Chapter 2 Flashcards
(34 cards)
Contracts
are written agreements that are legally enforceable by law.
Tort
a private, civil, non-contractual wrong for which a remedy through legal action may be sought. A tort can be either intentional or unintentional. Insurance generally will only respond to unintentional torts (losses other than those acts by an insured that are deliberate and intended to cause loss or damage).
law of contracts
A great deal of the law that has shaped the formal structure of insurance and influenced its content is derived from the general law of contracts.
intentional tort
is any deliberate act that causes harm to another person regardless of whether the offending party intended to injure the aggrieved party. For purpose of this definition, breach of contract is not considered an intentional tort.
unintentional tort
is the result of acting without proper care. This is generally referred to as negligence.
consideration
Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application. The consideration on the part of the insurer is the promise to pay in the event of loss.
Insurers consideration is the promise to pay for losses; insured’s consideration is the payment of premium and statements on the application
parties to a contract
must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.
A contract of adhesion
is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a take-it-or-leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured.
conditional contract
requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.
aleatory
which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.
Insurance Contracts are aletory
unilateral contract
only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises.
However, an insurer is legally bound to pay losses covered by a policy in force.
Personal contract
because it is between the insurance company and an individual. Because the
company has a right to decide with whom it will and will not do business, the insured cannot be changed to someone else without the written
consent of the insurer, nor can the owner transfer the contract to another person without the insurer’s approval. Life insurance is an exception
to this rule: A policyowner can transfer (or assign) ownership to another person. However, the insurer must still be notified in writing.
Representations
are statements believed to be true to the best of one’s knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application.
misrepresentations
Untrue statements on the application and could void the contract.
material misrepresentation
is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud.
warranty
warranty is a statement considered to be guaranteed to be true and becomes part of the contract. According to the California Insurance Code, a certain format of words is not necessary to create a warranty. Warranties can either be expressed or implied. Statements in a policy are considered express warranty. Every express warranty becomes part of the insurance contract. Implied warranty is an unwritten or unspoken guarantee presumed to be made based on the circumstances of a transaction.
Note: A representation cannot qualify an express provision in a contract of insurance; but it may qualify an implied warranty (CIC 354).
Materiality
The concept of materiality is based on the idea that all parties to a contract are entitled to all information necessary to make an informed decision about the quality or nature of the contract. Materiality is determined by the “probable and reasonable influence of the facts” that they would have on the party that needs the facts to make a decision, whether that party is the insurer or the insured. Failure to disclose material information may entitle the “injured” party to rescind the contract.
Concealment
is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, concealment is the withholding of information by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy.
Rescission
is the revocation of a contract.
An injured party is entitled to rescind the contract if any of the following occurs:
* A false material representation (rescission is effective from the time the representation becomes false);
* Concealment (regardless of whether the concealment is intentional); or
* Violation of a material warranty or any other material provision of a policy.
Six Specifications for Insurance Policies
Every contract of insurance is required to identify the following 6 specific elements:
1. The parties to the contract;
2. The persons or property being insured;
3. A statement of the insurable interest that exists if the insured is not the owner;
4. The risks insured against;
5. The time period during which the policy will be in force or continue; and
6. The stated annual, semi-annual, quarterly, or monthly premium or a statement of the manner in which a premium rate and total premium will later be calculated, if it can only be determined at the termination or expiration of the contract.
Excess or Surplus Lines
Things that majority of brokers don’t insure. Freight lines, unusual and extraordinary things that aren’t admitted in any state
Domicile
Where the HQ is at
Domestic Insurer
Someone within USA or your home state
Foreign Insurer
Someone located out your state or territory
