Lesson 3: Contract Law Flashcards
Insurance Contract
An insurance contract is a unilateral legal agreement that spells out the responsibilities of the insurance company and the insured, in addition to the specific conditions of coverage, the policy term, and cost. Insurance allows you to transfer risk to a company that will indemnify losses suffered by the insured.
Insurance Services Office (ISO)
The Insurance Services Office is an organization that collects statistical data, promulgates rating information, develops standard policy forms, and files information with state regulators on behalf of insurance companies that purchase its services. Note: A goal of the insurance rate regulation is to prevent the following:
Preventing inadequate rates
Preventing excessive rates
Preventing unfairly discriminatory rates
Elements of a K
1 Offer and acceptance are when the insured makes an offer by applying to the insurance company; the insurance company accepts the application and issues the policy.
2 Legal consideration is exchanging one value for another between the two parties of the contract. For example, the premium paid by the applicant or policyholder to the insurer and insurer payment of claims to the policyholder.
3 Purpose the issuance of the insurance policy must fall within legal guidelines.
4 The capacity of the insured must be deemed legally competent prior to entering into an agreement with the insurer.
Declarations Page
Insurance company name
Policyholder’s name
Policy number
Policy period: The period of time your policy provides coverage
Location of property
Coverage: The damage or injuries an insurance company agrees to pay for under the policy
Coverage limits: The maximum amount your insurance company will pay for each covered accident, for each type of coverage
Deductible: The amount you owe in a loss before the company pays its part
Premium: The amount you pay an insurance company for your policy
Endorsements: Policy changes that give you more or less coverage and may change your premium
Insuring Agreement
The Insuring Agreement summarizes the major promises of the insurance company, as well as states what is covered. In the Insuring Agreement, the insurer agrees to do certain things such as pay losses for covered perils, provide certain services, or agrees to defend the insured in a liability lawsuit.
two basic forms of an insuring agreement:
Named–perils coverage, under which only those perils specifically listed in the policy are covered. If the peril is not listed, it is not covered.
All–risk coverage, under which all losses are covered except those losses specifically excluded. If the loss is not excluded, then it is covered. Life insurance policies are typically all–risk policies.
Conditions
The Conditions are provisions inserted in the policy that qualify or place limitations on the insurer’s promise to pay or perform. If the policy conditions are not met, the insurer can deny the claim. Common conditions in a policy include the requirement to file a proof of loss with the company, to protect property after a loss, and to cooperate during the company’s investigation or defense of a liability lawsuit.
Exclusions/Limitations
The Exclusions take coverage away from the Insuring Agreement.
The three major types of Exclusions are:
1. Excluded perils or causes of loss 2. Excluded losses 3. Excluded property
Typical examples of excluded perils under a homeowners policy are flood, earthquake, and nuclear radiation. A typical example of an excluded loss under an automobile policy is damage due to wear and tear. Examples of excluded property under a homeowners policy are personal property such as an automobile, a pet, or an airplane.
Endorsements
An insurer may change the language or coverage of a policy at the time of the policy renewal. Endorsements and Riders are written provisions that add to, delete, or modify the provisions in the original insurance contract. In most states, the insurer is required to send you a copy of the changes to your policy. It is important that you read all Endorsements or Riders so you understand how your policy has changed and if the policy is still adequate to meet your needs.
Material fact
A material fact is a fact that a reasonable person would recognize as relevant to a decision to be made, as distinguished from an insignificant, trivial, or unimportant detail. In other words, it is a fact, the suppression of which would reasonably result in a different decision.
Misrepresentations and concealment are examples of providing false information when material facts are expected.
Definitions
Most policies have a Definitions section, which defines specific terms used in the policy. It may be a stand–alone section or part of another section. In order to understand the terms used in the policy, it is important to read this section.
representations
Representation refers to the act of disclosing important information, in writing or orally, by one contracted party to the other, before or at the time of the contract, regarding a past or existing fact, that will help the one being disclosed to form the proper course of action.
parol evidence rule
The parol evidence rule prevents the introduction of evidence of prior or contemporaneous negotiations and agreements that contradict, modify, or vary the contractual terms of a written contract when the written contract is intended to be a complete and final expression of the parties’ agreement.
adhesion
Adhesion means the terms of the contract or drawn up by one party and adhered to by the other. If there is any ambiguity or discrepancy the courts tend to favor the party that did not write the contract.
Unilateral
A unilateral contract is a contract in which only one party makes an enforceable promise. Most insurance policies are unilateral contracts in that only the insurer makes a legally enforceable promise to pay covered claims.
