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Commercial law II assignment 1
Course: Contract Law
29 documents
University: Zambian Open University
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ZAMBIAN OPEN UNIVERSITYSCHOOL OF LAWNAME : STUDENT NUMBER
: PROGRAMME : BACHELOR OF LAWS COURSE : COMMERCIAL
LAWII ASSIGNMENT ICOURSE CODE : LL222YEAR : TWOSEMESTER
: TWOSTUDENT PHONE NUMBER : LECTURER : MR. MWIINGA1
INTRODUCTIONThis essay will explain the necessary relationship between the insured and the subject
matterin an insurance contract using decided cases as examples. A simple insurance contract is onein
which one party agrees to compensate the other in the event that they incur loss to thesubject of the
insurance, such as if a house is insured and catches fire or if a car is involved inan accident.1 The danger
of harm being covered by an insurance firm serves to expedite trade,making insurance crucial for
modern business operations.2Definition of InsuranceBefore we examine and consider what a person
seeking insurance should have in the subjectmatter of the insurance claim, it is critical to grasp what
insurance is all about. An insurancecontract has been defined as an agreement in which a person called
the insurer agrees forconsideration called the "premium" to pay a sum of money or to provide services
for thebenefit of another person called the insured or the assured on the occurrence of a specifiedevent
whose happening is uncertain.3 Because they are dependent on an unpredictableoccurrence
or condition, insurance contracts have occasionally been referred to as [Link] is important
to note that Zambia's insurance policy dates back to the time of colonialadministration, when Zambia
was still known as Northern Rhodesia, because it was still aprivately-owned business for many years
prior to independence.
The Doctrine of Uberrimae Fidei.
The doctrine of Uberrimae fidei, which asserts that a contract is predicated on the highest possible
good faith and that if the highest possible good faith is not kept by either party, the contract may be
avoided by the other party, is a basic premise controlling insurance transactions. The reason
for this insurance law principle, according to Chitty on Contracts, is that insurance contracts are founded
on facts that are almost always only known by one party(typically the assured), and unless this
knowledge is shared, the risk insured against may differ from that intended to be covered by the party in
ignorance. "In policies of insurance, whether Marine insurance or Life Insurance, there is
an understanding that the contract is uberrimae fidei that if you know any circumstances at all that may
influence the underwriter's opinion as to the risk he is incurring and consequently as
1 Mumba, M. (2005). Commercial Law in Zambia. Lusaka: University of Zambia Press. P.57.2 Furmstone,
M. (2001). Principles of Commercial Law: London: Cavendish Publishing Limited. p.34.3 Goods, R. (2004).
Commercial Law. London: Clays Ltd. P.49.2
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Preview text
ZAMBIAN OPEN UNIVERSITY
SCHOOL OF LAW
NAME :
STUDENT NUMBER :
PROGRAMME : BACHELOR OF LAWS
COURSE : COMMERCIAL LAWII ASSIGNMENT I
COURSE CODE : LL
YEAR : TWO
SEMESTER : TWO
STUDENT PHONE NUMBER :
LECTURER : MR. MWIINGA
INTRODUCTION
This essay will explain the necessary relationship between the insured and the subject matter in an
insurance contract using decided cases as examples. A simple insurance contract is one in which one
party agrees to compensate the other in the event that they incur loss to the subject of the insurance,
such as if a house is insured and catches fire or if a car is involved in an accident. 1 The danger of harm
being covered by an insurance firm serves to expedite trade, making insurance crucial for modern
business operations. 2 Definition of Insurance Before we examine and consider what a person seeking
insurance should have in the subject matter of the insurance claim, it is critical to grasp what insurance
is all about. An insurance contract has been defined as an agreement in which a person called the
insurer agrees for consideration called the "premium" to pay a sum of money or to provide services for
the benefit of another person called the insured or the assured on the occurrence of a specified event
whose happening is uncertain. 3 Because they are dependent on an unpredictable occurrence or
condition, insurance contracts have occasionally been referred to as lavatory contracts. It is important to
note that Zambia's insurance policy dates back to the time of colonial administration, when Zambia was
still known as Northern Rhodesia, because it was still a privately-owned business for many years prior to
independence. The Doctrine of Uberrimae Fidei. The doctrine of Uberrimae fidei, which asserts that a
contract is predicated on the highest possible good faith and that if the highest possible good faith is not
kept by either party, the contract may be avoided by the other party, is a basic premise controlling
insurance transactions. The reason for this insurance law principle, according to Chitty on Contracts, is
that insurance contracts are founded on facts that are almost always only known by one party (typically
the assured), and unless this knowledge is shared, the risk insured against may differ from that intended
to be covered by the party in ignorance. "In policies of insurance, whether Marine insurance or Life
Insurance, there is an understanding that the contract is uberrimae fidei that if you know any
circumstances at all that may influence the underwriter's opinion as to the risk he is incurring and
consequently as
1 Mumba, M. (2005). Commercial Law in Zambia. Lusaka: University of Zambia Press. P. 2 Furmstone, M.
(2001). Principles of Commercial Law: London: Cavendish Publishing Limited. p. 3 Goods, R. (2004).
