroyed or damaged, will cause him to suffer an economic loss, or, in respect of an event which if it happens will cause him to suffer an economic loss. 4. Owner of a motor vehicle has an insurable interest in the contingent liability of the drivers who drove the vehicle on his order or with his permission.1

Question 32

What protective measures can an insurer take irt premiums?

Answer 32

1.Refuse to issue the policy until it has received the premium 2. Issue the policy subject to the condition that the contract will only come into effect once the premium has been paid 3. Include a clause in the policy to the effect that performance by the insurer is subject to prior payment of the premium.

Question 33

What is a proposal form?

Answer 33

A form consisting of questions concerning the insured, the risk to be covered and the circumstances affecting the risk, which is designed to elicit sufficient information from the potential insured to enable the insurer to decide whether or not to grant the cover being sought.

Question 34

When is an insurance contract complete?

Answer 34

When the proposal is accepted unconditionally.

Question 35

What does the enforceability of an insurance contract depend on?

Answer 35

Whether the insured has an insurable interest.

Question 36

What is the test for the existence of insurable interest?

Answer 36

Whether the insured will incur financial loss or fail to derive an anticipated financial benefit if the event insured against occurs.