CPCU 530 Ch. 3

Question 1

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

Answer 1

Conditional contract

Question 2

An obligation to act in complete honesty and to disclose all relevant facts

Answer 2

Utmost good faith

Question 3

A false statement of a material fact on which a party relies

Answer 3

Misrepresentation

Question 4

A clause that states that the insurer cannot contest the policy after it has been in force for a specified period, such as two years, during the insured’s lifetime

Answer 4

Incontestable clause

Question 5

A period during which an insurer can challenge the validity of a life insurance policy

Answer 5

Contestable period

Question 6

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

Answer 6

Contract of adhesion

Question 7

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

Answer 7

Contract of indemnity

Question 8

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

Answer 8

Principle of indemnity

Question 9

A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss), regardless of the actual value of the loss

Answer 9

Valued policy

Question 10

A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued

Answer 10

Binder

Question 11

A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and wrongdoer jointly

Answer 11

Direct-action statue

Question 12

The intentional relinquishment of a known right

Answer 12

Waiver

Question 13

A legal principle that prohibits a party from asserting a claim or right that is inconsistent with the party’s past statement or conduct on which another party has detrimentally relied

Answer 13

Estoppel

Question 14

The voluntary act of choosing between two alternative rights or privladges

Answer 14

Election

Question 15

A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy

Answer 15

Nonwaiver agreement

Question 16

An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the fact warrant it

Answer 16

Reservation of rights letter