Untitled Quiz

Underinsurance

• If insured for less than its true value, the insurer is only obligated to pay a proportional amount of the loss, based on the ratio of the sum insured to the actual value of the property.
• Insurer's liability = (Sum insured/Actual Value of Property) * Loss

Double Insurance

• Occurs when multiple indemnity policies cover the same risk.
• Insured does not have to disclose other policies unless specifically asked.
• If the combined sums insured exceed the loss, the insured cannot recover more than the loss.
• The insured can choose to claim the full loss from one insurer, who may then seek pro rata contributions from other insurers.
• If the insured claims from all insurers, each is liable for their pro rata share of the loss.
• Contribution clauses in a policy may limit the insured's right to recover the full amount from a specific insurer.

Reinstatement

• Insurer has the option to reinstate the property (rebuild, repair, or replace) instead of paying a sum of money for the loss.
• This clause benefits the insurer, and the insured cannot demand reinstatement.
• If reinstatement is impossible, this option is no longer available.
• The insurer must make a choice within a specified period and notify the insured.
• The insured is obligated not to hinder the insurer's reinstatement efforts.
• If the reinstated property is less valuable than the original, the insured can claim the deficiency from the insurer as damages.

Valued Policy

• In a total loss, the insurer pays the pre-agreed value of the property, even if it exceeds its actual value.
• In a partial loss, the insurer's liability is proportional to the agreed value and the diminution in value caused by the peril.

Dishonesty in Claims Process

• If the insured makes false statements, conceals material information, or obstructs the insurer's rights, they may lose all policy benefits.
• There is no common law rule that automatically absolves the insurer from liability if a fraudulent claim is made.
• The insurer may not repudiate a fraudulent claim if no provision in the policy addresses it.
• A provision relating to fraudulent claims is only effective if the dishonest act is material.
• Negligence in assessing the loss does not necessarily constitute a dishonest claim.

Rejection of Claims

• If the insurer rejects or disputes a claim, they must notify the insured in writing about the reasons.
• The policyholder can provide further information related to the insurer's decision within 90 days.

Premium Payment

• The insured must pay the premium on the agreed date.
• For fixed-term contracts, the premium is typically due at the contract's start.
• For indefinite contracts, the premium is due at the beginning or end of each period.
• Annual premiums may be paid in monthly installments on fixed days.

Subrogation

• Insurer's right to exercise the insured's remedies against a third party responsible for the loss.
• Based on the principle that a wrongdoer should not benefit from the insured's insurance coverage and the insured shouldn't be enriched at the insurer's expense.
• This right arises as a legal consequence of the insurer indemnifying the insured.
• No formal cession or transfer of rights is necessary.

Subrogation Requirements

• Applies only after the insurer has compensated the insured.

Subrogation Consequences

• The insurer can sue in the insured's name, and the insured is not responsible for legal costs.
• If allowed by the court, the insurer can sue in its own name.
• The insured must assist the insurer with the legal action if needed.
• The insured cannot prejudice the insurer's right to recover from the third party.
• The insured must account to the insurer for any compensation received from the third party.
• The insurer's recovery is limited to the amount they paid the insured.
• The third party can raise any defenses they have against the insured against the insurer.
• The third party may treat the insurer as the actual plaintiff.

Unilateral Termination by Insurer

• The insurer can terminate a short-term policy by giving the policyholder 30 days' notice.
• If direct notice is not possible, the insurer may cancel by:
  • Publishing a cancellation notice in two editions of a newspaper circulated in the area.
  • Forwarding a copy of the notice to the registrar before publication.

Interpretation of Policy Terms

• Important to interpret policy terms correctly to ensure the insurer's obligations are clear.
• Terms are usually:
  • The subject matter of insurance (e.g., a vehicle).
  • The perils covered (natural, technical, or human perils).
  • Circumstances limiting the risk, either by describing the risk or by introducing exceptions to coverage.
  • Limitations on the insurer's liability.
• Onus of proof:
  • If the insurer made a qualified promise, the insured must prove their claim falls within the promise's scope.
  • If the insurer made a promise with exceptions, the insurer must prove that one of the exceptions applies.

