Flashcards in Ch. 1 Contract Law, Producers, And Types of Insurers Deck (72)
What are the four elements that must be present in order for any contract to be legal and enforceable?
3) competent parties
4) legal purpose
How do parties come to an agreement in an insurance contact? (Offer and acceptance)
The applicant usually makes the offer. It is either accepted or declined. To demonstrate acceptance, the insurance company has to deliver the policy and the applicant MUST submit an initial premium. It is possible to have the insurer make a counteroffer.
What is consideration?
The binding force of the policy. Each party must provide the other with something of value.
The applicant's consideration is the premium and representations on the application.
The insurer's consideration is the promise to pay legitimate claims.
List 5 categories of persons who do not have legal capacity to enter into a contract.
2) legally insane
3 persons under the influence
4) persons coerced or forced to enter contract under duress.
5) enemy aliens
What does the concept of legal purpose mean?
Contract must be create with public interest in mind. Cannot be illegal.
Why is an instance policy unilateral?
The language is developed by one party-- the insurer. If is a one-sided contract. The insured pays the premium and then the company promises to pay valid claims. In this aspect it is one-sided because the insured already did his part. Now the company has to pay valid claims.
What is a contact of adhesion?
One party draws up the contract and the other "adheres" to it. Ambiguities are usually decided in the insured's favor in court.
Why is the doctrine of reasonable expectations?
A court of law will generally state that an insurance contract may be interpreted by a "reasonable" consumer to mean what the producer or insurer indicated it means or what he or she interpreted it to mean.
Why is an insurance contract aleatory?
One party may recover more in value than he or she has parted with based upon a possible future event. Unequal payment or consideration/coverage in return for a small fee.
Why is an insurance policy conditional?
It is conditional upon performance of the parties. Insured promises to pay claims if insured pays premium.
How is an insurance policy a personal contract?
It is between the insurer and the insured, not the home or auto.
Define utmost good faith
Each party must tell the truth. Each party relies on statements of the other. If the insured intentionally conceals information, the contract can be voided.
What are representations?
Statements that are made by an applicant that are true. They are recorded on an application and are usually answers to questions.
Incorrect statements by an applicant; a false fact.
Define material misrepresentation.
Untrue statement that, if known by the insurer at the time of application, would have caused the application to be rejected. Ex. Any serious violations in last three years? If insured misrepresents, policy could be voided.
What is a warranty?
A statement made by the applicant that is totally and unequivocally true. Ex. Promise to install burglar alarm. If bank is robbed and alarm isn't installed the is no coverage.
What is concealment?
Failure to disclose material facts that the applicant should know the insurer would want to know. Ex. Failure to tell insurer about treehouse.
What is fraud?
Intentional and deliberate deception.
Explain the concept of waiver.
Def: intentional abandonment or voluntary relinquishment of a known right found in the policy.
Waiver helps an insured avoid denial of a claim of the insurer makes a waiver. Ex. If an insured tells an agent about an unlisted operated and doesn't endorse the policy, coverage still applies if there is a loss because the agents knowledge is presumed to be the insurer's; they knowingly and voluntarily waived the right to deny coverage.
Ex 2: failing to cancel a policy if insured doesn't pay the premium.
This occurs when an insurer attempts to deny a payment for a false statement made by one party, which is relied on by another, but cannot deny the payment. Ex. Agent telling insured they have 90 days to list a licensed household member when, in fact, they only have 60.
An insurance principal where an insurer cannot deny a payment in the case of a false statement made by one party which is relied on by another party. (Ex. Agent telling insured they have 90 days to list a licensed household member when, in fact, they only have 60.
What are the four sections of an insurance contract?
The section of a policy which contains the insured's name, a description of the property insured, the coverage period, the coverage limits, etc
The section of the policy that summarizes the agreement between the insurer and the insured. This includes the covered perils and promise to pay.
The section of the policy that contains the responsibilities of each party to the contract. Examples include: protect property from further damage after a loss, cooperate, submit written proof of loss, etc.
The section of property insurance policies that identifies the types of property and the causes of loss that are not covered.
What are some of the purposes of exclusions?
Protect the insurer from financial disaster by excluding catastrophic or uninsurable losses.
Eliminate duplicate coverage.
Keep cost of insurance low by excluding things such as wear and tear or depreciation.
What do underwriters do?
Obtain as much information as possible in order to decide whether to accept or decline an application.
Assess and select risks.
Classify the risk and determine the applicable premium rate.
Reduce adverse selection.
What are some of the variables or components involved in determining insurance rates?