INTRODUCTION Insurance is the result of mans efforts to create financial security in the face of dangers to his life, limbs

and estate. The tension between his desire to form and develop his estate, on the one hand, and the dangers threatening to destroy that desire on the other. One of the most satisfactory general methods of creating financial security against risks is that of spreading the risk among a number of persons all exposed to the same risk and all prepared to make a relatively negligible contribution towards neutralizing the detrimental effects of this risk which may materialize for any one or more of their number. Insurance as precautionary measure against risk has several advantages, namely , it shifts the greater part of the risk from the exposed person to others; it is relatively easy to persuade individual to bind themselves to make a comparatively small contribution in exchange for security; and insurance is applicable to a wide variety of situations. INSURANCE AS A CONTRACT Voluntary provision against risks by means of insurance takes the form of a contract between an insurer and an insured person. The contract relates to the transfer of a specific risk or risks in exchange for the payment of a consideration commonly known as a premium. The nature and extent of the risk helps to determine the common of the premium. Contracts of insurance are based on considerations of individual interest and accordingly the rules which govern them are not applicable to social insurance schemes which rest on socio-economic considerations and are implemented by the state on a compulsory basis e.g NSSA HISTORICAL BACKGROUND The modern insurance contract has its roots in two distinct lines of development i.e. i) The practice of mutual financial assistance which eventually gave rise to Mutual insurance, and ii) Contract of risk spreading for consideration which developed into the contract of insurance for profit or premium insurance in the narrow sense of the word. MUTUAL INSURANCE Among the Romans, and even ancient Greece and Egypt, societies existed which afforded members certain benefit such as proper burial risks or a financial contribution towards buried costs. These societies can hardly be regard as insurer, but nevertheless they represented the idea of mutual assistance in case of materialization of risks. This idea gained prominence in the guilds or similar associations which existed in Europe and England during the middle ages. The associations afforded members or their dependant assistance in case of loss caused by perils such as fire, shipwreck, theft, sickness or death.

The guilds developed into communities which were formed expressly to spread specific risks amongst persons exposed to those risks by granting each member of the group a legal right to assistance if the risk materialized. In exchange for this right members undertook to pay regular contributions or premiums. In this way the concept of community of similarly exposed persons become firmly entrenched as an element of the concept of insurance. INSURANCE FOR PROFIT The idea underlying modern profit insurance was manifested in Babylonia almost 200 years before Christ in a contract of trading capital to traveling merchants. The contract contained a clause that the risk of loss due to robbery in transit was borne by the party providing the loan. In consideration for bearing this risk, the lender calculated interest on the loan at an exceptionally high rate. Insurance for profit as an independent type of contact developed from risk contained in maritime loans and certain contract of purchase and sale. The central theme was transfer of risks in exchange for a consideration in money. The profit motive provided an incentive for a careful calculation of both the risk and premium. The first clear records of contracts which provided for the undertaking of a risk in exchange for money by an independent party not involved in the trade transaction from which the risk and emanated would seem to be documents containing contracts for the transfer of maritime risk gained currency towards the end of 14th century. Independent risk bearing for consideration had by them developed in the form of marine insurance. FURTHER DEVELOPMENT For a considerable period up to the 19th century marine insurance was the dominant form of insurance. In the course of time however, the various type of insurance as they exist today developed from both mutual and profit insurance. For instance, life insurance became an independent and acceptable contract of insurance towards the 16th or 17th century while fire insurance contract gained currency especially from the 17th century onwards. SOURCES OF INSURANCE LAW The common law of Zimbabwe is Roman-Dutch law and as such one would except to find the Zimbabwean law of insurance in modern Legislation and in the writings of Roman Dutch Jurists. However, Roman Dutch Law is not applied to many aspects of insurance contracts. Sections 3 & 4 of the General Law Amendment Act [Chapter 8:07] placed Zimbabwean insurance law into the mainstream legal principles which are , by and large , homogeneous throughout the world. The sections provided that the English Law of fire, life and marine insurance shall apply in Zimbabwe except statutes passed after 1879. The significance of the date 1879 lies in the fact that the General Law Amendment Act has its origin in the Cape Act 1879 and in terms of the said Cape Act, only pre 1879 Statutes are binding.

It is however, important to note that the GLAA was itself amended by section 13 of the Insurance (Amendment) Act, No.3 of 2004 with the effect that English law does not apply to contracts concluded after the commencement of Act No.3 of 2004. The GLAA makes English law applicable only on questions of insurance, not on questions of other branches of law that may arise in the course of an insurance dispute Thus in Northern Assurance Co. Ltd v Methuen 1937 SR 103 English Law was held not binding on a question relating to cesscession of right under a policy. In the same case, Mcllwaine ACJ @ 108 applied the principle that if a clause in a policy was taken from English policies, the meaning given to the clause by English law must govern. It is not altogether clear whatever GLAA imports the English Law of insurance generally, or the import is confined to fire, life and marine insurance. In Horne v Newport Gwilt & South British Insurance Co. Limited 1961 R&N 751 @ 772 (also reported in 1961(3) SA 342 @ 353) Maisels J assumed that the plain wording of the Act should not be extended; in other words English law must apply only to fire, life and marine insurance. Thus, for example, the inclusion in a motor policy of cover against fire does not bring the whole policy under English law; but conversely, a claim on the fire portion of a mixed policy will fall to be decided under English law. The principle thus formulated seems clear enough but its application invariably involves some difficulty in that while there are matters clearly peculiar to insurance e.g insurable interest, risk, over/under-insurance etc, other matters are evidently not peculiar to insurance e.g stipulations in favour of 3rd parties, trusts, interpretation of policies, offer and acceptance and the like. Borderline cases often pause an agonizing challenge, for instance, it has been held that warranties in insurance policies are governed by English Law (see Morris v Northern Assurance Co. Ltd 1911 CPD 293 @ 304), yet one may well ask whether a warranty in an insurance policy differs substantially from the concept of a warranty in the law of contract. The applicability of English Law is thus open to debate. The South African Appellate Division has traced the origins of the South African Law of insurance to the Lex mercatoria of the Middle Ages. In the ultimate analysis, therefore, it is clear that the Roman-Dutch and English law of marine insurance stem from the same original sources. Since South Africa has taken a distinctively Roman-Dutch bias to insurance contracts concluded after 1879, it is proper to conclude that Zimbabwes insurance law derives from the pre-1879 English statutes as read together with the post 1879 Roman-Dutch common law. Indeed this is the view that is crystalised by Amendment No.3 of 2004 in specifically ousting English law in contracts concluded after the commencement of the amendment. CLASSIFICATION OF INSURANCE The most important criteria for classifying insurance contracts are the nature of the interest insured; whether the object of the risk has been valued or not ; the nature of the event insured against; the possible duration of the contract; and the purpose of the insurance.

