Chapter 9 Flashcards
what are the key legal principles of insurance?
-principle of indemnity
-principle of insurable interest
-principle of subrogation
-principle of utmost good faith
for the principle of indemnity, the insurer agrees to pay no more than what?
more than the actual amount of the loss
what is the purpose of principle of indemnity?
to prevent the insured from profiting from the loss
why is the principle of indemnity important?
do not want moral hazard to make more value
what are the exceptions to the principle of indemnity?
-valued policy
-valued policy laws
-replacement cost
-life insurance
what is the face amount of insurance if a total loss occurs?
valued policy
what are examples of valued policy?
jewelry, fine arts, and antiques
what may be required by an underwriter for valued policy?
appraisals
what is a law that requires payment of the face amount of insurance if a total loss to real property occurs from a peril specified in the law?
valued policy law
what is replacement cost?
the current cost of restoring the damaged property with new materials of like kind and quality, with no deduction fro depreciation
what does life insurance do?
life policy pays the stated amount of the policy to the beneficiaries
what is replacement cost (RC)?
the cost to replace property with an item of like kind or quality (workmanship and materials)
what is the formula for actual cash value (ACV)?
replacement cost - depreciation
in property insurance, indemnification is usually based on the actual cash value of the property at the ….
time of loss
what is the principle of insurable interest?
the insured/ beneficiary must be in a position to lose financially if a covered loss occurs
why must the insured be in a position to lose financially if a covered loss occurs?
-prevents gambling on losses
-reduces moral hazard
-measure of the insured’s loss
when must insurable interest exist in property insurance?
at time of loss
when must insurable interest exist for life insurance?
at inception of policy
what is the principle of subrogation?
substitution of the insurer in place of the insured of the purpose of claiming indemnity from a third-party loss covered by insurance
what is an example of principle of subrogation?
someone else hits your car, your auto insurance pays you for the damages to your vehicle, your auto insurance sues the other driver for reimbursement
what prevents an insured from collecting twice? (one from insurer, and one from responsible party)?
principle of subrogation
what principle holds the negligent party responsible for the loss?
principle of subrogation
what principle reduces insurance claims costs (and therefore rates)?
principle of subrogation
what type of insurance does subrogation not apply to?
life insurance
can the beneficiary sue the negligent parties for wrongful death even though subrogation does not apply to life insurance ?
yes
what is principle of utmost good faith?
a higher degree of honesty is imposed on both parties to insurance contracts that is imposed on parties to other contracts
what 3 legal doctrines support the principle of utmost good faith?
-representations
-concealment
-warranty
what are statements made by the applicant for insurance ?
representations
what if the representations are false?
contracts are voidable is misrepresentation is:
-material
-false and
-relied on by the insurer
what is when the applicant for insurance intentionally does not reveal a material fact to the insurer ?
concealment
when can concealment be voided?
-concealed fact was known by the insured to be material and
-insured intended to defraud the insurer
what is a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all aspects ?
warranty
what happens if there is a violation of a warranty?
may result in a claim being denied
what is bad faith?
law that allows lawsuits against insurance companies for:
-improper denial of claims
-improper delay of claim payments
bad faith damages can exceed….
policy limits
bad faith damages include:
-attorneys fees
-emotional distress
-punitive damages
what must an insurance contract have to be legally enforceable?
-offer and acceptance
-exchange of consideration
-competent parties
-legal purpose
what is offer and acceptance?
insured completes an application (offer) and insurer issues a binder or policy (acceptance)
what is exchange of consideration?
the value that each party gives one another
who pays a premium when exchanging a consideration?
the insured
who promises to pay future claims when exchanging a premium?
the insurer
what does competent parties mean?
parties must have a legal capacity to enter a binding agreement
to be competent, the insured must:
-be old enough to enter into contract
-not intoxicated
-not insane
who must be legally competent and licensed to sell policies within the state?
the insurer
what is legal purpose?
contract that encourages something illegal or immoral is contrary to public interest and cannot be enforced
what is an aleatory contract?
a contract where performance of the promise is dependent on the occurrence of a fortuitous event
what is a unilateral contract?
only one party (the insurer) makes a legally enforceable promise
for a unilateral contract, who makes a legally enforceable promise to pay claims ?
insurer
for a unilateral contract, who is legally required to pay premiums?
insured
what is a conditional contract?
the insured must comply with all policy conditions to collect for a covered loss
what are the conditions for a conditional contract?
provisions in the policy that qualify or place limitation on the insurer’s promise to perform
what are examples of a conditional contract ?
give notice of loss, protect the property from further damage
what is a personal contract?
contract is between the insured and the insurer
what cannot be assigned to another party without the insurers consent?
an insurance policy
what is insured draft policy terms?
contract of adhesion
for a contract of adhesion, who must accept the entire contract, with all of its terms and conditions ?
the insured
what is the principle of reasonable expectations?
an insured is entitled to coverage under policy that he or she reasonable expects it to provide, regardless of policy provisions
what is law of agency?
there is no presumption of agency relationship
who must be authorized to represent the principal?
an agent
what can be placed on the powers of agents?
limitations
what may require an insurer to pay a claim that it ordinarily would not have to pay?
the doctrines of waiver and estoppel
what is a waiver?
the voluntary relinquishment of a known legal right
what is an estoppel?
the loss of a legal defense because of non inconsistent previous actions with that defense
