Insurance (2)

Daniel Freedman
Mind Map by Daniel Freedman, updated more than 1 year ago
Daniel Freedman
Created by Daniel Freedman over 4 years ago


Mind Map on Insurance (2), created by Daniel Freedman on 11/19/2015.

Resource summary

Insurance (2)
1 Warranties
1.1 What is a warranty?
1.1.1 A Statement or stipulation of exact truth / performance is something of which the validity of the contract depends Depending on the type of warranty, insurer may escape liability (cancel contract) for breach IF ‘material / likely to have (significantly) affected assessment of risk’
1.2 How do you know when you're dealing with a warranty?
1.2.1 TEST Whether or not the parties intended the particular statement or undertaking to be a warranty.
1.3 Materiality
1.3.1 Test (Same test as for misrep/non-disclosure) Was the warranty reasonably relevant to the assessment of risk, in the sense that it either had a significant impact on the insurance companies DECISION TO CONCLUDE THE CONTRACT or on its decision to cCHARGE THE PREMIUMS THAT IT DID
1.3.2 NOTE: Onus is on the insurer when it comes to proving materiality
1.3.3 Why require materiality? To protect the insured party from inconsequential inaccuracies (minor mistakes) in the insurance policy
1.4 Types
1.4.1 Affirmative A contractual undertakings that a certain state of affairs exists. In this, BOTH TRUTH AND ACCURACY ARE REQUIRED What kind of information is covered? It covers past and present facts, but more importantly, also covers KNOWLEDGE OF THE INSURED (ie. opinions). Example The director of a company is taking out an insurance policy obo the company, and warrants that in the best of his reasonable belief, the company will not be declared insolvent within 6 months. Effect of affirmative warranty on insured’s obligations & insurer’s rights? As an insurance company, you have the right to cancel the contract given that the insured party lies in an affirmative warranty. HOWEVER, THIS REQUIRES MATERIALITY. ‘Basis of the contract’ clause Says that the answers given by the insured ARE THE REASON why the insurance company entered into the contract. Insurance Company includes this clause to elevate everything in the proposal form to MATERIAL, so they can cancel if there is the slightest mistake HOWEVER, with requirement of MATERIALITY, insurance companies CAN'T use this clause to escape liability
1.4.2 Promissory An undertaking to insure that the insured party engaged in a particular course of conduct in the future. Ie. certain fact will exist in the FUTURE, not now. Effect of promissory warranty on insured’s obligations & insurer’s rights? The insured party undertakes contractual responsibility for ensuring compliance with a particular course of conduct. If they don’t comply the insurance company may cancel the contract and escape liability. Is materiality required? NO Due to this, it doesn’t matter how minor the warranty is. If it’s a promissory warranty and there’s a failure to comply the insurance company can refuse to pay/cancel contract. So even the smallest mistake can lead to the contract being cancelled. What may be recovered if policy cancelled obo breach? Unlike other insurance contracts where, unless there is fraud, THE INSURED can only claim a PORTION of the premiums that have been paid to the insurance company. Examples of PW: Promise that you'll only transport stock in a particular vehicle Only my mom and I will drive my car Iron Safe Clauses Purpose is to give the insurance company a reasonably reliable guide as to how much stock is on the premises at any given time. (3) REQUIREMENTS 1. The insured keeps a complete set of books, accounts and stock books 2. They keep an accurate record of all business transactions and stock 3. These books and records are kept either in a safe that is fire safe or they remove the books and records to other premises at night when the business is not open. What is the effect of a failure to comply with requirements? Just like failing to comply with any other promissory warranty, which is that the insurance company may cancel the contract or repudiate the claim What if contract = indivisible? Means that the clauses of the contract cannot be separated from one another. This means that the WHOLE policy can be avoided if there is a breach, even if a promissory warranty like this only applies to certain goods.
