LAW OF
INSURANCE
[email protected]
WHAT IS INSURANCE?
There are many unfortunate events in life that are just inevitable.
These events result in losses incurred or damages suffered. The
law of insurance is concerned with covering future expenditure
for such events because in an event where the loss actually
occurs, there is no guarantee that there will be money to cover
expenses.
In essence, the law of insurance is a way to protect our
possessions against theft, loss or damage.
INSURANCE AS A CONTRACT
An insurance contract involves the insurer and the insured.
A contract in terms of which one party (insurer) undertakes, in return for the
payment of a premium by the other (insured), to pay the insured a sum of money (or
render him its equivalent) on the happening of a specified uncertain event in which
the insured has an interest.
It is referred to as a contract because there is performance and a
corresponding duty between the parties involved.
The insured has a right to be compensated by means of money for
any loss incurred or alternatively, replacing whatever that has been
lost, and a corresponding duty to pay the required premium. The
insurer has a duty to pay out the agreed amount of money to the
insured or replace the property as well as having a right to receive
the premium agreed upon.
INSURANCE AS A CONTRACT
CONTD…
The insurance contract shall specify at least the particulars of the
contracting parties and the name of the beneficiary of the insurance,
should that person(beneficiary) not be a party to the contract. It
should also contain:
The period of cover
The premium amount
The person or the item covered(insurable interest)
The value of the policy or the property at risk or related to the
realization of the risk
The type of risks (‘the insured risk, e.g Loss theft,death,damages ,etc)
Any maximum limit of the insurers liability(the insured sum) and any
exceptions to cover
PERIOD OF COVER
The period of time/how long you will be covered for/ or how long
will the insurance contract be in existence.
The period is usually established by reference to specific dates.
CONCEPT OF RISK
In order for an event to qualify as a risk, it must :
Be in the future. You cannot insure against an event that has
already taken place.
Uncertain. The purpose of insurance is to take care of the
expenses arising from events that may/may not occur. There
is a chance that this event may never occur at all but to be
safe, insurance is taken.
There is uncertainty in whether the event will occur at all,
when it will occur, how much harm will it produce.
DIFFERENT TYPES OF INSURANCE
Indemnity insurance- Premised on the notion that the
person/insured suffering a harm must be indemnified(brought
back) to the financial position they were in.
This type of insurance is where the insurer covers the insured up
to the actual loss suffered. Examples of such insurance include
household and car insurance.
Non indemnity insurance- This type of insurance does not cover
insured up to the actual loss suffered. There is an agreed amount
paid out when the risk actually materializes. An example of such
insurance is life cover and funeral plan.
INSURABLE INTEREST
One cannot benefit from an insurance payout without due cause.
This simply means that the insurance payout to a person/insured should
be justified in the circumstances.
The act of receiving money from an insurance payout is justified in the
establishment of an insurable interest which looks at, if a risk were to
occur to the item that is insured, do you stand to suffer a huge monetary
loss ?
If yes, then one has an insurable interest in the item insured.
Example: If I own a car and I am involved in an accident, or anything that
might cause damage to the car, by virtue of being the owner, it will
mean that I should be the one to cover the finances relating to repairing
the car. And so, because I will suffer a monetary loss, it means that I have
an insurable interest because if I am not insured, then those costs will
come directly from me.
OVER INSURANCE
This involves the value placed on the item being insured. If the
insured places a value that is too high than the actual value of
the thing or subject insured, the insured will end up paying a
premium higher than they should have because the insurer will
only compensate or cover costs relating to the actual value of the
item that is insured.
As a result, the insured has wasted money or additional
premiums and the insurer benefitting from these additional
premiums is unjustified.
UNDER INSURANCE
When an item is under-insured, it means that it is not covered for
its actual value. The money paid to the insured is lower than the
actual value of the item.
An insurer usually takes this route because of wanting to pay a
lower premium
DOUBLE INSURANCE
This happens when an insured insures the same thing with two
different insurers.
Sometimes this may be done because the insured is under the
impression that they will benefit from the other insurance should
a risk occur.
Unbeknown to them, they do not have the option of claiming
from two different insurance policy thus resulting in the
additional premium paid going to waste.
DOCTRINE OF SUBROGATION
This is where the insurer is allowed to recover the amount of
damages from the wrongdoer or wrongdoer’s insurance once the
insurer has fully settled the insured’s claim. The insured cannot
claim from both parties(either WRONGDOER OR WRONGDOER’S
INSURANCE AND NOT BOTH)
This is how insurance companies indemnify themselves.
TERMINATION OF INSURANCE
CONTRACTS
PERFORMANCE
This occurs when the unfortunate event actually happens and the
insurer pays out or settles the insured’s claim. However this is not
the case with all insurance contracts, homeowner’s insurance is
continuous in nature, meaning the insurer may still pay for claims
without ending the policy.
RESOLUTIVE TERM
This refers to the specified duration of the validity of the insurance
contract. Once that term expires, the contract is terminated.
TERMINATION OF INSURANCE
CONTRACTS CONTD…
RESOLUTIVE CONDITION
This refers to a contract ending due to a certain specified
condition having been met. For example, the resolutive condition
may state that, if you have your car insured, the insurance
contract will terminate immediately upon the loss of your job
because it is assumed that you will no longer be able to afford
premiums which will then put insurance providers at a loss. The
insurer will no longer be responsible for any claim that may arise.
It is a form of risk management for insurance providers in order
to accommodate circumstances that may arise making the
parties unable to keep their end of the bargain.
BY AGREEMENT OF THE PARTIES
Insurance policies allow for either party to unilaterally end the
agreement. For example, if the insured suddenly stops paying
their premiums, through this action, they are considered to have
cancelled their contract.
Reasons as to why insurers may terminate the agreement may
be because of the high risk in the thing insured.
VOLUNTARY LOSS OF INSURABLE
INTEREST
THIS IS WHEN YOU’VE ABANDONED, OR ARE NO LONGER IN
POSSESSION OF THE THING INSURED, which means that the
loss/damage of it will no longer put you in a dire financial
situation.
DUTY OF DISCLOSURE
It is in the interest of the insured to disclose all material
information to the insurer in order for an assessment of the level
of risk and the premium amount.
Both the insurer and the insured have the duty to disclose to
each other, before the conclusion of the contract of insurance,
every fact relative and material to the risk and assessment of the
premium.
Duty of disclosure is concerned with material information of
which the parties have actual knowledge or constructive
knowledge prior to the conclusion of the contract of insurance.
DUTY OF DISCLOSURE
If material facts are not disclosed, this amounts to a
misrepresentation by the prospective insured and the insurer will
not be liable under the contract.
REMEMBER THE SECOND HAND CAR EXAMPLE, OR THE
DEFECTIVE PROPERTY.
What is required under duty to disclose:
Insured must answer all questions posed to him by the insurer
honestly, and in good faith.
Prospective insured must volunteer material information even if
this is NOT directly asked by the insurer. In other words, you
cannot use the fact that you weren’t asked something as a
defence.
MISREPRESENTATION
Misrepresentation occurs when the insured provides insurer with
false information, is reluctant to answer certain questions or does
not disclose material information.
This can in turn affect the consensus agreement, meaning that
the insurance contract was not necessarily entered into upon
agreement of BOTH PARTIES.
This in turn makes It voidable at the option of the party who was
prejudiced(party who was lied to or misrepresented). The
prejudiced party has the option to cancel or continue with the
agreement.
