Contract Law

Question 1

What is a Contract

Answer 1

Contracts are written agreements that are legally enforceable by law

Question 2

A tort contract

Answer 2

Is a private, civil, non-contractual wrong for which a remedy through legal action may be sought. Insurance usually only responds to unintentional torts.

Question 3

What are the 4 essential elements of a legal contract

Answer 3

Agreement
Consideration
Competent parties
Legal purpose

Question 4

What is an agreement in a contract?

Answer 4

There must be an offer by one party and the other must accept this offer in exact terms

Question 5

What is consideration

Answer 5

The binding force in any contract. Something of value that each party gives to the other. The consideration for the insurer is that they will pay in the event of a loss and the insured will pay their premiums

Question 6

Competent parties

Answer 6

The parties of the contract must be capable of entering into a contract in the eyes of the law. Both parties should be of legal age, mentally competent and not under the influence of drugs or alcohol

Question 7

Legal Purpose

Answer 7

The purpose of the contract must be legal and not against public policy. There must be Insurable interest and consent from both parties.

Question 8

Contract of adhesion

Answer 8

Is prepared by one of the parties (insurer) and accepted by the other party (the insured). Insurance policies are take it or leave basis by an insurer. There are no negotiations.

Question 9

Conditional contract

Answer 9

Conditions must be met by the policy owner and the company in order for the contract to be executed. The insured must pay the premium and provide proof of loss in order for the insurer to cover the claim.

Question 10

Aleatory

Answer 10

Insurance contracts are aleatory, which means there is an exchange of unequal amounts or values.

Question 11

Unilateral

Answer 11

In contract only one of the parties to the contract is legally bound to do anything

Question 12

Personal

Answer 12

In general an insurance contract is a personal contract because it’s between the insurance company and an individual. Because the company has the right to do business with whom it wants, the insured can’t be changed to someone else without the written consent of the insurer, nor can the owner transfer the contract to another person with the insurers approval. Life insurance is the exception to this rule.

Question 13

Representations

Answer 13

Are statements believed to be true to the best of one’s knowledge, but they’re not guaranteed to be true

Question 14

What is Misrepresentation?

Answer 14

Are untrue statements on the application and could void the contract

Question 15

A material representation

Answer 15

Is a statement on the application if discovered that would alter the underwriting decision of the insurance company. If material misrepresentations are intentional, they’re considered fraud

Question 16

Punishment for misrepresentations

Answer 16

Any person violating this provision is guilty of a misdemeanor punishable by a max fine of $25,000, imprisonment in a county jail for a period of longer than 1 year or both. If the loss to the victim exceeds $10,000, the fine should not exceed 3 times the amount of loss, In addition the license of the agent can be suspended for a max of 3 years

Question 17

Warranty

Answer 17

Is a statement considered to be guaranteed to be true and becomes part of the contract. They can be either expressed or implied.

Question 18

Materiality

Answer 18

The concept is based on the idea that all parties to a contract are entitled to all information necessary to make an informed decision about the quality or nature of the contract. The materiality of a given concealment determines the importance of a misrepresentation

Question 19

Concealment

Answer 19

Is the legal term for the intentional withholding of info of a material fact that is crucial in making a decision. Concealment may void a policy

Question 20

The following info does not need to be communicated in a contract

Answer 20

Known info
Info that should be known
Info that the other party waives
Info that is excluded by a warranty
Info that is excepted from insurance and not material to the risk
Info based on personal judgement

Question 21

Rescission

Answer 21

Is the revocation of a contract

Question 22

What are the 6 specifications/elements in insurance policies

Answer 22

The parties to the contract
The persons or property being insured
A statement of the Insurable interest that exists if the insured is not the owner
The risks insured against
The time period during which the policy will be in force
The states annual, semi-annual, quarterly, or monthly premiums will be calculated

** an insurers financial rating is not required in an insurance policy

Question 23

Riders

Answer 23

Are added to a policy to modify provisions that already exist.

Question 24

Endorsements

Answer 24

Are printed addendums to a contract that are used to change the policy’s original terms, conditions, or coverages.

Question 25

What is an unintentional tort?

Answer 25

It is the result of acting without proper care. This is generally referred to as negligence

Question 26

When can a representation be changed or withdrawn?

Answer 26

Prior to the effectuation of the policy, but not after.