2 Agent’s misrepresentation & non-disclosure
2.1 Insurance Agents
2.1.1 Insured’s agent (ie: broker) Misrep / failure to disclose? NOTE: This is in the context where the broker has authorisation from the insured party to conclude a contract with a insurance company on the insured’s behalf The result of this is that that misrep or failure to disclose is IMPUTED to the insured, ie. it is deemed to have been made by the insured themselves. So what is the impact of this? The same consequences of any misrep or non-disclosure will be the result. Ie. the insurance company can cancel the contract or repudiate the claim. HOWEVER, the broker owes a DUTY OF GOOD FAITH So, although you can't claim from the insurance company, YOU CAN SUE THE BROKER
2.1.2 Insurer’s agent (canvassing agent) Misrep / failure to disclose by agent following correct rep / proper disclosure by insured? Whether or not a misrepresentation/failure to disclose will be imputed to the insurance company depends on the contract between the insurance agent and the company. The courts reply on a doctrine of constructive notice to determine the outcome of cases like this. This doctrine asks two questions: 1. Was the information obtained/transmitted to the insurance company by an employee? Ie. Was the agent an employee? 2. Was the agent under a duty to correctly transmit information to the insurance company? If the answers to both of these questions are yes, then the insurance company is deemed to know the correct information. In this situation, they can’t cancel the contract and they can’t repudiate the claim. When will the knowledge of the agent NOT be imputed to the insurer? 1. When the agent doesn’t have authority. 2. Where the agent breaches it’s duty to the insurance company. 3. If the insured party knew that the agent didn’t intend to submit the correct information. Precautions by insurers against liability? Transfer of agency clause (INVALID) This will say that the insurer’s agent is deemed to be the agent of the INSURED. This clause, or any other clause that exempts the insurance company from liability based on the agents actions, are INVALID IN LAW. Basis of the contract clause In a bid to make everything material, it says that the proposal form is the reason for the insurance company entering into the contract. HOWEVER You can’t override the materiality requirement just because this clause exists.
2.1.3 Agent's Authority Express Contract will say that someone has authority to act. Implied Assumed authority, which arises from someone position in the company for example Estoppel You can enforce an estoppel on an insurance company if they deny you a claim after they have committed a misrep/non-disclosure
2.2 NOTE: Unauthorised acts may be ratified
2.2.1 Will see acts authorised retrospectively and so bind the principal (insurance company).
2.2.2 REQUIREMENTS: 1. Acted as agent 2. The principal must have had knowledge of the relevant act or must have had a clear intention to ratify that act later.
2.3.1 1. Transfer of agency clause 2. Clause that purports/attempts to waive the statutory rights of the insured party. 3. Any provisions which seek to exempt the insurance company from the agents mistakes.
3 Subrogation
3.1 Insurer’s right to exercise the insured’s rights against person (3rd party) who has caused insured’s loss
3.1.1 EG. A car accident, where two parties are involved. A caused the accident and B is insured. B goes to insurance company and tells them to pay up. The insurance company pays B, and then, based on this right of subrogation, may proceed against A and claim the amount that the company has paid out to B in order to reimburse itself.
3.3.1 1. The loss in question is covered by the policy. 2. The loss must have been caused by the THIRD PARTY. 3. The insurer must have INDEMNIFIED THE INSURED Ie. The insurance company has either paid out or have reinstated the object which has been damaged or destroyed. Only exception to these requirements is where the parties agree that the insurer may proceed against the 3rd party who caused the loss, before the insurer indemnifies (paid out to) the insured. So parties can contract out of 3rd requirement.
3.4 What are the insurer’s rights?
3.4.1 Two scenarios: Insured has recovered loss from 3rd party already The insurance company has a right of recourse against the insured. Right of recourse against insured Why does this right exist? Prevents insured parties from retaining compensation from both the insurance company and the 3rd party. It’s based on the principle that nobody should be paid twice for the same loss. Limits on insurer’s rights? The insurance company may not claim more than the actual amount that they have paid to the insured even if the insured company profits from this. What kinds of claims / liability are covered? Any kind of claim, it may arise in contract, delict, unjustified enrichment. Why does this right of recourse against the 3rd party exist? It enables insurance companies to contain their costs and so premiums do not need to rise every time an insured party is paid out. Insured has not recovered loss from 3rd party The insurance company may take charge of legal proceedings against that person to claim the loss. Insurer may take charge of legal proceedings In whose name is the action brought? The insured Is cession or transfer of insured’s rights to insurer required? Yes, because insurance companies don’t like the publicity of being involved in a whole lot of legal proceedings Is cession or transfer of the insured rights to the insurer required? NO
4 Statutory protection of the Insured
4.1 NOTE: Short-term and Long-term Insurance Acts
4.2.1 1. Freedom of choice 2. Actuarially sound 3. Copy of contract 4. Plain language
4.3 CPA
4.3.1 Confirms plain language requirement Means that an ordinary consumer of the type targeted by the particular insurance policy with average literacy skills and minimal experience as a consumer could be expected to understand the content and significance of the document without undue effort.
