Focus Terms Flashcards
Legislative Law L1
Enacted by legally constituted governmental bodies w/ power and authority to enact laws; legislatures enact statutes, while agencies issue regulations
Life Insurance Law L1
Life insurance law is derived from general contract law
regulated by states; vast differences in laws/interpretation of law
Case Law L1
Also called common law; settles disputes b/t parties
Flexible in form/application
American case law derived from the common law of England
Supremacy Clause L1
As the supreme law of the land, the federal law = higher authority than any state constitution or law; states are supreme where the federal constitution is silent
Common Law L1
England
Basis of American legislative and case law
Courts seek legislative answers or prior cases (precedents); if none exists they make an original ruling (case law)
Civil Law L1
Rome; also basis of Louisiana Law
Enactment of comprehensive code (general principles of law) applied to facts of a case
Little influence by precedent (flexible and limited)
Will exert little influence on similar cases arising in the future
Legal Remedy L1
An attempt to seek monetary damages for failure to perform a contract as written (ex civil suit)
heard before a jury
Equitable Remedy L1
Enforces performance in a contract, modifies its terms, or excuses performance of a contract that is in dispute; makes things right
heard before judge
Ex. Rescission, Restitution, Reformation of contract, Bills of interpleader, Declaratory Judgement
State Courts L1
All states have one ore more courts of original jurisdiction and one or more courts of appeal
Center-of-Gravity Theory L1
Gives emphasis to the law of the state that has the most significant contracts (connections) w/ the matter in dispute
Requirements for a Contract (5) L1
Hint: O.A.C.CPs.LF
- Offer = willingness to enter bargain
- Acceptance = meeting of the minds or manifestation of mutual assent
- Consideration = something of value
- Competent Parties = capacity to contract
- Legality of Form = follow legal requirements
Unilateral Contract L1
only one party makes an enforceable promise the insurer; if bilateral then policyowner would make promise as well but no promise by insured that premiums will be paid; insurer promises to pay DB
Aleatory Contract L1
unequal exchange, uncertain event, element of chance
commutative is opposite where equal amounts exchanged
aleatory could lead to wagering
Conditional Contract (2) L1
- Conditions Precedent = Life Insurance; an act or event that must occur before duty is imposed and a right exists (premium payments first and subsequent, completed application, medical and other requirements to put policy in effect)
- Conditions Subsequent = an act or event that will terminate an existing right (death by policy exclusion or file death claim
Contract of Adhesion L1
Not negotiated, accepted, or rejected; not amended by non drafting party
any ambiguity in terms favors the policyowner or beneficiary
policyowner accepts or rejects the contract; cannot alter contract
The Application (3) L2
Hint: MA.PER.ECP
- Mutual Assent = offer and acceptance must be present for a contract to exist
- Parol Evidence Rule = all preliminary oral statements are superseded by the written contract (policy); once a policy is issued, the entire contract is in the policy; no “inclusion by reference” is allowed
- Entire Contract Provision = the application is attached to the policy to create the entire contract
Company Consideration L2
“promise to pay” the DB, plus other policy promises (nonforfeiture, reinstatement, APL, etc.)
