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Insurance (1)

Introduction
1. What is Insurance?
  1. Contract between insurer & insured whereby insurer undertakes in return for payment of premium to pay a sum of money to the insured, on the happening of a specified uncertain event in which the insured has an interest
2. Key terms
  1. Insured
    1. The person who purchases insurance cover by paying premiums.
  2. Insurer
    1. Company/person that provides the insurance cover
  3. The event /risk/peril
    1. The event that is covered by the insurance policy and is generally loss or damage which is cause by the destruction to property or death or injury to a person.
3. Suretyship Vs Insurance
  1. Similarities
    1. Both offer protection offer some kind of protection to people against loss which is caused by an uncertain future event
  2. Differences
    1. Suretyship is accessory to the principal obligation/contract. Insurance is the principal obligation.
    2. suretyship agreement is a unilateral agreement, in which the obligations go one way, and they are only on the surety. Insurance contracts are BI-LATERAL Agreements
    3. Surety pays out of goodwill, but in insurance, both parties have an interest in the contract and both are getting something out of the contract.
4. Wagers vs Insurance
  1. Differences
    1. Intention of wagers is too obtain a financial benefit, whilst with insurance contract, it is not to obtain a benefit, it is to protect against losses
    2. Gambler creates his own risk, insurer has no control over his risk
    3. Wagers are NOT ENFORCEABLE. You can’t go to court and enforce a bet/wager
    4. No requirement with a wager to have an insurable interest
  2. Similarities
    1. In both cases, the person who is taking out the insurance policy and the person who is taking the bet stands to be paid if a PARTICULAR EVENT happens.
5. Sources of Insurance Law
  1. REQUIREMENTS for a trade practice or custom to qualify as a source of insurance law
    1. 1. It must be uniformly observed.
      1. 2. It must be long established.
        3. It must be well known.
        4. It must be reasonable.
        5. It must be certain.
  2. Is foreign law a binding source of insurance law? NO.
6. Types of Insurance
  1. Indemnity
    1. SHORT-TERM INSURANCE
      1. Liability to insurer is ltd to actual financial loss
      2. Common Types
        Property Insurance
        ALL RISKS POLICY: Indemnifies the insured against all manner and form of risks regarding PROPERTY
        COMPREHENSIVE MOTOR VEHICLE POLICY: any damage/theft o your vehicle is covered and may include third party cover
        Pecuniary (Financial) Insurance
        Consequential Loss Insurance
        Taken out to protect against any loss that is caused by interruption of the business (eg. strike)
        Credit insurance
        Where someone insures themselves if they are a CP against the possibility that the consumer does not pay, OR the CP may require the consumer to take out this insurance.
        Fidelity policy
        A policy that protects an employer against fraud by one of its employees which causes loss.
        Public liability policy
        This insures someone against acts or omissions that cause harm to the public. Eg. City of Cape Town insuring against claims of damages caused by potholes, which are the cities responsilbility
    2. How may the insurer ‘indemnify’ the insured?
      1. By paying out a certain amount of money, or by reinstating the damaged object/property.
  2. Non- Indemnity
    1. CAPITAL / LONG-TERM INSURANCE
    2. FIXED SUM of money payable IF event occurs
      1. The amount is NOT LINKED to the loss, and the amount recoverable is whatever is stated in the contract. This is the key distinction from indemnity insurance.
    3. Common Types
      1. Insurance over a person
        Personal accident policies
        Disability insurance policies
        Life insurance policies
Elements of an insurance contract
1. Premium
  1. Insured’s obligation
  2. REQUIREMENTS to be VALID
    1. There must be a premium payable and it must be clearly specified for the contract to be valid.
      1. The the intervals at which the premium must be paid are specified.
        The amount payable must be specified
        Place of payment must be speciified
  3. Is it necessary for the first premium to be paid before the contract becomes effective? Ie. So is the policy effective before you have paid your first premium?
    1. Yes it is, it is effective from when you enter into it, HOWEVER if the premium has not been paid then the insurer does not have to honour the claim until you have paid.
