Understanding Financial Law and Insurance Contracts: A Case Study

This article discusses the legal aspects of financial law and insurance contracts through a case study. It covers topics such as premium payments, contract validity, and the principle of coinsurers. The case study involves an agreement between Pacey and Shark Underwriters, where Pacey forgets to pay the premium and subsequently has his claim rejected. The article also explores the Financial Advisory and Intermediary Services Act, 2002 and its application to financial service providers.

Running head: FINANCIAL LAW
Financial law
Name of the student
Name of the University
Author Note

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Facts: In the present case, Pacey had entered into an agreement with Shark Underwriters where
the parties have agreed that in return of a premium paid by Pacey, Shark Underwriters will
provide policy benefits in cases of any loss/damage accruing to Pacey’s Cadilac motor vehicles.
The premium was decided to be annually renewable. The terms of the agreement clearly lay
down that the premium for the policy will be deducted monthly from Pacey’s bank account. It
has been stated in the facts that Pacey forgets to transfer money to his bank account as a result of
which the debit order is returned and therefore the premium is not paid on the agreed date.
Subsequently, Pacey met with an accident and damaged the vehicle. The claim submitted to
Shark Underwriter was rejected because Pacey had defaulted in paying the premium.
Q1.1- The agreement concluded between Pacey and Shark Underwriters is financial in nature
and is governed by Insurance Law. The agreement entails a long term policy between the insured
and the insurer. The insured is also the policy holder who pays an amount to the insurer who in
turn of the money undertakes to give policy benefits to the insurer in cases of any damage or loss
or injury. The agreement entered between the insured and the insurer is governed by Insurance
law and the premium is the consideration paid for the contract. This is a valid contract in the eyes
of law because the agreement is enforceable by law and entered between two parties with the
premium being the consideration. The basic definition of insurance law was given in the case of
Lake v Reinsurance Corporations Ltd. 1967 (3) 124 (W) 127H1, where it was held that the
agreement entered between the insurer and the insured is valid and enforceable in the court of
law. The products that came about by the agreement are movable and immovable objects that can
be secured and protected from any loss or damage by the policyholder by paying an amount
either periodically or annually. The Financial Advisory and Intermediary Services Act, 2002
1 Lake v Reinsurance Corporations Ltd. 1967 (3) 124 (W) 127H

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applies to all the financial service providers. The term “financial product” is defined in section 1
of the Act which includes foreign currencies and securities which are denominated investment
instruments2. The person providing the service has to register themselves as the “Financial
Service Provider”. This Act aims to give financial assistance by the service providers to
consumers of various financial products. Therefore, in the present case, Shark Underwriter is the
service provider who is providing assistance to Pacey with respect to the vehicle in return of the
premium. The Cadilac is the financial product which owes its legality to the agreement signed
between the two parties in light of the Financial Advisory and Intermediary Services Act, 2002.
Q1.2 In terms of premium and policy agreed between the parties, it is an agreement enforceable
by court where the two parties are the insured and the insurer. The premium paid by the insured
is the consideration which makes the contract valid3. In cases of insurance law, the premium paid
as the consideration is considered the most important and indispensable part of the contract4. The
premium paid by the insured is an essential part of the contract and it is deemed to be a
prerequisite before entering into a contract of this kind5.
The pertinent issue in the present case is whether Pacey can sue Shark Underwriters for
denying the claim stating that the premiums have not been paid on time. The contract in the
present case is bilateral, that is, the insured shall make the payment either periodically or
annually in return for any assistance by the policy holder in times of any damage or loss.
Therefore, the premium paid by the insured serves as the reciprocal counter performance in
2 Faúndez, Julio, ed. Good government and law: Legal and institutional reform in developing countries. Springer,
2016.
3 Baker, Tom, and Kyle D. Logue. Insurance law and policy: cases and materials. Wolters Kluwer Law & Business,
2017.
4 Schwarcz, Daniel, and Peter Siegelman. "Research Handbook on the Economics of Insurance Law: Introduction."
(2015).
5 Okosi, Frances, and Christopher Hogan. "Financing transactions across Africa: financial law." Without
Prejudice16.1 (2016): 39-40.

