Insurance l aw 2012 copy

Course HANDOUTS

principles of insurance contract

Faculty of Law - English Section

Prepared by

Dr. Yassin EL SHAZLY

PhD in Law, Lyon Law School, France Teacher, Business Law Department,

Faculty of Law, Ain Shams University, Cairo, Egypt

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These slides are prepared with the precious help of the students of 3rd year :

•Bassma •Eman •Aya•Mohamed hussien•Mayar•Nayra •Salma

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Course plan

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Part 1 : The idea of insurance contract

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Part 1 : The idea of insurance contract

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The idea of insurance • The general rule is that every person should bear his own loss. • The insurance tends to assure individual protection and provide

guarantee against risk.• The technique of insurance has a purpose to distribute directly and

effectively as much as possible the risk of loss, among a large number of persons.

• The premium paid by the insured measures his distributive share of the risk.

• The idea is to provide a medium through which persons can staisfy their desire to protection against risk

• It was mainly a technique developed by merchants and professionals

• The main origin was found in maritime insurance•

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The idea of insurance

• The contract of risk shifting

• Interest suspected to a pecuniary estimation

• The pecuniary interest subject to risk

• The assumption of risk by a third party

• The contract of insurance• Interest suspected to a

pecuniary estimation • The pecuniary interest subject

to risk• The assumption of risk by a

third party • The party assumes risk for a

large number of persons• The insured person should par

a reasonable contribution to the insurer

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The requirement of insurance contract

1. An insurable interest suspected to a pecuniary estimation

2. The insurable interest suspect to risk or peril 3. The insurer assumes the loss or damage to the

insurable interest 4. The insurer offer his service for a large group of

persons5. The insured offers a rational contribution , in other

terms a premium

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Definition

• According to article 747 of the civil code :

• An agreement by which one party called the insurer undertakes in return for the agreed consideration, called premium to pay to another person called the insured a sum of money, or its equivalent, on the happening of a specified event.

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Parties of insurance contract

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Parties of insurance contract

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• Contracts of indemnity1. The amount recovered is

measured according to the insured pecuniary loss.

2. It is admissible that the insured accumulate the sum assured from different insurers.

3. The insurer who paid the sum assured is legally entitled to subrogate the insured against the responsible of the accident insured.

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• Contracts of non-indemity1. The amount recovered is

measured regardless the amount insured pecuniary loss.

2. It is not admissible that the insured accumulate the sum assured from different insurers.

3. The insurer who paid the sum assured is not legally entitled to subrogate the insured against the responsible of the accident insured.

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Contracts of indemnity

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Formation of insurance contract

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The agreement

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Parties of the insurance contract

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Formation Of Insurance Contract

The Parties Of Insurance Contract

The offer to conclude insurance contract should designate the second

party by:

In some insurance policies the name of the beneficiary may be left blank.

The Insurer

The Insured

The right of being assured:

Consent of the parties of insurance contract

Customary methods of making insurance contracts:

The requirments of a valid offer:

The proposal form contains the following informations:Description of the proposed assured:

Description of the risk subject to proposed insurance:

Description of circumstances affecting the risk insured:

Previous history of the proposed assured:

•His name•His address•His profession(the insured will not be held responsible of misrepresentation if he has 2 professions and stated one only) as the rate of premium will not be affected.

In case of:

•Personal accident “the insured has to state his age, weight and height”

•Property insurance “he has to give full description of the property subject to the proposed insurance”

The insured answers questions directed to him through which the insurer tries to find whether there are special circumstances making the risk greater than usual.•In personal accidentHe should be informed about the past & present state of health.•In liability insuranceHe should be informed about state of the insured premises,...

•Experience of the proposed assured:the insured has to state if he has suffered loss by the peril subject to proposed insurance.•Relations with other insurers:He should state if he has ever made a similar proposal to other insurers, and whether this proposal was declined or accepted.

