Chapter 2

Question 1

An example of an insurance benefit policy is a

Answer 1

Personal accident policy

Question 2

Where a claim involved a ‘chain of events’ and the dominant reason for the events is unclear, the insurers will apply

Answer 2

The Doctrine of proximate cause

Question 3

What document is most used for placing risks on the London Market?

Answer 3

Market reform contract

Question 4

An insurance contact can be terminated if the contact has been fully performed. This is known as:

Answer 4

Fulfilment

Question 5

Timings of insurable interest:
Life insurance contracts
Marine insurance contracts
General insurance contracts

Answer 5

Life insurance - insurable interest must exist at inception but need not exist at the time of a loss.

Marine insurance - insurable interest must exist at the time of a loss but need not exist at inception, although a reasonable expectation of acquiring one is required.

General insurance - insurable interest must exist at both inception and at loss. However an anticipated interest may be sufficient at inception.

Question 6

Under the Consumer Insurance (disclosure and representations) act 2012, what are the two types of misrepresentations?

Answer 6

• Careless

- Deliberate or reckless

Question 7

What happens if the insurer can prove deliberate or reckless misrepresentation?

Answer 7

Their remedies are avoidance of the contract and refusing all claims, and in addition need not to return any premium unless it would be unfair to the consumer.

Question 8

What are the matters that do not need to be disclosed to the insurers?

Answer 8

• that lessens the risk
• that the insurer knows
• that the insurer ought to know
• that the insurer is presumed to know or;
• waived by the insurers

Question 9

Original placement: if the breach was reckless or deliberate what Can the insurer do

Answer 9

They can avoid the policy from inception and keep the premium (ab inito)

Question 10

What is the doctrine of proximate cause?

Answer 10

Proximate cause is a key principle of insurance and is concerned with how the loss or damage actually occurred and whether it is indeed as a result of an insured peril. … The active, efficient cause that sets in motions train of events which brings out a result, without the intervention of any force started and working actively from a new and independent source.

Question 11

The 3 types of perils are?

Answer 11

1. Insured perils
2. Excepted or excluded perils
3. Uninsured or unnamed perils

Question 12

Insured perils are?

Answer 12

Those named in the policy wordings

Question 13

Excepted or excluded perils are?

Answer 13

Those named in the policy as specifically not covered.

Question 14

Uninsured or unnamed perils are?

Answer 14

Those perils not mentioned at all in the policy.

Question 15

Indemnity definition

Answer 15

Indemnity can be defined as ‘financial compensation sufficient to place the insured in the same financial position after a loss as they enjoyed immediately before the loss occurred.’

Question 16

Reinstatement meaning

Answer 16

Reinstatement means that the insurer agrees to restore a building (or piece of machinery) that has been damaged by an insured peril.

Question 17

Difference between reinstatement and repair

Answer 17

Reinstatement would apply only to buildings (and occasionally machinery) and is concerned with bringing the property back to its pre-loss condition. To achieve this purpose the insurer effectively takes occupation of the premises (or what is left of them) to reinstate. The option to repair does not carry with it the ‘occupation’ aspect.

Question 18

What are not contracts of indemnity?

Answer 18

Life and personal accident policies are not contracts of indemnity as the insured cannot be restored to the same financial position after a loss.

Question 19

How to calculate indemnity (property insurance)

Answer 19

The measure of indemnity is the replacement cost less
an amount for wear and tear.

In the case of partial damage, indemnity is the repair cost less an allowance for wear and tear

Question 20

How to calculate indemnity (liability insurance)

Answer 20

liability policy provides indemnity to the insured in respect of their legal liability to pay damages and legal costs (both for the insured and potentially the claimant’s costs/lawyers’ fees). (Which is left to the courts to decide and its clear about whether the insured’s defence costs are included within the stated policy limit or will be paid in addition.

Question 21

Measuring indemnity - Marine insurance

Answer 21

The insurable value of an unvalued policy must be calculated using the formula in the Marine Insurance Act 1906

Question 22

Measuring indemnity - Property insurance (Buildings: basic cover)

Answer 22

Insurers calculate the indemnity for loss of, or damage to, buildings as the cost of repair or reconstruction at the time of loss.
They make allowances for anything that cannot be exactly repaired as it was before the loss and where the replacement has had to be new. This is termed betterment.

