LM1 Chapter 2 Basic Insurance legal principles and terminology Flashcards
What are the essential elements of a contract?
Offer
Acceptance
Consideration
What is ‘meetings of mind’
When both parties believe they are agreeing to the same thing
What is the concept of putting the insured in the position they were in before the loss?
Indemnity
What is the insurers’ rights to claim against a third party having indemnified the insurance called?
Subrogation
What is consideration?
The promise to pay the claim on the part of the insurer and the promise to pay and payment of the premium on the part of the insured.
What is proximate cause?
Most powerful operative cause of loss, not necessarily the last thing to happen
What is good-faith?
Is a two-way concept whereby both insured and insurers have to disclose material information to each other. Must not mis-lead each other
What is insurable interest?
Having a relationship with the subject-matter of the contract which could lead to financial loss if it is damaged or causes damage to others
- Does not require ownership
What reasons can a contract be cancelled?
If there is a deliberate breach of the duty of disclosure, the other party can decide to cancel
If there is a lack of vital ingredient of the contract such as offer or acceptance, the contract will never actually exist
What are some methods to provide indemnity?
- Cash/Money
- Repairs
- Replacements
- Reinstatement
What policies are not indemnity policies?
Health and accident policies which are benefit policies. Value cannot be placed on a limb or a sense
Some Short term policies
What is contribution?
Two or more policies cover the same item for the same risk then they should share the loss between them in a rateable manner
What is subrogation?
The right of the insurers to claim against a responsible third party having first indemnified the insured
Two formulas relating to contribution
Sum insured:
Policy sum insured / total sums insured x loss
Independent liability:
Independent liability under this policy / total of independent liabilities under all policies x loss
What formula is used to calculate a claims payment?
sum insured/ value of all goods at risk x loss
