THE CHARTERED INSURANCE INSTITUTE. Read the instructions on page 3 carefully before answering any questions.

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1 THE CHARTERED INSURANCE INSTITUTE P05 Diploma in Insurance Unit P05 Insurance law October 2012 examination Instructions Three hours are allowed for this paper. Do not begin writing until the invigilator instructs you to. Read the instructions on page 3 carefully before answering any questions. Provide the information requested on the answer book and form B. You are allowed to write on the inside pages of this question paper, but you must NOT write your name, candidate number, PIN or any other identification anywhere on this question paper. The answer book and this question paper must both be handed in personally by you to the invigilator before you leave the examination room. Failure to comply with this regulation will result in your paper not being marked and you may be prevented from entering this examination in the future. 2614

2 The Chartered Insurance Institute 2012

3 Unit P05 Insurance law Instructions to candidates Read the instructions below before answering any questions Three hours are allowed for this paper which carries a total of 200 marks, as follows: Part I 14 compulsory questions 140 marks Part II 2 questions selected from 4 60 marks You should answer all questions in Part I and two out of the four questions in Part II. You are advised to spend no more than two hours on Part I. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. The number of marks allocated to each question part is given next to the question and you should spend your time in accordance with that allocation. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. It is important to show each step in any calculation, even if you have used a calculator. If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. Answer each question on a new page. If a question has more than one part, leave six lines blank after each part PTO

4 PART I Answer ALL questions in Part I Each question is worth ten marks Note form is acceptable where this conveys all the necessary information 1. (a) Distinguish between the objective of criminal proceedings and a civil action in tort. (6) (b) Identify two examples of circumstances in which a wrongful act may amount to both a crime and a tort. (4) 2. (a) State the three duties in relation to the safety of employees that are imposed upon an employer at common law. (6) (b) Outline the effect of the Health and Safety at Work etc Act (1974) in relation to these duties. (4) 3. Mucho Mas, a racing driver, insures his life with the Sporting Insurance Company (SIC) for a sum of 50 million. As the sum assured is large SIC reinsure 90% of the risk with the Reckless Reinsurance Company (RRC). When Mucho cancels the life policy a year later SIC keep the reinsurance contract in force and continue to pay the reinsurance premium. After another year, Mucho is killed in a car crash. SIC claim 45 million from RRC under the reinsurance contract. RRC refuse to pay, saying that SIC have no insurable interest and the reinsurance is therefore void. Advise SIC as to the correct legal position and cite case law in support of your answer. (10) 4. Fearing an oil shortage, Donald installs a huge industrial tank in his garden to store fuel for his central heating system. The tank starts to rust and eventually a hole develops, through which a large quantity of oil leaks out. The oil runs into the garden of Donald s neighbour, Kevin, killing plants and poisoning the fish in his pond. Kevin wishes to sue Donald for damages. (a) (b) Advise Kevin, what torts Donald may have committed and state briefly, what Kevin would have to prove in order to succeed in each case. (7) Outline how your answer would differ if Donald had deliberately emptied oil from the tank into Kevin s garden. (3) 5. Distinguish between: (a) insurance cover on a reinstatement basis and; (4) (b) reinstatement as a method of providing indemnity. (6)

5 6. Distinguish between the express actual authority and implied actual authority of an agent. (10) 7. (a) Distinguish between a corporation and an unincorporated association. (4) (b) Identify two examples of an unincorporated association. (2) (c) Explain briefly the extent to which an unincorporated association is liable for a tort committed by one of its members. (4) 8. (a) Distinguish between liquidated and unliquidated damages, commenting on their application to both tort and contract claims. (6) (b) Outline two remedies for breach of contract, other than damages. (4) 9. Outline five ways, in the context of the general law of contract, in which an offer can terminate. (10) 10. The depot of Tony s construction company is insured under a business insurance policy that contains the following clause: It is warranted that none of the following are stored or kept on the premises there then follows a list of hazardous substances which includes: acids, petroleum spirit, volatile chemicals and explosives. In the course of investigating a fire, the insurers discover that a small quantity of fireworks is kept on the premises. The fireworks are used occasionally at staff parties to celebrate the successful completion of major building projects. Describe the effect of a breach of warranty on an insurance contract and explain whether there has been a breach of warranty in this case. Give reasons for your answer and support your arguments with case law if appropriate. (10) 11. Outline the principle(s) of law illustrated by one of the following cases: Gray v Barr (1971). OR Beresford v Royal Insurance Co. Ltd (1938). (10) Questions continue over the page PTO

6 12. Name the three divisions of the High Court, describing briefly the types of cases handled in each of them. (10) 13. (a) List the four main institutions of the European Communities. (4) (b) List six sources of European law. (6) 14. (a) Distinguish between excepted (or excluded) perils and uninsured perils, in relation to insurance claims. (4) (b) Describe circumstances in which this distinction is likely to become important. (6)

7 Part II questions can be found on pages 8 and PTO

8 PART II Answer TWO of the following FOUR questions Each question is worth 30 marks 15. According to the doctrine of proximate clause the claimant must prove that an insured peril was the main cause of the loss, with minor (or remote) causes to be ignored. If the insurers allege that the proximate cause of the loss was an excluded peril then the burden of proof shifts to them. Discuss the extent to which the doctrine of proximate cause, outlined above, can be modified in its operation by the words of the policy, illustrating your answer with decided cases. (30) 16. Jane buys for 70,000, a 600 year old disused church building in the village of Little Swilling, in Suffolk, England. She plans to convert it into an up-market wine bar to be named Heaven s Open. Jane insures the building on an ordinary indemnity basis for the sum of 800,000, the estimated cost of rebuilding. During conversion the church is badly damaged in a fire. The damage will cost 250,000 to put right. Jane claims this sum from her fire insurers, Pious Assurance. She says that, alternatively, Pious Assurance must reinstate the church under the terms of the Fires Prevention (Metropolis) Act Pious Assurance say that the figure of 250,000 is much too high, because the damaged church could be demolished and replaced with a modern building of similar size for 150,000 or less. Furthermore, there are similar defunct churches for sale at around 100,000 in the villages of Upper Swilling and Lower Swilling, both about six miles away, although none are available in Little Swilling. (a) (b) Explain the entitlement of Jane under her policy, discussing each of the arguments raised and quoting case law where appropriate. (24) Explain how the situation would change, if at all, if the policy had been written on a reinstatement basis (i.e. subject to a reinstatement memorandum). (6) 17. Andrea, an insurance intermediary, helps Bernice to complete a proposal form for insurance on her business premises. Andrea reads out the questions and writes down the answers that Bernice gives. However, Andrea omits to include information about two previous claims mentioned by Bernice and Bernice signs the form without bothering to read it. The proposal form is submitted to the insurers who issue a policy on normal terms. However, the facts about the two previous claims come to light when Bernice suffers a further loss and seeks to recover from the insurers. (a) (b) Advise the parties as to their rights and liabilities with regard to the loss, giving reasons for your advice and indicate any further information you would need in order to reach a firm conclusion. (24) Outline how your advice would differ, if at all, if Andrea had been given binding authority by the insurers and had granted cover immediately on their behalf. (6)

9 18. Explain the main circumstances in which: (a) insurers may agree to waive (give up) their rights of subrogation; (13) (b) the law may prevent insurers from exercising any right of subrogation. (17)

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