Kaya Borkowski
Commercial Transactions
Semester 2 notes
Key
Purple = readings
Blue = section titles
blue highlight = week number
Red = cases
Case in bold mentioned in the text = prescribed case
Term 3
Week 1
Topics
- Introduction to insurance and insurable interest
Reading
- Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company SA Ltd 2013 (5) (WCC) (insurable interest)
Insurance topics
- Introduction, terminology, history
- Insurable interest
- The duty of disclosure
- Warranties
- Fraudulent claims
- Microinsurance, financial inclusion and insurtech
Terminology
- Risk: chance that an uncertain event or peril may occur. Must be uncertain. In the case of life insurance,
death is inevitable but there is an element of uncertainty as to when or how someone will die
- Peril: cause of harm.
- Insured: person who receives insurance cover. Must have interest in harm not occurring
- Insurer: person or company who takes on the risk of the insured person
Introduction
- What is insurance?
- In an economic sense, it is the transference of risk to third party
- Person at risk must have an interest in avoiding the peril insured against.
Distribution of this document is illegal
, Kaya Borkowski
- Eg. Theft/destruction of a vehicle; Liability to third parties as a result of negligently caused harm;
death/disability etc.
- Insurance in legal sense:
- Implemented by the conclusion of an insurance contract and the duties that flow from it
- Insurer agrees to take over risk to which insured is exposed
- Insured agrees to pay premium
Definition
- Lake v Reinsurance Corporation Ltd:
- ‘[Insurance is a] contract between an insurer and an insured whereby the insurer undertakes in return
for the payment of a price or premium to render to the insured a sum of money, or its equivalent, on the
happening of a specified uncertain event in which the insured has some interest.’
Sources of insurance law
- Statutes
- Insurance Act 18 of 2017 (provides useful definitions)
- Short-term Insurance Act 53 of 1998
- Long-term Insurance Act 52 of 1998
- Policyholder Protection Rules (apply to consumers eg. natural persons and small juristic persons)
- Common Law
- Leading decision: Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality
- Court traced origins of insurance law to lex mercatoria*
- International character of insurance law recognized early on in SA
*the body of rules of international commerce which have been developed by the customs in the
field of commerce and affirmed by the national courts
- Customary law
- Informal insurance mechanisms
- e.g. mafisa, sisa or nqoma agreements
- Traditional forms of risk spreading
- Stokvels also have an insurance function
- Burial societies
Consumer Protection
- Insurance should not only be for rich people
- State forms of social insurance (RAF, UIF)
- Policyholder Protection Rules: protect consumer insured parties only
- Microinsurance: framework introduced by Insurance Act
Distribution of this document is illegal
, Kaya Borkowski
- Insurtech also reducing costs of providing insurance
Financial Inclusion
- s 1 Financial Sector Regulation Act 9 of 2017:
- ‘financial inclusion means that all persons have timely and fair access to appropriate, fair and
affordable financial products and services’
- Delivery of financial services at an affordable cost to sections of population historically excluded or
under-served
- Financial services regarded as enabler for social and economic development
- Requires availability of financial products but also that these be affordable
- FI must be accompanied by financial education and consumer protection
- Effective FI requires access to financial services and products
- Appropriate to needs and circumstances
Types of insurance: capital insurance
- Life insurance: defined sum that beneficiary will receive.
