Chapter 3: Contract Law- Insurance Applications

Question 1

Special Characteristics of Insurance Contracts

Answer 1

• They are conditional
• They involve fortuitous events and the exchange of unequal amounts
• They are contracts of utmost good faith
• They are contracts of adhesion
• They are contracts of indemnity
• They are nontransferable

Question 2

Insurance Contract Formation

Answer 2

• Agreement
• Content
• Delivery

Question 3

Necessary Terms in Insurance Contracts

Answer 3

• The type of coverage sought
• The object or premises, if any, to be insured
• The amount of Insurance
• The insured’s name
• The duration of coverage

Question 4

Real Estate Sellers and Buyers

Answer 4

The loss exposure can be on the buyer in three situations:

• Only the seller has property insurance
• The seller and buyer each have property insurance to protect their respective interests
• The seller and buyer purchase a policy together

Question 5

Representations and Warranties in Insurance

Answer 5

• Representations are oral or written statements made by an insurance applicant concerning a loss exposure that that induce an insurer to enter into the insurance contract
• Warranties are statements or promises that, if untrue, could render a policy voidable

Question 6

Representations

Answer 6

Elements required to establish false representation:

• A statement is made that is false or misleading
• The statement relates to a material fact
• The insurer relies on the false or misleading statement in issuing the policy

Question 7

Warranties

Answer 7

For a promise to be a warranty, two requirements must be present:

• The parties must have clearly and unmistakenly intended it to be a warranty
• The statement must form a part of the contract itself

Question 8

Warranties

Answer 8

Warranties can take three forms:

• Affirmative
  
  • states that specific facts exists
• Continuing (promissory)
  
  • parties will do certain things
• Implied

Question 9

Waiver, Estoppel, and Election

Answer 9

Three doctrines apply to almost every ground on which an insurer may successfully deny liability:

• Waiver of the defense
• Estoppel from asserting the defense
• Election not to take advantage of the defense

Question 10

Waivers

Answer 10

Producers, for example, may waive the following rights:

• Notice of loss or proof of loss requirements
• Property inspection or medical examination requirements
• Policy suspension for premium nonpayment
• Occupancy requirements for insured property

Question 11

Estoppel

Answer 11

Estoppel arises in insurance law from this sequence of events:

1. ) False representation of a material fact
2. ) Reasonable reliance on the representation
3. ) Resulting injury or detriment to the insured