Chapter 3

Question 1

What are the first essential elements of valid contract?

Answer 1

Offer
Acceptance
Consideration

Question 2

What is meant by a void contract?

Answer 2

A void contract is a contradiction in terms since it is no contract at all: it has no binding affect on either party

Question 3

The ways a principal/agent relationship can be created

Answer 3

Consent
Necessity
Ratification

Question 4

The principal of insurable interest

Answer 4

Insurable interest is the legal right to insure arising out of a financial relationship recognised at law, between the insured and the subject matter of reference

Question 5

What is a material circumstance from an insurers point of view?

Answer 5

A circumstance that would influence the judgement of a prudent insurer in fixing the premium or determining whether to accept the risk

Question 6

List 3 safeguards that the consumer insurance (disclosure and representations) act 2012 offers to a proposer that innocently failed to provide an insurer with full details of the risk to be insured

Answer 6

The safeguards provided are:

Protection is offered if the proposer was unaware that a duty to disclose exists

The insurer is prevented firm denying a claim when the proposer has acted honestly and reasonably

The insurer cannot refuse a claim where the proper has made an innocent mistake

Question 7

The four options in which indemnity must be provided under a policy

Answer 7

Cash payment

Repair

Replacement

Reinstatement

Question 8

Define proximate cause

Answer 8

Proximate cause means the active, efficient cause which sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source

Question 9

List the 6 requirements which must be satisfied before contribution arises

Answer 9

Two or more indemnity policies must exist

Policies must cover a common interest

Policies must cover a common peril

Policies must cover a common subject matter

Each policy must be liable for loss

Neither policy must contain a non contribution clause

Question 10

How might subrogation arise

Answer 10

It may arise under tier, contract, statute or subject matter of insurance

Question 11

Identify the formula used to calculate a claim subject to the pro rata condition of average

Answer 11

Formula:

Sum insured
—————— x loss = claims settlement
Value of goods at time of loss