Chapter 7-Law of Insurance

Insurance:
 Developed because of the existence of risks
 Risks are evident especially in the business world (force in the industrial sector
where there is an active movement of labor and where equally risk exists.)
Risk:
 The uncertainty surrounding potential losses
 No body knows when, how and to what extent the risk may materialize.
Virtues of insurance:
 makes a person work with out fear and thus increase production and productivity
 Helps to budget money for unknown loss(premium)
 distributes risk among different people
 protects workers against work related hazards.
Cont’d
Insurable Interest
Any party purchasing insurance must have a “sufficient interest” in
the insured item to obtain a valid policy.
There must be a vested interest in the subject matter of insurance to
whom the advantage may arise or prejudice may happen.
There must be an economic link to the claim of insurance.
There must be some kind of relation to or concern in the subject
matter of the insurance
Cont’d
Insurance Policy
Insurance policy is basically a contract, but a special contract.
Article 654(1) the of the Comm.Code as “a contract whereby a person called the insurer, undertakes against
payment of one or more premiums to pay to a person, called the beneficiary, a sum of money where a
specified risk materializes.”
Natures:
Elements of a contract
must be made in writing. (Art 657 (21).
contain the facts stated in Article 658. These are:
- the place and date of the contract;
- the names and addresses of the parties;(insurer, insured or beneficiary)
- the items, liability or person insured;
- the nature of the risks insured;
- the amount of the guarantee;
- the amount of the premium; and
- the term for which the contract is made.
Cont’d

Rights and Duties of Parties

The insurance policy contains certain basic rights and obligations from which parties can not even
contractually derogate.
Insurer
guarantees the risks specified in the policy,
must pay the agreed amount
if the losses or damages insured occurred:
 due to the fault of a person for whom the insured is responsible,
 by the negligent or intentional fault of the insured himself.
Insured
the payment of a fixed premium
the disclosure of material facts with his knowledge
any concealment or false statement made by the insured that make the insurer wrongly appreciate
risks, and that lead the latter to enter into the policy which otherwise he would not have done,
would nullify the policy
Chapter 8-Law of Negotiable Instruments
A negotiable instrument
•is any document incorporating a right to an entitlement in such a
manner that it be not possible to enforce or to transfer a right separately
from the instrument (Art.715 (1), Comm.C).
•is said to be negotiable because it can be transferred (with the full
rights) from one person to the other by mere delivery or, some times, by
endorsement.
The Ethiopian law :
1. commercial instruments,
2. transferable securities, and
3. documents of title to goods
 Cont’d

Transferable securities
are mechanisms of holding and negotiating certain types of rights and
such include shares and debentures.
Documents of title to goods
represent right over goods that are on shipment. E.g. a bill of lading, a
truckway bill and an airway bill
Commercial instruments
are the most noticeable types of negotiable instruments.
are documents that embody an entitlement to a specific sum of money.
is any written promise or order to pay a sum of money.
is transferred more readily than ordinary contract rights, and persons
who acquire it are normally subject to less risk than the ordinary
assignee of a contract right.
Cont’d
Commercial instruments : functions
1. as a substitute for money. Debtors sometimes use currency, but for convenience and safety they often
use instruments instead.
2. as a credit device: Instruments may represent an extension of credit.

The Ethiopian Commercial Code specifies four types of commercial instruments:

3. bills of exchange (drafts),
4. cheques,
5. promissory notes and
6. traveler’s cheques.

The instruments are frequently divided into two:

7. orders to pay (drafts and cheques) and
8. promises to pay (promissory notes).

The instruments may also have different natures based on the form of transfer.
9. specified,
10. to bearer or
11. to order documents.
Cont’d
A draft (bill of exchange)
involves three parties: the party creating it, the drawer, orders another
party, the drawee, to pay money usually to a third party, the payee.
The drawee must be obligated to the drawer either by agreement or
through a debtor-creditor relationship for the drawee to be obligated to
the drawer to honor the order.
A promissory note
is a written promise between two parties: the maker of the promise to
pay and the other is the payee, or the one to whom the promise is
made.
can be made payable at a definite time or on demand.
can name a specific payee or merely be payable to bearer.
Cont’d
Negotiability of commercial instruments :
1. be in writing
2. signed by the maker or the drawer,
3. be an unconditional promise or order to pay,
4. state a fixed sum of money,
5. be payable at sight (on demand) or at a fixed date.
6. are payable to order or to bearer(cheque which is always to order)