INDEMNITY & NON-INDEMNITY INSURANCE This is the most fundamental distinction between various insurance contracts. - In indemnity insurance the contract between the parties provides that the insurer will indemnify the insured for loss or damage actually suffered as the result of the happening of the event insured against. - The whole purpose of the contract is to restore the insured to his status quo ante and the insured may not make any profit out of his loss - In non-indemnity insurance, on the other hand, the insurer undertakes to pay a specified amount or periodical amounts to the insured merely on the happening of the event insured against e.g. upon the death or injury of insured. - It is apparent that the distinction between indemnity and non-indemnity has been taken to lie in the nature of the interest insured - In indemnity insurance the interest must be, of necessity of a proprietary nature, otherwise no financial loss or damage can be caused through its impairment. - On the other hand, the interest which can be the object of a non-indemnity contract of insurance must be regarded as non-proprietary in substance. Put differently, non-indemnity insurance depends on an event which invariably relates to the person of the insured or a third party. - An important consequence attached to the distinction between indemnity and non-indemnity insurance is that in non-indemnity insurance the insurers are not entitled to the benefits of proportionate contribution or subrogation. PROPERTY & LIABILITY INSURANCE Property insurance is concerned with the positive elements (assets) of the insureds patrimony or estate, for instance ownership of his house or expectation of future benefit. Liability insurance is concerned with negative elements (liabilities) which come into being as part of the insureds patrimony e.g third party motor vehicle insurance.

CLASSIFICATION ACCORDING TO THE NATURE OF EVENT INSURED AGAINST - Examples include marine insurance, fire insurance and personal insurance. This classification cuts across the fields of indemnity and non-indemnity insurance. In personal insurance, we includes life insurance, personal accident insurance and medical insurance. The event insured against operates on the person of the insured or a third party. - depending on the intention of the parties, personal insurance may either be indemnity or non-indemnity insurance while non-personal insurance can only be indemnity insurance and nothing else. LONG TERM & SHORT TERM INSURANCE

-Long term insurance business is defined in the Insurance Act as: -Short term insurance business is also defined in the Act as: The difference between long term insurance and short term insurance appears to lie in the fact that long term insurance is concerned only with life insurance whereas short term insurance deals with forms of insurance which are usually of short duration. FEATURES OF INSURANCE INSURANCE AS A CONTRACT (i) Definition - In Lake v Reinsurance Corporation Ltd 1967(3) SA 124 (W) the court adopted the following definition of a contract of insurance: - A contract between an insurer and an insured whereby the insurer undertakes in return for the payment of a 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 this definition is important in that it elucidates the difference between wagers and insurance contracts, namely, the existence of an insurable interest in the case of an insurance contract proper.

From the definition cited above it is apparent that an insurance contract must provide for: (a) payment of a premium (b) performance or an undertaking to perform in exchange for the premium (c) the possibility of an uncertain event on the outcome of which the performance of the insurer depends on the risk. (d) An insurable interest in the uncertain event on the part of the insured. (ii) ESSENTIAL INGREDIENTS OF A CONTRACT OF INSURANCE (a) Premium - In English Law the requirement of a premium for insurance is said to be an application of the general requirement of valuable consideration in the sense of a quid pro quo. - Under South African Law the requirement of valuable consideration is not recognized. It is against the background of the South African Law that a premium would not seem to be a requirement for the validity of a contract of insurance.

It is important to note that essential for the existence of an insurance contract is an undertaking by the insured to pay a premium for his insurance, and not payment of the premium as such. However, it has become customary to include in a policy a term which makes performance by the insurer subject to prior payment of the premium. The undertaking to make a monetary payment as a premium need not be for a specific amount but it must at least be ascertainable in order to meet the requirements relating to the validity of contracts in general.

(b) Performance by insurer - In indemnity insurance, performance by the insurer is meant to compensate the insured for loss suffered by him. The usual means of performance by the insurer is by payment of money i.e indirect compensation. - The insurers performance may also be by way of direct or physical compensation if the contract so stipulates, for example, reinstatement clauses frequently encountered in insurance contracts, in terms of which the insurer is given the option to restore the property affected by the peril to the condition in which it was before the loss. - In Department of Trade and Industry vs St. Christopher Motorists Association Ltd 1974 (1) Lloyds Rep 17, the court came to the conclusion that a contract in terms of which a person is entitled to claim a chauffer service if he becomes incapable of driving his own car amounts to insurance. - A contract which merely confers on a person a benefit not amounting to either monetary or direct compensation cannot qualify as a contract of insurance e.g a benefit that a claim to compensation will be considered at the sole discretion of the insurer. An undertaking to compensate the insured in money usually involves not a certain but merely an ascertainable performance. - The performance of the insurer in non-indemnity insurance is usually in the form of money. However, it does occur that in certain instances the insurer undertakes to perform something other than pay money. The amount insured may be specified or may be in periodic payments. (c) Risk/uncertain event -every true contract of insurance depends on an element of uncertainty or contingency in the contract that the contract provides that the insurer will be liable to perform if a specified but uncertain event occurs. This event is dependant upon a peril or hazard and the possibility that the peril will cause harm is known as the risk. - A contract can only be classified as an insurance contract if the bearing of the risk by the one party is a substantial part of the contract. (d) Insurable interest as a characteristic of insurance

Doctrine of interest -the idea that the actual existence of an insurable interest is an essential feature of an insurance contract forms part of one of the oldest and most fundamental doctrines of the law of insurance, namely, the doctrine of interest. This doctrine dates back to the Lex mercatoria of the Middle Ages. - The Doctrine lies at the root of the distinction between wagers and insurance. The first prominent commentator on the doctrine was De Casaregis, who argued that if the parties concluded a genuine contract of insurance the insured would only be entitled to hold his insurer liable in terms of the contract if the insured had an interest in the lost goods. This liability of the insurer was limited to the value of the insureds interest.. Conversely, if the parties concluded a wager on the outcome of an event liability would follow in spite of the fact that the value of any interest that might exist was less than the amount claimed or even that no interest whatsoever existed. The foregoing view held by De Casaregis is fully in harmony with the rules of English common law as it stood when wagers were legally enforceable. The English common law provided that an insurance contract was only enforceable if supported by an interest when the event insured against occurred, while a wager was enforceable irrespective of whether or not there was any insurable interest. Whereas the requirement of interest started merely as explanatory of the principle of indemnity, with time the idea developed that the actual existence of an insurable interest was required for true insurance. Thus in Prudential Insurance. Co. V Inland Revenue Commissioners 1904 KB 658 @ 663 it was stated that A contract which would otherwise be a wager may become an insurance contract by reason of the assured having an interest in the subject-matter- that is to say the uncertain event which is necessary to make the contract amount to insurance must be event which is prima facie adverse to the interest of the assured The position of Roman Dutch Law regarding the doctrine of interest is more or less in harmony with the view of De Casareges and English common law. INSURANCE INTEREST INDEMINITY INSURANCE. AS A CHARACTERISTIC OF

Although the doctrine of insurable interest was originally conceived to distinguish insurance from wagers, the rules of insurable interest are in fact more suitable to determine who is entitled to claim on a contact of insurance and what the extent of the claim is.

