Chapter 7 - Insurance Policy Analysis

Question 1

Contract of Indemnity

Answer 1

A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss

Question 2

Collateral Source Rule

Answer 2

A legal doctrine that provides that the damages owed to a victim should not be reduced because the victim is entitled to recover money from other sources, such as an insurance policy.

Question 3

Distinguishing Characteristics of Insurance Policies

Answer 3

• Indemnity
• Utmost good faith
• Fortuitous losses
• Contract of adhesion
• Exchange of unequal amounts
• Conditional
• Nontransferable

Question 4

Information Asymmetry

Answer 4

Exists when one party to a contract has information important to the contract that the other party does not

Question 5

Utmost Good Faith

Answer 5

Obligation to act with complete honesty and to disclose all relevant facts

Question 6

Fortuitous Loss

Answer 6

Losses that happen accidentally or unexpectedly. Reasonable uncertainty must exist about its probability or timing

Question 7

Contract of Adhesion

Answer 7

Any contract in which one party must either accept the agreement as written by the other party or reject it

Question 8

Reasonable Expectations Doctrine

Answer 8

A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in the way that an insured would reasonably expect

Question 9

Consideration

Answer 9

Something of value or bargained for and exchanged by the parties to a contract

Question 10

Conditional Contract

Answer 10

A contract that one or more parties must perform only under certain conditions

Question 11

Principle of Indemnity

Answer 11

The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured

Question 12

Self-contained Policy

Answer 12

A single document that contains all the agreements between the insured and the insurer and that forms a complete insurance policy

Question 13

Monoline Policy

Answer 13

Policy that covers only one line of business

Question 14

Package Policy

Answer 14

Policy that covers two or more lines of business

Question 15

Modular Policy

Answer 15

An insurance policy that consists of several different documents, none of which by itself forms a complete policy

Question 16

Manuscript Form

Answer 16

An insurance firm that is drafted according to terms negotiated between a specific insured (or group of insurers) and an insured

Question 17

General Rules of Policy Interpretation for Endorsements

Answer 17

• Takes precedence over any conflicting terms in the policy

- Handwritten supersedes computer generated

Question 18

Policy Provisions

Answer 18

Contractual term included in an insurance policy that specifies requirements or clarifies intended meaning

Question 19

Declarations Page

Answer 19

An insurance policy information page or pages providing specific details about the insured and the subject of the insurance

Question 20

Insuring Agreement

Answer 20

A statement in an insurance policy that the insurer will, under described circumstances, make a loss payment or provide a service

• comprehensive and limited

Question 21

Exclusions

Answer 21

A policy provision that eliminates coverage for specified exposures

• eliminates coverage for uninsurable loss exposures
• assists in managing moral/morale hazard
• reduces likelihood of coverage duplications
• eliminates coverages not needed
• eliminates coverages requiring special treatment
• assists in keeping premiums reasonable

Question 22

Policy Conditions

Answer 22

Any provision that qualifies an otherwise enforceable promise made in the policy