Propsal form for life insurance“questions asked by the insurer relates to”:

. Name, residence, profession, occupation,

date & place of birth, hight&

weight of proposed

Sum to be

insured

Whether the policy is for the benefit of insured

estate’s or of named

beneficiaries

A proposal form has

ever been declined or accepted at

an extra premium

Details of previous

illness & of medical advice &

treatment in last 2

years

Whether a proposal

form ha ever been made to

the insurer concerned or

to other insurers.

Name & adress of the usual medical

attendant

Details of any circumstances affecting the suitability of

the life insured for insurance

purpose

Type of policy

required

The effect of the proposal form

Chapter 6The acceptance & the issuance of the policy

of insurance

Complete Offer + Acceptance = Complete Insurance Contract.

•Insurance contract is one of the formal contracts , written in an instrument

called “Policy.”

The Policy

•The policy contains

Description of the risk subject to the insurance . Circumstances

affecting the risk.

All terms of Agreements.

The Policy•According to Art 750 of the

Egyptian civil code it is considered as void the following terms if provided in the insurance policy :

1 -All the printed conditions which are not prominently projected and which are related to one of the conditions leading to the annulment of right.

2 -An arbitration clause, if it is set in the policy as part of its printed general conditions, and not in the form of a special agreement independent from the general conditions.

3 -All other arbitrary conditions, the violation of which has had no effect on the occurrence of the insured accident.

The methods of Acceptance

The methods of Acceptance

Formal Acceptance

Issuance of insurance

policy

Receiving the

Premium

Conduct of the

insurer

The methods of Acceptance

Formal Acceptance

•It means that the parties intended to be bound prior to the time the policy is delivered, delivery is not essential.

•The contract of insurance takes effect without delivery ,it takes effect when the insurer declares to be bound either orally or in writing.

The methods of Acceptance

Issuance of insurance policy

•Issuance of insurance policy = Insurer has accepted the proposal form there is no need that the policy should be materially delivered.

•The difficulty arises if the contract is manually delivered or constructively delivered ( material delivery).

•The policy is considered as delivered & accepted regardless the type of the delivery once the delivery is valid.

The conditions of valid delivery are :

A- The intention of the parties executing the policy to give it legal effect as a complete legal instrument.

B- This intention must be evidenced by some words or acts indicating that the insurer has put the instrument beyond his legal control , not necessarily beyond his physical control .

C- The insured must be informed about this intention.

•Dr’s Point Of View: the conclusion of the contract in this case wouldn’t be affected if the insured didn’t treat the delivery as an acceptance, or he negotiated. But if the policy departs from the proposal by introducing a new term , it won’t be considered as an acceptance but a counter offer needs to be accepted by the other party.

The methods of Acceptance

Receiving the

premium

•In the case of the insurer has accepted to receive the premium and retained it –Although the policy hasn’t issued yet– this indicates implicit acceptance of the proposal form.

•In such case, the insurer isn’t entitled to refuse the issuance of the policy and he will be liable to pay damages at the happening

of the risk to the insured .

The methods of Acceptance

Conduct ofthe

insurer

•Sometimes, in spite of the absence of an issued policy and payment of the premium by the insured, the acceptance of the insurer can be concluded from the surrounding circumstances such as: 1- The mere demand for the premium by the insurer , 2- The nomination of an expert to evaluate the damages suffered by the insured.

The Effect Of Acceptance•Thus by the acceptance, the parties

become bound by the contract, and can’t withdraw from, except by mutual consent.

•The contract becomes binding from the date of the insurer acceptance. And the insured becomes obliged to pay the premium fixed by the terms of the contract.

•For the insurer it is his duty to issue the policy and to accept the premium when it is paid, and to pay damages suffered by the insured.

• Cover note is one of the

formal contracts.

-This statement is false, because, Issuing the cover note in a formal document is not necessary, it might be issued informally by sending a letter to the insured by the company head office.

• the insurer may intimate his rejection of the proposal form to the insured through phone.

- This statement is false, because the insurer is obliged to intimate his rejection of the proposal form to the insured in writing only not orally.