In the case of the Saddlers Co v Bad Cock (1743) 2 Atk 554 it was decide that for insurance purposes an insurable interest insurance purpose an insurable interest must exist both upon the conclusion of the contact an at the moment upon which the event insured against occurs. The more prevalent approach in English law appears to be that the interest required for indemnity insurance contract need to exist only when the event insured against takes place. In South Africa the doctrine of insurable interest has been applied by some Courts in order to decide whether an insured has a claim for compensation. However, it has not yet been clearly decided whether the existence of a contract of insurance depends on proof that an insurable interest in fact exists. When called upon to consider this aspect of the doctrine , the Transvaal court in the case of Philips v General Accident Insurable Co. (SA) Ltd 1983 (4) SA 652, took the view that insurable interest is a foreign doctrine and that there is no justification for applying it in preference to the principles of Roman Dutch law. In dealing with the distinction between insurance and wager, the court came to the conclusion that the real inquiry should not be whether the contract in question is, according to the intention of the parties, a wager or not. The English law view that for true insurance an insurable interest must exist, or that a person wishing to conclude a contact of insurance must at least expect an interest has faced stiff resistance in South Africa, primarily on the ground that a suitable alternative can be found in the principle of indemnity for which there is ample support South African and even European case authorities.

INSURABLE INTEREST AS AN ELEMENT OF NON-INDEMINTY INSURANCE IN ENGLISH LAW. In English Law life assurance was originally equated with indemnity insurance, However, in the celebrated case of Dalby v India and London Life Assurance Co. (1854) is Cb 365 this view was departed from. The Court decided that a distinction must se drawn between indemnity insurance and life assurance. In the case of life assurance an insurable interest must exist at the time of conclusion of the contract although it needs not exist at the time when the event insured against occurs. Since the interest required for non-indemnity insurance needs only to exist at the time when the policy as taken out, it does not matter if the interest no longer exists at the time the contract is enforced e.g as a result of divorce. A second possible function of the concept of insurable interest is to constitute a requirement for the validity of the contract of insurance. Insurable interest serves a further function not only at the conclusion of the contract i.e when the insured is called upon to perform its part of the bargain it must be established whether the insured had an insurable interest, and if so to what extent his insurable interest has been infringed.

Also, the insurable interest of the insured is regarded as the object of the insurance i.e it is interest as such that is insured.

INSURANCE AS A PRINCIPAL & INDEPENDENT CONTRACT SIMILARITIES BETWEEN INSURANCE & SURETYSHIP Both are depended upon an uncertain event Both accomplish a mere indemnity to the exclusion of profit. Certain legal rules applicable to insurance have counterparts in the law of suretyship e.g. the right to claim a contribution, the right to demand a cession of action, and the right to be subrogated. The later right, which enables an insurer who has made good a loss (compensated an insured) to proceed against the party who caused the loss, has given rise to the courts equating an insurer to a surety.

PURPOSE OF DISTINGUISHING
(1) A contract of suretyship must be in writing whereas a contract of insurance need not be in writing. (2) A surety is entitled to sue the debtor in his own name while an insurer is only entitled to make use of the name of the insured in actions against 3rd parties. The distinction is also of significance with regard to provisions of the Insurance Act. (3) The distinction is rather a fine one. Usually a contract of suretyship requires no performance in favour of the person who stands surety whereas insurance is reciprocal. (4) The real distinction seems to be that a contract of insurance is a principal contract An insured answers for its own obligations while a surety undertakes to fulfill the obligation of another. Thus, if performance in terms of the contract is in effect subject to the condition that a specific person does not perform his contract, it can only be insurance if it is the intention of the parties that the insurer will indemnify the insured for any loss caused by the event concerned, that is, non fulfillment of a contract. If it is the intention the obligation as such must be fulfilled by the other party, the contract amounts to suretyship.

FORMATION OF A CONTRACT OF INSURANCE

GENERAL PRINCIPLES
The basis of contractual liability where the parties do not misunderstand each other is consensus ad idem amino contrahendi. In those cases where the parties misunderstand each other and apparent consent exists, liability rests on the reasonable reliance by a contracting party on the existence of consensus. This may be termed constructive consent. Alternatively a party can rely on the doctrine of estoppel if they can satisfy the stringent requirements of estoppel and wishes to avail himself of this remedy in order to hold a party bound by the appearance of consensus he created. However, for a contract to exist as such actual or constructive consent must exist. A contract of insurance comes into existence as soon as the parties have agreed upon every material term of the contract they wish to make such as the person or property to be insured, the event insured against, the period of insurance and the amount of premium. The parties need not necessarily agree on non essential terms, just that they must agree on the essentials for insurance. As a rule, the parties to a contract of insurance do not apply their minds to each specific term but rather contract on the basis of the insurers usual terms for the particular type of risk to be insured against. The contract of insurance only comes into existence when consensus is reached.

THE PARTIES
The ordinary indemnity policies there are usually two parties i.e. the insurer and the insured. The insured is the person who enjoys protection in terms of the policy and he is first holder of the policy. Subsequent holders of the policy are in the position of cessionaries. In terms of Part III Section 7 of the Insurance Act, an insurer must be a body corporate registered in terms of the Act. There may also be a third party interested in a particular policy, viz, the beneficiary in terms of a contract in favour of a 3rd party. The parties to a contract of insurance may be represented by agents.

OFFER
In general insurers do not make binding offers to insure but rather invite the parties to apply for insurance i.e. an invitation to treat.

The actual offer is therefore made by the proposed insured by completing the proposed form which, as formulated by insurers do not leave much room for bargaining between the parties. Most of the terms of the proposed contact are not expressly stated, the intention being to contract on the usual terms of the insurer. Once a reference to the usual terms is included in the contract, the insured actually agrees to them and cannot afterwards be heard to say that he did not have the opportunity to ascertain the exact content of such terms. In a case where the proposal by the insured to be is not acceptable to the insurer as it stands but where the insurer is willing to contract on other terms, a counter offer may be made by the insurer.

ACCEPTANCE
This means an express or tacit statement of intention in which an offeree signifies his unconditional assent to the offer. The insurer as offeree usually accepts the offer by sending the proposer a policy accompanied by a covering letter communicating the acceptance. Usually the very act of sending the policy is sufficient to communicate acceptance. A demand for the premium by the insurer may also operate as an acceptance. A firm acceptance may also be contained in a an interim cover note, albeit such note is generally an acceptance of a proposal for temporary cover. If a policy which is dispatched to the proposer differs from the terms of the offer but the insurer did not intend it to differ, the dispatch of the policy, subject to rectification of the policy, is sufficient to signify the insurers acceptance. Conversely, if the policy issued is intended to differ from the proposal received by the insurer, the issuance of the policy can at most be a counter offer requiring acceptance by the insured to be.

THE POLICY
is the document expressing the terms of a contract of insurance . a contract of insurance does not need to be in writing to be valid but it has become standard practice to reduce the contracts to writing. The effect of reducing the contract to writing is that the document, by virtue of the parol evidence rule, becomes the only record of the transaction between the parties,

provided the parties accept the written document as the sole memorial of their transaction. While the traditional method of indicating acceptance of a document as the embodiment of a contract is by affixing a signature thereto, the practice in insurance is that the policy is never signed by the insured but only by or on behalf of the insurer. Where a particular policy is accepted as the sole memorial of the contract, the terms of the contract cannot be sought outside the policy and its constituting parts such as schedules, slips or endorsements. Other separate documents such as proposal forms or prospectuses are not admissible as evidence of particular terms (Parol evidence rule). However, if any such other document has been incorporated, expressly or tacitly, by references, it is part and parcel of the policy. This usually happens with proposal forms.

