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

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Daniel Freedman
Created by Daniel Freedman over 9 years ago
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Insurance (2)WarrantiesWhat is a warranty?A Statement or stipulation of exact truth / performance is somethingof which the validity of the contract dependsHow do you know when you'redealing with a warranty?TESTWhether or not the parties intended the particularstatement or undertaking to be a warranty.Depending on the type of warranty, insurer may escape liability(cancel contract) for breach IF ‘material / likely to have(significantly) affected assessment of risk’MaterialityTest (Same test as formisrep/non-disclosure)Was the warranty reasonably relevant to the assessment of risk, in thesense that it either had a significant impact on the insurance companiesDECISION TO CONCLUDE THE CONTRACT or on its decision to cCHARGETHE PREMIUMS THAT IT DIDNOTE: Onus is on the insurer when itcomes to proving materialityWhy require materiality?To protect the insured party from inconsequentialinaccuracies (minor mistakes) in the insurance policyTypesAffirmativePromissoryA contractual undertakings that a certain state ofaffairs exists. In this, BOTH TRUTH ANDACCURACY ARE REQUIREDWhat kind of information is covered?It covers past and present facts, but moreimportantly, also covers KNOWLEDGE OFTHE INSURED (ie. opinions).ExampleThe director of a company is taking out an insurance policyobo the company, and warrants that in the best of hisreasonable belief, the company will not be declaredinsolvent within 6 months.Effect of affirmative warranty on insured’sobligations & insurer’s rights?As an insurance company, you have the right tocancel the contract given that the insured party liesin an affirmative warranty. HOWEVER, THISREQUIRES MATERIALITY.‘Basis of the contract’ clauseSays that the answers given by the insured ARE THEREASON why the insurance company entered into thecontract.Insurance Company includes this clause toelevate everything in the proposal form toMATERIAL, so they can cancel if there is theslightest mistakeHOWEVER, with requirement of MATERIALITY,insurance companies CAN'T use this clause toescape liabilityAn undertaking to insure that the insured party engaged in aparticular course of conduct in the future. Ie. certain factwill exist in the FUTURE, not now.Effect of promissory warranty on insured’sobligations & insurer’s rights?The insured party undertakes contractualresponsibility for ensuring compliance with aparticular course of conduct. If they don’tcomply the insurance company may cancel thecontract and escape liability.Is materiality required?NODue to this, it doesn’t matter howminor the warranty is. If it’s apromissory warranty and there’s afailure to comply the insurancecompany can refuse to pay/cancelcontract. So even the smallestmistake can lead to the contractbeing cancelled.What may be recovered if policycancelled obo breach?Unlike other insurance contracts where, unless thereis fraud, THE INSURED can only claim a PORTIONof the premiums that have been paid to theinsurance company.Examples of PW:Promise that you'll only transportstock in a particular vehicleOnly my mom and I will drive my carIron Safe ClausesPurpose is to give the insurance company areasonably reliable guide as to how much stockis on the premises at any given time.(3) REQUIREMENTS1. The insured keeps a complete set of books, accountsand stock books2. They keep an accurate record of all businesstransactions and stock3. These books and records are kept either in a safe that is firesafe or they remove the books and records to other premises atnight 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 promissorywarranty, which is that the insurance company may cancelthe contract or repudiate the claimWhat if contract = indivisible?Means that the clauses of the contract cannot be separated fromone another. This means that the WHOLE policy can be avoided ifthere is a breach, even if a promissory warranty like this onlyapplies to certain goods.Agent’s misrepresentation & non-disclosureInsurance AgentsInsured’s agent (ie: broker)Insurer’s agent (canvassing agent)Misrep / failure to disclose?Misrep / failure to disclose by agent following correct rep /proper disclosure by insured?NOTE: This is in the context where the broker has authorisationfrom the insured party to conclude a contract with a insurancecompany on the insured’s behalfThe result of this is that that misrep or failure todisclose is IMPUTED