Promisee (policyowner) Consideration L2
application and first premium
**not renewal premiums
Wagering L2
speculation is to be controlled by an insurable interest which is required in all jurisdictions; an aleatory contract offers a potential large return for a small premium (moral hazard)
Representations L3
Generally, an oral/written statement at the time or before the making of the contract
Representations are not part of the contract in general contract law
Some statements may be statements of fact or opinion
Statements are not guaranteed to be true; they must only be substantially true when they are made
In life insurance contracts, only written statements become a part of the entire contract, also includes policy and attached application
Material Misrepresentation L3
burden of proof on insurer
Material = influences insurer into contract it would not have made or would have made on different terms if it had known the truth
The aggrieved party (the insurer) can sue to recover damages or rescind the contract
Rescission L3
Equitable remedy
Termination of contract (void from start)
w/in reasonable time after discovery of misrepresentation
Rescission requires adjudication (court hearing); can be suit brought by insurer or defense in court by insurer
Voidable L3
the offended party can disaffirm the contract and thus terminate the agreement, or they can affirm and enforce the contract (such as an illegal contract issued by an unauthorized insurer)
Void L3
contact does not exist
unenforceable by either party, void from start; never happened
no “meeting of the minds”
insurer returns all premiums paid
neither party can enforce or defend; the incontestable clause is irrelevant
Materiality L3
Reflects the insurer’s decision to accept risk it would not have made had it known the true statement of material fact or the terms under which the insurer made the decision
Prudent Insurer Standard L3
outside experts provide objective standards
uses judgement of industry experts
used in majority of jurisdictions
Individual Insurer Standard L3
Uses insurer’s own practices in terms of how it decided on similar cases
difficult for the beneficiary to object since information comes from company files and testimony
Concealment L3
nondisclosure; failure of an applicant to communicate knowledge of a material fact that the insurer does not possess
misrepresentation by silence in insurance law
Bad Faith Suit (4) L3
an insurer may be subject to a bad fait suit if it:
- creates unfair claim processing procedures
- uses abusive tactics
- improperly delays
- fails to investigate
Waiver L3
a voluntary and intentional giving up of a known right
Estoppel L3
a party loses the ability to assert a defense d/t prior actions inconsistent w/ that defense
Equitable Estoppel L3
representation of past or present actions or facts relied upon by another party so that changing one’s position would be unfair
Legal, or Promissory, Estoppel L3
involves future conduct (promise); one person reasonably relied on a statement of future conduct (promise); it would be unfair to allow the first person to change their conduct (promise); if you make a promise, you can’t change your mind
Election L3
The act of choosing b/t two mutually exclusive alternative rights or privileges
Incontestable Clause L4
Limits time (2 yrs max) company to rescind policy based on misrepresentation of material facts
waives company’s rights to dispute the validity of the contract after a certain period; NOT the terms/conditions
Required by law in all states
Situations NOT protected by the incontestable clause (no time limit) (3) L4
- A lack of insurable interest
- Impersonation at physical exam
- The applicant intended to murder the insured
Monahan Decision L4
an action to deny a claim must occur w/in the contestable period
contestable period does not end at the insured’s death but continues for the benefit of the beneficiary until the contestable time period ends
Reformation L4
Reissue the policy correctly when a clerical error or substantial but obvious mistake is discovered
A reformation CANNOT be made if fraud was involved in the contract
Policy Face Page (5) L4
- Name of insurer
- Policy details: insured, policyowner, face amount, policy number, policy date, date of issue, and type of insurance provided
- Free look provision
- Insuring Clause (insurer’s promise to pay)
- Signature of company officer
Required Policy Provisions (9) L4
- Grace Period
- Policy Loan
- Incontestable Clause
- Divisible Surplus
- Entire Contract
- Reinstatement
- Misstatement of Age/Sex
- Nonforfeiture provisions
- Settlement Options
Mailbox Rule L5
if a renewal premium is mailed and properly stamped by a date such that the owner could “reasonably expect the post office to deliver it before the premium due date” it will NOT be considered late, even if the post office delivers it late or not at all
Property L5
the exclusive right of ownership; the right to possess, enjoy, transfer, or dispose of a thing or an interest
Real Property L5
Real estate; land and those things that are part or attached to the land
Personal Property L5
property that is NOT land or attached to land
two types
tangible personal property and intangible personal property
Tangible Personal Property L5
Clothing or jewelry; something that has physical characteristics
Intangible Personal Property L5
