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RMIN 4000 > Chapter 9 > Flashcards

Chapter 9 Flashcards

1
Q

what are the key legal principles of insurance?

A

-principle of indemnity
-principle of insurable interest
-principle of subrogation
-principle of utmost good faith

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2
Q

for the principle of indemnity, the insurer agrees to pay no more than what?

A

more than the actual amount of the loss

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3
Q

what is the purpose of principle of indemnity?

A

to prevent the insured from profiting from the loss

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4
Q

why is the principle of indemnity important?

A

do not want moral hazard to make more value

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5
Q

what are the exceptions to the principle of indemnity?

A

-valued policy
-valued policy laws
-replacement cost
-life insurance

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6
Q

what is the face amount of insurance if a total loss occurs?

A

valued policy

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7
Q

what are examples of valued policy?

A

jewelry, fine arts, and antiques

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8
Q

what may be required by an underwriter for valued policy?

A

appraisals

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9
Q

what is a law that requires payment of the face amount of insurance if a total loss to real property occurs from a peril specified in the law?

A

valued policy law

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10
Q

what is replacement cost?

A

the current cost of restoring the damaged property with new materials of like kind and quality, with no deduction fro depreciation

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11
Q

what does life insurance do?

A

life policy pays the stated amount of the policy to the beneficiaries

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12
Q

what is replacement cost (RC)?

A

the cost to replace property with an item of like kind or quality (workmanship and materials)

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13
Q

what is the formula for actual cash value (ACV)?

A

replacement cost - depreciation

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14
Q

in property insurance, indemnification is usually based on the actual cash value of the property at the ….

A

time of loss

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15
Q

what is the principle of insurable interest?

A

the insured/ beneficiary must be in a position to lose financially if a covered loss occurs

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16
Q

why must the insured be in a position to lose financially if a covered loss occurs?

A

-prevents gambling on losses
-reduces moral hazard
-measure of the insured’s loss

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17
Q

when must insurable interest exist in property insurance?

A

at time of loss

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18
Q

when must insurable interest exist for life insurance?

A

at inception of policy

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19
Q

what is the principle of subrogation?

A

substitution of the insurer in place of the insured of the purpose of claiming indemnity from a third-party loss covered by insurance

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20
Q

what is an example of principle of subrogation?

A

someone else hits your car, your auto insurance pays you for the damages to your vehicle, your auto insurance sues the other driver for reimbursement

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21
Q

what prevents an insured from collecting twice? (one from insurer, and one from responsible party)?

A

principle of subrogation

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22
Q

what principle holds the negligent party responsible for the loss?

A

principle of subrogation

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23
Q

what principle reduces insurance claims costs (and therefore rates)?

A

principle of subrogation

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24
Q

what type of insurance does subrogation not apply to?

A

life insurance

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25
Q

can the beneficiary sue the negligent parties for wrongful death even though subrogation does not apply to life insurance ?

A

yes

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26
Q

what is principle of utmost good faith?

A

a higher degree of honesty is imposed on both parties to insurance contracts that is imposed on parties to other contracts

27
Q

what 3 legal doctrines support the principle of utmost good faith?

A

-representations
-concealment
-warranty

28
Q

what are statements made by the applicant for insurance ?

A

representations

29
Q

what if the representations are false?

A

contracts are voidable is misrepresentation is:
-material
-false and
-relied on by the insurer

30
Q

what is when the applicant for insurance intentionally does not reveal a material fact to the insurer ?

A

concealment

31
Q

when can concealment be voided?

A

-concealed fact was known by the insured to be material and
-insured intended to defraud the insurer

32
Q

what is a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all aspects ?

A

warranty

33
Q

what happens if there is a violation of a warranty?

A

may result in a claim being denied

34
Q

what is bad faith?

A

law that allows lawsuits against insurance companies for:
-improper denial of claims
-improper delay of claim payments

35
Q

bad faith damages can exceed….

A

policy limits

36
Q

bad faith damages include:

A

-attorneys fees
-emotional distress
-punitive damages

37
Q

what must an insurance contract have to be legally enforceable?

A

-offer and acceptance
-exchange of consideration
-competent parties
-legal purpose

38
Q

what is offer and acceptance?

A

insured completes an application (offer) and insurer issues a binder or policy (acceptance)

39
Q

what is exchange of consideration?

A

the value that each party gives one another

40
Q

who pays a premium when exchanging a consideration?

A

the insured

41
Q

who promises to pay future claims when exchanging a premium?

A

the insurer

42
Q

what does competent parties mean?

A

parties must have a legal capacity to enter a binding agreement

43
Q

to be competent, the insured must:

A

-be old enough to enter into contract
-not intoxicated
-not insane

44
Q

who must be legally competent and licensed to sell policies within the state?

A

the insurer

45
Q

what is legal purpose?

A

contract that encourages something illegal or immoral is contrary to public interest and cannot be enforced

46
Q

what is an aleatory contract?

A

a contract where performance of the promise is dependent on the occurrence of a fortuitous event

47
Q

what is a unilateral contract?

A

only one party (the insurer) makes a legally enforceable promise

48
Q

for a unilateral contract, who makes a legally enforceable promise to pay claims ?

A

insurer

49
Q

for a unilateral contract, who is legally required to pay premiums?

A

insured

50
Q

what is a conditional contract?

A

the insured must comply with all policy conditions to collect for a covered loss

51
Q

what are the conditions for a conditional contract?

A

provisions in the policy that qualify or place limitation on the insurer’s promise to perform

52
Q

what are examples of a conditional contract ?

A

give notice of loss, protect the property from further damage

53
Q

what is a personal contract?

A

contract is between the insured and the insurer

54
Q

what cannot be assigned to another party without the insurers consent?

A

an insurance policy

55
Q

what is insured draft policy terms?

A

contract of adhesion

56
Q

for a contract of adhesion, who must accept the entire contract, with all of its terms and conditions ?

A

the insured

57
Q

what is the principle of reasonable expectations?

A

an insured is entitled to coverage under policy that he or she reasonable expects it to provide, regardless of policy provisions

58
Q

what is law of agency?

A

there is no presumption of agency relationship

59
Q

who must be authorized to represent the principal?

A

an agent

60
Q

what can be placed on the powers of agents?

A

limitations

61
Q

what may require an insurer to pay a claim that it ordinarily would not have to pay?

A

the doctrines of waiver and estoppel

62
Q

what is a waiver?

A

the voluntary relinquishment of a known legal right

63
Q

what is an estoppel?

A

the loss of a legal defense because of non inconsistent previous actions with that defense

RMIN 4000 (15 decks)

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