Study 1: Claims and the Law - Key terms

Question 1

Adjuster

Answer 1

One who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements

Question 2

Public adjuster

Answer 2

An insurance claims adjuster representing an insured on a fee basis in a claims settlement

Question 3

Claims handler

Answer 3

A claims person involved in any aspect of the claims-adjusting process. May work for brokers, agents, or insurers. Can perform any duty in the adjusting process, including taking the initial report of a loss, adjusting the loss, or handling the salvage or subrogation aspects of claims.

Question 4

Claims examiner

Answer 4

An employee of an insurance company who directs the investigations of staff adjusters and independent adjusters, reviews their reports, and approves claim settlements.

Question 5

Privity of contract

Answer 5

Relationship that exists between two parties or more by virtue of their having entered into a contract.

Question 6

Fortuitous loss

Answer 6

A loss that occurs by chance. An accidental occurrence.

Question 7

Voidable contract

Answer 7

A contract that can be affirmed or rejected at the option of the aggrieved party.

Question 8

Void contract

Answer 8

An illegal contract. In the law, a contract that was never made or never existed. For example, one cannot enter into a contract to commit an illegal act like theft and have it stand up in court. Such a contract is considered a void contract.

Question 9

Principle of indemnity

Answer 9

The concept that an insured will be reimbursed for her loss (subject only to the policy limit and terms). If there is no loss, there can be no indemnity.

Question 10

Insurable interest

Answer 10

An interest that the insured must have in the subject mater of the insurance purchased so that if the event insured against occurs, the insured will suffer an economic loss.

Question 11

Utmost good faith

Answer 11

A legal principle calling for the highest standards of integrity on the part of the insured and the insurer.

Question 12

Punitive damages

Answer 12

Damages in excess of those required to compensate the plaintiff for the wrong done, which are imposed in order to punish the defendant because of the particularly wanton or willful nature of his or her wrongdoing. Also called exemplary damages.

Question 13

Representation

Answer 13

A statement or conduct made to influence an insurer to decide on a risk. The decision includes declining or accepting the risk and deciding the rate and premium to be charged. In insurance, these statements are said to be “material to the risk” and are enough to void a policy ab initio (Latin term meaning “from the beginning”).

Question 14

Warranty

Answer 14

Statement or stipulation or promise in an insurance contract, the breach of which may nullify the contract.

Question 15

Promissory warranty

Answer 15

A promise not only that a fact is presently true but that it will continue to be true during the policy period.

Question 16

Breach

Answer 16

Failure to meet the conditions or warranties contained in a specific policy of insurance.

Question 17

Proof of loss

Answer 17

A formal statement of facts about a loss, attested to by the claimant, in a form specified by the insurer. A proof of loss may need to be notarized. An insurer must respond to a proof of loss after a specified time period with a formal disposition of the claim (approved or denied).

Question 18

Principle of equity

Answer 18

The principle that cases be considered in the spirit of fairness and justness, as well as the strictly formulated rules of precedent.

Question 19

Termination of obligations

Answer 19

The principle that the insurer’s obligations under a policy terminate at a stated point in time.

Question 20

Waiver

Answer 20

The intentional and voluntary relinquishment of a known right. A waiver under a policy is required to be clearly expressed and in writing.

Question 21

Estoppel

Answer 21

A bar created when someone by his action, or lack of it, indicates that he will not exercise a right he has. He stops himself from exercising his right later. For example, if A owns a pen and stands by and watches B sell the pen to C, as if the pen belonged to B, then A cannot later reclaim the pen, arguing that it was his.

Question 22

Notice of loss

Answer 22

Notification received by the insurance company from the insured that a loss has occurred. Failure to give such notice has been held to be a bar against recovery.

Question 23

Subrogation

Answer 23

Legal process by which an insurance company, after the payment of a loss, is assigned the rights of the insured to recover the amount of the loss from those who are legally liable for it.