Contract Relating to Insurance
Contract Relating to Insurance
Definition of Contract
The
term contract is defined as an agreement between
two or more parties which has a binding nature, in essence, the agreement with
legal enforceability is said to be a contract. It creates and defines the
duties and obligations of the parties involved.
Type of Contracts
There are many
type of Contracts. Three type most common contract types include;
Ø Fixed
Price Contract
Ø Cost
Plus Contract
Ø Time
and Material Contract
Fixed Price Contract
Fixed-price
contracts are also known as lump-sum contracts. This type of contract is ideal
in situations where there is a clearly defined scope of work. In such cases,
the buyer provides a detailed description of the final outcome, including
product dimensions, expected timeframes, material specifications, and more.
Using the information
provided by the buyer, the seller creates a formal statement of work that
outlines the total project cost, including all labor and materials, along with
billing milestones based on a detailed project schedule. If the buyer makes any
changes to the scope of work or timeline, it can mean additional charges from
the seller.
With fixed-price
contracts, buyers know the exact cost of the project from the start, which many
people see as a big benefit. Fixed price contracts result in a minimal risk for
buyers. While buyers sometimes make a lump-sum payment at the start of the
project, the seller takes on the majority of the risk since the buyer often
only pays for work once it's completed.
If the project takes
place over a longer timeframe, buyers usually make smaller lump-sum payments at
specific project milestones. For example, construction crews typically charge a
fixed price for all materials, labor, and equipment. They receive payment upon
completion of each stage of the construction project.
With fixed-price
contracts, sellers cannot go back to the buyer to ask for more money if they go
over budget. As a result, sellers take on the majority of the risk, so they
sometimes pad the price to make sure they cover any potential risks.
If something goes wrong
and sellers underbid the original contract price, they risk eating into their
profit and must find ways to cut corners and decrease costs. Project quality
and schedules can suffer as a result. Also, if buyers pay any money at the
start of the project and the work remains incomplete, getting the money back is
sometimes a challenge.
Cost Plus Contract
With a cost-plus contract, also known as a cost-reimbursable
contract, buyers pay for the cost of the work plus a fixed percentage charged
by the seller for providing the goods and services. Sellers charge the buyers
for the actual cost of any materials, equipment, labor, and overhead involved
in running the project. To make a profit, sellers tack on an extra fee based on
the terms of the contract. Some sellers prefer an incentive payment option over
a fixed percentage.
A cost-plus contract
defines all rates and percentages, as well as all allowable expenses and
incurred costs. The contract often also includes a maximum amount sellers can
spend. Any spending over that amount requires the buyer's approval.
With a cost-plus
contract, neither the rates for materials and labor nor the quantity of time
needed to complete the project is fixed. As such, costs may fluctuate
throughout the life of the project. On top of that, buyers do not know the full
cost of the project before it begins. Also, it is often difficult to track the
actual effort and materials used for the project. Despite the uncertainties and
risks to buyers, many prefer this option. In the end, they only pay for what
they get, which many buyers view as an advantage.
Time and
Material Contract
A time and materials contract is great for buyers who don't
necessarily know what they want when they begin their project. Sellers use time
and materials contracts when it's difficult to determine the amount of time
they need to spend on the project and the types of materials required to
complete the project.
With this type of
contract, sellers charge for the cost of any materials they end up using plus
an hourly or daily wage. All rates, including any markup charges on materials
and wages, are included in the terms of the contract. Once the contract is
finalized and accepted, these rates stay in place for the duration of the
contract.
For example, a time and
materials contract works well for software developers hired to create an app
for a company that is unsure about what the app needs to do. The developers
charge for any time spent programming, designing, and testing the app, as well
as any additional iterations required to finalize the product. They submit
their receipts and records of working hours at fixed intervals as outlined in the
contract to receive payment.
When sellers charge buyers
based on time and materials, they typically keep a record of the time spent
working on a certain project, as well as proof of any work they did during this
time. This provides buyers peace of mind that their money is well spent. In
some cases, sellers work directly as an extension of the buyer's team. This
gives buyers considerable control over how sellers spend their time and the
types of work they do.