Insurable Interest

• An insured must have an insurable interest for the contract to be valid.
• This interest prevents the insured risk from materializing.
• For indemnity insurance, the interest must exist when the risk materializes.
• If the insured loses the interest before the risk materializes, the policy becomes void and the insured cannot recover.
• The test for insurable interest is whether the insured will incur a financial loss or fail to receive an anticipated financial benefit if the risk materializes.
• It is satisfied when the insured owns the subject matter, bears the risk of loss, or stands to lose financially if the event materializes, even without ownership.
• For non-indemnity insurance, the interest must exist when the contract is concluded.
  • The test for insurable interest here is whether there is a justifiable interest in the life, health, or bodily integrity of the person insured.
  • Examples of insurable interests include:
    • A person's interest in their own life, health, and the life of their spouse.
    • Parents' interest in the birth of their unborn child.
    • Interest in the life of a person providing support.
    • A creditor's interest in the life of a debtor.
    • A company's interest in the life of its managing director.
    • A partner's interest in the life of another partner.
    • An employee's interest in the life of their employer.
• The insured's right to recovery is limited by the nature and extent of their insurable interest. They cannot recover if they have not suffered a loss.

Duty to Disclose Material Facts

• Insured has a legal duty to disclose all material facts to the insurer.
• Insurers rely on the insured for information to assess risk.
• Non-disclosure amounts to bad faith and allows the insurer to avoid liability.

Material Facts to Disclose

• Material facts include:
  • Facts indicating the subject matter is exposed to greater risks.
  • Facts suggesting that the insured could cause the risk to materialize through their conduct (moral hazards).
  • Facts that impact the insurer's subrogation rights.
  • Facts showing the insured's financial difficulties or poor financial history.
  • Facts proving the insured has a poor insurance record.

Facts Not Requiring Disclosure

• The insured does not need to disclose facts that are:
  • Not relevant to the risk.
  • General public knowledge.
  • Already known by the insurer.
  • Expressly or tacitly waived by the insurer.

Actual and Constructive Knowledge

• Duty to disclose only applies to facts the insured has actual or constructive knowledge of.
• Actual knowledge is personal knowledge. A company has actual knowledge when its directors or managers, representing its will and directing its actions, have actual knowledge.
• Constructive knowledge is presumed knowledge. It is imputed to an insured when they: - Ought to have known of the fact in the ordinary course of business. - Would have discovered the fact with reasonable business prudence. - An employee learned of the fact in the course of their employment and had a duty to communicate it to the insured.

Time of Disclosure

• Duty to disclose arises at the outset of insurance and continues until the insurer accepts the proposal.
• This duty applies at each policy renewal.

Disclosure to the Insurer's Agent

• Disclosures to an agent are only effective if the agent has the authority to receive information from the insurer.
• The insured is not responsible for the agent's misstatements or omissions.
• An insurance broker is the agent of the proposed insured and must pass on material information to the insurer.

Insurer's Right of Rescission

• Non-disclosure of material facts makes the contract voidable at the insurer's discretion.
• The insurer must prove:
  • Materiality of the undisclosed information.
  • The insured's knowledge of the information.
  • Failure to communicate the information to the insurer or agent.
• When electing to rescind, the insurer must return premiums received.

Contract Duration and Renewal

• Contracts last for a period agreed upon.
• The duration can be fixed or indefinite.
• Indemnity insurance typically has a fixed period with a renewal option.
• Non-indemnity insurance usually has an indefinite period.

Policy Renewal

• No obligation for the insurer to renew a policy.
• A renewal notice from the insurer is an offer to renew, and premium payment constitutes acceptance.
• Renewal may be conditioned on certain requirements.
• Contracts can have a grace period during which premium payment secures retroactive renewal.

Cooling Off Period Applicable to LT Policy

• Protects holders of long-term policies.
• Allows cancellation and a premium refund (minus risk cover and any market loss).
• If no benefit has been paid or an insured event has not occurred, the policyholder can cancel within 30 days of receiving the policy summary or from a reasonable date.

Warranties

• Warranties are clauses in insurance contracts.
  • Affirmative warranties are statements of fact that are true at the time the contract is concluded (e.g., The vehicle is in good condition).
  • Promissory warranties are promises to do or not do something during the policy period (e.g., The vehicle will be garaged at night).
• Breach of a warranty gives the insurer grounds to avoid liability.
• Warranties are usually strictly interpreted.

Insurance: The Nature of the Contract

• Insurance is a contract where one party (insurer) agrees to pay a sum of money or its equivalent to the other party (insured) upon the occurrence of a specified uncertain event in which the insured has an interest.
• This agreement is made in exchange for the insured paying a premium.

