Insurance Terminology

Question 1

Peril

Answer 1

Anything that causes a financial loss (fire, wind, theft)

Question 2

Hazard

Answer 2

A condition that serves to increase the frequency or severity of perils (gasoline soaked cloth in garage)

Question 3

Physical Hazard

Answer 3

Physical characteristics of the person or property that increases the chance of loss (slippery sidewalk, recently mopped floors with no caution sign)

Question 4

Moral hazard

Answer 4

DISHONEST tendencies, often due to an insured’s weakened financial condition, that are likely to increase loss frequency and severity

Question 5

Morale Hazard

Answer 5

An indifference to loss when insurance is in place, which creates carelessness and increases the chance of loss (unlocked doors, leaving purse out in public)

Question 6

Adverse selection

Answer 6

The likelihood that parties with the greatest possibility of loss are the ones who most desire the insurance - insurance seeks to avoid (ex) sick person’s interest in health insurance)

Question 7

Unilateral Contract

Answer 7

Only insurer PROMISES to do anything (no promise insured will pay the premium)
20 - year term policy for $900 - can’t negotiate to pay $850 for the contract.

Question 8

Contract of adhesion

Answer 8

ONE party prepares the contract

Question 9

Aleatory contract

Answer 9

Action is based on a specific event - death benefit paid WHEN insured dies

Question 10

Speculative risk

Answer 10

Chance of loss OR gain - not insurance (gambling)

Question 11

Pure risk

Answer 11

Only a chance of loss or no loss - natural disaster

Question 12

Static risk

Answer 12

Loss caused by non-economic factors, occur regularly, insurable (death of family breadwinner)

Question 13

Collateral source rule

Answer 13

Court cannot reduce damages against negligent party simply because the plaintiff has insurance

Question 14

Negligence

Answer 14

Failure to act in a way that a reasonably prudent person would have acted under the circumstances (not documenting patient files after providing medical procedures)

Question 15

Negligence per se

Answer 15

Act constitutes negligence, thereby relieving the burden to prove negligence (driving wrong way on highway)

Question 16

Absolute liability

Answer 16

Liability without regard to negligence or fault (dog bites mailman)

Question 17

Strict liability

Answer 17

Liability results from some extraordinarily dangerous activity. Negligence does not have to be proved; however defenses may be allowed to refute or lessen liability (traffic violations) - can make arguments

Question 18

Joint and Several Liability

Answer 18

Negligence cause by one, two, or more parties. Each party may be held fully liable (defective products, worker safety)

Question 19

Vicarious liability

Answer 19

One person can become legally liable for the negligent behavior (torts) of another.

Teenager driving car registered to a parent - parent responsible for the negligent acts of the child at the wheel.