Time and materials
contracts work well for budget-conscious buyers. If they keep a close eye on
the project costs, this type of contract provides an excellent way for buyers
to enhance the skills on their team. However, a time and materials project
poses a risk of blowing estimated costs if the project is not well managed.
Definition
of Insurance
A Contract of insurance in the
widest sense of the term may be defined as a contract whereby one person,
called the ‘Insurer’, undertakes, in return for the agreed consideration,
called the ‘Premium’, to pay to another person, called the ‘Assured’, a sum of
money, or its equivalent, on the happening of a specified event. (Prudential
Insurance Co. Vs. Inland Revenue Commissioner {1904}2K.B.658.
The Parties to the Contract
These are two parties, assured and insurer, to a contract
of insurance.
a)
Assured – The party who will be indemnified
under a contract of insurance. Any person who is capable of contracting may be
assured.
b)
Insurer – The party who will indemnify the
assured under a contract of insurance.
Classification
of Contract of Insurance
There are three main classifications of contract of
insurance. They are
1)
According to the nature of the event
2)
According to the nature of the interest
affected
3)
According to the nature of the insurance
According to the nature of the
event
Four main classes are
included;
a)
Marine Insurance
b)
Fire Insurance
c)
Life Insurance
d)
Accident Insurance
According to the nature of the
interest affected
Three main classes are included;
a)
Personal Insurance
b)
Property Insurance
c)
Liability Insurance
According to the nature of
insurance
Two main classes are included;
a)
Where the contract is not one of indemnity. In
this class of insurance, the amount recoverable is not measured by the extent
of the assured’s loss but is payable whenever the specified event, happens,
irrespective of whether the assured, in fact sustains a pecuniary loss or not. Dolby
Vs. India and London Life Assurance Co., [1854]
b)
Where the contract is indemnity. In this class
of insurance, the amount recoverable is measured by the extent of the assured’s
pecuniary loss. The contract of Marine Insurance is an example of this type. A
policy of fire insurance is also a contract of indemnity.
The
Nature of the Contract of Insurance
The subject matter of the
contract of insurance and the subject matter of insurance are not same and the
subject matter of insurance may be one of the followings;
Ø A
physical object
Ø A
chose-in-action
Ø A
liability imposed upon the assured
Essentials of a Contract
The essential features of a contract are:
1)
An offer intended to create legal relations,
must be communicated to the offeree either by words or by conduct.
2)
The offeree must accept the offer in its
completeness before it lapses or is revoked. If the offeror indicates the
manner in which the offer is to be accepted, the offeree must adopt that
manner.
3)
There must be evidence of the intention of the
parties to enter into a contractual relation. This may be provided by the
formal procedure of making the promise under seal, or it may be by the
existence of consideration.
4)
The parties must be recognized by the law as
having the capacity to contract.
5)
The consent of the parties must be real; that
is to say, the parties must not have been threatened, unduly influenced,
deceived or misted in a manner which would nullify their agreement.
6)
The subject matter of the contract must be
legal and possible.
If one
of these essentials is missing, the contract is void, voidable or
unenforceable, depending upon the circumstances. A void ‘contract’ is a
contradiction in terms for it never can be a contract. A voidable contract is
valid but at the option of one of the parties, can be avoided. An unenforceable
contract is also valid, but cannot be enforced in court because of some
evidential defect, i.e., a lack of evidence required by statute.
Insurance Business
Under Section 11 of Chapter 4 of Myanmar Insurance Laws [23rd
July,1993], the Myanmar Insurance shall undertake the following insurance
business;
a.
Life Assurance
b.
Third Party Insurance
c.
General Liability Insurance
d.
Fire Insurance
e.
Marine Cargo Insurance
f.
Marine Hull Insurance
g.
Aviation Insurance
h.
Engineering Insurance
i.
Comprehensive Motor Insurance
j.
Oil and Gas Insurance
k.
Cash in transit Insurance
l.
Cash in safe Insurance
m.
Fidelity Insurance
n.
Travelling Insurance
o.
Bodily Injury Insurance
p.
Other classes of Insurance
q.
Insurance determined by the Ministry
Thank you
Admint3am of LKS
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