MARA 304 Exam 2

Question 1

Actual total loss

Answer 1

damage is extensive that repair costs would equal or exceed the value of the subject matter insured
insured may claim that total value of the subject matter insured
destruction, loss of specie, irretrievable deprivation

Question 2

constructive

Answer 2

loss between partial and total
cost of repair of a damaged item is more than the current value of the item
abandonment, unlikely to be recovered

Question 3

partial loss

Answer 3

if subject matter is imperishable, insured could still send subject matter to its destination
loss can be converted to partial if subject matter is restored to insured’s possession
damaged but not totally lost

Question 4

constructive and actual loss are considered

Answer 4

total loss

Question 5

measure of indemnity

Answer 5

reasonable cost or repairs less the customary deductions (not exceeding the sum insured)

Question 6

what’s the measure of the amount of indemnity of partial loss?

Answer 6

partial loss is going to be equal to the amount of repairs made
some insured don’t get something fixed
determine value by the cost of towage, crew wages during damage is not recoverable, reasonable fees of surveyors are recoverable, drydocking fees are recoverable
depreciation due to unrepaired damage

Question 7

prudent owner uninsured

Answer 7

if prudent owner would decline further expenses
would cut their losses
owner expected to exercise care of their property
if exposed to danger that could be prevented

Question 8

3 ways total loss can occur

Answer 8

destruction - fire, etc.
loss of specie - seized to be something of its kind
irretrievable deprivation

Question 9

principle of subrogation

Answer 9

principle of equity
right held by most insurers to legally pursue a third party that caused an insurance loss to the insured

Question 10

constructive total loss

Answer 10

considered CTL when repair costs exceeds market value
insured has to abandon subject matter insured
conditions precedent
required before a constructive loss may occur

Question 11

partial loss

Answer 11

insurance is obtained in order to put insured in the same position prior to the risk/loss
do not have to get repairs done

Question 12

customary deduction for partial loss

Answer 12

wear and tear (certain degree of decay and diminution in value as they are utilized)
offset the degree of betterment
installing new parts would put the assured in a better position

Question 13

notice of adandonment

Answer 13

insured must notify insurer of abandonment for CTL claim
must be UNCONDITIONAL and irrevocable
given in writing or word (unless specified by contract)

Question 14

sue and labor

Answer 14

actions taken by an assured to prevent or minimize loss

Question 15

duty to mitigate

Answer 15

insured takes reasonable steps to prevent or minimize risk insured against
owner is expected to take care of their property
mitigation actions or causes

Question 16

sue and labor cont.

Answer 16

insured should be taking some sort of action to prevent damages or anything worse to occur
have to be reasonable
duty of insured to take reasonable action to minimize loss
expenses do not have to be successful for recover

Question 17

ransom

Answer 17

can be considered sue and labor expense
cant recover, unless it’s a legal payment

Question 18

failure of insured to execute its duty, allows for a claim against insured by the insurer

Answer 18

insurer gets a right of action to recover damages
insurance company has a claim or a right of action against the insured

Question 19

three sue and labor elements

Answer 19

1. expenses should be reasonably incurred
2. incurred by the insured or its agents
3. the expense must be to preserve the thing from loss

Question 20

fraudulent claims

Answer 20

if insured makes a claim with no fortuity
insured knows that they filed a claim and didn’t suffer a loss or exaggerate a claim
insurer has things it can do
-not liable to pay a claim
-insurance may recover from the insured that wasn’t used
-insurance company can cancel the contract
means and devices

Question 21

subrogation

Answer 21

a right held by most insurers to legally pursue a third party that caused an insurance loss to the insured
action brought by insurance company in the name of the insured

Question 22

subrogation elements

Answer 22

insurer must pay
-subrogation right cannot be enforced until this occurs
claim is pursued in the name of the insured
the insurer can only recover up to the amount paid to the insured
-can combine unpaid claims of insured with the subrogation claims of insurer
relationship between the insured and the third party is not altered by the payment from insurer
-third party still liable for damages
-insurer simply steps into the shoes and becomes the injured party

Question 23

reinsurance

Answer 23

insurance of insurance companies
can be proportional or non-proportional

Question 24

proportional

Answer 24

more sharing of risk
facultative insurance - reinsurance transfers a single risk to the reinsurer
ex. - MODU insured for voyage from USA to Malaysia. facultative reinsurance

Question 25

benefits of reinsurance

Answer 25

allows insurer to free up risk capacity and protect itself from high severity claims
can involve international transactions

Question 26

fronting

Answer 26

insurer insured 100% of the risk and then transfers the whole risk
understood as when a ceding company (insurer) underwrites a policy and transfers the entire risk to a reinsurer
company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer

Question 27

treaty of reinsurance

Answer 27

represents a contract between the ceding insurance company and the reinsurer who agrees to accept the risk of a predetermined class of policies over a period of time
large number of risks reinsured
can be both proportional or non-proportional

Question 28

proportional treaty reinsurance

Answer 28

with proportional - the reinsurer agrees to take on a specific percentage share of policies, for which it will receive that proportion of premiums

Question 29

non-proportional reinsurance

Answer 29

the reinsurance company agrees to pay out claims if they exceed a specified amount during a certain period of time

Question 30

duty of utmost good faith

Answer 30

reinsured has duty to disclose material facts to the reinsurer before the contract is concluded
IA 2015 applies to reinsurance - duty of fair presentation is applicable

Question 31

implied terms

Answer 31

-keeping proper records and accounts of risks accepted, premiums received, and claims made or notified
-investigating all claims and confirmation of liability before accepting liability
-acting prudent in the acceptance of risk
-ensuring all amounts payable are paid promptly
-making all documents reasonably available to reinsurers

Question 32

what is the measure of repairs in constructive total loss?

Answer 32

the cost that a prudent insured owner would have been willing to incur
cost of repairs, tow, cost of insurance, time and risk, reputation of repair facilities, repair delays, loss of income during repair period
what would it cost to return the subject matter insured to the state it was before the damage
Suez Fortune Invs. v. Talbot Underwriting
-cost to repair vessel in Dubai was $64 million while cost to repair in China would be $53 million
-court found that prudent owner insured would complete repairs in Dubai

Question 33

four elements of partial loss

Answer 33

partial loss of insured subject matter
caused by a peril
peril insured against
not general average

Question 34

partial loss: 3 types of damages

Answer 34

destruction - vessel sinks, or destroyed by fire
loss of specie - when subject matter insured is so damaged that is ceases to exist, it is a total loss (discontinued item)
irretrievable deprivation - whether a vessel or its goods, are wholly out of the power of the insured to procure arrival
repairable depends on condition of the freight

Question 35

duty to mitigate elements

Answer 35

expenses should be reasonably incurred
incurred by the insured or its agents
the expense must be to preserve the thing from loss

Question 36

fraudulent claims

Answer 36

often gets throw out if its fraudulent
insurer may terminate the contract from the time of the fraudulent act
it would be dangerous to permit parties to practice fraud and still recover the real value of the goods damaged
law requires forfeiture of the claim is it was fraud
fraud would be encouraged
if fraud is successful, I gain. if fraud is unsuccessful, I don’t lose

Question 37

fraudulent remedies

Answer 37

insurer is not liable to pay claim
insurer may recover from the insured any sums paid by the insurer to the insured
insurer may cancel insurance contract (with notice) in effect from the time of the fraudulent act
if contract is not terminated
-it may refuse liability to the insured is respect to the relevant event
insured need not return any premiums paid