Commercial Law. London: Clays Ltd. P.
Indeed, it is difficult to bear the burden of proof that the insured failed to disclose a substantial fact. A
person cannot be penalized for withholding information because the law considers it irrelevant. There is
no need to share unpleasant details. The notion of absolute good faith is often violated even when the
questions on a proposal form are frequently answered honestly when the truth is suppressed. The case
of London Assurance v. Mansell 7 serves as an illustration of this. If an insurance company's proposal
form, filled out and signed by the proposer (Mr. Mansell), had the following questions: Has your life ever
been offered as a proposition at any other business or offices? When, if at all? Was it denied, accepted
at the standard price, or accepted at a higher premium? The insured provided the following responses
to these queries: "currently insured for £1,600 at standard premium rates in two offices. Policies from
previous years These responses convinced the insurance company to approve the proposal. The reality,
however, was that a number of insurance companies had turned down the proposal to insure the
proposer's life. On the basis of these circumstances, the court determined that the insured had violated
the rule of absolute good faith by concealing material information, and the insurance company was
therefore entitled to avoid the contract. The insurance contract can be avoided at the discretion of the
party who was wronged, typically the insurer, due to the disclosure duty's violation. Comparable results
can be obtained from a deception, but a fraudulent misrepresentation also gives the victim of deceitful
behavior the right to sue for damages. In reality, an insurer that discovers a deception or a violation of
the rule of greatest good faith has three or four options. Similar reasoning was used in the case of Carter
v. Boehm 8 , which focused on the obligation of disclosure and the question of absolute good faith. The
judge ruled that; Insurance is a speculative contract. The particular factors that must be taken into
account while calculating the contingent chance are typically only known to the insured; the underwriter
relies on his assertions and pays out in the belief that he does not conceal any relevant information. The
policy is invalid since it was fraudulent to conceal such a situation. The policy is void because the risk run
is significantly different from the risk that was understood and intended to be run at the time of
agreement, even though the suppression should have occurred accidentally and without any malicious
intent. Good faith prohibits either party from inducing the other into a contract by hiding what he knows
to be true while falsely believing the opposite.
7 (1879) 11 CLD 363. 8 (1766) 3 burr 1965 per Lord Mansfield.
Examples of material facts include accidents involving convictions for reckless driving and the
requirement that the insured of a life insurance policy be afflicted by a serious illness, as determined in
the cases of Life association of Scotland v. Forster and Locker and Woolf v. West Australian Insurance. 9
In the case of Austin General Accident and Liability Insurance co. ltd. v. Zurich 10 , a proposal form for
vehicle insurance asked, "Do you suffer from the loss, or loss of use of limb or eye, impaired vision or
hearing, or from any bodily condition"; this requirement was upheld. "No," the proposer responded. The
insurance company argued that because he wore "thick" glasses, his eyes must be impaired; however,
the King's Bench Division determined that this argument was false because his eyesight was adequate to
drive and complete the proposal form. Duty not to misrepresent material facts. Every contract that
contains major factual misrepresentation, whether innocent or fraudulent, is voidable at the choice of
the person that was wronged. But, in order for the insurer to escape accountability, three requirements
must be met: the statement had to be important, it had to have persuaded the insurer to sign the
contract, and it had to be false. This was demonstrated in Merchants and Manufactures Insurance v.
Hunt and Thorne 11 , where the question "Have you or any individual who to your knowledge will drive
the car been convicted of driving offences?" was posed to a proposer for a motor policy. "No" was given
as the response. Although the proposer was unaware of this, the proposer's son, who would be driving
the car, had in reality been found guilty of four such offenses. The conclusion was that the affirmative
response amounted to a representation that there had been no conventions, which was false and
excused the insurers from liability. When an insurer learns of a misrepresentation or a violation of the
rule of "utmost good faith," they have the following options. a) The insurer may deny responsibility. b)
The insurer could choose to disregard the violation and let the agreement stand. c) The insurer has the
right to file a claim for the policy's delivering up and cancellation. d) If the policy has matured and
payment is due, the insurer may choose to withhold payment. If and when the insured files a lawsuit,
the insurer will defend themselves by arguing that there was a contract breach. Similar to this, in Patel v.