to the insured, ie. it is deemed tohave been made by the insured themselves.So what is the impact of this?The same consequences of any misrep or non-disclosure willbe the result. Ie. the insurance company can cancel thecontract or repudiate the claim.HOWEVER, the broker owes aDUTY OF GOOD FAITHSo, although you can't claim from the insurancecompany, YOU CAN SUE THE BROKERWhether or not a misrepresentation/failure to disclose will beimputed to the insurance company depends on the contract betweenthe insurance agent and the company.The courts reply on a doctrine of constructive notice todetermine the outcome of cases like this. This doctrineasks two questions:1. Was the information obtained/transmitted tothe insurance company by an employee? Ie. Was theagent an employee?2. Was the agent under a duty to correctly transmitinformation to the insurance company?If the answers to both of these questions are yes, then theinsurance company is deemed to know the correct information.In this situation, they can’t cancel the contract and they can’trepudiate the claim.When will the knowledge of the agent NOT beimputed to the insurer?1. When the agent doesn’t have authority.2. Where the agent breaches it’s duty to theinsurance company.3. If the insured party knew that the agent didn’tintend to submit the correct information.Precautions by insurers against liability?Transfer of agency clause (INVALID)Basis of the contract clauseThis will say that the insurer’s agent isdeemed to be the agent of the INSURED.This clause, or any other clause thatexempts the insurance company fromliability based on the agents actions, areINVALID IN LAW.In a bid to make everything material, itsays that the proposal form is thereason for the insurance companyentering into the contract.HOWEVER You can’t override themateriality requirement just becausethis clause exists.Agent's AuthorityExpressImpliedEstoppelContract will say that someone hasauthority to act.Assumed authority, which arises fromsomeone position in the company forexampleYou can enforce an estoppel on an insurance company ifthey deny you a claim after they have committed amisrep/non-disclosureNOTE: Unauthorised acts may be ratifiedWill see acts authorised retrospectively and so bindthe principal (insurance company).REQUIREMENTS:1. Acted as agent2. The principal must have had knowledge ofthe relevant act or must have had a clearintention to ratify that act later.Some clauses are AUTOMATICALLY RENDERED VOID1. Transfer of agency clause2. Clause that purports/attempts to waive thestatutory rights of the insured party.3. Any provisions which seek to exempt the insurancecompany from the agents mistakes.SubrogationEG. A car accident, where two parties are involved. Acaused the accident and B is insured. B goes to insurancecompany and tells them to pay up. The insurancecompany pays B, and then, based on this right ofsubrogation, may proceed against A and claim the amountthat the company has paid out to B in order toreimburse itself.Insurer’s right to exercise the insured’srights against person (3rd party) who hascaused insured’s lossONLY APPLIES TO INDEMNITY INSURANCEREQUIREMENTS1. The loss in question iscovered by the policy.2. The loss must have been causedby the THIRD PARTY.3. The insurer must haveINDEMNIFIED THE INSUREDIe. The insurance company has either paid out orhave reinstated the object which has beendamaged or destroyed.Only exception to these requirements iswhere the parties agree that the insurermay proceed against the 3rd party whocaused the loss, before the insurerindemnifies (paid out to) the insured. Soparties can contract out of 3rd requirement.What are the insurer’s rights?Two scenarios:Insured has recovered loss from 3rd party alreadyInsured has not recovered loss from 3rd partyThe insurance company has a right of recourseagainst the insured.The insurance company may take charge of legal proceedingsagainst that person to claim the loss.Right of recourse against insuredWhy does this right exist?Limits on insurer’s rights?What kinds of claims / liability are covered?Why does this right of recourse againstthe 3rd party exist?Prevents insured parties from retaining compensationfrom both the insurance company and the 3rd party. It’sbased on the principle that nobody should be paid twicefor the same loss.The insurance company may not claim more than the actualamount that they have paid to the insured even if theinsured company profits from this.Any kind of claim, it may arise incontract, delict, unjustified enrichment.It enables insurance companies to contain