Lesson 1 Part 2 Flashcards
Contract
Agreement between 2 or more competent parties under the terms which each promises to perform in manner specified
4 components for contract to be legal and enforceable
1) Offer & Acceptance (Agreement)
2) Competent Parties
3) Legal Object (Purpose)
4) Consideration
Entities deemed incompetent for legal contract
Minors, Mentally incompetent individuals, those under influence of alcohol
Aleatory Contract
The value given up by one party does not equal that given up by the other party
Contract of Adhesion / One Sided Contract
Where one party creates the contract terms & the other party must comply with them
Courts interpret policies to include coverages that an average person would understand them to include
Doctrine of Reasonable Expectations
When a party does not enter into agreement in _____________, the other party may void contract.
Utmost Good Faith
Executory Contracts
Like an insurance policy, act in contract remains to be performed by one of the parties
Unilateral feature
Contract where only the insurer promises to perform; promise made by only one party
Contract subject to numerous conditions
Conditional Contract
Waiver
Intentional or voluntary relinquishment of a known right in an insurance contract
Estoppel
Where there is a form of broken promise from insurer who makes a statement and insured relies on statement, but later insurer doesn’t want to abide by original statement
3 required elements of estoppel
1) False representation of material fact
2) Reasonable reliance
3) Harm would result
Errors & Omissions (E&O) policies
Claims which result from negligent act(s) of a producer
4 parts that make up insurance contract
1) Declarations
2) Insuring Agreement
3) Conditions
4) Exclusions
Illustrations of conditions places upon insureds
1) Proof of Loss
2) Assistance of the insured
3) Insured duties in event of loss
4) Notice of loss
Modify policies insuring agreements to eliminate uninsurable perils or other coverages not under the term of contract; prevents duplication of coverage
Exclusions
Representation
Oral or written statements made by individual seeking to enter consideration contract
Warranties
Statements made by applicant regarding nature of the risk to be insured
Fraud
Intentional misrepresentation of material fact that may void a contract
Binder
Temporary policy that’s subject to terms of contract to be written later
Endorsements
Attachment added to policy when changes occur mid term
Outline of coverage & premium without any coverage in force
Proposal
Price per unit of exposure
Rate
Portion of rate needed to pay losses & loss adjustment expenses (loss costs)
Pure premium
Loading
Amount added to pure premium for other expenses
Pure premium plus loading element
Gross rate
Gross premium
Gross rate multiplied by # of exposure units
Class rates
Applied to large group of homogeneous loss exposures
When large numbers of homogeneous exposures do not exist
Individual/ Specific rate
Judgement rating
Determined by underwriter & used when credible statistics are lacking
Retrospective rating
Considers actual losses during policy period when final premium for coverage is determined
Purpose of rating bureau?
1) Accumulate/Analyze statistical data to develop rates
2) Calculate rates for line of insurance
3) File rates with state authority for approval
Insurers who wish to remain outside a rating bureau & file independently
Non bureau insurers
Adverse Selection
Tendency of persons whose exposure to loss is higher than average to purchase/continue insurance
Underwriting process
1) Selection of insureds
2) Pricing
3) Evaluation of risks
4) Determination of contract conditions
4 external sources of info for underwriting department
1) Producer
2) Consumer Reports
3) Government Records
4) Financial Rating Service
What is the Insurance Services Office (ISO) 6 basic types of construction?
1) Frame
2) Joisted Masonry
3) Non-Combustible
4) Masonry Non-Combustible
5) Modified Fire Resistive
6) Fire Resistive
Appointed by producer to take applications & collect premiums, but unable to countersign policies
Solicitor
Insurer specialists not required to be licensed, that help producers sell/service insurance & receive a salary
Service Representative
Fiduciary Capacity
Requiring a high degree of trust & confidence
Express Authority
Anything an insurer specifically instructs producer to do
Authority not specifically given to a producer by insurer
Apparent authority
Parol Evidence Rule
When parties place their contract in writing, all previous oral agreements merge into the written contract
Frame
Buildings with combustible construction or buildings with walls noncombustible but floor & roof combustible
Joisted Masonry
Buildings with fire resistive construction & combustible floor & roof
Non-Combustible
Buildings with wall/floor/roof non-combustible or slow burning material supported by non-combustible or slow burning support
Masonry Non-Combustible
Buildings with walls of fire resistive construction & with non-combustible or slow burning floor & roof
Modified Fire Resistive
Buildings with fire resistive wall/floor/roof, but with fire resistive rating of less than 2 hours, but more than 1.
Fire Resistive
Certain thickness of masonry material & fire resistance rating must be at least 2hrs
Field Underwriting
Producers evaluate moral quality of applicants
Captive Producer
Represents a single company that actually owns the business placed by the producer
Producer Responsibilities
1) Identify client needs
2) Suggest/Explain coverage
3) Powers granted to producer by company
4) Record binder information
5) Handle application
6) Deliver policy
7) Maintain records
8) Fiduciary capacity
Independent Producer
Owns their “book of business” that is generally placed with different companies
