512 - Module 1 Flashcards by Tracie Watts

Surrender ownership of damaged property to the insurance company so that a total loss can be claimed.

Abandonment

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When the insured is held responsible for damages, even when no negligence has occured.

Absolute liability

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Agreeing to the terms of a proposed contract.

Acceptance

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Replacement cost minus depreciation

Actual Cash Value (ACV)

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Responsible for investigating insurance claims and determining the amount of payment.

Adjuster

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Those with higher risk are more likely to purchase insurance.

Adverse selection

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A contract where the outcome is controlled by chance, and the dollars that change hands are often of substantially unequal amounts.

Aleatory contract

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Something about a property that is likely to attract or injure children. Insured must take steps to prevent harm. ie. put a fence and locks around a pool.

Attractive nuisance

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Says who can legally bind an insurance company

Express Authority - specifically conferred on the agent.
Implied Authority - not expressly granted, but the agent is assumed to have in order to transact the insurer’s business.
Apparent Authority - appearance or assumption of authority based on actions, words or deeds.

Authority

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Either party can enforce the contract in a court of law.

Bilateral

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Individuals who represent many insurers, the agent of an insurance buyer.

Broker

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Agents sell property and liability insurance for only one company (direct writers), and aren’t allowed to contract with other companies.

Captive agents

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Agents sell life insurance in a company-owned branch office system. Sometimes captive agents and sometimes allowed to contract with other companies. Agents supported by the company, and have production requirements.

Career agents

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Splitting of costs,
or
Minimum percentage of insurance required to avoid penalty or inadequate insurance when there are partial losses.

Coinsurance

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If others cause you to suffer a loss, they are obligated to pay you for your loss, and their liability is not reduced just because you have insurance.

Collateral source rule

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Reduces the defendant’s liability in some proportion based on the injured party’s contribution to the total negligence.

Comparative negligence

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The intentional withholding of material information, which violates the requirement of utmost good faith, even if no specific question arises about that information.

Concealment

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Insurance contracts, because the insurance company pays on the condition that a covered loss occurs.

Conditional

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The act or the payment for the act. Each party must give the other something of value.

Consideration

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Promise(s) that, if breached, are enforceable by law through remedy or performance.

Contract

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The two parties are in conflict that cannot be resolved without the legal system.

Contract disputes

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Liability related to an asset or activity; eg. acquisition of an asset resulting in liability to a lender, or a membership contract putting responsibilities on clients.

Contract law

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A contract that is prepared by one party and either accepted or rejected by the other. No negotiation.

Contract of adhesion

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If any negligence on the part of the injured party contributes to the injury, it absolves the other party of liability. This is a strict approach, and has been replaced by comparative negligence.

Contributory negligence

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Retained risk, it is the portion of insured losses that the insured pays before the insurance company pays anything.

Deductible

Prevents a party from asserting a right because his own action or behavior misled someone (even unintentionally) who relied on this understanding to his own detriment.

Doctrine of estoppel

When a party, by their own actions (or agent's actions) has voluntarily relinquished or surrendered a known right.

Doctrine of waiver

The result of changes in the economy, such as business cycle or inflation. Insurance does not typically cover.

Dynamic risks

How a court implements its decision once it has decided what the understanding was between the parties, or at least what it feels is fair under the circumstances.

Equitable remedies

Indirect regulation through the McCarran-Ferguson Act in 1945 in areas such as fair labor standards and anti-trust matters.

Federal regulation

When insurance companies expect their agents to make informed recommendations and assess the potential for clients to qualify for coverage.

Field underwriting

Risks affecting a large group of people. Ex: recessions and earthquakes.

Fundamental risks

Increases the potential for a loss

Hazard

Process by which the insured is made whole by the insurer.

Indemnification

Insured is restored to the financial position they were in before they suffered the loss.

Indemnity

Representatives for several insurance companies.

Independent agents

Elements include: *Law of large numbers makes losses predictable *Loss must be definite and measurable *Loss must be fortuitous (accidental) *Loss must not be catastrophic to the company

Insurable risk

Use of certain contractual concepts and characteristics, while not unique to the insurance industry, are used nowhere else in this manner.

Insurance contracts

Individuals in various distribution channels used by insurance companies to provide their products and services.

Insurance producers

Modification of contributory negligence, will not bar the injured party's recovery if the other party had a chance to prevent the accident and failed to seize the chance.

Last clear chance

Large number of similar potential losses so that the insurer can reasonably apportion the expected financial loss.

Law of large numbers

The purpose of the contract. Not enforceable if the object is illegal.

Legal object

The series of steps taken when an insured property loss occurs.

