chapter 5 Flashcards
(26 cards)
What is an invitation to treat in insurance?
A: It’s an invitation to negotiate, not an offer; e.g. a prospectus showing standard cover and premiums.
When does signing down occur in Lloyd’s market?
A: When total subscriptions exceed 100%; insurers’ shares are reduced proportionally.
What key terms must be agreed for an insurance contract to be valid?
A: Subject matter, risks covered, duration, and premium (or method of calculation).
What happens if the insured materially changes the risk at renewal?
A: They must disclose the change; this creates a counteroffer for the insurer to accept or reject.
In insurance, does the risk always attach immediately once the contract is made?
A: No, parties may agree risk starts later or only after premium payment.
What is total failure of consideration in insurance?
A: When no risk ever attached, allowing the insured to recover paid premiums.
Can silence be acceptance of an insurance offer?
A: Generally no, unless conduct (like using a car after receiving a renewal notice) indicates acceptance.
What is the Market Reform Contract (MRC)?
A: A standardised contract ensuring contract certainty, replacing the old “slip” system.
What is a unilateral insurance contract?
A: Rare in insurance; generally, both parties exchange promises rather than one party making a binding promise awaiting performance.
Which insurance contract must be in writing by law?
A: Marine insurance contracts (Marine Insurance Act 1906, s.22).
What is required for a valid marine insurance policy?
A: Name of insured/agent, subject matter, and insurer’s signature.
When can an insurer sue a minor for unpaid premiums?
A: Only if the contract is for necessaries or beneficial for the minor.
What happens if an insurer never goes on risk?
A: The insured may recover premiums due to total failure of consideration.
What are the two main reasons the law requires insurable interest?
A: To reduce moral hazard and to discourage wagering.
What is moral hazard?
A: When insured people take greater risks because they know they are protected by insurance.
When must insurable interest exist in marine insurance?
A: At the time of loss.
When must insurable interest exist in life insurance?
A: At the time the policy is made (inception).
Can marine and life insurers waive the legal requirement for insurable interest?
A: No — under law they cannot, but may choose to honour such policies in practice.
What are PPI policies in marine insurance?
A: “Policy Proof of Interest” — policies where insurers agree not to require proof of insurable interest at inception.
What is the aim of the Law Commission’s proposed reforms?
A: Modernise insurable interest rules for life and life-related insurance.
Can parents insure children’s lives automatically?
A: No automatic insurable interest — must show financial dependence or business link.
When does a creditor have insurable interest?
A: When a debtor owes money — limited to the debt plus interest.
Who has insurable interest in property?
A: Owners, part-owners, mortgagees, mortgagors, landlords, tenants, bailees, trustees, finders.
What limits how much a party can claim if they insure full value of property?
A: The principle of indemnity — they can only keep amount equal to their own financial loss.