4.3.2 Provisions limiting liability of supplier/insurance company? These may be acceptable but certain requirements must be met: 1. They must be in plain language. 2. They must be brought to the attention of the consumer. 3. The consumer must have time to reflect on and consider them. NOTE: Even though you can limit the liability of the insurtance company, unjust, unfair and unreasonable contract terms ARE NOT PERMISSABLE.
4.3.3 Cooling-off periods This is a right of the insured party to cancel an insurance contract without penalty or without reason. 1. Only applies when the contract is entered into by means of direct marketing 2. The cooling off period last for 5 days after concluding the contract.
4.4 Section 63 of Long Term Insurance Act
4.4.1 Protection for long-term insurance POLICY BENEFITS
4.4.2 Arises IF Assistance, life, disability or health policies, which apply to insured or their spouse, where they have been in force for at least THREE YEARS BEFORE the benefits are paid out. THEN There are certain Limits on attachment/execution/insolvency during lifetime 1. The policy benefits (amount paid out) cannot be attached by creditors 2. Cannot be subjected to execution. 3. Will not form part of the insolvent estate. NOTE: THERE ARE LIMITATIONS 1. The amount that is protected is however capped at 50k. 2. The protection is unavailable if the benefits have been used to secure a debt. 3. It only covers ASSETS THAT ARE ACQUIRED with the policy benefits within FIVE YEARS of the policy pay out MONEY(CASH) IS COVERED FOREVER
4.5 S48 LONG-TERM Insurance Act:
4.5.1 Cooling-off periods Summary of policy must be sent to the insured party within 60 days of concluding the contract. From date that summary is received: Cooling-off period of 30 days In this, insured has a right to rescind without reason and without penalty. UNLESS benefits have already been paid out in terms of the insurance policy. If Insured RESCINDS, BROKER LOSES HIS COMMISSION, AND HAS NO RIGHT OF RECOURSE AGAINST THE INSURED
4.6 NCA
4.6.1 Generally doesn't cover insurance, EXCEPT FOR CREDIT INSURANCE Common form of CI is Credit Life Insurance Cover payable in the event of a consumer’s death, disability, terminal illness, unemployment, or other insurable risk that is likely to impair the consumer’s ability to meet the obligations under a credit agreement
4.6.2 Protection for INSURED 1. Against where the cost or nature of the credit insurance is unreasonable 2. Policy must provide for the payment of premiums on a monthly basis if small or intermediate credit agreement. OR on a monthly OR ANNUAL basis if it is a Large credit agreements (>250k). 3. IF annaul premium is payable (large credit agreement), the premium must be recovered from consumer WITHIN THAT YEAR 4. There may NOT any addition of surcharge, fee / additional premium where CP arranges insurance 5. When CP’s are arranging the insurance, they have to follow the principle of adequate disclosure 6. freedom choice allows consumer to REJECT the CP's suggested insurance 7. CP is deemed to be a loss payee, and when insurer pays out, they must pay out to CP FIRST 8. Say premiums are paid in January and debts owed ito CA are settled in June, then the consumer is entitled to a proportionate refund. So in this example, they’ll get 50% back.
4.7 Performance & termination
4.7.1 When may an insurer refuse to meet an insured’s claim? 1. False claim 2. Failure by the insured to honour their contractual obligations 3. Material misrepresentation or non-disclosure by the insured 4. Claim filed out of time Fraudulent Claims (FORMS): Exaggeration Fabrication Self inflicted loss
4.8 Termination
4.8.1 cancellation (eg due to breach)
4.8.2 Performance --> Such as when an insurance policy pays out
4.8.3 Expiry of agreed duration of contract
4.8.4 Supervening impossibility of performance --> So something happens that prevents the insurance company from paying out, such as when they are declared insolvent.
4.8.5 Agreement --> If parties agree to terminate.
4.8.6 Insurable interest lost --> If car no longer in possession.
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Insurance (1)
Daniel Freedman
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