LECTURE 9 INSURANCE LAW Flashcards
ECONOMIC FUNCTION OF INSURANCE
The concept of risk is central to insurance.
Risk is the possibility that a peril or danger may occur and cause harm to the person / property exposed.
It is therefore necessary to make contingencies to mitigate such risk in the event that it occurs.
NSURANCE:
Insurance is a means of transferring risk by way of contract.
The risk is transferred because the insurance contract stipulates that the insurer will indemnify or perform a benefit to an insured if a defined risk occurs.
In exchange for the transfer of the risk, the insured must pay an amount (premium) to the insurer.
BRANCHES OF INSURANCE LAW
Insurance contract law:
Insurance policy is the basis of relationship between insurer and insured.
The regulation of insurers:
Insurers must be registered with supervisory body: The Financial Services Board & FAIS Act
Intermediaries:
Intermediaries ordinarily intercede between insurers and the insured (brokers).
Distinction between representatives and independent intermediaries.
DIFFERENT TYPES OF INSURANCE:
Interest protected
Indemnity insurance
Non-indemnity insurance
Duration
Long-term insurance
Short-term insurance
Peril, or event, insured against
Fire, death, theft, political instability, motor vehicle accidents
ESSENTIALS OF AN INSURANCE CONTRACT
Insurer must undertake to pay or perform some benefit…
in exchange for an undertaking by the insured to pay a premium…
on the happening of an uncertain or unplanned future event…
which performance will indemnify the insured or make-up for the materialisation of the risk.
FORMATION OF AN INSURANCE CONTRACT:
Agreement (Policy):
Insurance is a form of contract, therefore there must be an agreement.
There must be consensus irrespective of whether agreement concluded by completing proposal forms or by direct marketing.
The contract must not be illegal, void or unenforceable.
INSURABLE INTEREST:
Indemnity insurance:
If he or she stands to lose something of appreciable commercial value if the object is harmed.
(e.g. person insures a vehicle)
Non-indemnity insurance:
Interests protected does not have commercial value. Amount for which insurer will be liable is established by agreement.
(e.g. life insurance
INSURANCE CLAIMS
To determine if insured has a claim – the following must be answered:
Is the risk covered by the policy?
Are there any limitations on the insurer’s liability?
Is the insurer’s liability excluded?
Does the risk fall within the dimensions of described risk?
Was the particular peril, in respect of which insurance was
undertaken, the cause of the harm?
An insurance policy will usually state:
When and how the insurer should be notified of a claim.
When and how a claim should be lodged & processed.
If the claim is refused or repudiated, the time within which legal proceedings must be instituted.
Rejection / Repudiation:
Refers to the case where the insurer declines an insured’s claim (fraud, fault, waiting period etc.)
Insurer rejects or disputes claim.
Written notice to insured.
Insured given at least 90 days to make representations.
Insured to institute proceedings within time specified.
SUBROGATION:
The doctrine of subrogation allows an insurer to sue in the name of the insured.
The insurer obtains the right to make the same claim for damages as the insured could have made against the wrongdoer.
Reasons - Insurer pays out insured & is thus entitled to recoup what’s been paid;
- Prevent insured from receiving double satisfaction for loss.
CESSION
Cession refers to the transfer of a right to performance by one party to another.
Insurer entitled to take cession of the insured’s rights against a third party who caused the risk/loss.
Insurer will thus be the creditor and will claim from 3rd party in its own name.
CONTRIBUTION:
Occurs where there is a spreading of risk…
The same risk is insured by more than one insurer (in proportion).
Where risk materializes and loss occurs, each insurer has to contribute pro rata.
FINANCIAL ADVISORY AND INTERMEDIARY SERVICES ACT 37 OF 2002 (FAIS ACT):
FAIS Act regulates the rendering of financial advice & certain intermediary services to clients.
Sec 8A: financial advisors to be fit & proper persons;
Sec 18: financial service provider to keep record of advice provided (5yrs) which record must be furnished to client upon request;
Sec 20 - 32: provide for the Ombud for Financial Services Providers (functions, powers, appointment, penalties);
Sec 36: offences (contravening Act) and penalties;
