Chapter 9 The Insurance Contract Flashcards
How are insurance contracts distinguished from other types of contracts?
By the additional principles of:
- insurable interest
- utmost good faith
In whose lives does an insured have an insurable interest?
- Insured’s own life
- his or her child or grandchild
- his or her spouse
- any person on whom he or she is wholly or in part dependent for, or from whom he or she is receiving support or education
- his or her employee
- any person in the duration of whose life he or she has pecuniary interest
Give examples of insurable interests in property and liability.
Property - Owners, tenants, lienholders
Liability - driver of an automobile, employer, homeowner
What is the principle of indemnity?
You purchase insurance to protect yourself against loss. Should a loss occur, you expect to be put back to the same financial position that you were before the loss.
How do you determine the actual cash value of a property?
You determine it by finding the value of an equivalent piece of property of the same age and condition and subjected to the same wear and tear as the proper that was lost or destroyed.
What is a replacement cost contract?
The damaged or destroyed property will be valued on the basis of the cost to repair or replace (whichever costs less) it with property of like kind and quality, without any deduction for depreciation.
What is a valued contract?
Is one that in the event of a loss, pays a predetermined amount agreed upon by the insurer and the insured at the time the contract was made.
What is a policy of compensation?
Specifies that a stated amount is payable on the occurrence of the event insured against, i.e Life insurance contracts. (They are not contracts of indemnity).
What does utmost good faith mean?
It requires that an insured act with a high standard of honesty “uberrima fides”.
What is the connection between utmost good faith and misrepresentation as they relate to insured property?
The insurer expects “utmost good faith” from the insured so an underwriter sets the premium or determines whether to accept or reject the risk based on material facts presented. If the insured failed to disclose or concealed information vital to the assessment of risk, the insured “misrepresented” himself and the policy will be set-aside.
What is a material fact?
Is a fact which would influence a prudent underwriter in setting the premium or determining whether to accept or reject the risk.
Define non-disclosure.
Is defined as silence where there exists an obligation to speak. An applicant for insurance is presumed to be a prudent and reasonable person who knows the material facts of the risk.
Give an example of a non-disclosure that relates to insurance.
An applicant for automobile insurance failed to disclose prior convictions.
Can an insurer be guilty of not acting with utmost good faith? Explain.
No. The Statutory Conditions in the contract of insurance ensure that insurers do not take a position favourable to themselves than is in the public interest.
What happens when new material facts arise during the term of the contract?
The insured is required to disclose these new information to the insurer promptly.
This gives the insurer the opportunity to evaluate the risk in light of the new information.
What is binding authority?
Is the authority given to a broker/agent by an insurer to bind certain insurance coverages without first submitting an application to the insurer for approval.
An insured gives vital information indicating a change in risk to a broker to pass on to the insurer, but the broker does not act on it. How might this later affect a claim arising directly out of the increased risk?
Brokers/agents knowledge are considered knowledge of the insurer.
If an insured gives vital information that changes the risk and the broker/agent fails to pass the information to the insurer, the insured still retains his right to recover.
The insurer, however will take action against the broker/agent for violating the terms of his/her agreement or contract with the insurer.
In the above-mentioned situation, will it make any difference whether or not the broker has binding authority? Explain.
In this situation, the insured has the right to take legal action against the broker/agent for failing to pass on information.
What are an insurer’s responsibilities with respect to utmost good faith?
Insurers must also act in good faith.
They must be financially solvent to meet future claims.
Claims must be dealt with fairly and expeditiously.
Claims settlement negotiations not conducted in good faith is guilty of not acting in good faith.