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respect of the performance of the policy holder. In the case of Steyn’s Estate v South African
Mutual Life Assurance Society 1948 (1) SA 3596, it was held that timely payment of premium
should be considered a condition precedent to the continuance of the risk. That is, if proper
emphasis is laid on the judgment, it can be said that for the fulfillment of a contract, the insured
has to make punctual payment of the premium. The first thing to check in contracts concerning
payment of payments is whether the payment of the premium was a condition precedent. In
cases, where the payment of premium is a condition precedent, the payment is mandatory for the
validity of the contract. In cases of “renewal premiums”, the payment of the premium is
considered to be a continuance of the risk, but the dictum should be well mentioned in the
contract.
In the present case, Pacey paid the premium monthly and mostly he forgets to transfer the
money to his bank account, thereby delaying the process. Therefore, when the vehicle met with
an accident, Shark Underwriters refused to entertain the claim stating that Pacey did not pay the
premium on time. In a contract of this nature, late payment of the premium can be considered a
breach of contract because punctual payment of premium is a condition precedent.
Q1.3 Based on assumption that Shark Underwriters paid out Pacey’s claim in full and that Pacey
also had a valid policy with the Whales Underwriters for the same benefit. The benefit is related
to the risk of damage of the same Cadilac. Shark Underwriters is different from Whales
Underwriters and they function independent of each other. In this case, the principle of co-
insurers in an insurance law and the concept of indemnification by two insurers apply. Applying
the judgment of Lord Hoffman in Caledonia North Sea Limited v British Telecommunications
6 Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359

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plc (Scotland) and Others [2002] 1 AII ER (Comm.) 321 (HL)7, held that when two or more
persons have separately agreed to indemnify anyone against any risk which is similar in case of
both the insurers, payment by one insurer discharges the other. This is based on the legal
principle that, “whoever has one claim to indemnity is not entitled to be paid more than once.
The logic behind this principle is that one payment discharges the liability of the other8. In the
case of Caledonia North Sea Ltd v London Bridge Engineering Co and Others [2000] Lloyd’s
Rep IR 249 at 283 (2nd col9), it was held by Lord Coulsfield that a claim of subrogation by the co-
insurer will be competent only if the co-insurer had taken primary responsibility of the debt. In
the case of The Sickness and Accident Assurance Association v The General Accident Assurance
Corporation Limited, it was held that in contracts of indemnity, when the insured has recovered
for a particular loss under one policy, the insurer can recover from other underwriters who have
insured related to the same interest against risk of a similar nature of a similar product by way of
contribution10. In such a situation, the rule of subrogation will not apply. In cases of losses of
same nature, the law of subrogation cannot apply. Applying the law of The Sickness and
Accident Assurance Association v The General Accident Assurance Corporation Limited, it can
be said that the insurer can recover the amount from other underwriter who have insured in the
same risk and the amount can be recovered by way of contribution. Therefore, in the present
case, Shark Underwriters can claim from Whales Underwriters by way of contribution.
7 Caledonia North Sea Limited v British Telecommunications plc (Scotland) and Others [2002] 1 AII ER (Comm.)
321 (HL)
8 Schlemmer, Engela C. "An overview of South Africa’s bilateral investment treaties and investment policy." ICSID
Review-Foreign Investment Law Journal 31.1 (2015): 167-193.
9 [2000] Lloyd’s Rep IR 249 at 283 (2nd col)
10 De Jong, Madelene, and Walter Pintens. "Default matrimonial property regimes and the principles of European
family law-a European-South African comparison (part 1)." Tydskrif vir die Suid-Afrikaanse Reg 2015.2 (2015):
363-378.

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Reference
[2000] Lloyd’s Rep IR 249 at 283 (2nd col)
Baker, Tom, and Kyle D. Logue. Insurance law and policy: cases and materials. Wolters Kluwer
Law & Business, 2017.
Caledonia North Sea Limited v British Telecommunications plc (Scotland) and Others [2002] 1
AII ER (Comm.) 321 (HL)
De Jong, Madelene, and Walter Pintens. "Default matrimonial property regimes and the
principles of European family law-a European-South African comparison (part 1)." Tydskrif vir
die Suid-Afrikaanse Reg 2015.2 (2015): 363-378.
Faúndez, Julio, ed. Good government and law: Legal and institutional reform in developing
countries. Springer, 2016.
Lake v Reinsurance Corporations Ltd. 1967 (3) 124 (W) 127H
Okosi, Frances, and Christopher Hogan. "Financing transactions across Africa: financial
law." Without Prejudice16.1 (2016): 39-40.
Schlemmer, Engela C. "An overview of South Africa’s bilateral investment treaties and
investment policy." ICSID Review-Foreign Investment Law Journal 31.1 (2015): 167-193.
Schwarcz, Daniel, and Peter Siegelman. "Research Handbook on the Economics of Insurance
Law: Introduction." (2015).
Steyn’s Estate v South African Mutual Life Assurance Society 1948 (1) SA 359

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