Question 23

Reinstatement memorandum

Answer 23

is that the sum insured must represent the full value at the time of reinstatement. This means that the insured pays a premium based on the higher amount.

Question 24

Day One reinstatement

Answer 24

Insurers provide an automatic uplift to allow for inflation (usually an extra 50% of the ‘declared value’) but only charge a modest increase for this inflation element (15% of the premium).

Question 25

Measuring indemnity - Machinery and contents (basic cover)

Answer 25

• If there is a second-hand market then it is the second-hand price plus costs of transportation and installation that would be payable.
• Where there is not a second-hand market, it is the cost of repair or replacement less an allowance for wear and tear, if applicable.

Question 26

Measuring indemnity - Manufacturers’ stock in trade

Answer 26

Indemnity value is the cost of raw materials, at the time and place of loss, plus labour and other costs incurred in respect of work in progress and finished stock.

Question 27

Measuring indemnity - Wholesalers’ and retailers’ stock in trade

Answer 27

Indemnity here is the cost of replacing the stock, at the time of the loss, including the costs of transport to the insured’s premises and handling costs. It is not possible to insure stock on any kind of reinstatement basis

Question 28

What is this an example of? if their carpet is
damaged then they receive the cost of a new one, rather than having to obtain a new one and then finding that insurers will only pay part of the cost.

Answer 28

New for old cover.

Question 29

Which body is responsible for The implementation and administration of the International financial sanctions in effect in the UK?

Answer 29

HM Treasury

Question 30

Measuring indemnity - Liability insurance

Answer 30

is measured as the amount of any court award (or more

commonly, negotiated ‘out of court’ settlement) plus the costs and expenses arising in connection with the claim.

Question 31

The formula used to calculate a claim payment is?

Answer 31

Sum insured / value of all goods at risk x loss

Question 32

Rateable proportion - By sum insured calculation

Answer 32

policy sum insured / total sums insured x loss

Question 33

Rateable proportion - By independent liability calculation

Answer 33

independent liability under this policy / total of independent liabilities under all policies x loss

Question 34

When there is an overlap between travel, all risks, household and the personal effects section of a motor policy - what agreement is this?

Answer 34

Association of British Insurers (ABI)

Question 35

the concept of indemnity

Answer 35

Do not forget that the concept of indemnity is to place the insured in the financial position
they were in immediately before the loss.

Question 36

Tort

Answer 36

At common law, everyone has a duty to act in a reasonable way towards others. A breach of this duty is called a tort. The person who has suffered damage or injury is entitled to compensation.

E.g. Someone crashes into the wall of your property in a vehicle and knocks it down.

Question 37

Riot Compensation Act 2016

Answer 37

• a claim can be made by a property owner, anyone else with a legal interest in the property (such as a tenant or mortgagee) or by an insurer.
• It must be made within 43 days of the riot, or a decision by an insurer not to pay all or part of a riot related claim

Question 38

salvage.

Answer 38

In some types of insurance, a total loss under the policy will be offered to the insured when the subject-matter of insurance is not completely destroyed but is perhaps so badly damaged that the repair costs will exceed the sum insured.
Of course, when this happens there may be some residual value in the item insured

Question 39

mutual hold harmless

Answer 39

where each side agrees to deal with their own damage and injuries and not claim against the other.

Question 40

Contract law

Answer 40

A valid insurance contract cannot be created without the essential ingredients of offer, acceptance and consideration.

Question 41

Cancellation of insurance contracts

Answer 41

• If there is a deliberate breach of the duty of disclosure, then the other party can decide whether to cancel the contract.

• If there is a lack of a vital ingredient of the contract such as offer or acceptance, then the contract will never actually exist.

Question 42

Proximate cause

Answer 42

Proximate cause is the most powerful operative cause of loss, not necessarily the last thing to happen.

Question 43

Indemnity

Answer 43

• This means putting the insured back in the same financial position as they were in prior to the loss.
• Indemnity is not necessarily done through a cash payment; it could be repair, replacement or reinstatement.
• Certain policies such as health and accident policies are benefit policies not indemnity policies as a value cannot be put

Question 44

Subrogation

Answer 44

Subrogation is the right of the insurers to claim against a responsible third party having first indemnified the insured.

the right of an insurer following payment of a claim,
to take over the insured’s rights to recover payment from a third party responsible for the loss.