COMMERCIAL LAW

LMER 1624
INSURANCE LAW : UNIT 4

T: +27 51 401 9111 | E: info@ufs.ac.za | www.ufs.ac.za

 Economic Function of Insurance

• The concept of risk is central to insurance.

• Risk is the possibility that a peril or danger may

occur and cause harm to the person / property
exposed.

• It is therefore necessary to make contingencies

to mitigate such risk in the event that it occurs.
 INSURANCE:
• Insurance is a means of transferring risk by way
of contract.

• The risk is transferred because the insurance

contract stipulates that the insurer will indemnify
or perform a benefit to an insured if a defined
risk occurs.

• In exchange for the transfer of the risk, the

insured must pay an amount (premium) to the
insurer.
BRANCHES OF INSURANCE LAW:

Branches of
insurance
law

Law of
Statutory
Insurance insurance
regulation of
contract law intermediari
insurers
es
 BRANCHES OF INSURANCE LAW:
Insurance contract law:
• Insurance policy is the basis of relationship
between insurer and insured.
The regulation of insurers:
• Insurers must be registered with supervisory body:
The Financial Services Board & FAIS Act
Intermediaries:
• Intermediaries ordinarily intercede between
insurers and the insured (brokers).
• Distinction between representatives and
independent intermediaries.
DIFFERENT TYPES OF INSURANCE:
Types of insurance can be distinguished on
different grounds:
Peril, or
Interest event,
Duration
protected insured
• Indemnity • Long- • against
Fire, death,
theft, political
insurance term instability, motor
vehicle
• Non- insurance accidents
indemnity • Short-
insurance term
insurance
 ESSENTIALS OF AN INSURANCE
CONTRACT:

• Insurer must undertake to pay or perform some

benefit…

• in exchange for an undertaking by the insured to pay

a premium…

• on the happening of an uncertain or unplanned future

event…

• which performance will indemnify the insured or

make-up for the materialisation of the risk.
FORMATION OF AN INSURANCE CONTRACT:

Agreement (Policy):
• Insurance is a form of contract, therefore there
must be an agreement.

• There must be consensus irrespective of whether

agreement concluded by completing proposal
forms or by direct marketing.

• The contract must not be illegal, void or

unenforceable.
 INSURABLE INTEREST:
Non-indemnity
Indemnity insurance:
insurance:

If he or she stands to Interests protected does

lose something of not have commercial
appreciable commercial value. Amount for which
value if the object is insurer will be liable is
harmed. established by agreement.

(e.g. person insures a (e.g. life insurance)

vehicle)
 INSURANCE CLAIMS:
To determine if insured has a claim – the following
must be answered:
1. Is the risk covered by the policy?

2. Are there any limitations on the insurer’s liability?

3. Is the insurer’s liability excluded?

4. Does the risk fall within the dimensions of described risk?

5. Was the particular peril, in respect of which insurance was

undertaken, the cause of the harm?
 INSURANCE CLAIMS:
An insurance policy will usually state:

• When and how the insurer should be notified of a

claim.

• When and how a claim should be lodged &

processed.

• If the claim is refused or repudiated, the time

within which legal proceedings must be instituted.
 INSURANCE CLAIMS:
Rejection / Repudiation:
• Refers to the case where the insurer declines an
insured’s claim (fraud, fault, waiting period etc.)

Insurer rejects or Written notice to

disputes claim. insured.

Insured given at Insured to institute

least 90 days to proceedings
make within time
representations. specified.
 SUBROGATION:
• The doctrine of subrogation allows an insurer to
sue in the name of the insured.

• The insurer obtains the right to make the same

claim for damages as the insured could have
made against the wrongdoer.

• Reasons - Insurer pays out insured & is thus

entitled to recoup what’s been paid;

- Prevent insured from receiving
double satisfaction for loss.
 CESSION:

• Cession refers to the transfer of a right to

performance by one party to another.

• Insurer entitled to take cession of the insured’s

rights against a third party who caused the
risk/loss.

• Insurer will thus be the creditor and will claim

from 3rd party in its own name.
 CONTRIBUTION:

• Occurs where there is a spreading of risk…

• The same risk is insured by more than one

insurer (in proportion).

• Where risk materializes and loss occurs, each

insurer has to contribute pro rata.