REQUIREMENTS FOR A VALID CONTRACT OF INSURANCE A B CONTRACTUAL CAPACITY The general rule that the parties to a contract must have contractual capacity for the contract to be valid is subject to exceptions in the context of insurance. LAWFULNESS like any other contract a contract of insurance must be lawful. The common law renders illegal all contracts which are contrary to public policy or good morals. The prohibition of a contract by the law may relate to the conclusion or the contract performance in terms of the contract, or the purpose of the contract. In line with the principle of sanctity of contracts and the rules of interpretations a court, when called upon to decide whether an insurance contract is unlawful, attempts to uphold the contract by establishing whether the objectionable elements can be severed from the contract with the remainder being enforceable. Unless the illegality appears ex facie the transaction sued upon, a litigant who wishes to rely on a defence of illegality must plead and prove such illegality and the circumstances upon which it is founded. The requirements of lawfulness of contracts are governed by the general principles of the law of contract and there are no principles peculiar to insurance contracts. The litmus test for legality in respect of certain contracts of insurance is to be found in the provisions of the Insurance Act, for instance Part IX of the Act, Section 41 forbids insurers to insure lives of young children in excess of certain amounts: Section 7 of the Act also prohibits persons from carrying on any class of insurance business in Zimbabwe unless he is registered in terms of the Act as an insurer in the

class of insurance business carried on by him. Other prohibitions relate to licensing and other related aspects. The Act does not expressly provide that a contract concluded in contravention of its provisions is invalid. What the Act simply does is to provide for general penalties for non compliance. The mere fact that conclusion of a contract is by implication contrary to the provisions of a legislative intention to prohibit the contract and thus render it unlawful. Such intention may be inferred according to the general rule of interpretation, but each case must be dealt with in the light of its own language, scope and object and considerations of justice and convenience. (Metro Western Cape (Pvt) Ltd v Ross 1986 (3) SA 181)

PERFORMANCE MUST BE LAWFUL

A contract of insurance is not often unlawful on account of performance since the performance of both parties is normally of a monetary nature. However, if the contract of insurance is to be performed in contravention of the exchange control laws, it becomes illegal because of the illegality involved in the execution of the contract.

PURPOSE OF CONTRACT MUST BE LAWFUL

If the parties conclude an insurance contact to cover the insured where the crime or civil wrong of is closely associated with it, the purpose of the agreement and therefore the agreement itself is unlawful. In Richards v Guardian Assurance Co. 1907 TH 24 it was decided that an agreement to insure a house which was being used as a brothel was unlawful. The court explained that where the legislature has laid down that certain acts are illegal, all acts which tend to facilitate or encourage such illegal acts must themselves be regarded as illegal.

UNREASONBALE CONTRACTS
If there is no ambiguity in the language of the contract and the ordinary sense of the words does not lead to absurdity, repugnancy or inconsistency with the rest of the contract, the contract as concluded by the parties is enforceable no matter how unreasonable its effects may be.

CONSEQUENCES OF UNLAWFUL AGREEMENTS

Normal effect is that they are null and void. The law allows no exceptions to this rule, not even if the parties were totally unaware of the illegality. If performance has been rendered, such performance may be recovered with the rei vindicatio where applicable or the enrichment action known as the condictio ob turpen vel iniustam causam. Of course the recovering is subject to the par delictum rule which bars recovery unless public policy will be better served by allowing recovery of what has been performed.

PERFORMANCE MUST BE POSSIBLE & ASCERTAINABLE

Since performance by the parties to an insurance contract invariably consists in payment of money, an obligation to pay money is a generic obligation which cannot be impossible. However, where an insurer agrees to have the object of the risk reinstated, the requirement that performance must be possible becomes relevant. In this case if reinstatement is initially impossible, the contract must provide for an alternative performance, viz compensation in money.

PERFORMANCE MUST BE ASCERTAINABLE

This requirement may operate in respect of the validity of an offer or as a separate requirement for the validity of the contract. In line with the general principles of the law of contract the premium payable need not be a specified amount, it suffices if the amount is merely ascertainable. Regarding performance by the insurer, the undertaking to compensate the insured is sufficiently ascertained.

FORMALITIES
No formalities required. Writing not required by the common law for the validity of insurance contracts, nor has the Insurance Act introduced any such requirement. Although no formal requirement is laid down by the law, the parties may agree that no contract will materialize unless reduced to writing in the form of a policy and unless such policy has been delivered to the insured. Further, albeit there is no rule requiring prior payment of the premium, the parties frequently contract subject to a clause that no contract will come into being or that the liability of the insurer will not commence until a premium is paid.

MISREPRESENTATION
GOOD FAITH All contracts are subject to good faith i.e. they are bona fide. In modern case law and literature insurance contracts have been classified as contracts uberimmae fidei. This is the prevailing classification in English Law. In South Africa, the Appellate Division in Mutual Insurance Co. Ltd v Oudtshoorn Municipality 1985 (1) SA 419 (A) rejected the term uberimmae fides as an alien expression adopted from English Law, vague and useless, without any particular meaning other than bona fides. The Appellate Division, however, did not set out the content of the requirement of bona fides as it pertains to insurance; thus authority which dealt with the content of uberimma fides is still persuasive although one must keep in mind that the duty concerned is not one of exceptionally good faith but simply good faith. Generally contracts uberimmae fides impose a duty on the contracting parties to display utmost good faith towards each other during negotiations leading to the conclusion of the contract, and only exceptionally during the subsistence of the contract itself. The duty of good faith applies to both the insurance proposer and the insurer. It has been said that in respect of principles of good faith is of limited duration and applies during pre- contractual negotiations only. Once the contract has been concluded, it is generally said, no special duty of good faith attaches. (See Pereira v Marine and Trade Insurance Co. Ltd 1975 (4) SA 745 (a) One consideration which has been raised and which may constitute a duty of good faith attaching to an insured during the subsistence of the contract is the question whether an insurer is entitled to avoid a policy if the insured brings a fraudulent claim. The duty of good faith existing during the subsistence of the contract must not be confused with the position of the parties upon renewal of a contract of insurance. The duty of good faith attaches to renewal of a contract of insurance as it did in the conclusion of the original contract.

Requiring uberimma fides instead of mere bona fides has been a way of expressing the fact that in insurance contracts, a contracting partys conduct may more readily be found to have infringed the right protecting the other party from mala fide conduct during pre-contractual negotiations. It does not refer to a principle of law distinct from liability for misrepresentation. Therefore reference outmost good faith does not indicate a distinct principle of law; there are no degrees of good faith, such as little, more or utmost good faith (See Mutual & Federal Insurance Co Ltd v Oudtshoorn Municipality @ 433) IN fact uberimmae fides has been called one of the indicia, rather than a consequence of insurance See Iscor Pension Fund v Marine and Trade Insurance Co Ltd 1961 (1) SA 178 (T) Therefore a party to an insurance contract who wishes to proceed on the basis of a breach of the duty of good faith must place his claim within the four corners of the requirements for misrepresentation. The principle underlying the requirement of good faith signifies that either party may avoid a contract of insurance if the other party has positively misrepresented a material fact. Although insurers rarely commit a breach of the duty of good faith, there are certain instances where such breach may be committed; for instance, an inaccurate statement of the nature of insurance offered or the extent of cover made in the invitation to take out insurance , or the amount of premium payable by the insured. Generally, however, the duty of good faith relates to the right of the insurer to receive correct and complete information about material facts relating to the risk. Accordingly the duty principally rests on the proposer and requires the proposer to refrain from furnishing false information he possess concerning material facts. Put differently is it the proposers duty to be honest, straightforward, candid and accurate in making positive statements about material facts and to make full disclosure of such facts.