2. Payment of specified sum / equivalent
  1. insurers obligation
  2. How is the sum determined in case of non-indemnity insurance?
    1. Says in the contract (predetermined amount)
  3. How is the sum determined in case of indemnity insurance?
    1. Dependent on the extent of the loss. This amount will then be recoverable either in money or in replacement.
      1. NOTE: This is assuming that the particular policy does cover for this amount
    2. Right of contribution
      1. What is the right of contribution and when does it apply?
        This right belongs to the insurer where a particular item of property or a particular event has been insured against by the insured party with more than one insurance company
        Doctrine says that if one of the insurers pays, that insurer may claim a contribution from the other insurer.
      2. How is the right exercised?
        Assuming you have a non-compliant insurer, in the court proceedings when one insurance company sues another insurance company in its own name.
        NOTE: Insured party is not involved and the suing insurer MUST HAVE PAID.
      3. Why does this exist?
        To avoid the insured being paid twice for the same loss
3. Specified uncertain event/Risk
  1. Contractual requirements for description of risk?
    1. 1. Subject matter, which is exposed to the risk
      1. 2. Peril --> The actual event that causes the loss, eg. Car accident
        3. Circumstances affecting subject matter OR peril ie. likelihood of the peril happening
4. Insurable interest
  1. Determines extent of insured’s claim
  2. Examples
    1. Economic interest
    2. Relating to risk IF thing damaged / event occurs
    3. Loss
  3. Indemnity Insurance
    1. Insured must have pecuniary/economic interest
      1. How do you test this?
        You ask will the insured incur financial loss, or fail to derive a financial benefit if the risk occurs?
    2. When may the insured NOT recover loss?
      1. 1. When there is no actual loss suffered
        2. If the insurable interest no longer exists at the time that the risk event happens
        3. When the policy doesn’t cover that particular risk/loss
    3. What is the purpose of requiring insurable interest(s) in indemnity policies?
      1. To ensure people don't make money out of ensurance
    4. (4) Broad Categories of insurable interests under indemnity insurance, which relate to real rights, personal rights & incorporeal rights
      1. Property rights
      2. Contract rights (personal rights)
      3. Legal liability
        Person insures against future obligations arising from contract or delict
        Liability ito contract
        Eg. Insuring against the actions of one of your subcontractors, who you have a contract with
        Liability ito delict
        Public Liability, caused by 3rd party or yourself, eg. Eg. Negligence such as Car accidents
      4. Factual expectation of damage
        Insured has interest in preservation of the thing in that s/he will benefit from its existence or suffer prejudice from its destruction
        Eg. Rented car
        NOTE: MUST HAVE LEGAL POSSESSION FOR IT TO BE AN INSURABLE INTEREST
    5. When must the insurable interest exist?
      1. Has to exist at the time of the loss and at the time you enter into the contract.
  4. Non-Indemnity Insurance
    1. When must the insurable interest exist?
      1. Has to exist at the time the contract is concluded. Once the contract has been concluded, it doesn’t matter what has happened to your insurable interest, you are still covered by the insurance policy, and they still have to pay out.
    2. Examples
      1. MARRIAGE: Spouses will have an insurable interest in eachother’s lives.
      2. DEBTOR/CREDITOR RELATIONSHIP: The creditor will have an insurable interest in the life of the debtor.
Conclusion and Contents of Insurance Contracts
1. 3rd parties
  1. INTERMEDIARIES Involved in Negotiation
    1. Brokers
      1. Agents of insured
    2. Canvassing agents
      1. ‘Propose’ contracts to potential clients obo insurer BUT may or may not have authority to bind
  2. Have interest in contract
    1. Beneficiaries of a contract, such as the child of someone with life insurance
2. Principals of Contract Law
  1. (4) REQUIREMENTS FOR BINDING INSURANCE CONTRACTS
    1. 1. That the parties have contractual capacity.
      1. 2. The agreement is lawful.
