Assignment 1 – Insurance Law

1. Insurance is a common feature in many South African households. In your own

words, provide the definition of an insurance contract. (3)
The definition provided by students should take into account the difference between
indemnity and non-indemnity insurance as well as highlight the essentialia of an
insurance contract. Eg.
[A] contract of insurance may be defined either as a contract to compensate the
insured for a patrimonial loss proximately caused by the uncertain event insured
against, or as a contract to satisfy the insured for a non-patrimonial loss consequent
upon the occurrence of the uncertain event insured against.

2. Identify the key differences between indemnity and non-indemnity insurance. (4)
The question makes it clear that you should highlight more than one difference to get the
full 4 marks. Indemnity: the amount of damages claimed is directly proportional to the
patrimonial loss or damage suffered, or the amount of the insurance where it less than the
loss suffered. This is also refers to short term or non-life insurance e.g. car, household
insurance.
Non-indemnity insurance is when the loss suffered and the amount paid by the insurer are
not necessarily proportionate. This covers non-patrimonial losses and refers to life or long-
term insurance. E.g. life policy.

3. Miles does not have a valid driver’s license. However, he informs you that should a
potential insurer ask him whether he has a valid driver’s licence, he will answer in the
affirmative. What will such a positive action by Miles amount to, and what will the effect
thereof be on a contract of insurance concluded as a result thereof? Provide a reason
for your answer. (3)
This amounts to Positive Misrepresentation by Miles, and the contract is voidable at
option of insurer and the insurer may claim damages if they have suffered a loss. The
reason for this is because an insured is obligated to answer questions put to him
truthfully and honestly.
4. Miles informs you that he hopes that a potential insurer will simply assume that he
(Miles) has a valid driver’s licence, and that under such circumstances he will simply
refrain from making mention of this issue. What will such an omission by Miles
amount to and what will the effect thereof be on a contract of insurance concluded as
a result thereof? Provide a reason for your answer. (3)
This is a Non-disclosure (negative misrep) by Miles, the contract is then voidable at
option of insurer and the insurer may claim damages. The reason for this is due to the
fact that even if a question is not put to the insured, the insured is under a duty to
disclose all relevant information within his knowledge.

5. Identify four (4) ways in which a contract of insurance may be terminated. (4)
Any 4 of the following:
a By performance, the insured event happened and the insured is indemnified
b By agreement between the insurer and insured in terms of the agreement. Policy
usually contains a provision entitling the parties to unilaterally cancel the policy.
c Where the contract contains a resolutive term, example, agreement is only valid
for a specified time.
d Upon fulfilment of a resolutive condition.
e Where the insured voluntarily loses his insurable interest on the article insured,
agreement terminates immediately.
f By means of contractual arrangement, example in the case of breach of contract
or fraud.

6. Explain what a forfeiture clause is and the effect that this clause can have on an
insurance contract when the policyholder commits fraud? (4)
In order to get the full marks students are to explain what a forfeiture clause. E.g. A
forfeiture clause is a provision in an insurance contract that stipulates that if certain
conditions are met, one party will forfeit something to the other. With insurance
contracts, this means that insurers can rely on a forfeiture clause to exempt
themselves from liability where the policyholder fraudulently claims for a loss that he
or she has allegedly incurred. Then students are to explain how the forfeiture clause
works in favour of the insurer when an insured submits a fraudulent claim:
Therefore, if an insured submits a fraudulent claim (any type of fraudulent claim) the
insurer can repudiate (reject) a policyholder’s entire claim under the policy, if even
only a part of the claim was exaggerated or lodged fraudulently.

7. One afternoon when driving home from work, Jenelle is involved in a motor vehicle
accident. She informs her insurer, Easy Claims Insurance, about the accident and
after assessing the damages they confirm that they will pay out as per the insurance
agreement. Aggrieved by the inconvenience caused, Jenelle however feels that it
would be just and fair to claim the full cost of repairing the damage to her car from
both Easy Claims Insurance and from Sarah, the lady who did not heed the stop sign
and drove into her motor vehicle. Explain to Jenelle how the principle of subrogation
works and whether or not her claims against both Easy Claims Insurance and Sarah
will succeed.
With this question students must use the facts before them and answer the question
based on the facts: (4)
No, it is not possible to claim from both parties. This means that Jenelle would claim
directly from her insurer as she is indemnified against such loss by them. The insurer
then gains a right of recourse against Sarah for the loss/damage to Jenelle’s vehicle.
The insurer steps into the shoes of the insured and obtains a right to claim against
the party that caused the loss. Subrogation aims to prevent the insured from
obtaining compensation from both the insurer and the third party.

[Total: 25 marks]