chapter 4 Insurance as a contract: The Insurance Policy Flashcards
A local grocery store is severely damaged by fire. Who has an insurable interest in this store?
a. The produce distributor who loses business until the shop is reopened and resumes ordering from the distributor
b. A customer who must now drive farther to access the next nearest grocery store
c. An employee who is laid off for the six weeks it takes to repair and reopen the store
d. The bank that holds a mortgage on the building in which the grocery store is located Correct.
d. The bank that holds a mortgage on the building in which the grocery store is located Correct.
People have an insurable interest in property when they stand in such a legal relationship to it that they would be financially prejudiced by its loss or damage and financially benefited by its continued existence.
Nico has three minor traffic tickets, which could influence whether an insurer accepts or rejects the risk. What is this an example of?
a. Indemnity
b. Binding authority
c. Material fact
d. Insurable interest
c. Material fact.
Material facts are facts that would affect a contract of insurance enough to influence an insurer’s decision regarding whether to accept or reject the risk or the premium to be set.
Silence where there is an obligation to speak is the definition of which of the following terms?
a. Utmost good faith
b. Non-disclosure
c. Discrimination
d. Material fact
b. Non-disclosure
Non-disclosure or concealment is the withholding of information pertinent to a risk. It is silence when there exists an obligation to speak.
What are the four requirements for forming a binding contract under the Civil Code of Québec?
a. Consent, capacity to contract, cause of contract, and object of contract
b. Consent, consideration, cause of contract, and legality of object
c. Offer and acceptance, capacity to contract, intention, and cause of contract
d. Consideration, consent, cause of contract, and capacity to contract
a. Consent, capacity to contract, cause of contract, and object of contract
Consent, capacity to contract, cause of contract, and object of contract
What does it mean to provide indemnity for a loss?
a. To salvage all possible items and offer a cash settlement for 50 percent of the value of any lost articles
b. To repair all damage and include a 30 percent increase to compensate for inflation
c. To put the party that suffered the loss back in the same financial position as before the loss
d. To replace all lost or damaged articles with better quality products
c. To put the party that suffered the loss back in the same financial position as before the loss
To indemnify is to place someone back in the same financial position that they were in immediately before a loss. Indemnity provides that insureds are to collect the amount of their financial loss—no more and no less.
When an insured property is not totally destroyed or lost, and the property that remains has some value, what is this property known as?
a. Subrogation
b. Salvage
c. Contractual provisions
d. Contribution
b. Salvage
Salvage is property saved from loss. Salvage is also used as a verb indicating the process of taking steps to reduce the amount of a loss.
Which are the five elements of a contract under common law?
a. Capacity to contract, genuine intent, ability to complete, legality of object, and termination
b. Capacity to contract, consideration, intent, written approval, and completion
c. Offer and acceptance, consideration, legality of object, written approval, and completion
d. Offer and acceptance, capacity to contract, consideration, genuine intent, and legality of object
d. Offer and acceptance, capacity to contract, consideration, genuine intent, and legality of object
Under common law, the following conditions must exist or the contract is void: agreement (offer and acceptance), genuine intentions, consideration, capacity to contract, and legality of purpose.
Which of the following best defines non-disclosure or concealment?
a. An applicant for insurance makes an incorrect statement about a material fact.
b. An applicant for insurance withholds information pertinent to a risk.
c. An applicant for insurance carelessly makes a statement without regard to whether it is true or false.
d. An applicant for insurance states an outright lie intended to mislead or hide information from the insurer.
b. An applicant for insurance withholds information pertinent to a risk.
An applicant for insurance is required to disclose to the company all material facts that are necessary to underwrite a policy. If the applicant does not disclose all these facts, the applicant is guilty of non-disclosure and may risk having coverage voided from inception.
Which of the following concepts upholds the principle of indemnity?
a. Utmost good faith
b. Materiality
c. Subrogation
d. Disclosure
c. Subrogation
Indemnity is supported by the concepts of salvage, subrogation, and contribution.
Which of the following statements best defines actual cash value (ACV)?
a. Replacement value of the property less any accumulated depreciation
b. Market value of the property at the time of loss
c. Purchase price of the property when it was originally bought
d. Replacement cost of the property at the time of loss
a. Replacement value of the property less any accumulated depreciation
ACV is the fair market value of property, taking into account factors (such as depreciation) that might augment or reduce the value of the property in question.
