Applying Contract Law Flashcards
Conditional contract
A contract that one or more parties must perform only under certain conditions.
Utmost good faith
An obligation to act in complete honesty and to disclose all relevant facts.
Material fact
A fact that is significant to a decision or matter at hand.
Misrepresentation
A false statement of a material fact on which a party relies.
Incontestable clause
A clause that states that the insurer cannot contest the policy after it has been in force for a specified period, such as two years, during the insured’s lifetime.
Contestable period
A period during which an insurer can challenge the validity of a life insurance policy.
Contract of adhesion
Any contract in which one party is put in a “take-it-or-leave-it” position and must either accept the contract as written by the other party or reject the contract entirely.
Contract of indemnity
A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss.
Principle of indemnity
The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured.
Valued policy
A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss.
Binder
A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued.
Direct-action statute
A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and wrongdoer jointly.
Waiver
The intentional relinquishment of a known right.
Consideration
Something of value or bargained for and exchanged by the parties to a contract.
Election
The voluntary act of choosing between two alternative rights or privileges.
Nonwaiver agreement
A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy.
Reservation of rights letter
An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it.