ownership right is evidenced by a legal document such as ownership in a corp (stock certificate); ownership interest is a right independent of a physical document; the right itself cannot be seen or touched
Intangible Property L5
referred to in law as chose (pronounced “shows”) or “thing” in action
Life insurance is a chose in action and represents the intangible personal property rights in the policy
Tangible property is a chose in possession; capable of physical possession and transfer by delivery
Life Insurance Policyowner Rights (7) L5
- Surrender the policy
- Assign the policy
- Designate and change the beneficiary
- Obtain a policy loan (if CV present)
- Select and change dividend options (if participating)
- Select and change investment options (if variable)
- Select a settlement option
Common Law Property L5
Based on English Common law developed through case law by English courts
Used in 41 states; basis of U.S. legal system
Marital status has no direct effect on ownership interest, including life insurance, in common law states
Proceeds pass by will, intestacy, joint ownership, or operation of law
Community Property Law L5
Laws exist only where they have been enacted into law by state legislature
Based on France’s and Spain’s law
Used in 9 states
Property acquired in marriage is community property; each spouse has undivided 1/2 interest
Exceptions - gifts, property owned before marriage, inheritance, and property acquired by separate funds
Exoneration Statutes L5
Protect the INSURER from paying proceeds or other policy benefits twice
Insurer not relieved from all liability
If an unknown community property right emerges and the insurer had no previous knowledge
If insurer pays proceeds under terms of contract, they will not be held liable to community property interests
**Derived from civil law and applies only in community property states
Declaratory Judgement L5
declares obligations and rights of parties when rights and duties are in bout; parties can then move forward to resolve the dispute
Interpleader L5
Has a court decide who is entitled to funds when property is claimed by 2 or more people
Insurer files a bill of interpleader, naming claimants as defendants
Insurer pays proceeds to court and is dismissed from case
Purpose is to avoid paying proceeds to more than 1 party
Reformation L5
Discover the intent of parties and rewrite or reform the contract to express actual intent; two grounds:
- Mistake
- Misrepresentation
Rescission L5
Cancel the contract d/t material misrepresentation in the contract
Three Requirements for Equitable Court Case L5
- No adequate remedy at law
- Clean hands
- No unnecessary delay
Presumption of Death (4) L6
- Missing for a fixed period of time (usually 7 years)
- No reasonable explanation for the absence
- Total absence of communication
- Diligent and unsuccessful search has been conducted
Release L6
Intentional giving up of right for a consideration
The insurer requires a release from the beneficiary as part of a negotiated settlement of claim
To be enforceable, there usually must be an exchange/consideration
Compromise Settlement L6
The existence of a right to proceeds is in dispute
The insurer may use this when the insured disappeared and the presumption of death is not fully satisfied
Reappearance of Missing Insured L6
A person who had previously been declared dead is discovered alive
If proceeds were paid in full, the insurer can recover the proceeds plus interest
If a compromise settlement was paid, there is no recovery of the amount paid
Death Claim Payment - Beneficiary kills Insured L6
A beneficiary cannot receive proceeds if the killing was wrongful and intentional
Reasonable Expectations Doctrine - Majority View L6
If language is clear, the contract is enforced as written
If there is ambiguity, the benefit of the doubt goes to the non-drafting party (policyowner)
Reasonable Expectations Doctrine - Minority View L6
Reasonable expectations of the non-drafting party (policyowner) in a contract of adhesion will control contract interpretation even if contract language is clear and unambiguous
Extremely favorable to the policyowner in an effort to impose liability on the insurer
Revocable Beneficiary L6
Can be unilaterally changed by policyowner
Has a mere expectancy of proceeds
Change of beneficiary may not be allowed (is precluded) if the policy is collaterally assigned or when a court order in a divorce case requires the former spouse as the beneficiary
Irrevocable Beneficiary L6
Conditionally vested - must survive the insured
Beneficiary must consent to any change that affects the DB
Policyowner does NOT have the unilateral right to change the beneficiary
Owner cannot act in any way that will diminish proceeds w/out the consent of beneficiary
No loan, no dividend, no assignment w/out the beneficiary’s consent - limited ownership rights
Per Capita L6
New York Rule
Surviving named beneficiaries share equally; per head
Per Stirpes L6
Connecticut rule
Heirs of deceased beneficiary take that beneficiary’s share
Ways of preventing inclusion of proceeds in estate (3) L6
- Owner not the insured
- Transfer policy to another person or trust (3-year rule)
- Absolute assignment (3-year rule)
Simultaneous Death (Common Disaster Clause) L7
order of death cannot be determined
insured presumed to survive beneficiary
proceeds payable to insured’s estate or named contingent beneficiary
Uniform Simultaneous Death Act L7
Life insurance proceeds are distributed as if the insured survived the beneficiary if the order is unknown, the same as in a common disaster clause