theircosts and so premiums do not need to riseevery time an insured party is paid out.Insurer may take charge of legal proceedingsIn whose name is the action brought?Is cession or transfer of insured’srights to insurer required?Is cession or transfer of the insuredrights to the insurer required?The insuredYes, because insurance companies don’tlike the publicity of being involved in awhole lot of legal proceedingsNOStatutory protection of the InsuredNOTE: Short-term and Long-term Insurance ActsREQUIREMENTS1. Freedom of choice2. Actuarially sound3. Copy of contract4. Plain languageCPAConfirms plain language requirementMeans that an ordinary consumer of the type targetedby the particular insurance policy with average literacyskills and minimal experience as a consumer could beexpected to understand the content and significance ofthe document without undue effort.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 theliability of the insurtance company,unjust, unfair and unreasonablecontract terms ARE NOT PERMISSABLE.Cooling-off periodsThis is a right of the insured party tocancel an insurance contract withoutpenalty or without reason.1. Only applies when the contract isentered into by means of direct marketing2. The cooling off period last for 5 daysafter concluding the contract.Section 63 of Long Term Insurance ActProtection for long-terminsurance POLICY BENEFITSArises IFAssistance, life, disability or health policies, whichapply to insured or their spouse, where they havebeen in force for at least THREE YEARS BEFORE thebenefits are paid out.THEN There are certain Limits onattachment/execution/insolvencyduring lifetime1. The policy benefits (amount paid out)cannot be attached by creditors2. Cannot be subjected to execution.3. Will not form part of the insolvent estate.NOTE: THERE ARE LIMITATIONS1. The amount that is protected ishowever capped at 50k.2. The protection is unavailable if thebenefits have been used to secure a debt.3. It only covers ASSETS THAT ARE ACQUIRED with the policybenefits within FIVE YEARS of the policy pay outMONEY(CASH) IS COVERED FOREVERS48 LONG-TERM Insurance Act:Cooling-off periodsSummary of policy must be sent to the insuredparty within 60 days of concluding the contract.From date that summary is received:Cooling-off period of 30 daysIn this, insured has a right to rescindwithout reason and without penalty.UNLESS benefits have already been paid outin terms of the insurance policy.If Insured RESCINDS, BROKER LOSES HISCOMMISSION, AND HAS NO RIGHT OFRECOURSE AGAINST THE INSUREDNCAGenerally doesn't cover insurance,EXCEPT FOR CREDIT INSURANCECommon form of CI is Credit Life InsuranceCover payable in the event of a consumer’s death,disability, terminal illness, unemployment, or otherinsurable risk that is likely to impair the consumer’sability to meet the obligations under a creditagreementProtection for INSURED1. Against where the cost or nature ofthe credit insurance is unreasonable2. Policy must provide for the payment of premiumson a monthly basis if small or intermediate creditagreement. OR on a monthly OR ANNUAL basis if itis a Large credit agreements (>250k).3. IF annaul premium is payable (large creditagreement), the premium must be recoveredfrom consumer WITHIN THAT YEAR4. There may NOT any addition of surcharge, fee /additional premium where CP arranges insurance5. When CP’s are arranging the insurance, theyhave to follow the principle of adequate disclosure6. freedom choice allows consumer toREJECT the CP's suggested insurance7. CP is deemed to be a loss payee, and wheninsurer pays out, they must pay out to CP FIRST8. Say premiums are paid in January anddebts owed ito CA are settled in June, thenthe consumer is entitled to aproportionate refund. So in this example,they’ll get 50% back.Performance & terminationWhen may an insurer refuseto meet an insured’s claim?1. False claim2. Failure by the insured to honourtheir contractual obligations3. Material misrepresentation ornon-disclosure by the insured4. Claim filed out of timeFraudulent Claims (FORMS):ExaggerationFabricationSelf inflicted lossTerminationcancellation(eg due tobreach)Performance -->Such as when aninsurance policypays outExpiry of agreedduration of contractSupervening impossibility of performance--> So something happens that prevents theinsurance company from paying out, suchas when they are declared insolvent.Agreement --> Ifparties agree toterminate.Insurableinterest lost--> If car nolonger inpossession.Double click this nodeto edit the textClick and drag this buttonto create a new node