• In all cases, the cover note of a fixed period comes to an end by the expiration of this

period.- This statement is false, because it is

not necessary that the cover note remain in force during its whole fixed period, since it may come to an end in an earlier time by the acceptance of the insurer (issuing the policy), or by the declaration of the rejection of the proposal form by the insurer to the insured in writing.

• Acceptance of the insurer is the only way to end the

cover note.-This statement is false, because the

cover note comes to an end by three ways. The first one is the acceptance of the insurer (Represented in issuing the policy). The second one is the expiration of the period specified in the cover note without issuing the policy (implicit rejection). The third one is the declaration of the rejection of the proposal form by the insurer to the insured in writing.

• the cover note is one of the insurance contract

components.-This statement is false, because the

cover note represents an insurance contract and determines the rights and duties of its parties in the event of loss or injuries, taking place during its validation. Therefore it is not one of the insurance contract components but it is a separated independent contract.

The Object of the contract

• Introduction : A)The English Doctrine makes distinction

between the Subject matter of insurance and the subject matter of the contract .

• The contract can’t give protection against the accident , as it cant prevent the accident from happening.

• The contract secures Sum of money.(subject matter of contract = money )

• as that under circumstances there an option to spend the money in rebuilding the house destroyed or fired .

• The subject matter of insurance is ACCIDENT which may :

*happen to a physical object. *Harmful consequences happen to insured himself.

B) The Egyptian doctrine doesn’t adopt this distinction .

The subject matter of the contract and subject matter of insurance is the same , (object of insurance contract ) is the Risk or peril insured against .insurable interest and the premium .

I)THE Risk Or Peril Insured Against

• The happening of the risk may appear as an injury for the insured also can be against the damage or destroy of the insured property .

• The Risk = fundamental element for the existence of insurance contract.

• Conclusion : if the possibility of happening of the peril insured against is inexistent = VOID contract.

( Art, 749 of E.C.C )

The Conditions must be fulfilled in the Risk or peril :

1) The happening of the risk should be eventual or probable .

2) The happening of the risk insured against must not depend on the sole will of insured party.

3) The risk insured must be lawful and not in contradiction with rules of public policy .

1)Risk should be eventual or probable:

• The word risk involves the idea of something fortuitous and unexpected.

• The insurance contract is aleatory one.Which mean that risk insured against may

happen and may not. • If the risk is impossible to happen the

contract is considered void. • Ex. Fired house.

2) risk insured against must not depend on the sole will of insured

party:• the loss or injury should not be caused deliberately by the insured’s own act .

• If it so , it wouldn't be an accident .• The Art, (768) confirm this condition according to : * the insurer shall be responsible for the damages

resulting from an unpremeditated fault by the person insured for.

* losses and injuries premeditatedly caused by the person insured for shall not render the insurer liable for them whatever agreed otherwise.

• Thus, Life insurance doesn't cover the insured death by him self.

• But the insurance cover self-killing by accident or by mistake .

3) The risk must be lawful:• The contract would be considered as void

if the insurance covers risks prohibited by statutes or violating settled rules of public policy.

• The courts will not lend their aid to the do any insurance contract ,bec. If it do that it will encouraging crime

• . THE annulment of contract giving insurance against miscarriage of justice, since this contract cause disrespect to the courts , also death by legal execution is not enforceable and against public policy

II) Risk Or perils Excluded from insurance policy

• There are some risks, commonly excluded from the scope of insurance policy .

• The most important of these exceptions generally inserted in insurance polices are :

A) Exceptions relating to causes that may lead to the insurer liability for beyond the ordinary course of business.

B) Exceptions related to the conduct of the assured.

A) Exceptions relating to causes that may lead to the insurer liability for

beyond the ordinary course of business:• Damages caused by a foreign enemy being

in a state of war with the country of insurance.

• Damages or injuries caused by riots, riot means disturbance of peace by three or more persons.

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• Damages caused by civil war that has the special characteristics of being civil and representing an internal conflict rather than external.

B) Exceptions related to the conduct of the assured:

• The peril or risk related to the insured conduct is gnarly covered by the policy.