JUSTIFICATION OF THE DUTY OF GOOD FAITH

An insurer who wishes to calculate the insurability of a specific risk must be able to quantify the possibility of loss into a degree of probability. To this end the insurer requires extensive information about and knowledge of the facts affecting the risk. It is only after the insurer has been furnished with adequate information that it can calculate the risk and come to a decision whether it is prepared to accept the risk,

the extent of the risk to be accepted and the terms of the contract such as the amount of premium to be charged. Since decisions concerning the risk and premiums are included in the contract they must be taken before the contract is concluded. In view of the fact that the requirements of good faith and the duty to disclose material facts can obviously be classified as part of the law on misrepresentation and not as some distinct and strict or principle, the position of the proposer is not unduly aggravated by the existence of these duties. The principles of misrepresentation and good faith apply to all types of insurance.

REQUIREMENTS FOR LIABILITY FOR MISREPRESENTATION Misrepresentation is a delict and as such a party to a contract of insurance who seeks relief on the ground of misrep must prove that the misrep meets all the requirements for liability in delict, namely, an act (conduct) committed by the wrongdoer, an element of wrongfulness attached to the act, a detrimental result which was caused by the wrongful conduct, and (usually) a blameworthiness on the part of the wrongdoer.

MISREPRESENTATION BY COMMISSION Is a positive act consisting in a pre-contractual statement of fact made by one of the parties to a contract of insurance. The statement must be false or inaccurate and wrongful, and may be accompanied by fault or may be innocent, and must induce the other party to enter into the contract or to agree to specific terms in the contract, contrary to what he would have done if he had not been misled.

ELEMENT OF MISREP BY COMMISSION POSITIVE ACT OF COMMISSION The representation takes place by means of a positive act or commission in the form of an actual statement and not through omission. The statement may be written or oral, it may comprise of an incorrect or inaccurate answer given to a question by an insurance agent or in a proposal form.

STATEMENT OF FACT A misrepresentation give rise to liability only if it consists in a statement of fact. A mere opinion does not suffice to incur liability on the party expressing it.

FALSE OR INACCURATE STATEMENT

the statement must be wholly false or at least inaccurate. The accuracy of a settlement must be gauged by considering it within the context in which it was made. It is sometimes said that a statement need not be correct in every detail, however or substantially correct.

WONGFULLNESS A positive representation is only wrongful if it relates to material facts, if it is false and if the party to whom it is addressed was actually misled in the sense that he put his faith in the false representation.

MISREPRESENTATION BY OMMISSION A misrepresentation by omission is a wrongful omission by on of the parties to a contract of insurance to disclose, during the course of pre-contractual negotiations certain facts within his knowledge, thereby inducing the other party to enter into the contract or to agree to specific terms in the contract, contrary to what he would have done if the facts had been disclosed. The omission may be accompanied by fault or may even be completely innocent.

OMMISSION although is can be typical as a settlement of fact, the act which creates a wrong impression is not a positive one, but an omission, namely the failure to remove an existing fact which would have done so. The omission may be a deliberate concealment or an inadvertent non-disclosure. Duty to disclose An omission is wrongful if it is committed in breach of a duty, resting on a party to act positively. A duty to act positively arises if the circumstances are such that the imposition of a duty is reasonable according to the legal convictions of the community. A duty to disclose exists with reference to facts, which are material to the contract in question and if the representative has actually been mislead by the failure to disclose. The duty to disclose has been said to be the correlative of a right of disclosure which is a legal principle of the law of insurance: (see Mutual Federal Insurance Company Limited v Oudtshoorn Municipality case)

(a) -

The reference to the duty of disclosure as being particularly related to the contract of insurance must be understood as an expression of the fact that the circumstances surrounding insurance contracts are typically circumstances giving rise to a duty to disclose. Facts within knowledge of Representor In Joel v Law Union and Crown Insurance Co 1908 (20 KB 863 (LA) 884 Fletcher Moultin LJ said that the duty in point : is a duty to disclose, and you cannot disclose what you do not know. The obligation to disclose, therefore, necessarily depends on the knowledge you possess Section 18 of the Marine Insurance Act of 1906 provides that an insured is deemed to know every circumstances which, in the ordinary course of business, ought to be known by him. Whereas some English authorities suggest that this principle of constructive knowledge has general application, South African case law follows the view that a duty only exists to disclose material facts within ones actual knowledge.

(b) -

(c) -

Extent of duty of disclosure Although in principle the duty of disclosure attaches to all material facts, the extent of the duty may be limited in certain instances. An insurer may either expressly or tacitly limit or waiver the duty. Whether or not a waiver has taken place depends on the facts of each case. Ramsbottom J, in Whytes Estate v Dominion Insurance Company of SA Limited 1945 TPD 382 @ 404 said The fact that a question is put to elicit certain information does not necessarily relieve the proposer from disclosing further facts of a kindred nature. Further, an insurer may expressly limit the duty by stating that no further information on a particular subject is required. The duty may also be extended by question in a proposal form. Certain categories of facts which are, in principle, material nevertheless fall outside the ambit of the duty to disclose e. g. those facts which are actually known to the other party such as those which are matters of common knowledge existing in the public domain or those matters that live within the sphere of knowledge of the ordinary professional insurer.

A proposer need not disclose facts tending to diminish the risk although they are material to the insurers decision on whether to undertake the risk and at what premium Duration of duty of duty of disclosure. The duty seems to relate only yo negotiations preceding the contract. As Corbett JA remarked in Pereira V Marine and Trade Insurance Company Limited 1975(4) SA 745 (A) 756A the purpose and rationale of the pre-contract duty of disclosure could hardly apply after the conclusion of the contract. Therefore the duty attaches to material facts that come to a partys attention during negotiations. Once the contract comes into existence, a party needs no disclose material facts coming into his knowledge. If a contract of insurance is renewed the duty of disclosure attaches just as concluded. This means that a party is obliged to disclose all material facts including those which have come to his knowledge since the conclusion of the original contract.

