Chapter 6: Basic Legal Principles and Contract Analysis

Question 1

Elements of an enforceable contract

Answer 1

1) Offer and acceptance
2) Must have a legal purpose
3) Competent Parties
4) Consideration

Question 2

Unilateral

Answer 2

Only one party, the insurer, can be held liable.

Question 3

Personal

Answer 3

Covers an individual a person

Question 4

Conditional

Answer 4

Only the insurer has a obligation to meet conditions

Question 5

Contract of adhesion

Answer 5

The contract was prepared by one party. The other party can only accept or reject a contract.

Question 6

Contracts of indemnity

Answer 6

policy owner is entitled to payment of an amount directly related to the amount of a loss. Applies primarily to property insurance.

Question 7

Valued Contracts

Answer 7

Policy owner is entitled to recover the amount specified in the policy.

Question 8

Insurable interest

Answer 8

right or relationship with regard to an insurance contract such that the policy owner will suffer a finical loss from the damage, loss, or destruction to that subject matter. Insurable interest has to exist at the time of purchasing the policy.

Question 9

subrogation

Answer 9

A process by which an insurer takes over the legal rights of recovery its insured has against a responsible 3rd party.

Question 10

Concealment

Answer 10

The failure to disclose relevant information. Usually occurs at time of application.

Question 11

Void contract

Answer 11

A contract that has no legal effect.

Question 12

Fraud

Answer 12

Must include:

false representation of a material fact that was knowingly made to influence or deceive.

Question 13

Declarations

Answer 13

Factual statements that identify the parties to the insurance transaction, the amount of insurance, the property or activity being covered, the effective date of the coverage etc.

Question 14

insuring agreements

Answer 14

The promises made by the insurer.

Question 15

Conditions

Answer 15

Duties that usually the policy owner must fill before it can hold the other party to the terms of the contract.

Question 16

Is an insurance contract unilateral or bilateral

Answer 16

An insurance contract is a unilateral contract.

Question 17

Parol Evidence Rule

Answer 17

A legal principal that specifies that oral contemporaneous evidence may not be used to contradict or vary the terms of a valid written contract

Question 18

Principle of indemnity

Answer 18

Legal principal that the purpose of insurance is to indemnify (financially compensate) people entitled to insurance benefits in an attempt to make them financially whole. however people should not make profit from an insured’s loss.