1.10 contracts

Question 1

Contract Law

Answer 1

Pertains to the formation and enforcement of contracts.

Question 2

Tort Law

Answer 2

Torts are civil wrongs; they’re not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party.

Question 3

Contract of Utmost Good Faith

Answer 3

Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.

Question 4

Estoppel

Answer 4

Prevents the denial of a fact, if the fact was admitted to be true previously.

Question 5

Hold Harmless Agreement

Answer 5

A contractual agreement that transfers the liability of one party to another party; it is used by landlords, contractors, and others as a way to avoid or reduce risk.

Question 6

Parol Evidence Rule

Answer 6

A written contract may not be altered without the written consent of both parties.

Question 7

Waiver

Answer 7

Voluntary surrender of a known right, claim or privilege

Question 8

Four Elements of a Legal Contract

Answer 8

1. Competent Parties
   • All parties to a contract; Insurer and Insured must have legal capacity to enter into a contract.
   • Those without legal capacity include: ◦ Minors – The insurer may be held responsible for its obligations, however, in most cases a minor cannot enter into a contract. Exceptions do exist, such as for the purchase of auto insurance.
   ◦ The mentally incompetent or incapacitated.
   ◦ Persons under influence of drugs or alcohol.
2. Legal Purpose
   • All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract.
   • All parties to a contract must enter it in good faith.
3. Agreement – One party must make and communicate an offer to the other party and the second party must accept that offer.
   • Offer – The offer for entering an insurance contract is the application submitted by the applicant.
   • Acceptance – The acceptance of an insurance contract takes place when the insurance company agrees to issue insurance. A counteroffer by the insurance company is not acceptance until the applicant accepts the counteroffer.
4. Consideration
   • Something of value is exchanged; the exchange of an act for a promise.
   • The consideration made by the applicant is the premium payment.
   • The consideration made by the insurer is its promise to pay for covered losses.

Question 9

Contract of Adhesion

Answer 9

One party writes the contract, without input from the other party; one party (insurer) prepares the contract and presents it to the other party (applicant) on a “take-it-or-leave-it” basis, without negotiation. Any doubt or ambiguity found in the document is construed in favor of the party that did not write it (insured).

Question 10

Aleatory

Answer 10

The exchange of value is unequal. Insured’s premium payment is less than the potential benefit to be received in the event of a loss. The insurer’s payment in the event of a loss may be much greater, or much less (e.g., $0 in the event a loss doesn’t occur), than the insured’s premium payment.

Question 11

Valued Contract

Answer 11

A contract that pays a stated amount in the event of a loss (most insurance policies are NOT valued contracts unless they are endorsed).

Question 12

Applicant

Answer 12

The party submitting an application for insurance.

Question 13

Application

Answer 13

A document submitted by an applicant to an insurer that provides information needed for the insurer to underwrite a risk; becomes part of the insurance contract. Most applications require statements on the application to be true to the best knowledge and belief of the applicant.