R.M. Ch. 9 Flashcards
Principle of Indemnity
The insurer agrees to pay no more than the actual amount of the loss
PURPOSES of the principle of indemnity:
o To prevent the insured from profiting from a loss
o To reduce moral hazard
Principle of Insurable Interest:
The insured must stand to lose financially if a loss occurs
PURPOSES of the principle of insurable interest:
o To prevent gambling
o To reduce moral hazard
When must insurable interest exist?
o Property insurance: at the time of the loss
o Life insurance: only at inception of the policy
Principle of Subrogation:
Substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third person for a loss covered by insurance.
PURPOSES of the principle of subrogation:
o To prevent the insured from collecting twice for the same loss
o To hold the negligent person responsible for the loss
o To hold down insurance rates
Distinct Legal Characteristics of Insurance Contracts
- Aleatory
- Unilateral
- Conditional
- Personal
- Contract of adhesion
Aleatory
values exchanged are not equal and depend on chance
Unilateral
only the insurer makes a legally enforceable promise
Conditional
policy owner must comply with all policy provisions to collect for a covered loss
Personal
property insurance policy cannot be validly assigned to another party without the insurer’s consent
Contract of adhesion
since the insured must accept the entire contract as it is written, any ambiguities are construed against the insurer