If the order of death is known, the order cannot be changed
Delayed-Payment Clause L7
Beneficiary must survive the insured by a specified period of time such as 10/14/30 days
Used to avoid problems of short term survivorship of beneficiary after insured’s death and proceeds passing through two estates
Changing Beneficiaries L7
Policyowner may change to anyone
No insurable interest required
Must be in writing
Policy normally does NOT need to be endorsed
If there is an irrevocable beneficiary, they must consent to the change
Collateral assignment and divorce court orders may limit the policyowner’s ability to change beneficiaries
Minor Beneficiaries L7
Lacks legal capacity; insurer requires minors to have a guardian
Minor cannot give binding release to the insurer when receiving proceeds
Upon attaining majority, minor might repudiate the release and demand payment again
A minor child cannot give release to change an irrevocable beneficiary
Age 18 is the age of majority in 44 states
Trust as Beneficiary L7
A trustee may be a natural person or a corporation
the trust agreement must exist at the time the trustee is named the beneficiary in case the insured dies
American Bankers Association (ABA) Assignment Form L7
Clearly sets forth the rights transferred and not transferred to the assignee
Rights include surrendering policy for cash value and right to exercise all surrender options
Statutory Protection Against Creditors L8
All states provide protection of life insurance from claims of creditors; not all states protect cash values
Generally, proceeds are exempt from claims of the insured’s creditors as long as they are identifiable as proceeds
Distributive Statute L8
Proceeds payable to insured’s estate pass to their spouse/children free of claims against the state
Seldom protects against claims of beneficiary’s creditors
Procedural Statute L8
protection from insured’s and beneficiary’s creditors
amount of insurance limited
no protection for cash values
New York Statute L8
Protects cash value and proceeds from claims of insured’s creditors
No protection to beneficiary’s creditors
Majority of states have enacted similar legislation
Comprehensive Statute L8
All benefits exempt w/out limitation from claims of creditors of insured/beneficiary/third party owner/any other person or organization
unlimited protection of all benefits payable to anyone from all creditors
Spendthrift Statute L8
Only protects the proceeds held under a settlement agreement (installment payout) from claims of the beneficiary’s creditors
Express Authority (Contract) L8
Powers specifically given to the agent by the principal orally or in writing, most often in a contract and/or manual
Implied Authority (Incidental) L8
Powers not specifically given by the principal to the agent but that are necessary to exercise powers expressly given
it is implied that the agent has authority to perform incidental acts to those expressly given
Apparent Authority (Reasonable Belief) L8
The public reasonably believes the agent possesses authority based on the actions of the principal
Ex. the agent repeatedly grants permission for the policyowner to pay the premium late
An Agent’s Three Duties to the Principal L8
- Duty of loyalty
- Duty to obey
- Duty to exercise reasonable skill, care, and diligence
**Agent is liable for damages for acts that violate duties to principal
An Agent’s Three Levels of Duty to Clients L8
- Generalist Level = skill, care, good faith, and diligence
- Dual Agency Level = fiduciary duty to principal-agent of insurer and insured
- Expert = expertise and high level of professionalism
Securities Act of 1933 L9
full and fair disclosure
prospectus requirement
Investment Company Act of 1940 L9
registration, holding out, advertising and sales literature
defines investment advisor engaged in business of giving advice to others about investing for compensation
NAIC L9
National Association of Insurance Commissioners
provides minimum standards and guidelines to create uniformity b/t states
models laws and regulations suggested to be adopted by each state
NAIC Model Unfair Trade Practices Act L9
prohibits false advertising
untrue, deceptive, or misleading advertising
focus is on misrepresentation
prohibits unfair trade practices
Invasion of Privacy Torts L9
Violation of one’s right to be left alone
Intestacy L9
Dying w/out a will
state laws control distribution of property and vary by state
Power of Attorney (POA) L9
All powers of attorney terminate on death
Powers can be limited or general
A general POA cannot delegate the power to create or alter a will on behalf of the principal
A competent principal can terminate existing or springing powers at any time
A POA prevents interference from another party
Simple POA L9
terminates if principal becomes disabled or incompetent
Durable POA L9
remains in effect if principal becomes incompetent, no need for court intervention
principal or attorney-in-fact can terminate at any time
for Health Care: the attorney-in-fact can make medical decisions if the principal is unable to do so
Springing Durable POA L9
Becomes effective only after the occurrence of specified events, such as the loss of physical or mental competency
creates powers when they are needed and not before
Ethical Conduct L9
Ethical behavior is a core value
Ethical codes exist to elevate human behavior
Earning professional designations exemplifies professionalism