Types of Insurance Contracts

• Contracts are classified based on:
  • Nature of peril insured against: E.g., fire, theft, or natural disasters.
  • Nature of interest affected by the peril: E.g., personal injuries, property damage, or financial losses.
  • Nature and extent of cover provided: Indemnity (covers actual losses), non-indemnity (pays a fixed sum regardless of losses), or valued (pre-determined value for the asset).
• Common insurance policies:
  • All-risk policy: Covers property against any damage, loss, or destruction not specifically excluded.
  • Comprehensive motor vehicle policy: Covers the vehicle and the insured's liability for damage to third-party property.
  • Fidelity policy: Protects against losses due to employee dishonesty involving money and stock-in-trade.
  • Public liability policy: Covers the insured's liability to members of the public.
  • Life policy: Pays a sum of money upon the insured's death to their estate or a designated beneficiary.

Statutory Regulation

• Long-term and Short-term Insurance Acts: These acts regulate the insurance industry and policies to protect policyholders.
  • Key provisions:
    • Registration of insurers: Ensuring compliance and accountability.
    • Copies of policies to policyholders: Transparency and understanding of coverage.
    • Invalidation of undesirable policy provisions: Protecting policyholders from unfair or misleading terms.
• Long-term insurance (LT) policies: Include life, disability, and health policies.
• Short-term insurance (ST) policies: Include engineering, guarantee, liability, miscellaneous, motor, accident and health, property, and transportation policies.

Policyholder Protection Rights

• Separate protection rules exist for LT and ST insurance policies.
• Objective: Ensure that insurance policies are entered into, executed, and enforced according to sound insurance principles in the interests of both parties and the public.
• Rules for direct marketers: Regulate the conduct of insurers in their dealings with the general public.

Formation of the Insurance Contract

• Parties:

  • Typically involve two parties: the insurer and the insured.
  • A third party may be designated as the beneficiary of the policy, making it a "stipulation alteri" contract.
  • If the third party accepts the benefits of the policy, it may create a separate contract between the third party and the insurer.
  • The policyholder is the person entitled to the policy's benefits.

• Formalities:

  • No specific legal formalities are required under common law.
  • Policies are usually reduced to writing.
  • Proposal form and policy issuance:
    • The party seeking insurance fills out and submits a proposal form to the insurer.
    • Submission of the form represents an offer by the insured to take out insurance on the terms stipulated by the insurer for that specific type of insurance.
    • The proposer acts as the offeror, and the insurer acts as the offeree.
    • The proposal form provides crucial information for the insurer to decide whether or not to accept the insurance.
    • Information includes:
      • Personal particulars of the proposer (name, address, contact details).
      • Details about the subject matter of the insurance (the property or person being insured) and any potential hazards associated with it.
      • The proposer's insurance history and financial status.
      • The desired amount of insurance (for life and health insurance, medical history is also required).
    • Fact-based statements made in the proposal form become material terms of the contract.
    • False or misleading statements can lead to the insurer avoiding liability.
    • The insurer cannot require the proposer to sign a blank or partially completed form that others must later fill in.
    • Upon accepting the proposal, the insurer issues an insurance policy outlining the terms of the coverage.
    • Issuance of the policy signifies acceptance of the insured's offer.

• Invalid Terms:

  • Specific invalid provisions in ST policies:
    • Compelling the insured to undergo a polygraph or lie detector test: This is considered an unfair practice that could coerce the insured into providing information that could be used against them.
    • Rejecting or voiding a claim based on a failed polygraph test: This is unfair due to the unreliability and potential for bias in such tests.
    • Offering an inducement to the policyholder to submit to a polygraph or lie detector test: This is seen as an attempt to circumvent the inherent flaws in such tests.

Notification Requirements

• LT insurance:
  • The insurer must provide the insured with a written summary of the policy within a reasonable period.
  • In writing, the insurer must inform the policyholder of the policy's issuance and provide details of any available internal complaint resolution systems.
• ST insurance:
  • The insurer must provide a copy of the policy document to the policyholder (a natural person) within 30 days of entering into or modifying the policy.
  • ST insurers can only issue policies if:
    • The policy provisions are clearly and easily readable.
    • Every provision has a reasonably precise and ascertainable meaning.
  • The insurer must, within a reasonable time, inform the policyholder in writing about the issuance of the policy, as well as provide details of any available internal complaint resolution systems and procedures.

Role of the Broker

• The broker acts as an intermediary between the insurer and the insured.
• The broker is employed by the insured to act on their behalf.
• Brokers are typically independent and not beholden to a specific insurer. They can compare offerings from different insurers and advise the insured on the most suitable option.