Chapter 2- Principles and terminology

Question 1

Contract law

Answer 1

Creation of legal relations
Premium paid in exchange for protection
This idemnifies the insured

Question 2

Essentials of valid insurance contract

Answer 2

Offer/acceptance
Consideration
Possibility of performance
Capacity
Consensus ad idem (meeting of minds)
Legality
Certainty

Question 3

Contract certainty

Answer 3

All parties must know terms

Question 4

Unconditional acceptance

Answer 4

No alterations

Question 5

Conditional acceptance

Answer 5

Counter offer

Question 6

Postal acceptance

Answer 6

When letter is posted

Question 7

What is insurable interest

Answer 7

Legal right to insure from a financial relationship recognised at law
Subject, relationship, financial value, own insurable interest, timing

Question 8

Insurers own insurable interest

Answer 8

Reinsurance

Question 9

Timing of insurable interest

Answer 9

Life assurance - only at inception
Marine- at loss but not inception
General insurance- inception and loss

Question 10

Creation of insurable interest (3)

Answer 10

Common law
Contract
Statute

Question 11

Good faith

Answer 11

Disclose all material facts

Question 12

Material fact

Answer 12

Influence the judgement of a prudent insurer

Question 13

Facts that don’t need to be disclosed

Answer 13

Lessen risk
Public knowledge
Waived info
Survey ace missed
Facts the insured doesn’t know

Question 14

ICOBS rules for unreasonable grounds of rejecting claim: (2)

Answer 14

Policyholder could not have been expected to disclose

Question 15

Consequences of non disclosure

Answer 15

Ab initio
Fraud, insurer can keep premium
If breach ignored, claim must be paid

Question 16

Modification of policy wordings to non disclosure

Answer 16

Contract may have ongoing disclosure
Needed on renewal
Excl life policies which aren’t renewed

Question 17

Cancellation of contract

Answer 17

7 day cancellation letter

Question 18

Materiality

Answer 18

No data dumping
Ought to know, presumed to know
No longer a separate duty of disclosure on the broker

Question 19

Remedies for breach of fair presentation

Answer 19

Ab initio
Avoid claim but return premium (if different terms)
If higher premium, claim reduced

Question 20

Marine war cover

Answer 20

Can be cancelled and deactivated depending on location

Question 21

Policy fulfilment

Answer 21

Claims amount reached before policy expiration

Question 22

Proximate cause

Answer 22

Original cause of the claim
E.g. Earthquake, rain
If policy excludes the proximate cause could stop claim

Question 23

Indemnity definition

Answer 23

Restoring to previous financial position
Does not apply to liability
Or aviation loss of license
Cash, repair, replacement, reinstatement
Minus wear and tear

Question 24

Application of indemnity
Marine, Property

Answer 24

Marine- valued policy, amount agreed between parties, unvalued by marine act

Property- value at loss time. Betterment (repair or replace)

Question 25

Reinstatement memorandum

Answer 25

Sum insured must represent the full value at time of reinstatement Insured value must be 85% + of actual value Anything over the 85% won’t be paid out

Question 26

Day one reinstatement

Answer 26

Insured states reinstatement value on first day of cover Insurers provide an inflation uplift amount 50% but high premium of 15% No error margin Takes into account building costs but could be more than the 50%

Question 27

Machinery and contents reinstatement

Answer 27

Second hand value plus transport

Question 28

Stock reinstatement

Answer 28

Stock in trade- value plus labour

Question 29

Farming stock replacement

Answer 29

Local market price plus, profit allowed

Question 30

Modifying indemnity, Agreed value policy

Answer 30

Value fixed at start Common in marine and fine art where value disputed may occur Partial loss counted as no agreed value

Question 31

Modifying indemnity, First loss policy

Answer 31

Doesn’t cover full loss for unlikely event Not much premium reduction, but risk more predictable Payout for insured risks may not cover value

Question 32

3 limiting factors of indemnity

Answer 32

Sum insured Inner limit or item limit e.g 5% gold Average- underinsured, insured takes responsibility for rest

Question 33

Claim payment equation (average)

Answer 33

= sum insured X loss / Value of goods at risk

Question 34

Farming claims

Answer 34

Average not applied if 75% +

Question 35

Difference between excess and deductible, franchise

Answer 35

Excess- deducted from claim, paid by insured. Not removed from overall claim limit. Deductible- deducted from policy limit Franchise- once franchise value exceeded, insurer pays whole claim

Question 36

Contribution

Answer 36

Risk covered by multiple policies, insurers share

Question 37

Contribution - sum insured method

Answer 37

Policy sum insured X loss / total value at risk

Question 38

Contribution- independent liability

Answer 38

Pretends no other policy exists then shares in proportion

Question 39

Subrogation

Answer 39

Insurer recovers money from third party

Question 40

Subrogation - tort

Answer 40

Insured can claim from individual and insured

Question 41

Subrogation - statute

Answer 41

Riot damages act 1886

Question 42

Subrogation - salvage

Answer 42

Insurer entitled to any profit selling old broken machinery when replacing new (if cheaper then repairing)

Question 43

When can Subrogation not be used?

Answer 43

No rights- e.g. Mutual hold harmless agreement Benefit policies- insured keeps court award and benefit Waiver Injury to fellow worker