Legal Concepts of Insurance Flashcards
Adhesion
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.
Agent
An agent represents themselves and the insurer at the time of application.
Aleatory
A contract that presents the potential for an unequal exchange of value or consideration between both parties. Aleatory contracts are conditioned upon the occurrence of an event.
Apparent Authority
The insurer providing the agent authority to preform unspecified tasks based on the agent-insurer relationship.
Broker
Represents themselves and the insured at the time of application.
Competent Party
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.
Concealment
The failure of the application to disclose a known material fact when applying insurance.
Consideration
The part of the insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.
Applicants
Provide the insurer with a completed application and initial premium as consideration for insurance.
Estoppel
One party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner, or if certain conclusions are drawn.
Express Authority
The explicit authority granted to the agent by the insurer, as written in the agency contract.
Fiduciary
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.
Fraud
The deliberate knowledge of or intentional deceit to make false statements to be compensated by an insurance company.
Implied Authority
An authority not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Indemnity Contract
Contracts of indemnity attempt to return the insured to their original financial position.
Insurable Interest
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.
Legal Purpose
An insurance contract must be legal in nature and not in opposition to public policy.
Material misrepresentation
A false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.
Parol Evidence Rule
Involved 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.
Policy rider or endorsement
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.
Reasonable expectations
The insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide.
Representations
Statements made by the applicant that they consider to be true and accurate t o the best of the applicant’s belief.
Subrogation
The right for an insurer to pursue a third party that caused an insurance loss to the insured.
Unilateral
Unilateral contracts mean only one party, the insurer, makes any kind of enforceable promise.
