Chapter 8

Insurance

1. Types of Insurance
1. Life Insurance 2. Marine 3. Fire 4. Accident 5. Motor 6. Aviation For persons and businesses to protect and compensate against the risk of loss - -fire, deaths, thefts, accidents, personal injuries, frauds and negligence - -governed by Insurance Act 1963

2. Nature of A Contract Of Insurance

-cover note may be issued by insurer to provide temporary cover to the person seeking insurance during a short time while insurance company is considering the proposal to accept/reject it Proposal form includes : a) Description of the proposed insured b) History of the proposed insured c) Subject matter to be insured d) Description of anything that could make the risk greater than usual -offer is made by the person seeking insurance protection. -when offer is accepted, proposer becomes the insured and insurance company = insurer -an offer can be revoked any time before acceptance - A counter offer /conditional acceptance will cause the offer to lapse

2. Nature of A Contract Of Insurance

Definitions ( Contract of Insurance) - A contract where the insurer agrees to indemnify the insured against a loss which may arise upon the occurrence of some event/ pay a certain definite sum of money on the occurrence of the particular event - The loss that is being insured is called the risk - Document that contains the term of the insurance is called a policy - Insured pays premium in form of a lump sum or periodical amount - When insurers accept the premium, it seems they have accepted the proposal even if no policy has been issued - Insurers are liable if insured suffers any loss under the policy - Once insurer accepted the proposal, a contract is completed and the duty of disclosure ends

2. Nature of A Contract Of Insurance

- Different from contract of assurance (contingency contract) where the assured will receive a sum of money on the occurrence of an event which will occur but do not know when - Different from ordinary business agreement. Business agreement- seller and buyer believes they are being paid for the equal value of the good/services Insured knows the premium is far less than the insurer is going to have to pay if the event insured happens. -Insurance contract = aleatory contract = conditions are an essential part of the agreement and performance is limited to those risks

2. Nature of A Contract Of Insurance

Type of parties involved a) Insured b) Insurer:i) Insurance companies ii) Underwriters insured the risk at a lower premium elsewhere.

2b. Contracts of Indemnity

Insured is indemnified against unforeseeable loss/damage which may/may not occur All contracts of insurance = contracts of indemnity where insured is entitled to be indemnified to be compensated for his loss, but he/she cannot get more than the actual loss For fire and vehicle insurance -Doctrine of subrogation applies : a) Based upon principles of equitable- where insurer is put in to the shoes of the insured (only applies to payment for the loss) b) Effect of subrogation- gives the insurer all the rights of the insured against any 3rd party who may be responsible for the damage that give rise to the claim.- this is to ensure the insured did not make a profit on the loss by bringing an action against a negligent 3rd party

2c. Insurable Interest

Insurable interest= risk that can be insured. If there is no insurable interest, the policy is void Exception to life policies, as the insured is deemed to have insurable interest in the following persons: a) Spouse b) Children c) Dependents Knowledge of the date of contract is important a) Determines when the risk starts and end b) If a material misrepresentation is made, the insurer is entitled to void the policy even after the happening of the event insured against Material time = when the proposal is made.

2d. Renewal of Policy

Before policy expire, insurer will send a renewal notice usually 28 days before. Renewal notice- is an offer by the insurer to the insured, acceptance is payment of premium. Life policy is ongoing contracts with no renewals Insured is entitled to a return of their premium if they can establish that there was a total failure of consideration in the sense that the risk was never attached.

2e. Utmost good faith

Insurance contracts need both disclosure to each other all information which would influence either partys decision to enter into the contract, regardless whether such info is requested or not. Uberrimae fide- insurance contracts are made based on mutual trust and confidence between the insured and the insurer Parties are not in an equal position with respect to knowledge of the possible risk involved. The proponent has the greatest knowledge of risk- so they should have to disclose all facts that could influence the insurance company as to whether or not it will accept the risk Failure of disclosure can make the other party to regard the contract as void

2f. Material Facts

Material facts: fact that would influence the mind of a prudent insurer in deciding to accept the risk and if so, at what premium. There is an exception : age of the person being insuredmeans mis-statement of age and in this case, insurer is entitled to vary the sum insured and the bonuses (if any) allotted to the policy. - No duty to disclose facts he does not know - Section 16(4) Insurance Act 1963 provides that the proposal form must prominently display a warning if that if there is any failure of disclosure of facts, insurer would not be liable under the policy.

3. Conditions and Warranties

When insured commits a breach of condition/warranty, insurer is entitled to disclaim liability Read some cases to understand on text book

4. Exemption Clauses
-in the insurance contracts To except insurer from some liability

5. Completion of Proposal From By An Agent

The person who wish to effect an insuranceneed to fill up the proposal himself Duties of an agent/ broker a) Following the principals instructions