Legal Concepts Of Insurance

Question 1

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

Answer 1

Adhesion:

Question 2

This is the person who represents the insurer during an insurance transaction and has been authorized to act on the insurance company’s behalf. Agents have a fiduciary responsibility to both parties—the insurer and the policy owner.

Answer 2

Agent:

Question 3

This is a legal arrangement in which there’s the potential for an unequal exchange of value or consideration between both parties. The insured may never file a claim in an insurance contract, or a claim may be filed after only one or two premiums.

Answer 3

Aleatory:

Question 4

This refers to terms or conditions that are not clearly defined in an insurance contract. (See Adhesion)

Answer 4

Ambiguities:

Question 5

This refers to terms or conditions that are not clearly defined in an insurance contract. (See Adhesion)

Answer 5

Ambiguities:

Question 6

This is the appearance of the insurer providing the agent authority to perform unspecified tasks based on the agent-insurer relationship. This perception of authority must stem from the insurer’s actions, even if the perception is unintended and the perception is in error.

Answer 6

Apparent Authority:

Question 7

This is a licensed producer who represents himself and the insured (i.e., the client or customer) during an insurance transaction.
However, a broker is different from an agent. A broker doesn’t hold an appointment with the insurer in question, and a broker cannot bind coverage on behalf of the insurer.

Answer 7

Broker:

Question 8

This is a person who’s able to understand the contract to which two parties are agreeing. All parties must be of legal competence, which means that they must be of legal age, mentally capable of understanding the contract terms, and not under the influence of drugs or alcohol.

Answer 8

Competent Party:

Question 9

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

Answer 9

Concealment:

Question 10

This is an agreement that remains in force if certain conditions are met. The insurer’s promise to pay benefits is dependent on the occurrence of an event that’s covered by the contract.

Answer 10

Conditional:

Question 11

This is the legal description of the items of value that each party to the contract provides to the other. In the case of an insurance policy, the applicant provides material information and the premium. In return, the insurance company agrees to pay the cost of claims that are covered by the policy.

Answer 11

Consideration:

Question 12

This clause is part of an insurance contract and sets forth the initial and renewal premiums and frequency of future payments.

Answer 12

Consideration Clause:

Question 13

This doctrine states that an insurance contract will be interpreted to mean what a reasonable individual would think it means, even if the insurer must pay additional benefits that are not intended by the contract.

Answer 13

Doctrine of Reasonable Expectations:

Question 14

This is the legal impediment to one party’s ability to deny 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.

Answer 14

Estoppel:

Question 15

This is the explicit authority that’s granted to the agent by the insurer, as written in the agency contract.

Answer 15

Express Authority:

Question 16

This is the explicit authority that’s granted to the agent by the insurer, as written in the agency contract.

Answer 16

Express Authority:

Question 17

A fiduciary is a person to whom property or power is entrusted for the benefit of another person. A producer is a fiduciary that’s in a position of trust regarding the funds of its clients and the insurer. It’s the responsibility of an insurance producer to account for all of the premiums collected and to provide sound financial advice to clients.

Question 18

An individual commits fraud when he engages in intentional deceit to gain a benefit. Fraud includes having deliberate knowledge of false statements that are made or intended as well as the act of a person making such statements herself.

Answer 18

Fraud:

Question 19

This is an authority that’s not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. This authority enables the agent to carry out routine responsibilities.

Answer 19

Implied Authority:

Question 20

This type of contract attempts to return the insured to his original financial position.

Answer 20

Indemnity Contract:

Question 21

This is the financial, economic, and emotional impact that’s experienced by a person who suffers a covered loss. A person has an insurable interest if she has more to gain by not experiencing the loss.

Answer 21

Insurable Interest:

Question 22

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

Answer 22

Insurance Policy:

Question 23

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

Answer 23

Legal Purpose:

Question 24

This is a false statement being made by an applicant that influences either an insurer’s decision to accept the risk, or the classification and pricing of a risk that’s accepted by the insurer.

Answer 24

Material Misrepresentation:

Question 25

This is a statement being made as a legal representation that’s factually incorrect, either totally or in part.

Answer 25

Misrepresentation:

Question 26

This rule states that, when the parties agree in writing, all previous verbal statements come together. A written contract cannot be changed or modified by parole (oral) evidence.

Answer 26

Parole Evidence Rule:

Question 27

This is an amendment which is added to an insurance contract that overrides terms in the original policy.
Riders may add or remove coverages, change deductibles, or revise any other policy feature. In general, a policy owner must pay an additional premium to add a policy rider that enhances policy benefits.

Answer 27

Policy Rider or Endorsement:

Question 28

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

Answer 28

Reasonable Expectations:

Question 29

These are statements made by the applicant that he considers true and accurate to the best of his belief.

Answer 29

Representations:

Question 30

This rule applies to contracts of adhesion. Courts will interpret the terms of an insurance contract in favor of the insured if there’s a legal dispute and the court holds the terms of the contract to be ambiguous. The insurer is responsible for ensuring that the contract is clear since it creates the policy terms as a contract of adhesion.

Answer 30

Rule Regarding Ambiguities:

Question 31

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

Answer 31

Subrogation:

Question 32

This is a type of contract in which only one party-the insurer-makes any kind of enforceable promise. The promises remain in force for as long as the insured pays the required premium.

Answer 32

Unilateral:

Question 33

This statement is based on the belief that both the policy owner and the insurer must know all of the material facts and relevant information. As such, they will provide each other with all material facts and relevant information.

Answer 33

Utmost Good Faith:

Question 34

This type of contract pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts.

Answer 34

Valued Contract:

Question 35

This contract is an agreement that has never really been in force because it lacks one of the essential elements of a contract. For example, if a third party (rather than the applicant for insurance) provides a urine sample for analysis, this act of impersonation deprives the insurer of the information it needs. In effect, the applicant is withholding necessary consideration; therefore, any policy is void from the day it’s issued. In other words, it never really goes into effect. (See Voidable Contract for contrast.)

Answer 35

Void Contract:

Question 36

This type of contract is an agreement that may be set aside by one of the parties in the contract for a reason that’s satisfactory to the court. (See Void Contract for contrast.)

Answer 36

Voidable Contract:

Question 37

This is the voluntary giving up of a legal, given right.

Answer 37

Waiver:

Question 38

This is a statement made by the applicant that’s guaranteed to be true in every respect and also becomes a part of the contract. The discovery that a warranty is untrue can be grounds for revoking the agreement. In general, all statements that are made by an applicant are representations, rather than warrantie

Answer 38

Warranty: