Course HANDOUTSprinciples of insurance contractFaculty 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 1
These slides are prepared with theprecious help of the students of 3rdyear :•Bassma•Eman•Aya•Mohamed hussien•Mayar•Nayra•Salma 2
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• 6
The idea of insurance• The contract of risk • The contract of shifting insurance• Interest suspected to a • Interest suspected to a pecuniary estimation pecuniary estimation• The pecuniary interest • The pecuniary interest subject to risk subject to risk• The assumption of risk • The assumption of risk by a third party by a third party • The party assumes risk for a large number of persons 7
The requirement of insurance contractn insurable interest suspected to a pecuniaryestimationhe insurable interest suspect to risk or perilhe insurer assumes the loss or damage to theinsurable interesthe insurer offer his service for a large group ofpersons 8
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. 9
• Contracts of indemnity • Contracts of non-indemity2. The amount recovered is • The amount recovered is measured according to the insured pecuniary loss. measured regardless the3. It is admissible that the insured amount insured pecuniary accumulate the sum assured loss. from different insurers. • It is not admissible that the4. The insurer who paid the sum insured accumulate the assured is legally entitled to sum assured from different subrogate the insured against insurers. the responsible of the accident insured. • The insurer who paid the sum assured is not legally• entitled to subrogate the insured against the responsible of the accident insured. • 12
The proposal form contains the following informations:Description Description of Description of Previous historyof the the risk subject circumstances of the proposedproposed to proposed affecting the risk :assured:assured :insurance :insured•His name In case of: The insured answers •Experience of the•His address questions directed to proposed assured:•His profession •Personal accident him through which the the insured has to(the insured “the insured has insurer tries to find state if he haswill not be held to state his age, whether there are suffered loss by theresponsible of weight and height” special circumstances peril subject tomisrepresentat making the risk greater proposed insurance.ion if he has 2 •Property .than usual •Relations with otherprofessions insurance •In personal accident insurers:and stated “he has to give full He should be informed He should state if heone only) description of the about the past & has ever made a as the rate of property subject to present state of health. similar proposal topremium will the proposed •In liability insurance other insurers, andnot be insurance” He should be informed whether this proposalaffected. about state of the was declined or insured premises,... accepted.
Propsal form for life insurance “questions asked by the insurer relates to”:. Name, residence, Sum to Whether the A proposal profession, be policy is for form has occupation, insured the benefit ever been date & place of of insured declined or birth, hight& Type of accepted at estate‘s or of weight of policy an extra named proposed required premium beneficiaries Name & Whether a adress of Details of proposal previous Details of any the usual form ha ever illness & of circumstances medical been made to medical affecting the attendant the insurer advice & suitability of concerned or treatment the life insured to other in last 2 for insurance .insurers years purpose
Chapter 6The acceptance & the issuance of the policy of insuranceComplete Offer + Acceptance = Complete Insurance.Contract Insurance contract is one of the formal • contracts , written in an instrument called .” ”Policy
The Policy•The policy contains All terms of .Agreements Description of the risk subject to the . insurance Circumstances .affecting the risk
The Policy•According to Art 750 of the Egyptian civil code it is considered as void the following terms if provided in theAll insurance policy : which are not -1 the printed conditionsprominently projected and which are related to one.of the conditions leading to the annulment of rightAn arbitration clause, if it is set in the policy as -2part of its printed general conditions, and not in theform of a special agreement independent from the.general conditions All other arbitrary conditions, the violation -3 of which has had no effect on the occurrence.of the insured accident
The methods of Acceptance Issuance of Conduct of insurance the policy insurer Receiving Formal theAcceptance Premium
The methods of Acceptance Formal AcceptanceIt means that the parties intended to be bound prior •to the time the policy is delivered, delivery is not.essentialThe 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 policyIssuance of insurance policy = Insurer has accepted the •proposal form there is no need that the policy should.be materially deliveredThe difficulty arises if the contract is manually delivered or •.(constructively delivered ( material deliveryThe 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 instrumentB- This intention must be evidenced by some words oracts indicating that the insurer has put the instrumentbeyond his legal control , not necessarily beyond his.physical controlC- . The insured must be informed about this intentionDr‘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 byintroducing a new term , it won‘t be considered as anacceptance but a counter offer needs to be accepted by
The methods of Acceptance Receiving the premiumIn the case of the insurer has accepted to receive •the premium and retained it –Although the policyhasn‘t issued yet– this indicates implicit acceptance.of the proposal formIn 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 of the insurerSometimes, in spite of the absence of an issued •policy and payment of the premium by the insured, theacceptance of the insurer can be concluded from thesurrounding circumstances such as: 1- The meredemand for the premium by the insurer , 2- Thenomination of an expert to evaluate the damages.suffered by the insured
The Effect Of AcceptanceThus by the acceptance, the parties become •bound by the contract, and can‘t withdraw. from, except by mutual consentThe contract becomes binding from the date •of the insurer acceptance. And the insuredbecomes obliged to pay the premium fixed by. the terms of the contractFor the insurer it is his duty to issue the •policy and to accept the premium when it ispaid, 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 :• 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
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 notdepend 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 wouldnt 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
• Thus, Life insurance doesnt 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 forbeyond 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.•
• 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 asubject 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 beinterested 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: 3. Property insurance. 4. Personal accident insurance. 5. Liability insurance
1- In property insurance:Where the subject matter of the insurance is aphysical thing exposed to certain perils. In thiscase an insurable interest is constituted by thefact that the insured will suffer prejudice if thesubject matter is lost or damaged by such perils. 2- In personal accident insurance:The insured will suffer prejudice by the loss of life or alimb.
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, theinsurable 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 83
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 91