Chapter 6: Basic Legal Principles and Contract Analysis Flashcards
Insurance: Intangible Contract
Represents value and viewed as product that provides future benefits.
Contract: Legal Requirements
- Offer and Acceptance
- Legal Purpose
- Competent Parties
- Consideration
Offer and Acceptance
Must have both for contract to be effective
Legal Purpose
Courts will not enforce policy if has an illegal purpose or is contrary to public policy
Competent Parties
Policyholders must be of age and competent
Insurers must meet state and license requirements
Consideration
A right or something of value given up or an obligation assumed
Specific Legal Characteristics of Insurance Contracts
10 Characteristics to describe fundamental ideas on which insurance contracts are based.
Unilateral Nature
Only one party makes a binding promise that if broken allows action against that party for breach of contract.
Personal Nature
Covers the person rather than the property concerned
Most contracts are not transferable as a result of personal nature
Conditional Nature
Insurer is obligated to pay claims, defend the insured against liability claims, or perform other services only if the insured has complied with policy conditions
Contract of Adhesion
All details of contract prepared by insurer and not policyholder. Policyholder agrees to what is presented.
Oral Evidence
Policyowner may not usually contradict the written contract by saying the agent promised policy covered certain type of loss.
Contract of Indemnity
Insurer agrees to pay an amount directly related to the amount of the loss.
Valued Contract specifies the amount the insurer will pay in the event of a specified loss-usually total loss.
Insurable Interest
Right to the subject matter of the insurance contract such that the policyowner would suffer financial loss from its damage, loss or destruction.
Subrogation Rights
Insurer who has paid a claim under a contract takes over any rights of recovery that the insured might have against another party responsible for the loss.
Fraud: Concealment
Failure to affirmatively disclose relevant information
Fraud: Misrepresentation
Insurance applicant makes a false statement of a material fact.
Fraud: Voidable Contract
Can be affirmed or rejected at the option of one of the parties. (usually only insurer has this right)
Fraud (6 Elements)
- False representation
- Knowingly Made
- Intent to influence or deceive
- Material fact
- Reasonable reliance
- Detriment
Warranties and Representations
Warranty is part of the contract and must be strictly complied with; whereas Representation is usually an incidental statement preceding the contract or an inducement to it.
Insurance Contract Element
DECLARATIONS
Factual statements that identify the specific person, property or activity being insured and the parties to the transaction and descriptive information about the insurance being provided.
Insurance Contract Element
DEFINITIONS
Explain the key policy terms and are a major help in defining the insured’s intentions.
Insurance Contract Element
INSURING AGREEMENTS
Spell out the basic promise of the insurance company
Open-Perils: covers all losses except those that the policy specifically excludes
Named-Perils: Covers only losses that arise from one of the listed perils
Insurance Contract Element
EXCLUSIONS
Identifies types of claims that insurer does not cover
Insurance Contract Element
CONDITIONS
Policyowner must fulfill the conditions in a policy before the insurer may be held liable for a loss.
Insurance Contract Element
MISCELLANEOUS PROVISIONS
Noncancelable: Policyowner has right to renew coverage at each policy anniversary date
Guaranteed Renewable: Gives the policyowner the right to renew the coverage at each anniversary date but only to a certain age
Nonrenewable for Stated Reasons Only: Insurer may refuse renewal for specific reasons listed in policy
Optionally Renewable: Insurer has right to refuse to renew a policy at end of period in which premiums are paid.
Cancelable: Insurer may cancel at any time and refund premiums paid
Deductibles
Sharing in cost of loss paid by policyowner
Coinsurance
Copayment required
Coordination of Benefits
Prevent duplication of benefits when insured is covered by more than only plan
Endorsement Rider
Provision added to policy, sometimes for additional premium, by which scope of coverage is clarified, enlarged or restricted.
