Ch. 2 Insurance Contracts Flashcards
An agreement between two or more parties that is enforceable by law
Legal Contract
What are the essential elements of a legal contract
Competent parties, legal purpose, offer and acceptance, and consideration
All parties to a contract must have legal capacity, or competency, to enter into a legal contract
Competent Parties
All parties to a contract must enter it for a legal purpose and in good faith
Legal Purpose
To form an agreement, one party must make and communicate an offer to the other party, and the second party must accept that offer
Agreement
The exchange of value between the parties to the contract that makes the contract binding
Consideration
What is indemnity
Compensation for a loss
What are contracts of adhesion
One party writes the contract, and the other party may not negotiate it
What are aleatory contracts
The parties have an unequal exchange of consideration
What are conditional contracts
Both parties must perform certain duties to make the contract enforceable
What are unilateral contacts
One party is legally bound to contractual obligations
What are personal contracts
The contract is between the insurance company and an individual, and it cannot be transferred or assigned to another party
Statements made by the applicant on the application which are believed to be true to the best of the applicant’s knowledge and belief at the time
Representations
A false statement contained in the application
Misrepresentations
Statements that impact the acceptance of an insurable risk
Material Representations
Statements that do not affect the acceptance or rating of the risk
Immaterial Representations
A statement that is guaranteed to be true in all aspects
Warranties
The willful holding back or failure to communicate material information pertinent to the issuance of the contract or payment of a claim
Concealment
A false statement made intentionally to deceive or induce another party to issue a contract, part with something of value, or surrender a legal right
Fraud
A voluntary surrender of a known or legal right or advantage
Waiver
The judicial consequence that follows a waiver: it denies a contractual right based on prior actions contrary to what the contract states
Estoppel
What are the basic parts of property and casualty insurance
The Declarations page, the Insuring Agreement, Conditions, and Exclusions
It describes basic information about the policy that connects the policy to a specific insured and a specific property, including: who, what, when, where, and how much
Declarations Page
The insurer’s promise of protection to the insured, affirms that the insurer will indemnify the insured for covered losses. The perils insured against are listed here
Insuring Agreement
It specifies the obligations that the insured and insurer agree to follow for the policy provisions to take effect, as well as other conditions of coverage
Conditions Section
It specifies the perils that are not insured against or the property that is not covered by the policy
Exclusions Section
What additional components of property and casualty insurance further define and clarify the policy
Limitations, Endorsements, Additional Coverages, and Definitions
It reduces coverage without excluding it, such as by providing a smaller amount of insurance (known as a sublimit) that applies to certain losses
Limitations Page
Policy forms that alter the provisions of an insurance contract typically added to the policy for an additional premium
Endorsements Section
It states any applicable limit of insurance for each specific coverage, and specifies whether that limit is included within the policy’s limit of liability or in addition to policy limits
Additional Coverages Section
A section containing words, terms, and phrases that are clearly described and used in an insurance policy
Definitions Section
Any person, company, or organization protected by an insurance contract is known as an insured
Types of Insureds
A person, company, or organization designated on the Declarations page of the policy
Named Insured
The person, company, or organization whose name appears first on the Declarations
First named Insured
A person, company, or organization not ordinarily protected by a policy but who, through the addition of an endorsement to the policy, is granted status as an insured
Additional Insured
A sudden, unforeseen, unintended, and unplanned event that results in bodily injury or property damage
An Accident
An accident, including continuous or repeated exposure to the same generally harmful conditions that result in loss or damage
An Occurrence
A temporary written or oral legal agreement (contract) issued by an insurance company or a producer to provide short-term insurance
A Binder
A document that shows evidence that specific types of insurance were purchased by the insured, at certain limits, and that they were in place on the date the certificate of insurance was issued
Certificate of Insurance
An initial written statement informing the insurer that a loss took place
Notice of loss
A sworn, formal, detailed statement about a loss that occurred
Proof of loss
A condition states that insurance coverage only applies to losses occurring when the policy is in force and within a region specified by the policy
Policy Period
May be limited to the premises, such as only covering property and liability losses at a residence or business building, or it may be more expansive for mobile property and liability claims
Policy Territory
If the insurer broadens coverage under a new edition of the policy form with no premium increase, that broadening of coverage will apply to existing policies using that form without the need for an endorsement
Liberalization Clause
The legal process allowing an insurer to seek recovery for a paid claim from a third party responsible for the loss
Subrogation
The policies share losses by the ratio of applicable limits of insurance each insurer writes compared to the total of all limits available for the loss
Pro Rata Liability
Some policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance
Contribution of equal shares
If the insurer and the insured disagree about the amount payable for a claim or whether a claim is payable at all, the dispute is settled by…
Arbitration
If the insurer cancels the policy, a proportionate cancellation of insurance will refund the unearned premium, and the insurer only retains the earned premium
Pro Rata Cancellation
If the insured cancels the policy, the insurer retains a portion of the unearned premium to cover administrative costs, determined by the insurer’s short-rate table
Short-rate Cancellation
If the policy is canceled within a certain number of days after being issued, or if the insurer reverses an offer of coverage, the policy may be canceled retroactive to the effective date of the policy, meaning no coverage is provided whatsoever
Flat Cancellation