(d) -

Materiality of non disclosure The courts limited the actionability of false representations to those relating to insurance matter are concerned. See Stumbles V New Zealand Insurance Co. Ltd 1963 (2) SA 44 (SR), Kelly v Pickering 1980 ZLR also reported in 1980(Z) JA 758 (R), Pickering V Standard General Insurance Co Limited 1980 (4) SA 326 (ZA) @ 331 Mutual and Federeal Insurance Co Limited V Oudtshoom Mnicipality 1985 (4) (SA) 419 (A). The courts expressly refer not to a comprehensive duty to disclose facts in general, but a duty to disclose material facts only. For instance in Colonial Industries Ltd v Provincial Insurance Co Ltd 1922 AD 33 the court was concerned with a duty to make a full disclosure of all material facts In Pereira v Marine and Trade Insurance Co. Ltd where, with reference to an alleged duty to disclose facts stante contractu, it was said that any such supposed duty of disclosure would, of necessity, be limited to material facts or circumstances The concept of materiality is primarily used as a requirement for liability distinct from the element of inducement (e) The test for materiality

The test for materiality is objective facts are material if they are of such a nature that knowledge of the facts would probably influence the representative in deciding whether influence the representee in deciding whether to conclude the contract and on to conclude the contract and on what terms (see Karroo and Eastern Board of Executors & Trust Co v Farr 1921 Ad 413) The difficulty that arises is what criteria is used to determine the probable influence on the mind of the representative. The difficulty arises in relation to misrep made by a proposer towards an insurer where the facts are regarded as material if they will probably influence the decision of the insurer whether to accept the risk, and if so, at what premium. The criterion for determining the influence on the insurers decision is the reasonable man test (See Fine v The General Accident, Fire and Life Assurance Corp Limited, Colonial Industries v Provincial Insurance Co, Pereira V Marine and Trade Insurance, Mutual & Federal Insurance v Oudtshoorn Municipality. According to the Appellate Division this test is applied to determine, whether or not, from the point of view of the average prudent person, the undisclosed information or facts are reasonably relative to the risk or the assessment of the premium. A number of decisions suggest that the criterion is the judgment of a prudent and experienced insurer, which means the facts are material if they will influence the mind of a prudent and experienced insurer in relation to the risk and its premium (See such cases as Colonial Industries v Provincial Insurance Co, Whytes Estate v Dominion Insurance Co of Mutual & Federeal Insurance Co v Oudsthoorn Municipality). Other decisions hold that the criterion is whether a reasonable man in the position of the insured would have regarded the particular facts as relevant to the decision of an insurer concerning the risk and the premium.

It has been said that the two schools of thought represent two separate test for materiality. However, prevailing authority has suggested that it is not necessary to separate completely the criteria of the reasonable proposer and the prudent insurer. Reference to the test of the reasonable proposer is simply an attempt to limit the scope and strictness of the test of the prudent and experienced insurer without discharging it. A hybrid test for materiality would be whether, according to the opinion of a reasonable man in the position of the particular proposer, the facts in point are likely to influence the decision a prudent and experienced insurer regarding the risk and its premium. (See Anglo African Merchants Ltd v Bailey 1970 (1) QB 311 @ 319.

The reasonable man test as formulated in the Mutual and Federal Insurance Co Ltd case reflects an attempt to do justice to the interests of both the insured and the insurer. The test is said to be objective and the court personifies the hypothetical diligens paterfamilias to which the test applies.

- For the sake of clarity, the test of materiality formulated in the Mutual and Federal case is best expressed as referring to those facts which are reasonably related to the insurers decision when all the circumstances of the case are taken into account. EXAMPLE OF CATEGORIES OF FACTS THAT HAVE BEEN HELD TO BE MATERIAL Facts indicative of exceptional exposure to risk such as a dangerous occupational or hobby, characteristics or attributes making the person or object exposed to the risk particularly vulnerable. The insurance record, for instance the fact that was cancelled (Colonial Industries). Subjective circumstances affecting the risk such as the proposers financial or business integrity, circumstances indicating that motive for insurance may be illegal or dishonest, or the fact that the proposer is prone to cause the risk to materialize. An example is where an insured fails to disclose that he is an unrehabilitated insolvent (See Steyn v A Ounderlinge 1985(4) SA 7 (T) or failure to disclose that the premises covered by a fire insurance contract are used as a brothel (See Richards v Guardian Assurance Co 1907 TH 24) or the fact that the proposer previously suffered loss in a manner indicating carelessness on his part (Israel Bros v Northern Assurance Co and the Union Assurance Society (1892) 4 SAR 175). The rule is that facts which reflect on the character of the insured or of those persons of objects exposed to the risk must be disclosed (Malcher & Malcomes and Trust Co (1883) 3 EDC 271 279 289) The proposers interest in the subject matter does not normally affect the risk and is therefore not material. However where it does affect the risk it becomes material.

THE DOCTRINE OF SUBROGATION

In the context insurance subrogation embraces a set of rules providing a right of recourse for an insurer which has indemnified its insured It means that a contract of insurance creates a personal right for an insurer against its insured it terms of which it is entitled to recoup itself out of the proceeds of any rights the insured may have against 3rd parties in respect of the loss. The right for reimbursement cannot be for more than the amount paid out the insurer as indemnity to the insured. The right is also subject to the insured receiving (whether from the insurer or from another source) a full indemnity in respect of the insured interest. In effect subrogation requires a settlement between the insurer and the insured if the insureds claims against 3rd parties successful. Subrogation is concerned exclusively with the mutual rights and liabilities of the parties to the contract of insurance, it confers no rights and imposes no liabilities on third parties. Because the insurer is, as against its insured entitled to be reimbursed out of the proceed of the insureds remedies against 3rd parties, the insured may not actively deal with his rights against 3rd parties to the detriments of the insurer, for instance by releasing the 3rd party from liability. In support of its right to reimbursement, an insurer is also entitled to its insureds consent to bringing an action against a third party in the name of the insured. This latter right is known as the insurers secondary right only arises where the insured has lost all interest in the outcome of the proceedings in that he has received full compensation for all losses caused by the event insured against. The insurer then becomes the dominus litis although the action proceeds in the name of the insured. The advantage for the insurer is that it can ensure that an action is brought against the 3rd party and that the proceedings are properly conducted. THE PURPOSE OF SUBROGATION It purpose is to prevent the insured from retaining an indemnity from both the insurer and a third party. Further, through subrogation the insurer is recompensed for the amount it has paid to the basis of the insured. This right of redress is the basis of the insureds duty not to prejudice the insurers position.

By affording the insurer a right of redress, the cost of insurance to the public is kept low, since the insurer is enabled to recoup its loss from a source other than premium income. On a social level the doctrine serves to safeguard the principles that a person who has caused loss to another by his unlawful conduct must bear that loss since a wrongful cannot hide behind insurance. The doctrine of subrogation also strengthens the position of an insurer by creating a trust in favour of the insurer. In Ackerman v Boubser 1908 OPD 31 the court referred to an insured who had recovered compensation from a third party as a trustee for the insurer. THE BASIS FOR THE DOCTRINE The insurers right of subrogation rests on contract. It is by virtue of the terms of the contract that the insurer is entitled to benefit from the proceeds of the insureds remedies against third parties in respect of the loss. Likewise, it is in terms of the contract that the insurer is entitled to consent of the insured to bring an action against a third party in the name of the insured. The terms giving rise to the personal rights and duties in the context of subrogation may be express, but more often then not they are implied by operation of law. SCOPE OF THE DOCTRINE Since one of the justifications of the doctrine of subrogation is to prevent the insured from receiving double indemnity, subrogation applies to all forms of indemnity insurance. However, it has no application in non indemnity insurance unless the parties have expressly agreed to grant the insurer rights of subrogation. The locus classics on subrogation is Castellain v Preston (1883) 11 QBD 380 (CA) wherein the court considered the scope of the doctrine and expressed itself as follows As between the underwriter and the assured the underwriter is entitled to the advantage of every right of the assured the underwriter is entitled to the advantage of every right is entitled to the advantage of every right of the assured, whether such right consists in contract, fulfilled or unfulfilled, in remedy for tort capable of being insisted on or already insisted on, or in any other right, whether by way of condition or otherwise, legal or equitable, which can be, or has been exercised or has accrued, and whether such right could or could not be enforced by the insurer in the name of the assured by the exercise or acquiring of which right or condition the loss against which the loss is insured can be or has been diminished The insurer is therefore not only entitled to the advantages of the insured remedies against 3rd parties who are contractually, delictually or otherwise liable for

compensation for the loss, but also to the advantage of every other right, provided it serves as a total or a partial substitute for the insured interest, such as the proceeds of a sale of an insured asset or compensation upon expropriation. Subrogation applies also to rights received by the insured even though no right to receive such gifts existed when the loss occurred.

