Legal Concepts

Question 1

Adhesion

Answer 1

A contract of adhesion describes a contract that has been prepared by one party (the insurance company) with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a “take it or leave it” basis when accepted.

where one party either accepts or rejects the terms of a contract written by another party

Question 2

Agent

Answer 2

an agent represents themselves and the insurer at the time of application

Agents role involves the following Duties:

• Describing the companys insurance policies to prospective buyers and explaining the conditions under which the policies may be obtained
• Soliciting applications for insurance
• Collecting premiums from policyowners
• Rendering service to prospects and to those who have purchased policies from the company

Question 3

Aleatory

Answer 3

an aleatory contract presents the potential for an unequal exchange of value or consideration between both parties. Aleatory contracts are conditioned upon the occurrence of an event.

Question 4

Competent Party

Answer 4

A competent party is one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms and not influenced by drugs or alcohol.

Question 5

Concealment

Answer 5

the failure of the applicant to disclose a known material fact when applying for insurance.

Question 6

Conditional

Answer 6

A conditional policy describes the insurer’s promise to pay benefits depends on the occurrence of an event covered by the contract

Question 7

Consideration

Answer 7

is the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments

the point where an informal agreement become a binding contract

Question 8

Applicants

Answer 8

provide the insurer with a completed application and initial premium as consideration for insurance

Question 9

Estoppel

Answer 9

the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party action in a specific manner or if certain conclusions are drawn.

Question 10

Fiduciary

Answer 10

the responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. A fiduciary is in a position of trust with regards to the funds of their clients and the insurer.

Question 11

Fraud

Answer 11

includes the deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.

Question 12

Indemnity contract

Answer 12

contracts of indemnity attempt to return the insured to their original financial position

Question 13

Insurable Interest

Answer 13

The financial, economic, and emotional impact associated with a person experiencing a specified loss. A person has an insurable interest in a loss if they have more to gain by not suffering the loss.

Question 14

Insurance Policy

Answer 14

a written contract in which one party promises to indemnify another against loss that arises from an unknown event.

Question 15

Legal Purpose

Answer 15

Legal purpose means an insurance contract must be legal in nature and not in opposition to public policy.

Question 16

Material Misrepresentation

Answer 16

a material misrepresentation is a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk

Question 17

Parol Evidence Rule

Answer 17

Involves parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.

Question 18

Policy rider or endorsement

Answer 18

an amendment added to an insurance contract that overrides terms in the original policy; endorsements may add or remove coverages, change deductibles, or revise any other policy feature.

Question 19

Reasonable Expectations

Answer 19

Means the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide.

Question 20

Representations

Answer 20

statements made by the applicant that they consider to be true and accurate to the best of the applicant’s belief

Question 21

Subrogation

Answer 21

The right for an insurer to pursue a third party that caused an insurance loss to the insured.

Used to recover the amount of the claim paid to the insured for the loss

Question 22

Unilateral

Answer 22

Unilateral contracts mean only one party, the insurer, makes any kind of enforceable promise.

Question 23

Utmost Good Faith

Answer 23

Involves the belief that both the policy owner and the insurer must know all material facts and relevant information, and as such, they will provide each other with all material facts and relevant information.

Question 24

Valued Contract

Answer 24

Pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts.

Question 25

Voidable Contract

Answer 25

An agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.

Example, a policy holder is failing to comply with a condition of the contract when they stop paying their insurance premium. As such, the contract is now voidable, and the insurance company has the right to cancel the contract and revoke the coverage.

Question 26

Waiver

Answer 26

Is the voluntary giving up of a legal, given right.

Question 27

Warranty

Answer 27

A statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.

Question 28

Offer and Acceptance (Agreement)

Answer 28

Proposal by one party that, if accepted by another, will create an agreement.

Question 29

Invitation

Answer 29

an applicant applies without an initial premium…offer is not complete unless the premium is included

Question 30

Indemnification

Answer 30

compensation for harm or loss.

Question 31

Stranger-Originated Life Insurance (STOLI)

Answer 31

Life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance, naming the investors as beneficiaries. This is sometimes called Investor-Originated Life Insurance (IOLI). These arrangements are used to circumvent state insurable interest statutes.

Question 32

Rescission

Answer 32

Means the contract is made null and void.

Question 33

Materiality

Answer 33

Means, would the insurer have issued the exact same policy with the exact same terms had they have known the concealed facts at the time of application.

Question 34

Void Contract

Answer 34

An agreement without legal effect. In essence, it is not a contract at all, for it lacks one of the elements specified by law for a valid contract. A Void Contract cannot be enforced by either party.

An insurer may also void an insurance policy if a misrepresentation on the application is proven to be material.

Question 35

Cancellation

Answer 35

The voluntary act of termination an insurance contract.

Question 36

The Law of Agency

Answer 36

The relationship between an agent and the company represented

Question 37

Principles of Agency Law

Answer 37

• The acts of the agent (within the scope of his authority) are the acts of the principal
• A contract completed by an agent on behalf of the principal is a contract of the principal
• Payments made to an agent on behalf of the principal are payments to the principal
• knowledge of the agent regarding the business of the principal is presumed to be knowledge of the principal

Question 38

Agent Authority

Answer 38

What is given by an insurer to a licensee to transact insurance on their behalf

Question 39

Solicitor

Answer 39

Has the authority to seek insurance applicants for a company but does not have any authority to bind coverage on behalf of a company to a customer

Question 40

Tort Law

Answer 40

Most civil court claims fall Under Tort Law

Concept of tort law is to provide full compensation for proved harm…In other words, to right a wrong done to a person and provide relief for the wrongful acts of others, by awarding monetary damages as compensation

Negligent acts resulting in a loss or damage can create a tort, which is an action to recover damages for injuries inflicted upon an innocent party or victim as the result of a negligent act.

Question 41

Simple Negligence

Answer 41

defined as the failure to act in a reasonable or prudent manner

Question 42

Gross Negligence

Answer 42

A more severe act because it involves a reckless disregard for the need to act in a reasonable manner regardless of the potential for harm.

Question 43

Willful and Wanton Negligence

Answer 43

Considered even more severe

Not only does the negligent individual recklessly disregard reasonable standards of care, he or she is also aware of the probability that some form of bodily harm or property damage will occur.

Willful and wanton negligence borders on almost being an intentional act. Intentionally caused losses are often not insurable, depending on the type of insurance contract.

Question 44

Insurance Agent Errors and Omissions Professional Liability Insurance (E&O)

Answer 44

Under this insurance, the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services that he rendered or failed to render.

Question 45

Typical Losses Covered

Answer 45

Sometimes an insurance producer can make a mistake or fail to do something they were supposed to do…Typical losses covered for the producer under E&O policy

• Not providing insurance coverage when the agent was supposed to
• Creating an administrative error
• Premium calculation errors
• Misstating insurance coverage
• Not effecting a policy change requested by the customer
• Not explaining the policy provisions properly
• Incorrect identification of client loss exposures
• Forwarding inaccurate or incomplete information about a client to a carrier
• failing to recommend coverage
• Not handling a claim properly

Question 46

Typical E&O Exclusions

Answer 46

Common in any liability coverage, intentionally harming someone is always excluded, including:

• Criminal Acts
• illegal acts
• dishonest acts
• malicious acts
• libel
• slander
• intentional violation of any law, regulation, statute, or ordinance

Question 47

4 Essential Elements in every contract

Answer 47

• offer and acceptance
• consideration
• legal purpose
• competent parties

Question 48

Contract

Answer 48

requires an offer, acceptance, and consideration

Question 49

Policy of adhesion

Answer 49

can only be modified by the insurance company