Which of the following is NOT considered misrepresentation in the context of an insurance contract.
a. A material change in risk
b. An innocent oversite about the details of the risk
c. A statement made about the risk without caring if it is true or false
d. An outright lie about the risk
a. A material change in risk
A misrepresentation is any incorrect statement or omission about a material fact.
Indemnity aims to put insures who suffer losses in the same financial situation as they were is tied to
a. Utmost good faith
b. compensation police
c. loss prevention
d. Insurable interest
d. Insurable interest
The concept of indemnity is tied to insurable interest because indemnity aims to put insureds who suffer losses into the same financial situation as they were before the loss.
A contract that goes against public policy is enforceable by law,
True
False
False
A contract, to be enforceable, must be for a lawful purpose. It is unenforceable and void if it goes against public policy.
Valued contracts are generally used when insuring items where it would be difficult to determine the true value in the event of a loss.
True
False
True
When the policy is issued, professional valuations are usually required for items over a certain value and the amount of insurance is based on them.
To void a policy means to treat it as valid and in existence
True
False
False
A policy is considered void if it is forbidden by law, against public policy, and for that purpose of committing a crime.
A contract is defined as an agreement enforceable at law. What are the two things that must be considered when trying to determine if an agreement is an actual contract?
- It is possible to have an agreement without it being enforceable at law
- It is possible to have something enforceable at law without the existence of an agreement.
What are the conditions that must exist for the contract to be considered valid under common law?
* Agreement (offer and acceptance)
* Consideration
* Genuine intentions
* Capacity to contract
* Legality of purpose
List the persons that have limited ability to contract legally
* Infants, children or minors
* Insane or mentally Incompetent persons
* Intoxicated persons
What are the common law contract requirements
* Consideration- must have a price, some value and be in the present or future
* Legal capacity to contract - Cannot be Minors, Insane and Intoxicated
persons
* Agreement- An offer and acceptance
* Genuine intent to form legal Contract- There must be an intent to create a
legal contract.
* Legality of purpose Must be for a lawful purpose
What are the contract requirements in Quebec?
* Consent
* Capacity to contract
* Cause of contract
* Object of contract
List the Causes of nullity of a contract in Quebec
* Error
* Fraud
* Violence or fear
* Lesion
To be valid, insurance contracts must not only contain the essential ingredients of ordinary contract under common law and civil code of Quebec but must also contain which of these elements distinctive to insurance contracts
a. Indemnity, Utmost good faith and bailee
b. insurable interest, indemnity, and consideration
c. Insurable interest, indemnity, upmost good faith
d. Utmost good faith, bailee insurable interest,
c. Insurable interest, indemnity, upmost good faith
List the three principle of reinforcing (reimbursing) indemnity
List the three principle of reinforcing (reimbursing) indemnity
Salvage
Subrogation
Contribution ( distribution who pays what portion)
List the 3 essential components of ordinary contract that are distinctive to insurance contracts.
3 components of a contract that are distinctive to insurance contracts
Insurable interest
Indemnity
Utmost good faith
List the material facts that divide the two time periods
Facts as they exist up to the time the contract is formed
New facts that arise after the contract is formed.
Requirements of Contract
Capacity to contract
Legality of purpose
Agreement - Offer and Acceptance
Intentions must be genuine
Money or consideration of some value
What is Agreement?
Meeting of the minds- between the parties. Required that an offer be made, communicated by one party and accepted by an other party. It can be written and signed by both parties or verbal discussion. It must contain all the terms of the contract. Once an offer is accepted it cannot be withdrawn.
What is Consideration?
It must have a price, it must have some value, and it must be in the present or future
What is Genuine Intention?
There must be an intention to create a legally binding agreement.
What is Legal Capacity to contract?
Implemented to protect those that have the ability to contract from take advantage of those that have a lack of understanding the contract. such as:
* Infants or minors
* Insane or mentally incompetent persons
* Intoxicated persons.
What is Legality of Purpose?
Must be for a lawful purpose. It is not enforceable if it:
* Is forbidden by Law
* Against public policy
* For the purpose of committing a crime