Loss adjustment process

When a false statement is made that at least partially induces the insurance company to issue a contract. It must be material or significant to void a contract.

Misrepresentation

When a client is unethical or misrepresents themselves to obtain insurance or induce payment of a claim.

Moral hazard

Client indifference. "It's okay, it's insured."

Morale hazard

The instance of losing one's health through illness or injury.

Morbidity

The instance of death

Mortality

Insurance companies that pay profits to members

Mutual companies

Made up of commissioners from all 50 states, created model laws and gives accreditation to states that use their model.

NAIC - National Association of Insurance Commissioners

When duty of care owed by the defendant in a lawsuit is determined by reference to a statute. ie. speeding in a school zone.

Negligence per se

One party states they will do something if the other party agrees to do something.

Offer

Insurer can repair or replace only a part, to restore to a full set.

Pair or set option

When parties put their agreement into a final, complete, written form, evidence of prior understandings cannot contradict the writing.

Parol evidence rule

Risks affect individuals or small groups of people.

Particular risks

The cause of a loss

Peril

Not transferable without without written permission of the other party, because the nature of the risk is related to the individual who owns the contract. Sometimes the benefits can be transferred though, as with a lien.

Personal contracts

Marketed by private insurance companies. Ex: disability, health, long-term care, property, liability, life insurance

Private insurance

Often life insurance agents, they sell insurance personally, don't have specified territories, and can hire other agents to work for them. Not prohibited from representing other insurers, but usually required minimum of new business.

Producing General Agents (PGA)

An uninterrupted sequence of events that brought about the damage.

Proximate cause

Designed to enhance public trust in financial institutions. Ex: FDIC, SIPC, PBGC (Pension Benefit Guaranty Corporation)

Public insurance

The chance of a loss or no loss; ie. no chance of gain.

Pure risks

The insurer is held to the terms established by the appointed agent.

Ratification

An equitable remedy by which the written instrument between the parties is changed to express the original intentions of the parties.

Reformation

An equitable remedy by which the original contract is deemed null from its beginning.

Rescission

The possibility of a loss

Risk

Risk management technique that minimizes risk of loss. Includes risk avoidance and risk reduction.

Risk control

Risk management technique that pays the costs of losses incurred. Includes risk retention and risk transfer.

Risk financing

When the insurer takes ownership of the property and sells it to reduce its loss.

Salvage

Method of risk retention. Requirements: *Enough homogeneous exposure units to make losses predictable. *Adequate funds to cover losses. *Able to administer insurance functions as efficiently as an insurance company. *Able to manage investment of self-insurance fund.

Self-insurance

Mandatory insurance administered by the government, with benefits mandated by law. Ex: Social Security, Medicare, Medicaid, and workers' compensation.

Social insurance

Involves both the chance of loss and the chance of gain. Not insurable.

Speculative risks

States responsible for direct regulation of insurance: Legislature passes laws Insurance department sets regulations and administers compliance Courts interpret laws and regulations, and provide recourse

State regulation

Result from factors other than changes in the economy, such as earthquakes for floods. They tend to occur with regularity, and can be insured.

Static risks

Insurance companies that pay profits to shareholders

Stock companies

A case in which people cause extra-hazardous situations through their activities. ie keeping wild animals or skydiving.

Strict liability

Insurance company right to recover loss payments if a different insurance company or person is found responsible for the loss

Subrogation

Insurance that cannot be purchased using normal distribution channels within a state. Agents have authority to go outside the state in needed. Almost exclusively in the property and casualty field.

Surplus-line and Excess line

When someone causes physical, emotional, or financial harm to another.

Tort

Regarding liability for a loss resulting from the use of an asset or from an activity, like a boating accident or practicing one's profession.

Tort law

The person who causes physical, emotional or financial harm to another.

Tortfeasor

Those who have the job of determining whether a risk is reasonable, and the degree to which the insurer is willing to accept it.

Underwriters

When only one party can enforce the contract in a court of law.

Unilateral

Activities that involve negligence.

Unintentional torts

Trust that the applicant is honest, and there is no need to prove every fact when applying.

Utmost good faith

When someone is held liable for the acts of another, such as parents and a child, or employers for an employee.

Vicarious liability

Not enforceable; lacks one or more of the requirements of an enforceable contract.

Void contract

Able to be voided by a party of the contract.

Voidable

Contract where one party has the option of voiding the contract, but the other party is bound. Usu. for cases involving a minor or someone legally incompetent.

Voidable contract

Inserted into contracts to protect the insurer, states that only specific individuals have authority to approve changes or waivers.

Waiver provision

A statement by the applicant that all of the information on the application is absolutely true.

Warranty