- Life insurance = capital insurance = long term insurance
- Funeral policies
- Policy sets out defined sum to be received if the event insured against occurs
- ‘long-term insurance’
- There must be a relationship (blood or of dependence) between the person taking out the insurance and
the person whom the life insurance depends (eg. cannot take out LI on Trump if you are not his relative or
dependent in some way, that would rather be a gamble)
- s 1 Insurance Act 18 of 2017:
- 'life insurance policy' means any arrangement under which a person, in return for provision being made
for the rendering of a premium to that person, undertakes to meet insurance obligations-
(a) on the happening of a life event, health event, disability event or death event; or
(b) on or from a fixed determinable date, or at the request of the policyholder
Types of insurance: indemnity insurance
- Indemnity insurance = “non-life” insurance = short term insurance
- Short term insurance applies
- Insurance for a thing (movable or immovable)
- Insurer will indemnify insured for patrimonial loss or damage suffered
- Replace/repair object or pay out a sum of money
- Purpose: restore insured to earlier financial position. Aim is not to make a profit
Distribution of this document is illegal
, Kaya Borkowski
- 'non-life insurance policy' means any arrangement under which a person, in return for provision being
made for the rendering of a premium to that person, undertakes to meet insurance obligations that fully or
partially indemnifies loss on the happening of an unplanned or uncertain event, other than-
(a) a life event; or
(b) a death event or disability event not resulting from an accident,
Essential Elements for an insurance contract
💲
⚰️
1. Obligation on insured to pay a premium
💰
2. Happening of a specified uncertain event
💭
3. Obligation on insurer to provide compensation
4. Existence of an insurable interest
- Authority for elements: Lake v Reinsurance Corporation Ltd
1. Obligation on insured to pay a premium
- The premium is the consideration in return for which the insurer undertakes its obligation to compensate
the insured.
- Can be lump sum or in instalments
2. Happening of a specified uncertain event
- Depreciation is not covered because it is certain
- Even though death is certain, there is still an element of uncertainty because we do not know when or how
it will occur
3. Obligation on insurer to provide compensation
- On happening of uncertain event, insurer must provide compensation
- With life insurance, at time entering into contract, you predetermine the sum that will be paid out. The
amount can be more than the loss suffered
- Different to indemnity insurance because the amount is uncertain (eg. depends on how badly your car is
damaged)
4. Existence of an insurable interest
- Mechanism to distinguish insurance from gambling/wager
- Interest beyond mere chance of receiving windfall cover
- Indemnity insurance: interest must exist at the time of the claim
- Capital insurance: interest must exist at the time of entering into insurance contract
Distribution of this document is illegal
Commercial Transactions
Semester 2 notes
Key
Purple = readings
Blue = section titles
blue highlight = week number
Red = cases
Case in bold mentioned in the text = prescribed case
Term 3
Week 1
Topics
- Introduction to insurance and insurable interest
Reading
- Lorcom Thirteen (Pty) Ltd v Zurich Insurance Company SA Ltd 2013 (5) (WCC) (insurable interest)
Insurance topics
- Introduction, terminology, history
- Insurable interest
- The duty of disclosure
- Warranties
- Fraudulent claims
- Microinsurance, financial inclusion and insurtech
Terminology
- Risk: chance that an uncertain event or peril may occur. Must be uncertain. In the case of life insurance,
death is inevitable but there is an element of uncertainty as to when or how someone will die
- Peril: cause of harm.
- Insured: person who receives insurance cover. Must have interest in harm not occurring
- Insurer: person or company who takes on the risk of the insured person
Introduction
- What is insurance?
- In an economic sense, it is the transference of risk to third party
- Person at risk must have an interest in avoiding the peril insured against.
Distribution of this document is illegal
, Kaya Borkowski
- Eg. Theft/destruction of a vehicle; Liability to third parties as a result of negligently caused harm;
death/disability etc.
- Insurance in legal sense:
- Implemented by the conclusion of an insurance contract and the duties that flow from it
- Insurer agrees to take over risk to which insured is exposed
- Insured agrees to pay premium
Definition
- Lake v Reinsurance Corporation Ltd:
- ‘[Insurance is a] contract between an insurer and an insured whereby the insurer undertakes in return
for the payment of a price or premium to render to the insured a sum of money, or its equivalent, on the
happening of a specified uncertain event in which the insured has some interest.’