        3. The agreement must be possible
        4. Any statutory formalities must be complied with
3. Misrepresentation & Non-disclosure
  1. With the insured party, there primary duties are two fold:
    1. 1. The duty against misrepresentation.
      1. 2. The duty to fully disclose/against non-disclosure
        IF there is material misrepresentation or non-disclosure, then contract is VOIDABLE (set aside by insurance company or insurance company may charge higher premiums) at the instance of the insurance company.
        THEREFORE INSURED MUST DISCLOSE ALL INFO THAT IS:
        1. Material to assessment of risk
        2. Of which insured has actual/constructive knowledge
        ACTUAL: factual info which the insured party knows
        CONSTRUCTIVE: The knowledge that is deemed to exist with the insured party.
        AND FURTHERMORE, INSURED MUST:
        Be Truthful & Accurate
        Volunteer information that may affect the risk
        NOTE: No excuses available to insured, where if you make a mistake or forget, then too bad.
        HOWEVER duty on insurer to frame questions clearly & unambiguously
        This duty to disclose lasts Continues throughout negotiations, leading up to the conclusion of the contract, terminates after conclusion
      2. Misrepresentation
        What qualifies as misrepresentation by COMMISSION?
        This is a PRE-CONTRACTUAL statement which is untrue
        The test to see if misrepresentation by commission will render the contract void:
        1. Was the info the insured party gave FALSE or INACCURATE?
        2. Did it actually mislead the insurance company?
        3. Does it relate to a material fact or circumstance?
        Misrepresentation by OMISSION (non-disclosure)
        Where the insured fails to disclose info which affects the assessment of risk, in respect of which the insurance company was ACTUALLY MISLED
        Materiality
        Only material misrepresentation renders contract VOIDABLE
        Test
        Whether or not the information that was not disclosed was reasonably relevant to the assessment of risk. Ie, did it affect the price of the PREMIUM, or did it affect the LIKELIHOOD of the insurance company entering into the contract (affect conclusion of contract)
        If so, then it's material
        Examples of facts that could be material:
        Facts indicating unusually high exposure to risk
        Eg. NASCAR driver takes out medical insurance
        Facts showing liability of insured would be greater than expected if event occurs
        Eg. Not specifying what type of paint your car has.
        Facts suggesting insured = likely to cause risk to materialise through own culpable conduct
        Proposed insured’s insurance history
        This is linked to the proposed insured’s insurance history, where if someone has claimed repeatedly say for theft from their car, the insurance company may think that the person has been forgetful and hasn’t been locking their car doors.
        Subjective circumstances of proposed insured
        Eg. Having a stalker who you received death threats from. Insurer should have known this.
        Facts showing insurer’s right of subrogation would be worthless / of limited value
        If that CP knows that that consumer is already insolvent
        When may the insurer not rely on non-disclosure by Insured?
        1. When the insurance company already knew that information
        2. Where the info is public knowledge
        3. Where the insurance company should have known about the info because of its particular kind of business
        4. Where they have waived the right to that information
        Who bears the burden of proof when it comes to establishing materiality?
        The insurance company, who must prove that the info that you didn’t disclose was material.
        NOTE: MISREP OF AGE will allow for adjustment of policy benefits, but will NOT declare it void
4. Renewals of contracts
  1. Implications
    1. New facts arising since original contract concluded MUST BE DISCLOSED.
      1. Facts discovered since original contract concluded MUST BE DISCLOSED.
        Answers which are no longer correct MUST BE DISCLOSED.
5. Effect of misrepresentation/ non-disclosure
  1. Contract voidable at instance of insurer
    1. AND if NO fraud, insurer must return all of the premiums that were paid to it
  2. NOTE: IF INSURANCE COMPANY misrepresents something to do with the proposal which misleads the insured party in such a way that they don’t disclose material info
    1. THEN Insurance Company CAN BE ESTOPPED FROM REFUSING TO PAY OUT

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Insurance (1)

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	Created by Daniel Freedman over 8 years ago