REQUIREMENTS FOR THE OPERATION OF THE DOCTRINE

(a) Valid contract of indemnity Insurance. (b) Since the insurers right to subrogation is derived from the contract of insurance, no subrogation can take place where it has paid for a loss in terms of an invalid contract of insurance. (c) However where an insurer pays a claim in terms of a contract which is voidable (eg a contract induced by fraud) payment is effected in terms of a valid and existing contact and therefore the insurers right to subrogation is beyond doubt. (d) Insurer must have been indemnified. (e) Although the right vests upon the insurer at the conclusion of the contract, it becomes enforceable only when the insured has been fully indemnified. This means that the insurer must both admit and pay everything due by it in respect of the particular claim of the insured. (f) The insured remains the dominus litis until the insurer has effected payment unless the parties have agreed otherwise in the policy. (g) Insureds loss must have been fully compensated (h) Where the insurance contract does not provide full cover in respect of the loss, (for example the insured is under insured or insured is bound to bear a portion of the loss by virtue of an excess clause} the insured remains dominus litis unless the parties have agreed otherwise. (i) In the case of a consequential loss, i.e loss which is not insured but which is caused by the event insured against, the insured also remains dominus litis. (j) Right of action against third party must exist subrogation can only operate if the insured in fact has a remedy against a third party (See Ackerman vs Louber 1918 OPD 31 @ 37) RIGHTS OF THIRD PARTIES

Although it is usually the contracting parties who enjoy the benefit of a policy, a third party may become entitled to claim under the policy by virtue of a transfer of right to him or by virtue of a novation in his favour. Yet another way in which a person may become entitled to claim in terms of a policy concluded by another in his own name, is accepting a benefit conferred upon him in the policy. The notation of a third partys interest in a policy has certain consequences. 1. CESSION (a) Ordinary cession of insureds rights. (b) The insured can effect a transfer of his right(s) by way of cession. (c) Cession by definition is an agreement which provides that the cedent transfers a right to the cessionary. (d) Cession depends on consensus in the sense that cedent must have the intention to transfer the right to cessionary and that the cessionary must have a corresponding intention to receive the right. (e) An insured can cede his claim in either indemnity or no indemnity insurance whether before of after the materialization of the risk insured against. (f) Although in principle rights under insurance policies may be freely ceded without the consent of the insurer, policies frequently contains clauses prohibiting or regulating transfer. Thus a policy may contain an out and out prohibition on alienation requiring the consent of the insurer to be obtained for a valid cession. However, such a clause must be shown to serve a useful purpose otherwise it cannot be enforced. (See Northern Assurance Co. Ltd v Methuen 1937 SR 103, Fouche v The Corp of London Assurance 1931 WLD 145 @ 157, Gowie v Provident Insurance Co (1885) 4 SC 118 @ 122) (See also Section 75 of the Act) (g) Another type pf clause requires the insured to give notice of an intended cession and states that the cession will take effect only upon registration by the insurer. (h) The effect of a cession is that the claim vests in the cessionary and nothing remains with the cedent. The cessionary is the creditor and a such is the only person who can sue for or receive payment. Thus of the insured cedes his conditional right to indemnification if the cessionary who can claim and receive payment should a loss occur to the insured thereafter.

(i) The right which is transferred to the cessionary is the right which the cedent had, thus if the right which has been ceded is the insured conditional right to indemnification, the cessionary can upon occurrence of a loss, sue only for the loss suffered by the insured and not for any loss the cessionary himself may have suffered. (j) Further, the right is transferred subject to all defects and limitations attached to it in the hands of the cedent including the payment of premiums, observance of warranties and the following of proper claims procedure. It is important to note that cession of the insureds rights does not transfer the insureds duties as such, but non fulfillment never the less provides the insurer with a defence. (k) Having ceded his right, the insured remains liable to the insurer. (l) A valid cession of a claim under a policy can be defeated by a subsequent agreement canceling the cession and amounting to a re-transfer of the right. (m)Cession in security for debt. (n) Right under both indemnity and non-indemnity policies are frequently employed to secure a debt. (o) In some older insurance cases, the court adopted the view that a cession in security in security for debt is tantamount to the granting of a pledge. This line of thought culminated in the case of National band of South Africa Ltd v Cohans Trustee 1911 AD 235, wherein the Appellate Division held that a trustee of an insolvent estate was entitled to claim and administer the amount payable under a fire policy which had been ceded by the insolvent as security for debt. (p) Another school of thought a cession in security for debt is a complete cession of the right subject only to a fiduciary pact. The cedent is completely divested of his right but in terms of the pactum adiectum the cessionary may retain the right so ceded for security purposes. Moreover, this right must be re-ceded to the cedent as soon as the secured debt has been redeemed. (q) The reasonable conclusion seems to be that the so-called cession in securitatem debiti can take one of two forms. It can be an out and out cession subject to a fiduciary pact or it can be tantamount to the granting of a pledge. (r) The question whether an ordinary cession with no strings attached, a cession in securitatem debiti sensu stricto or a transaction in the nature of a pledge has occurred depends on the intention of the parties and not on the parties and not on the outward form of the transaction.

(s) It has been decided that where a policy has been employed as security, the holder of the policy can cede his right to the balance of the proceeds of the policy as security for yet another debt. (t) A person who has taken a policy as security may not deal with the policy in disregard of the insureds rights, for example by compromising a claim. 2. SUBSTITUTION (a) Voluntary substitution of insured (b) A contract of insurance is a personal contract and in principle does not follow a transfer of the interest which is the object of the insurance. The consent of the insurer must be obtained is a voluntary substitution of the insured is desired, for instance upon a sale and transfer of the insured property. (c) A distinction and a cession of the insureds rights under the policy. A valid substitution means that another person takes the place of the original insured; i.e. assumes the obligations and rights of the initial insured. (d) Substitution of the insured requires a novation of the policy. (e) Substitution of the insured by operation of the the law (f) Takes place upon death, marriage in community of property and sequestration. 3. INSURANCE FOR THE BENEFIT OF THIRD PARTIES Is founded on the basis of the conventional contracts for the benefit of third parties commonly known as stipulatio alteri. A contract in favour of a third party is contract in terms of which one party, the promittens, agrees with another, the stipulates, that he will perform something for the benefit of a third party. The stipulates does not act in the name of third party but in his own name although for the benefit of the third party. In the case of Wallachs Trustee v Wallach 1914 AD 202, the Appellate Division stated that a contract for the benefit of a third party is not simply a contract to benefit a third person, but a contract between two persons which is designed to enable a third person to step in as a party to a contract with one of those two. A typical making the proceeds of the policy making the proceeds of the policy payable to a third person or a stipulation in an indemnity policy extending indemnification to persons other than the policy holder.