Sources of insurance law
- Statutes
- Insurance Act 18 of 2017 (provides useful definitions)
- Short-term Insurance Act 53 of 1998
- Long-term Insurance Act 52 of 1998
- Policyholder Protection Rules (apply to consumers eg. natural persons and small juristic persons)
- Common Law
- Leading decision: Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality
- Court traced origins of insurance law to lex mercatoria*
- International character of insurance law recognized early on in SA
*the body of rules of international commerce which have been developed by the customs in the
field of commerce and affirmed by the national courts
- Customary law
- Informal insurance mechanisms
- e.g. mafisa, sisa or nqoma agreements
- Traditional forms of risk spreading
- Stokvels also have an insurance function
- Burial societies
Consumer Protection
- Insurance should not only be for rich people
- State forms of social insurance (RAF, UIF)
- Policyholder Protection Rules: protect consumer insured parties only
- Microinsurance: framework introduced by Insurance Act
Distribution of this document is illegal
, Kaya Borkowski
- Insurtech also reducing costs of providing insurance
Financial Inclusion
- s 1 Financial Sector Regulation Act 9 of 2017:
- ‘financial inclusion means that all persons have timely and fair access to appropriate, fair and
affordable financial products and services’
- Delivery of financial services at an affordable cost to sections of population historically excluded or
under-served
- Financial services regarded as enabler for social and economic development
- Requires availability of financial products but also that these be affordable
- FI must be accompanied by financial education and consumer protection
- Effective FI requires access to financial services and products
- Appropriate to needs and circumstances
Types of insurance: capital insurance
- Life insurance: defined sum that beneficiary will receive.
- Life insurance = capital insurance = long term insurance
- Funeral policies
- Policy sets out defined sum to be received if the event insured against occurs
- ‘long-term insurance’
- There must be a relationship (blood or of dependence) between the person taking out the insurance and
the person whom the life insurance depends (eg. cannot take out LI on Trump if you are not his relative or
dependent in some way, that would rather be a gamble)
- s 1 Insurance Act 18 of 2017:
- 'life insurance policy' means any arrangement under which a person, in return for provision being made
for the rendering of a premium to that person, undertakes to meet insurance obligations-
(a) on the happening of a life event, health event, disability event or death event; or
(b) on or from a fixed determinable date, or at the request of the policyholder
Types of insurance: indemnity insurance
- Indemnity insurance = “non-life” insurance = short term insurance
- Short term insurance applies
- Insurance for a thing (movable or immovable)
- Insurer will indemnify insured for patrimonial loss or damage suffered
- Replace/repair object or pay out a sum of money
- Purpose: restore insured to earlier financial position. Aim is not to make a profit
Distribution of this document is illegal
, Kaya Borkowski
- 'non-life insurance policy' means any arrangement under which a person, in return for provision being
made for the rendering of a premium to that person, undertakes to meet insurance obligations that fully or
partially indemnifies loss on the happening of an unplanned or uncertain event, other than-
(a) a life event; or
(b) a death event or disability event not resulting from an accident,
Essential Elements for an insurance contract
💲
⚰️
1. Obligation on insured to pay a premium
💰
2. Happening of a specified uncertain event
💭
3. Obligation on insurer to provide compensation
4. Existence of an insurable interest
- Authority for elements: Lake v Reinsurance Corporation Ltd
1. Obligation on insured to pay a premium
- The premium is the consideration in return for which the insurer undertakes its obligation to compensate
the insured.
- Can be lump sum or in instalments
2. Happening of a specified uncertain event
- Depreciation is not covered because it is certain
- Even though death is certain, there is still an element of uncertainty because we do not know when or how
it will occur
3. Obligation on insurer to provide compensation
- On happening of uncertain event, insurer must provide compensation
- With life insurance, at time entering into contract, you predetermine the sum that will be paid out. The
amount can be more than the loss suffered
- Different to indemnity insurance because the amount is uncertain (eg. depends on how badly your car is
damaged)
4. Existence of an insurable interest
- Mechanism to distinguish insurance from gambling/wager
- Interest beyond mere chance of receiving windfall cover
- Indemnity insurance: interest must exist at the time of the claim
- Capital insurance: interest must exist at the time of entering into insurance contract
Distribution of this document is illegal
