M05 Insurance contract formation and Insurable interest lists Chapter 5

Question 1

Three aspects of an insurance contract on which parties must reach an agreement

Answer 1

1. the nature of the risk and the subject matter of insurance (what is to be insured and what perils are to be covered);
2. the duration of the contract
3. the amount of the premium (or at least the method by which the premium is to be calculated).

Question 2

Four reasons a risk may fail to run

Answer 2

1. the proposal may be withdrawn after the premium has been paid;
2. the policy may be void for mistake or because there was no consensus ad idem;
3. the policy may be void because there is no insurable interest; and
4. the policy may be avoided ab initio.

Question 3

Insurance contracts which must be in writing

Answer 3

Marine insurance

Contracts of guarantee eg fidelity guarantee must be evidenced in writing

Question 4

Four key elements of insurable interest

Answer 4

1. a subject matter of insurance;
2. the policyholder must have an economic or financial interest in the subject matter of insurance;
3. the interest must be a current interest, not merely an ‘expectancy’; and
4. the interest must be a legal interest.

Question 5

Two main reasons law requires insurable interest

Answer 5

1. to reduce moral hazard
2. to discourage wagering.

Question 6

Two main ways insurable interest created

Answer 6

1. Common law - presumed eg unlimited interest in own life
2. Contract - eg lease requires tenant to maintain the building, reinsurance

Question 7

Four main provisions of Life Assurance Act 1774 on insurable interest

Answer 7

1. The person benefiting from the insurance must have an insurable interest in the life or event insured. If there is no insurable interest the contract is void (s.1, earlier).
2. The name of the person for whose benefit the policy has been effected must appear in the policy (s.2).
3. The insured can recover no more than the amount of the value of their interest (s.3).
4. The Act does not apply to insurances on ships, goods or merchandises (s.4).

Question 8

Family relationships which create insurable interest in life insurance

Answer 8

1. Own life
2. Spouse

Question 9

Business relationships which create insurable interest in life insurance

Answer 9

1. Partners
2. Employer (value of work employee does) and employee (minimum period of notice salary)
3. Creditor in debtor but not vice versa

Question 10

Person who have insurable interest in property

Answer 10

1. Outright owners
2. Part or joint owners
3. Mortgagees and mortgagors
4. Executors and trustees
5. Landlord and tenant
6. Bailees
7. People living together
8. Finders and people in possession