• The most important is the negligent acts of the insured.

• But the conduct of the insured may be considered in policy as an exception to exclude the insurer liability in the following cases:

1) willful act. 2) express stipulation in the policy.

1) willful act :• A willful act weather of misfeasance or omission which

brings the peril insured against into operation it will exempts the insurer from liability .

• But a willful act is not be excluded from insurance , if it committed for purpose of averting a greater danger or for saving human life.

• In this case willful act is excused.

2) express stipulation in the policy: • The insurer may exclude his responsibility for the

conduct of the assured and of the persons for whom he is responsible .

• The stipulation excluding the insurer responsibility , may express what law already implies

The legal insurable interest, as a subject matter to insurance contact.

1. The requirement of an insurable interest to support a contact of assurance is based upon a consideration of public policy.

2. The parties have to establish the facts proving the insurable interest, & the satisfy

the court that they are not engaged in harmful bet.

3. According to art.749, a legal insurable must exist in all kinds of insurance.

The insurable interest means to be interested in the preservation of a thing, as

to have benefit from its existence and prejudiced by its destruction.

It can be expressed in the following insurance:

1. Property insurance.2. Personal accident insurance.

3. Liability insurance

1- In property insurance:Where the subject matter of the insurance is a physical thing exposed to certain perils. In this case an insurable interest is constituted by the fact that the insured will suffer prejudice if the subject matter is lost or damaged by such perils.

2-2- In personal accident insurance:In personal accident insurance:

The insured will suffer prejudice by the loss of life or a limb.

3- In liability insurance: The happening of an accident, engaged his

responsibility to a third person or persons, constitutes the insurable interest, in this kind of insurance.

Thus the insured interest is found by the insolvency of the insured debtor. In this case the insured is considered to have an insurance policy.

The existence of insurable interest requires, fulfilling with the following

conditions:1. The insurable interest must have a pecuniary value.

2. The insurable interest must be a real interest.

3. IN property insurance, the insurable interest should

exist at the time of the loss and not only at the time

of making the insurance.

1-The insurable interest must have a pecuniary value.

• The pecuniary value means that the insurable interest could be measured or evaluated by money.

• The insurable interest maybe permanent or continuing, as in insurance related to property or real rights.

• Also it could be precarious if there are other persons who are entitled to restore the object.

• Thus a person having mere right of possession of property may insure it to its full value & in his own name.

• Thus a bailee may recover under a policy insuring goods gratuitously kept in store for another.

2-The insurable interest must be a real interest.

• According to this condition, the expectation of acquiring a probable interest isn’t enough to support a contract of insurance.

• But a future interest, It is not enjoyment of the object insured, since the insured’s prospect of benefit is clear.

• The insurable interest may be the ownership of goods or other property. This ownership may be sole or joint & it can be founded upon contact or inheritance. A bailee having contracted expressly or impliedly to be responsible for the safety of a vehicle belonging to another has an insurable interest.

• the existence of a contract isn’t necessary to prove an insurable interest. The mere fact of lawful possession is enough to be a subject matter of insurance contract.

3- In property insurance, the insurable interest exist at the time of the loss and not only at the time of

making the insurance: • In fire insurance:To recover the sum payable under of the policy,

the insured has to prove, that at the time of the loss he had an insurable interest in the object destroyed. If this interest was inexistent at the time, he cannot claim that he has suffered any loss and his demand to be indemnified would be considered as unjustified.

• In life insurance:It is sufficient that the insured has an

interest at the time of making the contract.

Obligations arising from the insurance contract

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Obligation of the insuruer

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Obligation of the insuruer

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Calculation of the sum assued • Method 1 : express condition • Actual loss = 100,000• Insurance = 80,000• Insurer Payment= 80,000

• Method 2 : Proportional condition • Insurance policy value = 400,000• Subject matter value = 500,000• Actual Loss = 100,000• Proportion = policy value \ subject matter value• Insurer = 80,000• Assured = 20,000 91

The life cycle of insurance contract

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