Chapter 2- Legal Concepts of Insurance Flashcards
adhesion contract
a contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a “take it or leave it” basis when accepted.adhesion
for a contract to be legally valid and binding, it must contain certain elements: (4)
offer and acceptance, consideration, legal purpose, and competent parties
- only one party (the insurer) makes any kind of enforceable promise
- insurer promises to pay benefits upon the occurrence of a specific event, such as death or disability
- The applicant does not even promise to pay premiums; but insurer has the right to cancel the contract if premiums are not paid
unilateral
represents themselves and the insurer at the time of application
Agent
Aleatory contract
Presents the potential for an unequal exchange of value or consideration between both parties.
- are conditioned upon the occurrence of an event.
-ex: insurance and gambling contracts
is the appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship
Apparent Authority
is one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms and not influenced by drugs or alcohol.
Competent Party
Concealment
the failure of the applicant to disclose a known material fact when applying for insurance.
Conditional policy
Describes the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract.
is the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.
Consideration
is the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or if certain conclusions are drawn.
Estoppel
is the explicit authority granted to the agent by the insurer, as written in the agency contract.
Express Authority
The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients
agent as a Fiduciary
a position of trust with regard to the funds of their clients and the insurer.
fiduciary
includes the deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.
Fraud
is an authority not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Implied Authority
indemnity contracts
attempt to return the insured to their original financial position.
is the financial, economic, and emotional impact associated with a person experiencing a specified loss. A person has an insurable interest in a loss if they have more to gain by not suffering the loss.
Insurable Interest
is a written contract in which one party promises to indemnify another against loss that arises from an unknown event.
Insurance Policy
Investor-originated life insurance (IOLI)
used to circumvent state insurable interest statues. This is done when an investor (or stranger) persuades an individual to take out life insurance specifically for the purpose of selling the policy to the investor. The investor compensates the insured and makes the premiums, then collects the death benefit when the insured dies.
is a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.
Material misrepresentation
states that when parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by oral evidence.
Parol Evidence Rule
parol evidence
oral or verbal evidence or that which is given verbally in a court of law
is an amendment added to an insurance contract that overrides terms in the original policy
- may add or remove coverages, change deductibles, or revise any other policy feature.
Policy rider or endorsement
means the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide.
Reasonable expectations
subrogation
- the right for an insurer to pursue a third party that caused an insurance loss to the insured.
(used to recover the amount of the claim paid to the insured for the loss)
involves the belief that both the policyowner and the insurer must know all material facts and relevant information, and as such, they will provide each other with all material facts and relevant information.
Utmost Good Faith
Valued contract
pays a stated sum regardless of the actual loss incurred.
- ex: Life insurance contracts
Voidable Contract
Is an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.
- an agreement without legal effect
- missing one of the elements specified by law
- cannot be enforced by either party
void contract
is the voluntary giving up of a legal, given right.
Waiver
is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.
Warranty
tort law
- provide full compensation for proved harm
- involves the concept of “righting a wrong” done to a person and provide relief from the wrongful acts of others by awarding monetary damages as compensation
accident, health, and property insurance policies are examples of what contracts
indemnity contracts
professional liability insurance for insurance agents
- the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services that he rendered or failed to render
insurance agent errors and omissions professional liability insurance (E&O)
