Chapter 3 - Legal Contracts of Insurance Flashcards
What is a contract of adhesion?
A contract of adhesion is one that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the contract terms on a ‘take it or leave it’ basis when accepted.
(See Rule Regarding Ambiguities)
Who is an agent in insurance?
An agent is the person who represents the insurer during an insurance transaction and has been authorized to act on the insurance company’s behalf. Agents have a fiduciary responsibility to both parties—the insurer and the policy owner.
What does aleatory mean in insurance?
Aleatory is a legal arrangement in which there’s the potential for an unequal exchange of value or consideration between both parties. The insured may never file a claim in an insurance contract, or a claim may be filed after only one or two premiums.
What are ambiguities in an insurance contract?
Ambiguities refer to terms or conditions that are not clearly defined in an insurance contract.
(See Adhesion)
What is apparent authority?
Apparent authority is the appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship. This perception of authority must stem from the insurer’s actions, even if the perception is unintended and in error.
What is the role of a broker in insurance?
A broker is a licensed producer who represents himself and the insured during an insurance transaction. Unlike an agent, a broker doesn’t hold an appointment with the insurer in question and cannot bind coverage on behalf of the insurer.
What defines a competent party in a contract?
A competent party is a person who’s able to understand the contract to which two parties are agreeing. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the contract terms, and not under the influence of drugs or alcohol.
What is concealment in insurance?
Concealment is the failure of an applicant to disclose a known material fact when applying for insurance.
What does conditional mean in an insurance agreement?
Conditional means that an agreement remains in force if certain conditions are met. The insurer’s promise to pay benefits is dependent on the occurrence of an event that’s covered by the contract.
What is consideration in a contract?
Consideration is the legal description of the items of value that each party to the contract provides to the other. In an insurance policy, the applicant provides material information and the premium, while the insurance company agrees to pay the cost of claims that are covered by the policy.
What is a consideration clause?
A consideration clause is part of an insurance contract that sets forth the initial and renewal premiums and frequency of future payments.
What is the doctrine of reasonable expectations?
This doctrine states that an insurance contract will be interpreted to mean what a reasonable individual would think it means, even if the insurer must pay additional benefits that are not intended by the contract.
What is estoppel?
Estoppel is the legal impediment to one party’s ability to deny 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.
What is express authority?
Express authority is the explicit authority that’s granted to the agent by the insurer, as written in the agency contract.
What is a fiduciary?
A fiduciary is a person to whom property or power is entrusted for the benefit of another person. A producer is a fiduciary that’s in a position of trust regarding the funds of its clients and the insurer.
What constitutes fraud in insurance?
An individual commits fraud when he engages in intentional deceit to gain a benefit, including having deliberate knowledge of false statements that are made or intended.
What is implied authority?
Implied authority is an authority that’s not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has to carry out routine responsibilities.
What is an indemnity contract?
An indemnity contract attempts to return the insured to his original financial position.
What is insurable interest?
Insurable interest is the financial, economic, and emotional impact experienced by a person who suffers a covered loss. A person has an insurable interest if she has more to gain by not experiencing the loss.
What is an insurance policy?
An insurance policy is a written contract in which one party promises to indemnify another against a loss that arises from an unknown event.
What does legal purpose mean in an insurance contract?
Legal purpose means that an insurance contract must be legal in nature and not in opposition to public policy.
What is material misrepresentation?
Material misrepresentation is a false statement made by an applicant that influences either an insurer’s decision to accept the risk or the classification and pricing of a risk that’s accepted by the insurer.
What is misrepresentation?
Misrepresentation is a statement made as a legal representation that’s factually incorrect, either totally or in part.
What is the parole evidence rule?
The parole evidence rule states that, when the parties agree in writing, all previous verbal statements come together. A written contract cannot be changed or modified by parole (oral) evidence.