Old Mutual fire and General
9 (1836) 1 KB 408. 10 (1944) 77 Lill Rep. 409. 11 (1941) 1 KB. 295 (1941) 1 ALL E. 123
Every rule that has been applied to insurance law, in my opinion, has its very foundation in the fact that
the contract of insurance contained in a marine or fire policy (and that also applies to accident policies
other than personal accident) is a contract of indemnity and of indemnity only, and that this contract
signifies that the insured, in case of a loss against which the policy has been made, shall be fully
indemnified, but shall never be more than fully indemnified. This is the core tenet of insurance law, so
any proposal that conflicts with it— that is, one that either prevents the insured from receiving a full
indemnity or grants the assured more than a full indemnity—must unquestionably be incorrect. It is
illegal and against public policy for the insured to receive more than his real loss, even while it is
theoretically conceivable for the insured to obtain less than full indemnification, for example when he is
protected by an insurer. According to the legislation, it is improper for an insured individual to make
money off of what is fundamentally a bad situation because doing so would go against the public's best
interests. Why this should be the case is easily comprehended. If the insured were given the chance to
profit from the loss or destruction of his insured property, there would understandably be a temptation
to destroy it, which would be harmful to the interests of the general public. As valued policies provided
an exception to the general principle of indemnity, insurance contracts that provide that the insured will
be paid a specific amount of money upon the occurrence of a specific event, such as life insurance and
some accident insurance policies, are obviously not indemnity insurance contracts. With a valued
insurance, the insurer and the insured reached an agreement before to valuation on the amount due in
the case of a loss, allowing the insured to recover the agreed sum or value in the event of a total loss,
even if it may be more than his actual loss. This was decided in the case of Darrel v. Tibbits, 15 where
the basic circumstances were as follows: "A landlord leased a property to a tenant under a lease
agreement that required the tenant to make repairs to the property in the event of fire damage. The
landlord has fire insurance on the property as well. In due time, a fire broke out, causing the building to
sustain significant damage. The landlord's insurance claim against the fire was successful. Subsequently,
the tenant made repairs to the house. It was decided that because the landlord had not experienced a
loss, the insurer could recoup the funds provided under the insurance. Similar to this, the court ruled in
Zambia State Insurance Corporation v. Serios farms Ltd 16 ,that "an insurance policy only covers the
losses which were subject matter of the
15 (1880) 5QBD 560. 16 (1987) ZR 93.
insurance itself and that any incidental losses cannot be claimed under the policy unless clearly
indicated in the contract. The awards that were complained of could not possible be upheld on the
grounds that the disputed insurance contract made provision for them because no such clause was
proposed in this case. Application of the principle of Indemnity in insurance contracts Because the sum
insured represents the insurer's maximum responsibility, in the event of a total loss under any form of
vehicle insurance, such as when the insured's car is irreversibly damaged, the insured gets paid the
market value of the car immediately after the collision. If the vehicle can be repaired and only a portion
of the insured's coverage is lost, the insurer reimburses the insured by paying for the cost of repairing
the damage. In some cases, the damaged vehicle is still repairable, but the insurer may choose to treat
the claim as a constructive total loss because the estimated repair costs would be greater than the
vehicle's market value once they were fixed. In such cases, the insurance provider makes up for the loss
by paying the insured the pre-accident market value of the vehicle or the value of a vehicle of equivalent
make, model, age, and condition. However, if an insurer decides to treat a claim as a total loss or a
constructive total loss and the insured has received full payment, the insurer will automatically come
into possession of the salvage or remaining parts of the insured vehicle and will be free to dispose of
them however he sees fit. After receiving compensation, the indemnity principle would not apply if the
insured maintained the salvage. In general, when establishing the amount that would be sufficient to
reimburse the insured, insurers apply the "market value" test, which is simply the lost or damaged item
at the time and place of the incident that caused the loss or damage. The law does not recognize
personal accident and life assurance plans as contracts of indemnity because, as has already been
established, it would be very impossible to place a monetary value on human life and limb. So, in terms
of life assurance, there is no legal limit on the number of life insurance policies a person may buy on his
or her own life. There is a cap that the insured person is not allowed to go over. This means that if his
insurer has fully reimbursed him for his loss, the insured must assign to the insurer any rights he might
have against a third party in connection with the loss. The insurance expires when the insured loses all
interest in its scope of protection. According to insurance law, an insured cannot be regarded to have
experienced a loss for which he must be compensated if a loss or damage happens after the insured has
sold or otherwise disposed of the insured property. It is a personal contract as well as an insurance
contract because it is unique to the specific insured and the specific insurer. Thus, in the case of
Rogerson v. Scottish Auto Mobile &
Books Goods, R. (2004). Commercial Law. London: Clays Ltd Mumba, M. (2005). Commercial Law in
Zambia. Lusaka: University of Zambia Press Furmston, M. (2001). Principles of Commercial Law: London:
Cavendish Publishing Limited Cases Austin General Accident and Liability Insurance co ltd v Zurich (1944)
77 Lill Rep. 409 Brownlie v Campbell (1880) AC 925 Castellain v Preston (1883) 11 QBD 380 Darrel v
Tibbits (1880) 5 QBD 560 Rogerson v Scottish Auto Mobile & General Insurance Company (1931) 48 TLR
17 Mutual life Insurance co. of New York v Ontario Metal products, ltd (1925) A 344 Zambia State
Insurance Corporation v Serios farms Ltd (1987) ZR 93
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