2022
INSURANCE LAW NOTES
2022
, 1
Chapter 1
CONCEPT OF INSURANCE, INSURANCE CONTRACT AND INSURANCE LAW,
INSURANCE IN ECONOMIC AND LEGAL SENSE, SOME CLASSIFICATIONS
1.1. INTRODUCTION: INCIDENCE, MANAGEMENT AND SPREADING RISK
The purpose of insurance is “spreading the risk” among various persons.
1.2. INSURANCE IN ECONOMIC AND LEGAL SENSE. INSURANCE CONTRACT
AND INSURANCE LAW
• An Insurance Contract can either be concluded voluntarily or imposed
statutorily on the parties.
• The main aim of the contract is “transference of the risk”.
• At Common Law private individuals could be insurers and enter into
Insurance Agreements. However, it is now law that only a registered
insurer can conclude Insurance Agreements.
The following definition of insurance was provided in Lake v Reinsurance
Corporation Limited (1967)(W): “A contract between an insurer (or assured)
and an insured (or assured) 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”. (However, this definition has been criticised as being
vague).
• General principles of the Law of Contracts apply to Insurance Contracts.
1.3. CLASSIFICATION OF INSURANCE CONTRACTS
, 2
Classification is important because certain legal principles apply to only some
types of Insurance Contracts and not others. However, one type of contract
may belong to difference classes at the same time.
1. For Profit Insurance and Not for Profit Insurance
Profit/Premium Insurance – Insurer (mainly Insurance companies) carries on
insurance business to make a profit. Premiums are fixed so that after claims
and expenses are paid – a distributable profit (amongst shareholders) remains.
Mutual Insurance (Non-profit)– Usually burial and other mutual aid societies.
Members of a group/community make contributions/payments either before or
after an undesirable event affecting ones of its members occurs. This type of
Insurance is not for gain – any amount left over is repaid to members or is used
to create an emergency fund/reduce future contribution. – (if there is a shortfall,
the insured will need to make good the shortfall).
2. Consumer Insurance and Commercial Insurance
The nature or status of insured can be classified as either consumer(individual)
insurance or commercial(business) insurance.
The distinction between them is usually just for regulatory purposes.
(- “personal lines business” means insurance business in respect of which the
policyholder is a natural person.)
, 3
3. Indemnity and Non-Indemnity (Capital) Insurance
Indemnity Insurance – This type of contract provides that” the insurer will
indemnify the insured for patrimonial loss/damages suffered as a proximate
result of the happening of an event insured against”.
It restores the insured to his position prior to the loss (quo-ante). The insured
CANNOT make a profit.
Non-Indemnity / Capital – the insurer undertakes to pay a specified amount or
periodical amounts to the insured on the happening of the insured event. e.g.
RX if he dies/loses a limb. (does not affect his patrimony)
-It generally relates to the (mind/body) person of the insured/third party
-Therefore, the difference between the two is that in indemnity – the interest
must be of a patrimonial nature. whereas In Capital – the interest must be of a
non-patrimonial nature.
NOTE! Need to distinguish because: -
a. Capital insurers are not allowed to claim a proportionate contribution by
other insurers or demand subrogation of insureds.
b. the doctrine of imputation (benefits from an insured event) of benefits does
not apply to capital insurance (e.g. X house burns
down, friend may give him money but insurers don’t deduct the money from
any payment in terms of the policy)
4 Property of Liability Insurance (Personal Insurance and Liability Insurance)
Indemnity - insurance contracts can be divided into
• Property (or asset) insurance
• Liability insurance
INSURANCE LAW NOTES
2022
, 1
Chapter 1
CONCEPT OF INSURANCE, INSURANCE CONTRACT AND INSURANCE LAW,
INSURANCE IN ECONOMIC AND LEGAL SENSE, SOME CLASSIFICATIONS
1.1. INTRODUCTION: INCIDENCE, MANAGEMENT AND SPREADING RISK
The purpose of insurance is “spreading the risk” among various persons.
1.2. INSURANCE IN ECONOMIC AND LEGAL SENSE. INSURANCE CONTRACT
AND INSURANCE LAW
• An Insurance Contract can either be concluded voluntarily or imposed
statutorily on the parties.
• The main aim of the contract is “transference of the risk”.
• At Common Law private individuals could be insurers and enter into
Insurance Agreements. However, it is now law that only a registered
insurer can conclude Insurance Agreements.
The following definition of insurance was provided in Lake v Reinsurance
Corporation Limited (1967)(W): “A contract between an insurer (or assured)
and an insured (or assured) 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”. (However, this definition has been criticised as being
vague).
• General principles of the Law of Contracts apply to Insurance Contracts.
1.3. CLASSIFICATION OF INSURANCE CONTRACTS
, 2
Classification is important because certain legal principles apply to only some
types of Insurance Contracts and not others. However, one type of contract
may belong to difference classes at the same time.
1. For Profit Insurance and Not for Profit Insurance
Profit/Premium Insurance – Insurer (mainly Insurance companies) carries on
insurance business to make a profit. Premiums are fixed so that after claims
and expenses are paid – a distributable profit (amongst shareholders) remains.
Mutual Insurance (Non-profit)– Usually burial and other mutual aid societies.
Members of a group/community make contributions/payments either before or
after an undesirable event affecting ones of its members occurs. This type of
Insurance is not for gain – any amount left over is repaid to members or is used
to create an emergency fund/reduce future contribution. – (if there is a shortfall,
the insured will need to make good the shortfall).
2. Consumer Insurance and Commercial Insurance
The nature or status of insured can be classified as either consumer(individual)
insurance or commercial(business) insurance.
The distinction between them is usually just for regulatory purposes.
(- “personal lines business” means insurance business in respect of which the
policyholder is a natural person.)
, 3
3. Indemnity and Non-Indemnity (Capital) Insurance
Indemnity Insurance – This type of contract provides that” the insurer will
indemnify the insured for patrimonial loss/damages suffered as a proximate
result of the happening of an event insured against”.
It restores the insured to his position prior to the loss (quo-ante). The insured
CANNOT make a profit.
Non-Indemnity / Capital – the insurer undertakes to pay a specified amount or
periodical amounts to the insured on the happening of the insured event. e.g.
RX if he dies/loses a limb. (does not affect his patrimony)
-It generally relates to the (mind/body) person of the insured/third party
-Therefore, the difference between the two is that in indemnity – the interest
must be of a patrimonial nature. whereas In Capital – the interest must be of a
non-patrimonial nature.
NOTE! Need to distinguish because: -
a. Capital insurers are not allowed to claim a proportionate contribution by
other insurers or demand subrogation of insureds.
b. the doctrine of imputation (benefits from an insured event) of benefits does
not apply to capital insurance (e.g. X house burns
down, friend may give him money but insurers don’t deduct the money from
any payment in terms of the policy)
4 Property of Liability Insurance (Personal Insurance and Liability Insurance)
Indemnity - insurance contracts can be divided into
• Property (or asset) insurance
• Liability insurance
