Professional Documents
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INSURANCE CONTRACT
SUMMARY:
1. General
definition
2. Legal
Characteristics
3. Legal
Requirements
4. Fundamental
Legal Principles
“The education of those engaged in 5. Basic parts of
the important functions of the an insurance
insurance business calls for an contract
understanding of the essentials of
insurance law”
(Edwin W. Patterson)
AGENDA FOR TODAY:
1. General Definition
2. Distinct Legal Characteristics of Insurance Contracts
3. Legal Requirements of an Insurance Contract
4. Fundamental Legal Principles
5. Basic Parts of an Insurance Contract
1. GENERAL DEFINITION
• Characteristics
a. Aleatory
b. Unilateral
c. Conditional
d. Personal
e. Of adhesion
f. Consensual
g. With obligations for all parts
h. Unique
i. With successive execution
j. Pecuniary
A. ALEATORY CONTRACT
• The essence of an aleatory contract is CHANCE, or the
occurrence of some fortuitous event
• The insured must accept the entire contract, with all of its
terms and conditions
• General rule – the applicant for insurance makes the offer, and the
company accepts or rejects the offer
B. CONSIDERATION
• Refers to the value that each party gives to the other
A. Principle of Indemnity
B. Principle of Insurable Interest
C.Principle of Subrogation
D. Principle of Utmost Good Faith
E. Causa proxima – Proximate causa
A. PRINCIPLE OF INDEMNITY
• The insured should not profit from a loss but should be restored
to approximately the same position after the loss as existed
before the loss
• Standard method of indemnifying the insured in property
insurance – based on actual cash value
• Actual cash value = Replacement cost – Depreciation
• Exceptions: valued policies, replacement cost insurance and
life insurance
B. PRINCIPLE OF INSURABLE INTEREST
• The insured must stand to lose financially if a loss occurs, or
must incur some other kind of harm if the loss take place
• All insurance contracts must be supported by an insurable
interest to be legally enforceable
• 3 purposes of the insurable risk requirement:
• To prevent gambling
• To reduce moral hazard
• To measure the amount of loss
C. PRINCIPLE OF SUBROGATION
• Strongly supports the principle of indemnity
• Substitution of insurer in place of the insured for the purpose of claiming
indemnity from a third person for the loss covered by insurance;
• The insurer is entitled to recover from a negligent third party any loss
payments made to the insured;
PURPOSES OF SUBROGATION
• To prevent the insured from collecting twice for the same loss
• Subrogation does not apply to life insurance and to most individual health
insurance contracts;
• The insurer can avoid the policy if the representation is both (1) material
and (2) false
material – if the insurer knew the true facts, the policy would not have been issued,
or would have been issued on different terms
• If the applicant for insurance states an opinion of belief that later turns
out to be wrong -> the insurer must prove that the applicant spoke
fraudulently and intended to deceive the company before it can avoid
the policy (e.g. case of Mc-Dowell vs. Fraser in 1779)
B. CONCEALMENT
A. Risk
B. Sum Insured
C. Premium
A. RISK
• Uncertain, possible and future event
• Goods, patrimony, life, helth and phisical integrit of a
person may be exposed to the risks
• Insured risk – conditions:
• Possibility to be produced
• To be aleatory
• The event must be produced independently of the wish of
insured or insurance beneficiary
• To be moral (some risks can’t be insured because they are
incompatible with & society)
B. SUM INSURED
• Maxim amount of claims paid by insurer, following the
producing of risk
• Types of premium:
• Effective (current)
• Fixed
• Premium tariffs
• Premium discounts
WHAT IS INSURANCE?
POOL
£ £
The insurers
benefit
from the law of
large numbers
£
Value of
Property
at risk
Reflects the
Degree of
Hazard
%
% or 0/00
CALCULATION OF PREMIUM
9,000,000 9
X 100 = = 2%
450,000,000 450
PREMIUM CALCULATIONS
Prem. Claims
higher profits
Lower profits
5.4 PHASES OF CONTRACTING
• Usual ways:
• To get to the end
• The insured risk is produced
• Unusual ways:
• Denunciation, resolution and annulations of the contract
LEGISLATION
• Cod Civil
• Cod Comercial
• Law concerning insurance and reinsurance in Romania, no. 136 / 29.12.1995
• Law 32/2000 on the activity and supervision of insurance and reinsurance
intermediaries
THANK YOU!