LML4805 EXAM SOLUTIONS B.C.C

SOLUTION TO EXAMS: MAY/JUNE 2011 QUESTION 1 1.1. (a) Common Law, Legislation, the Constitution, Custom and Trade Usage, Jurisprudence/Case Law. (b)(i) When the requirements for a valid contract are not met the contract is void. Whereas when any of the essentialia for a valid insurance contract are not met it can still be another type of contract. (ii) The consequence of a misrepresentative of the age of the life insured in the case of life insurance is that there is an adjustment of the sum insured and other benefits (in terms of legislation S59 (2) of the Long Term Insurance Act). However in the case of a misrepresentation of the age of the insured in the case of motor vehicle insurance is that the insurer can avoid liability or the policy as it could be a material misrepresentation which could influence the insurer’s assessment of the risk and premium. (iii) At common law, the consequence of submitting a fraudulent claim would depend on which category the claim fell under. If it was a fraudulently fabricated claim the insurer would not be liable for any amount. If it was a fraudulently exaggerated claim then the insurer would be liable for the actual loss (not the exaggerated part). If it was a valid claim accompanied by fraudulent means or devices then the insurer would be liable for the whole claim. Whereas, if the insured institutes a fraudulent claim in terms of the usual express clause regarding fraudulent claims then the insurer will be able to cancel the insurance policy and all benefits in terms of the policy will be forfeited. 3 (c)(i) Underinsured (ii) Overinsured (iii) Double insured (iv) Overinsured by reason of double insurance (v) Insured by a valued policy QUESTION 2 2.1. (a)(i) Indemnity insurance is usually in terms of the Short-Term Insurance Act. The insurer indemnifies the insured for patrimonial loss or damage suffered as a result of an insured event. It restores the insured to his position prior to the loss – he cannot make a profit. An example would be a motor vehicle policy where the insured vehicle is involved in a collision and damage is caused. The insurer will pay for the repairs of the vehicle. (ii) Non-indemnity/capital insurance is usually in terms of the Long Term Insurance Act. The insurer undertakes to pay a specified amount or periodical amounts on the happening of an insured event. It usually relates to the person of the insured or a third party. An example would be a life policy which pays RX if the insured dies. (iii) Insurable interest is the interest the insured has in the nonoccurrence of the uncertain event in terms of which the insurer performs. e.g. “A” insures his house – he is insuring his interest in the house. Insurable interest is a requirement for an insurance contract. If the insured will lose something of commercial value if the object insured is damaged then, his interest will be an insurable one. 4 (b) Examples Nature of interest required Time when interest is required 1. “A” insures his interest in his own life or his own interest in his wife’s life. 2. ”B” insures his interest in the life of another family member (not his wife’s life). 3. creditor “X” insures his interest in the life of his debtor. 1. Presumed unlimited interest: no financial basis 2. Limited financial interest (depends on insured’s legal right of support and of maintenance from family member) 3. Limited financial interest (maximum to debt due plus interest) 1. Insurable interest required to exist at the time when the contract is concluded. 2. insurable interest required to exist at the time when the contract is concluded 3. insurable interest required to exist at the time when the contract is concluded. QUESTION 3 3.1. (a)(i) Yes – he is not obligated to put in a claim. He can claim in Delict but then he cannot claim from the insurer because he cannot make a profit. (ii) Yes – but then he cannot claim from the insurer. If he claims from her he may prejudice the insurer’s right of subrogation which may result in them avoiding liability for the claim. He also cannot make a profit.