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Summary CML2010S Exam Notes: Insurance

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textbook and lecture summary of the Insurance section Textbook D Collier-Reed and K Lehmann (eds) Basic Principles of Business Law (2nd ed; 2010)

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  • June 23, 2017
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Section 5:
Insurance

,Introduction
Definition
Definition 1
 Type of contract in terms of which
 The insured agrees to pay a premium
o To the insurer
 In return, the insurer
o Undertakes to pay out either
 A sum of money
 Its equivalent
o In the event of the happening of
 A specified uncertain future event
 Known as the risk
 In which the insured has an interest

Definition 2
 An arrangement under which
 An insurer contracts to do something
o That is of value to the insured
o Upon the occurrence of
 A specific harmful contingency


Components of an insurance agreement
The insured
 The person who purchases insurance cover
o Does this with the payment of premiums

The insurer
 The person who provides insurance cover

The event/risk/peril
 The event covered by the insurance

,Basis of Insurance Law
Common law
 Mainly English Law

Legislation
 Long-term Insurance Act 1998 (LTA)
 Short-term Insurance Act 1998 (STA)
 Consumer Protection Act 2008 (effective May 2011)
 Policyholder protection rules 2004
 Electronic Communications and Transactions Act 25 of 2002
 National Credit Act 34 of 2005

Previous SA cases
 Barloworld Capital v Napier 2005 SA

Trade practice or custom
Requirements
 Uniformly observed by the industry
 Long established
 Well known
 Reasonable
 Certain

Foreign laws
 Mainly used as persuasive evidence.

,Important Distinctions
Insurance & Wagers
Insurance
Intention of the parties
 To guard against a risk event

Nature of the risk
 Risk is beyond the insured parties control

Enforceability
 Legally enforceable

Interest
 The insurer has an insurable interest




Wagers
Intention of the parties
 The intention is to gain money or financial benefit

Nature of the risk
 Risk is created by the parties themselves

Enforceability
 Despite being able to enter into a verbal contract they are not legally
enforceable

Interest
 Parties don’t have this

,Insurance & Suretyship
Insurance
Contract
 The contract is the principal obligation

Bilateral Relationship
 Bilateral
 Both are performing

Benefit
 Both parties benefit

Suretyship
Contract
 Accessory obligation and contract

Unilateral Relationship
 Unilateral
 Only the surety has to render performance

Benefit
 Only the holder of the principle contract benefits

,Types of Insurance
General
 Virtually anything may be insured
 Nature and extent of the cover depends on
o The terms of the policy
o Not necessarily on the label given by the insurer


Indemnity Insurance
General
Also known as
 Property insurance
 Short term insurance

Regulated by
 The short term insurance act

How it works
Process
 Insurer undertakes to compensate
o The insured
o For damage he may suffer
o Through the occurrence of the event insured against

What can be recovered
 Insured recovers only his actual financial loss

How the loss is recovered
 An insurer can either
o Make a cash payment
o Reinstate the insured object by either
 This can be through the restoration or repair of the object
 To the condition in which it was before it was
damaged
 The replacement of a destroyed object by a similar object

,Types of indemnity insurance (2)
Property insurance
All risks policy
 Comprehensive insurance of property
o That covers
 Loss
 Damage
 Destruction
o From any cause
 Unless the cause is specifically excluded

Fire policy
 Insures against either
o Damage
o Destruction
 Caused by
o Fire
o Lightning
o An explosion

Theft insurance
 Insurance against theft
 That involves entry to or exit from premises
o By forcible and violent means.
o Shoplifting therefore wouldn’t count

Comprehensive motor vehicle policy
 Insurance that covers both
o Loss of or damage
 To an insured vehicle
o Liability for damage to the property of a 3rd party
 Where such damage arises from an accident
 Involving the insured vehicle

, Pecuniary Insurance
General Rule
 Only the amount lost can be claimed

Consequential loss insurance
 Protect business persons against
o Loss of profit
o Where his business is interrupted
 Interruption examples
o Fire
o Strike

Credit insurance
 Safeguards a business person
 Against losses he would incurred if
o A debtor
 Who has received the goods
o Is unable to pay

Fidelity policy
 Covers loss caused by either
o Fraud
o Dishonesty of an employee

Public liability policy
 Provides liability
o To members of the public
o For claims arising out of
 Contract
 Delict

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