Insurance

Question 0

Discuss the importance of an insurable interest in an insurance contract, providing examples of same.

Answer 0

•= the interest lost / damaged must be of economic value to the insured in order for insured to have an “insurable interest”

• Function of the insurable interest is to indicate whether the insured has suffered damage entitling him to claim under the policy
• Therefore: insurable interest must exist at the time at which the risk materialises

•NB There is always an insurable interest where there is a real right, a personal right or a right to immaterial property

Question 1

1. Distinguish clearly between capital insurance and indemnity insurance.​(6)

Answer 1

Indemnity
•(i) limited to actual value of loss / amount of insurance

• (ii) insurable interest must exist at time of loss / damage
• (iii) insurable interest = patrimonial
• (iv) subrogation applicable

Capital (Non-Indemnity)
•(i) not limited to actual value of loss (agreed sum)

• (ii) insurable interest must exist at time of conclusion of contract
• (iii) insurable interest = may be non-patrimonial
• (iv) subrogation not applicable

Question 2

Explain the difference between positive and negative misrepresentation and discuss the implications of non-disclosure by a policy-holder.​(4)

Answer 2

• Positive misrepresentation:
• = a positive act consisting in a false pre-contractual statement of fact made by one of the parties to a contract of insurance
• must be wrongful, may be accompanied by fault or may be completely innocent
• positive act: express or tacit, oral or in writing
• Negative misrepresentation:
• = a wrongful failure by one of the parties to disclose certain facts within his knowledge, during the course of negotiations preceding the contract, as a result of which the other party is induced to enter into the contract or to agree to specific terms in the contract
• may be accompanied by fault or may be innocent

Question 3

4. Define the concept of “risk”.​(3)

Answer 3

•“risk”: the possibility of the occurrence of an uncertain event leading to an undesirable consequence, such as damage or harm, to which the insured, his property or his interests are exposed (EG theft, damage, injury, death)

Question 4

5. Explain the relationship between “premium” and “risk”. (2)

Answer 4

•“premium”: “the consideration given or to be given in return for an undertaking to provide policy benefits” (LTIA / STIA)

•= actuarially calculated, with reference to:
–RISK;
–term / period of cover; and
–extent of insurer’s liability if risk materialises

Question 5

7. One afternoon, while travelling south down Kingsway, an inebriated driver skips a stop street and collides with Mark’s car. The damage caused to Mark’s car is in excess of R28 000 in monetary terms. Mike is insured with XYZ Insurers Inc. Advise Mark in full as to the options available to him in recovering the expenses he’ll need to incur to repair his car.​(7)

Answer 5

•Subrogation

Applicable where a third party is responsible for loss / damage

•Insured then has a choice:
–vs insurer OR
–vs 3rd party

•NB: where insured claims from insurer - ?

• Ie. Insured CANNOT claim from insurer and then claim again from third party – indemnity principle
• Subrogation = a naturale of an insurance contract
• Automatically (ex lege) applicable to indemnity insurance contracts