Principles and terms (basics)

Question 1

Essentials for a valid contract

Answer 1

offer, acceptance and consideration

Question 2

Both parties believe to be agreeing to the same thing

Answer 2

Consensus ad idem i.e. ‘meeting of minds’

Question 3

A contract may be declared invalid or set aside if it is missing any of these essentials

Answer 3

void ab initio

Question 4

Each entities’ incentive for opting into an insurance contract

Answer 4

Considersation
from the insured is generally the payment of the premium and the consideration from the insurers is the promise to pay valid claims

Question 5

the legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject-matter of insurance

Answer 5

Insurable interest

Question 6

a written law passed by a legislative body

Answer 6

Stature

e.g. Settled Land Act 1925 and Repair of Benefice Buildings Measure Act 1972

Question 7

This principle applies equally to both the proposer and the insurer throughout the contract negotiations and essentially means that both parties should be open and transparent with each other in the sharing of key information relating to the risk

Answer 7

Good faith

Question 8

Every circumstance is material which would influence the judgement of a prudent insurer in fixing the premium or determining whether they will take the risk

Answer 8

Materiality

Question 9

What causes a loss, what is being insured against

Answer 9

Peril

Question 10

What makes a loss worse

Answer 10

Hazard

Question 11

the right of the insurer to claim against a responsible third parties having first indemnified the insured

Answer 11

subrogation

Question 12

Where two or more policies cover the same item for the same risk then they should share the loss between them in a rateable manner

Answer 12

Contribution

Question 13

when a risk is shared across multiple insurers

Answer 13

subcription

Question 14

the legal term used for a bar or impediment that precludes a person from asserting a fact or a right. It usually arises where one party’s conduct has been relied upon by the other

Answer 14

Estoppel

Question 15

when a contract is performed in full

Answer 15

fulfilment

Question 16

the dominant cause of a loss with a direct link between it and the resulting loss

Answer 16

proximate cause

Question 17

financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred

Answer 17

indemnity

Question 18

an amount that is deducted from each claim and is paid by the insured

Answer 18

Excess or deductible (sometimes used interchangeably)

• excess is first part of the claim paid by insured
• deductible is deducted from overall claim

Question 19

the insured pays the first part of the claim, however, once the value exceeds a certain value, the insurer pays the whole claim

Answer 19

Franchise