CONTRACTS OF

INSURANCE
Chapter 15 + Additional Note on Ulink
Paragraphs 25.54-25.78
 History & Sources
◦ History
◦ Originated from trade usages in Italian cities which provided for risk of sea transport
◦ Initially marine insurance was only type of insurance
◦ Now?
◦ Sources
◦ Roman Dutch Law
◦ Principles of marine insurance can be extended to and developed for other types
◦ Not English law
◦ Insurance Act
◦ LTIA
◦ STIA
◦ FAIS
◦ CPA?
 Nature & Basis
◦ Basis = purpose of the contract/reason for entering into insurance contract
◦ Traditional purpose was?
◦ Principle of indemnity
◦ In practice you contribute to a fund which other people who are exposed to
same risks also contribute
◦ Risk is then distributed amongst everyone
◦ 2 types of insurance:
◦ (a)
◦ (b)
◦ South African Informal risk management schemes
◦ Mafisa –
◦ Stokvels –
◦ Burial Societies -
Types of Insurance
Non-
Indemnity
Compensates for Indemnity
Insurance Compensates for
______________ Insurance
______________
______________
______________
______________
______________
______________
Undertakes to make Undertakes to pay
good damage insured/
insured suffered beneficiary fixed
through the some of money if
occurrence of the the event insured
event insured against occurs
against
Occurrence of event
creates an abstract
need which requires
consolation
 Essentialia
◦ 4 essentialia:
◦ (a)
◦ (b)
◦ (c)
◦ (d)
◦ Parties
◦ Insured =
◦ Insurer =
 Essentialia
1. The Premium
◦ The ____________ undertakes to pay a premium
◦ Premium is consideration given in return for?
◦ Usually in form of sum of money
◦ If cash?
◦ Difference between undertaking to pay and actual payment
◦ Payment = Suspensive Condition
 Essentialia
2. Undertaking to Compensate Insured
◦ Determination of amount payable
◦ Non indemnity
◦ Amount payable =
◦ Indemnity
◦ Amount payable =
◦ When is the exact amount determined?
◦ How is the amount determined?
◦ Value = value at date and place of loss
◦ Insured place in same financial position he was in _____________ the event occurred
◦ Sentimental value?
◦ Maximum value of compensation may will be stipulated in contract
◦ If the object is damaged and not destroyed?
 Essentialia
◦ Indemnity (continued)
◦ Valued & Unvalued Policies
◦ Parties may agree on the value of the risk object
◦ Why?
◦ Valued: insured ___________ prove exact amount of loss, only has to prove ___________
_______________________________________________________
◦ Unvalued: only ____________ amount of loss can be claimed
◦ Insurer’s Right to Repair
◦ Insurer may reserve the right to repair the object instead of?
◦ Decision & repair must be made within reasonable time
 Essentialia
◦ Indemnity (continued)
◦ Insurer’s Right of Subrogation
◦ Insurer institutes action in the name of the insured
◦ Can the insured claim from both the insurer & 3 rd party?
◦ Once insurer has _______________the insured, the insurer _________ enforce the
insured’s claim against the 3rd party and _____________ the amount paid to insured
◦ When will the insurer have the right to subrogation?
◦ Insuring with Several Insurers
◦ Does the insured have the right to insure the same object with multiple insurers?
◦ Insured must decide whether to claim all the loss from one insurer/pro rata from each
insurer
◦ If an insurer pays more than its pro rata share?
◦ Principle of contribution
 Essentialia
◦ Indemnity (continued)
◦ Over & Under Insurance
◦ Nothing to prevent insured from insuring for a _________ amount than is necessary for full
compensation
◦ Indemnity insurance – insured may recover _________ the value of his loss
◦ Under insured =
◦ Average clause =
◦ Calculation:
◦ See additional note on Ulink NB!
◦ Excess Clauses
◦ Parties may agree that insured may only recover?
◦ Insured must?
 Essentialia
3. The Risk
◦ Agreement to Insure against a Particular Risk
◦ Risk: ________________________________________________

◦ Description of risk is important

◦ Why?
◦ Parties agree to insure against occurrence of specific event
◦ Description of risk:
◦ (a)
◦ (b)
◦ (c)
◦ Risk may be qualified by __________ & ___________
◦ Exclusion clause =
◦ EG: unlicensed driver/driving under the influence of alohol
◦ Who bears duty of expressing its limitations and undertakings?
◦ Ambiguity?
 Essentialia
◦ Difference between Insurance & Wagers
◦ Both are contracts of chance and contain element of risk
◦ Differences:

Insurance Wager
 Essentialia
4. Insurable Interest
◦ Insurable interest exists when a particular event causes loss/damage
◦ Interest in non occurrence of uncertain future event
◦ Indemnity Insurance
◦ Insured must have a ___________ interest in the ___________ of the risk
◦ Financial interest must have legal basis
◦ When must the interest exist?
◦ Insurable interest is determined by?
 Essentialia
◦ Non indemnity insurance
◦ Own life/spouse
◦ ______________ interest is presumed
◦ Life of another
◦ Interest is required
◦ Financial/pecuniary
◦ Eg: a creditor
◦ When must the interest exist?
◦ Not necessary for it to exist at the moment the risk occurs
 The Duty of Good Faith
◦ Duty of good faith: ____________________________________________________
____________________________________________________________________
◦ Who bears the duty?
◦ Duty requires insured not to ___________________ _________________ & to
____________________ ______________________
◦ Positive & negative duty
◦ Non disclosure of a material fact =
◦ Insurer must prove?
◦ Insured must prove?
 The Duty of Good Faith
◦ Misrepresentations
◦ Definition:
__________________________________________________________________
◦ Incorrect statement
◦ Causes insurer to?
◦ Are opinions statements?
◦ Material statement
◦ Reasonable person tests
◦ Effect of an insurance contract concluded as a result of a misrepresentation?
◦ Remember chapter 4 (Consensus)
 The Duty of Good Faith
◦ Non Disclosure
◦ Definition: ___________________________________________________________
◦ Applicant must only disclose ____________ facts which he has ___________
◦ Unaware/not material?
◦ Reasonable person test
◦ Insured _____ protected against _______ of claims based on ____________________
___________________________________
◦ If insured does not comply with this duty, the contract will be?
 The Duty of Good Faith
◦ Warranties
◦ Definition: _______________________________________
◦ If the warranty is breached, what can the insurer do?
◦ Previously:
◦ Insurers allowed to withdraw without proving whether the misrepresentation/non
disclosure was material
◦ Now:
◦ LTIA & STIA provide that insurer may only rely on misrepresentation/non disclosure if it
would have materially affected the assessment of risk
◦ Irrespective of whether it was warranted/not
 Parties to the Contract
◦ Insured, Insurer + Insurance Broker + Insurance Agent
◦ Insurance Broker:
◦ Not tied to any?
◦ Agent of the insured
◦ Duties:
◦ (a)
◦ (b)
◦ (c)
◦ (d)
◦ (e)
 Parties to the Contract
◦ Insurance Agent:
◦ Employee/mandatory of?
◦ Solicit completed application forms and give these to HO
◦ May assist in completing the form
◦ If incorrect?
◦ LTIA & STIA
◦ Agreements where insured states its agents are exempt from liability for any act/omission or if
its agreed that the insurers agent will be the insured's agent are __________
◦ FAIS
◦ Supervises way in which insurance brokers & agents do business
◦ Does not _____________ law relating to insurance intermediaries
 Statutory Protection
◦ LTIA & STIA
◦ Provides protection for the _________ and allows insured __________________ in
certain circumstances
◦ When borrowing money/lease or purchase goods on credit, CR normally requires DR
to make available insurance in event that proper performance does not take place
◦ Must give DR written notice that he has a free choice about
◦ (a)
◦ (b)
◦ (c)
◦ (d)
◦ DR must confirm in writing that he received written notice and exercised right to free choice
or else security will be?
 Statutory Protection
Insured claims from the insurer

Insurer must accept/reject/dispute the claim or quantum

within reasonable time

Insured must be informed of the decision in writing

within 10 days of making the decision

If rejected/disputed written reasons must be provided to

the insured
 Statutory Protection

Insured must make representation to the insurer within 90

days/lodge a complaint with the ombudsman

Insurer must notify the insured of their decision within 45 days of

receiving the representation

If the insurer confirms the decision to reject or

dispute the claim, written reasons must be provided
to the insured
Additional Note on BlackBoard
◦ Do not forget the additional notes on BlackBoard
◦ Paragraphs 25.54-25.78 from the additional note
◦ Calculation