Chapter 2 - Insurance Contracts

Question 1

A sudden, unforeseen, unintended, and unplanned event that result in loss or damage.

Answer 1

Accident

Question 2

A policy form that alters the policy.

Answer 2

Endorsement

Question 3

A dispute by the insured and insurer that is decided by a neutral third party.

Answer 3

Arbitration

Question 4

A contract in which one Party writes the contract, without input from the other party.

Answer 4

Contract of Adhesion

Question 5

The Four Elements required of a Legal Contract. (Hint: CLOC)

Answer 5

Competent Parties
Legal Purpose
Offer & Acceptance
Consideration

Question 6

Restored to the same financial or economic condition.

Answer 6

Principal of Indemnity

Question 7

Voluntary surrender of a known right, claim, or privilege.

Answer 7

Waiver

Question 8

Prevents denial of a fact.

Answer 8

Estoppel

Question 9

A false statement contained in an application.

Answer 9

Misrepresentation

Question 10

A contract in which the exchange of value is unequal.

Answer 10

Aleatory Contract

Question 11

Must exist at the time of loss in Property and Casualty insurance.

Answer 11

Insurable Interest

Question 12

Statements in the application guaranteed to be true in all respects.

Answer 12

Warranties

Question 13

The willful hiding of material facts that is important to a policy or claim.

Answer 13

Concealment

Question 14

Intentional deception of the truth in order to induce another to part with something of value or to surrender a legal right.

Answer 14

Fraud

Question 15

A contract in which only one party is legally bound to the contractual obligations

Answer 15

Unilateral Contract

Question 16

Both parties must perform certain duties to make the contract enforceable. What type of contract is this?

Answer 16

Conditional Contract

Question 17

Statement made by the applicant on the application which are believed to be true to the best of the applicant’s knowledge

Answer 17

Representation

Question 18

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

Answer 18

Utmost Good Faith

Question 19

Describes basic information about the policy that connects the policy to a specific insured and a specific property(also called the policy’s coverage page)
Contains Who, What, When, Where and How Much

Answer 19

Declarations

Question 20

The insurer’s promise of protection to the insured, affirming that the insurer will indemnify the insured for covered losses. The perils insured against by the policy are specified here

Answer 20

Insuring Agreement

Question 21

Specifies the obligations that the insured and insurer agree to follow in order for the policy provisions to take effect, as well as other conditions of coverage

Answer 21

Conditions

Question 22

Section specifies the perils that are not insured against or the property that is not covered by the policy.

Answer 22

Exclusions

Question 23

A policy’s exclusions can make sure a policy is limited to its intended purpose. This is known as:

Answer 23

Limitations

Question 24

Policy forms that alter the provisions of an insurance contract, typically added to the policy for an additional premium.

Answer 24

Endorsements

Question 25

Coverages automatically included in the policy without an additional premium

Answer 25

Additional Coverages

Question 26

Section containing words, terms, and phrases that are clearly described and used in an insurance policy.

Answer 26

Definitions

Question 27

An accident, including continuous or repeated exposure to the same generally harmful conditions that results in loss or damage

Answer 27

Occurrence

Question 28

Coverage for certain perils or causes of loss that is provided only after the limits of a primary insurance policy are exhausted

Answer 28

Excess Insurance

Question 29

Any type of coverage that responds to a loss first, before all other coverage responds

Answer 29

Primary Insurance

Question 30

Two or more policies covering the same exposures for the same policy period and with the same coverage triggers

Answer 30

Concurrent Policies

Question 31

If two or more policies cover the same exposures but do
not have the same policy periods

Answer 31

Non-concurrent Policies

Question 32

The termination of a policy before its expiration date, and coverage is not provided as of the effective date of cancellation

Answer 32

Cancellation

Question 33

A temporary written or oral legal agreement (contract) issued by an insurance company or a producer that provides short-term insurance.

Answer 33

Binder

Question 34

In the event of a loss or occurrence, the insured must notify the insurer in writing as soon as possible. What is this called?

Answer 34

Notice of Loss

Question 35

The amount of premium already paid by the insured that applies to the actual number of days coverage was in place

Answer 35

Earned Premium

Question 36

The amount of premium already paid by the insured that applies to the actual number of days coverage will not be in place after cancellation

Answer 36

Unearned Premium

Question 37

If a policy is terminated because an insured fails to pay the premium it is _________.

Answer 37

Lapsed

Question 38

If the insurer cancels the policy, a proportionate cancellation of insurance will refund the unearned premium, and the insurer only retains the earned premium. What type of cancellation is this?

Answer 38

Pro Rata Cancellation

Question 39

When the insurer chooses not to renew the policy, and coverage ends at the expiration of the policy term. Notice of nonrenewal must also be provided in advance, with requirements set by state law. What is this called?

Answer 39

Non-renewal

Question 40

If the insured cancels the policy, a financial penalty is put in place, and the insurer retains a portion of the unearned premium to cover administrative costs. The penalty is determined by the insurer’s short-rate table. What type of cancellation is this?

Answer 40

Short-rate Cancellation

Question 41

If the policy is cancelled within a certain number of days after being issued, or if the insurer reverses an offer of coverage, the policy may be cancelled retroactive to the effective date of the policy, meaning no coverage is provided whatsoever. The insurer must refund the entire policy premium paid by the insured. What type of cancellation is this?

Answer 41

Flat Cancellation

Question 42

This condition specifies the sum and circumstances under which an insurer charges the insured, usually a business firm, to restore a policy to its initial value after the insurer has paid a claim either to the insured business or to a third party on behalf of the business

Answer 42

Restoration

Question 43

This condition states that insurance coverage only applies to losses occurring when the policy is in force and within a region specified by the policy.

Answer 43

Policy Period

Question 44

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. In this case, the coverage territory is typically the United States, its territories and possessions, Puerto Rico, and Canada. Some policies provide worldwide coverage. What is this area called?

Answer 44

Policy Territory

Question 45

If the insurer broadens coverage under a new edition of the policy form with no increase in premium, that broadening of coverage will apply to existing policies using that form without the need for an endorsement

Answer 45

Liberalization Clause

Question 46

The legal process allowing an insurer to seek recovery for a paid claim from a third party responsible for the loss.

Answer 46

Subrogation

Question 47

The insured may not transfer rights of policy ownership without the insurer’s prior written consent

Answer 47

Assignment

Question 48

Condition specifies the process to be followed when the insured has more than one policy that covers the same loss. If multiple primary policies exist on the same exposure, for example, the policies will coordinate coverage in the event of a loss so as not to overcompensate the insured, and the process of this coordination varies by contract.

Answer 48

Other Insurance

Question 49

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.

Answer 49

Pro Rata Liability

Question 50

Some policies require the insurers to share the loss by contributing equal shares until each insurer has paid its limit of insurance.

Answer 50

Contribution by Equal Shares