Insurance Contracts

Question 1

The purpose of the insurance contract is

Answer 1

The transfer of a legal risk

Question 2

The parties to an insurance contract are

Answer 2

the insurance company and the insured

Question 3

Acceptance of an offer must be _____ and _____.

Answer 3

Unconditional and unqualified

Question 4

Jack submits a completed application to AIG along with a payment for the first premium. Jack has made a valid offer to become insured by AIG.

AIG, however, issues Jack’s policy but at a premium higher than he applied for. (Higher premium can be substituted with restrictions and/or exclusions).

Have Jack and AIG entered into a legally enforceable insurance contract?

Answer 4

No. AIG has not accepted Jack’s offer but has made a counteroffer. If Jack is willing to pay the higher premium, Jack has accepted AIG’s counteroffer and an agreement has been made.

Question 5

Insurance policies are contracts of ___?

Answer 5

Adhesion. Contracts of adhesion are contracts where the provisions of the K are written by only one party, and the other party is required to adhere to them.

Question 6

In addition to being contracts of adhesion, insurance policies are also ____ contracts.

Answer 6

Aleatory contracts.

• The value received from the contract by each party is unequal.
• In insurance, the receipt of unequal value arises because the insurer’s performance under the contract depends upon an uncertain event–the occurrence of a loss which may not happen.

Question 7

Insurance is a contract of utmost good faith. What does this mean?

Answer 7

That each party is entitled to a reasonable expectation that the other party will not try to conceal pertinent information or otherwise act deceptively.

Question 8

Insurance is a contract of utmost good faith, meaning that each party is entitled to a reasonable expectation that the other party will not try to conceal pertinent information or otherwise act deceptively.

Violation of that reasonable expectation can?

Answer 8

Void the claims of the offending party

Question 9

Auto and homeowner policies are examples of what type of insurance contract?

Answer 9

Personal contracts

Question 10

Are personal contracts usually transferable or non-transferable?

Answer 10

Non-transferable. Because the insurer not only evaluates the property but also the insured as a risk. A different person could represent a different risk. Therefore, a personal contract usually does not allow a change of insureds.

Question 11

The principle of restoring an insured to his or he pre-loss financial state is known as?

Answer 11

Indemnification. The insured is not entitled to profit from payments made in excess of the amount of a loss.

Question 12

Misrepresentations do not necessarily void insurance contracts. In order to void a contract, there must be a ?

Answer 12

Material misrepresentation

Question 13

Statements on insurance applications are considered ?

Answer 13

Representations

Question 14

A statement that is guaranteed to be true and may be relied on by the other party ?

Answer 14

Warranty

Question 15

Warranties are made in the form of ?

Answer 15

Promises

Question 16

Does a breach of warranty void the contract?

Answer 16

Yes

Question 17

Broomberg’s promises to AIG that it will have a security alarm system installed to mitigate the risk of theft. An alarm system was never installed. After a robbery, can AIG deny Broomberg’s claim? Why or Why not?

Answer 17

Yes, because there is a breach of warranty.

Question 18

The failure to disclose known facts?

Answer 18

Concealment

Question 19

Information that a party should have voluntarily revealed even if not directly addressed at the time of the application is considered ?

Answer 19

A material fact

Question 20

Would the unintentional concealment of a material fact void an insurance contract?

Answer 20

Coverage would most likely not be voided for unintentionally failing to disclose an unknown material fact.

Unintentionally failing to disclose a known material fact falls into the grey area.

Question 21

The intentional misrepresentation and/or concealment of material information is considered ?

Answer 21

Fraud

Question 22

An intentional act designed to deceive and induce another party to part with something of value?

Answer 22

Fraud