The courts have held that a third party does not acquire any right from an agreement in his favour unless he accepts. Upon acceptance by the third party a legal tie is created between the promittens and the third party. The third party who is to benefit from a policy must be described in such a way that he can be identified. It is not necessary to name a specific beneficiary, a class of beneficiaries may be designated provided that it is done in clear terms. Whether the third party must possess an insurable interest depends on the terms of the policy. If the third party is merely to receive the proceeds of the policy, the policy is supported by the insurable interest of the policy holder. Consequently, the third party need not have an insurable interest. If, on the other hand, according to the terms of the policy the third party can claim indemnification for damage sustained by him, he will have to prove damage and therefore cannot claim if he has no interest. (a) Life Assurance In life assurance policies contracts for the benefit of third persons take the form of a stipulation requiring the insurer to pay the proceeds to the third person. The nominee may be an identified or identifiable person; the nomination may be unconditional or conditional; and it may be revocable or irrevocable. A contract for the benefit of a third person by way of nomination in a policy in favour of a beneficiary can exist in isolation. Often, however, it is intertwined with another transaction when it is employed as a mechanism to carry out an obligationary agreement in favour of the beneficiary. In Curtis Estate v Gronmingster 1942 CPD 511 the insured took out a heritage policy. DOUBLE INSURANCE Occurs when the same interest is insured by or on behalf of the same insured against the same risk with two or more independent insurers. Insurance in favour of a third party may also result in double insurance. The concept is important for two reasons if and double insurance amounts to over-insurance (i.e the total of all insurances is more than the total value of the insureds interest) an insurer who pays more than its proportionate share of the loss has a right to contribution against each of the other insurers. policies often contain provisions that the insured must disclose other insurances which subsist at the time the policy is issued or which are contracted subsequently and that in the event of double insurance the insurer will only be bound to pay the insured its proportionate share of the loss.

REQUIREMENTS (a) The policies must overlap as to the event insured. It is necessary that the policies cover exactly the same risks but they must have a particular event in common before they amount to double insurance in respect of that risk. (b) The policy must relate to the same interest They policies may each cover a variety of interest but all must cover the interest, which eventually suffers (c) The policies must relate to the same object of risk, otherwise the insurance cannot be in respect of the same interest. (d) The policies must be in force at the same time and they must be valid and effective. (g) The existence of other insurance policies is usually not a material fact which requires disclose by the insured but then policies frequently require the insured to notify the insure of such existence. Such clauses usually provide the unless timorous notice is given, the policy will be forfeited .The Courts have decide that whole the decide that whole specify the time within which the notice must be given, the notice must be given within a reasonable time. What constitutes reasonable time determined on the special facts circumstances of each case. Clause limiting or excluding liability on the basis of double insurance. Policies often contain clause either limiting liability or excluding liability altogether. Such clause are valid at law but if liability is excluded on account of double insurance and it appears that the other policy also contains a similar clause, the two clauses are deemed to cancel each other. (h) A clause limiting liability saves the insurer the inconvenience of having to claim a contribution from a co-insurer. The nature and basis of the right to contribution. The insured in a case of double insurance is free to decide how much of his loss he wishes to claim from a particular insurer but in full amount of his loss. If the insurer has paid more than its ratable proportion of the loss, it is entitled to claim to proportion of the loss, it is entitled to claim, in its own name, from the other insurers that they each contribute proportionately. The right is one of recourse by one insurer against another insurer which has also insured the same loss. This right is one of recourse by one insurer against another insurer which has also insured the same loss.

This right substitutes any right to subrogation which the paying insurer could possibly have had to the proceeds of the insureds rights against other insurers. A right to contribution is s natural consequence of a contract of insurance. It is one of the legal consequences of the contract of insurance that an insurer which has paid more than its pro rata proportion of the loss succeeds to the rights of the insured against the other insurers subject to the qualification that only the pro rata proportion may be recovered from each insurer. Contribution is restricted to indemnity insurance. Requirements for the right of contribution (a) The insurer claiming contribution must have discharged its liability to the insured. (b) It must have paid more than its prorata proportion of the loss (c) The payment must have been in respect of an interest which is the subject of double insurance.. The calculation of the proportionate share of each insurer is often simple. Where the various policies are identical in all material respects, such as the amount of cover, the loss is apportioned equally between or among the various insurers. If the policies only differ as to the amounts insured, all amounts insured must be added up and compared with the amount of the loss. Each insurer then becomes liable for such a proportion of the loss as the amount underwritten by it bears to the aggregate amount insured by all the policies. In practice the issue of apportioned is a matter of negotiation between the parties. OVER INSURANCE Over insurance occurs when the sum insured is more than the total value of the insureds interest. In indemnity insurance the sum insured is usually described as the limit of liability. There is no objection to a policy containing a limit of liability which is more than the value of the insureds interest but the insured cannot recover more than his actual loss.

UNDER INSURANCE Occurs where the sum insured is less than the value of the insureds interest.

A person under insured his interest is in the event of a loss entitled to recover up to the sum of the amount insured or the amount of the loss whichever is the lesser. In marine insurance, however, if a person insured for less than the insurable value, he is deemed to be his own insurer for the insured balance. In order to discourage under insurance certain clauses have been developed such as the condition of average.

COMPULSORY THIRD PARTY MOTOR INSURANCE

(i) This is governed by Part IV and Part 5A of the Road Traffic Act [Chapter 13:11} (j) Section 22 of the Act makes it compulsory for one to have a policy of insurance or a security in respect of 3rd party risks. Failure to comply with the provisions of this section attracts a criminal penalty. (k) The requirements for a statutory policy of insurance are provided in Section 23 of the Act and these include (i) a statutory policy shall be issued by a person who is approved by the Minister as an insurer. In other words the statutory policy ought to be a valid policy issued by a registered insurer. A statutory policy shall insure such persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by them in respect of (a) death of or bodily injury to, any person ; and (b) the destruction of, or damage to, any property. caused by or arising out of the use of the motor vehicle or trailer concerned on a road. Section 24A (introduced by the Road Traffic Amendment Act No 3/2000) provided for a certificate of insurance or security issued by the insurer or by the Minister as the case may be. Section 38A Part VA provides for Compulsory No Fault Passenger public service vehicles. Insurance for

(ii)

The part defines a passenger in very broad terms but excludes persons employed or engaged by the owner of the vehicle.

(l) Section 38B makes it compulsory for Passenger service vehicle to carry no fault insurance cover.

CRITICISM OF THE AMENDMENT ACT

(m)Whereas the amendment Act can be applauded for recognizing the need to protect 3rd parties who suffer loss of life or injury or loss of property the question that begs attention id the amount of cover afforded by the Act. (n) Section 23 (3) provides that a statutory policy shall not be required to cover (i) (ii) any contractual liability; or liability in respect of death, or bodily injury, persons who were being carried in or entering or getting on to or alighting from the vehicle or trailer concerned when the event out of which