Study 6 Key Terms Flashcards
Define agreement
Where two or more persons come to a mutual understanding with respect to their rights and duties.
Define void contract
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.
Define consideration
The value received to bind a contract. It is an essential part of a binding contract. Consideration is either expressed or implied. The money, or whatever is being used in substitution of money, paid for the article or contract is “the consideration.”
Define capacity to contract
Parties must be legally able to enter into contracts. This means that the person must be able to enter into a legal agreement and perform some act. The person must be of sound mind.
Define lesion
Occurs when the minor cannot financially afford the object of the contract even though the price is fair, or when the minor can afford it but the object is overvalued, or when the minor cannot afford an overvalued object. The challenge can only be raised by the minor; it is binding on the other party, who cannot cancel at his or her own discretion. There are some instances where the minor cannot use this defence.
Define tutor (or curator)
Person who is the legal guardian of another person.
Define insured
Any person (including a corporation) covered by an insurance policy. In some policies, the term may be defined exhaustively to limit the coverage or defined broadly to expand coverage. See also named insured.
Define insurer
The insurance company that undertakes to indemnify for losses and perform other insurance-related operations.
Define insurable interest
An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss.
Define bailee
In contract and property law, one to whom goods or property are entrusted for a stated purpose. Can be either gratuitous (for no consideration) or for hire (for consideration).
Define indemnity
A contract, expressed or implied, to repay in the event of a loss. The insured neither gains nor loses.
Define deductible
An agreed specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim. This amount is agreed upon by both the insurer and the insured. An insured’s obligation to pay a deductible is not based on whether he or she is at fault.
Define actual cash value (ACV)
The fair market value of property, taking into account factors that might augment or reduce the value of the property in question. Actual cash value (ACV) is usually calculated in one of three ways:
(1) cost to repair or replace less depreciation;
(2) fair market value; or
(3) consideration of all relevant evidence of the value of the damaged property.
Define depreciation
The reduction in value of property through use, aging, deterioration, or obsolescence.
Define replacement value
The current market value of the cost to replace the lost or damaged insured property.
Define coinsurance clause
A distinct section or provision in an insurance policy that requires an insured (property owner) to carry separate insurance for a specified amount stated in the policy to be eligible for full coverage.
Define salvage
The remaining value of property after severe damage by fire or other peril. The overall loss is reduced by the salvage value. Undamaged property may be quite saleable, and some property may be only partially damaged, thus repairable and then saleable.
Define subrogation
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
Define contribution
When more than one policy has been issued to insure a given risk, a loss must be divided equitably among the various policies. According to their amount and terms, each “contributes” its share of the loss.
Define excess insurance
Insurance that does not participate until all other similar insurance on the same subject is exhausted, or until the loss exceeds a previously agreed-upon amount. Where there are two policies on a risk and both contain a provision that they are “excess to all other insurance,” the problem is resolved by the general “guiding principles.” This is usually interpreted so that each insurer contributes pro rata to the loss.
Define utmost good faith
A legal principle calling for the highest standards of integrity on the part of the insured and the insurer. See also uberrimae fidei.
Define uberrimae fidei
Of the utmost good faith. The basis of all insurance and reinsurance contracts. Both parties to the contract are bound to exercise good faith and do so by a full disclosure of all information material to the proposed contract.
Define good faith
Most ordinary contracts are good faith contracts. Insurance contracts are agreements made in the utmost good faith. This implies a standard of honesty greater than that usually required in most ordinary commercial contracts.
Define material fact
A fact that would affect a contract of insurance enough to influence an insurer’s decision regarding whether to accept or reject the risk or the premium to be set. Material facts must be disclosed by the applicant if asked about.
Define misrepresentation
Incorrect or missing information about a material fact that is offered, or not, by an applicant or insured with or without the intent to mislead.
Define non-disclosure
A contract of insurance is based on utmost good faith. An applicant for insurance is required to disclose to the company all material facts that are necessary to underwrite a policy. If the applicant does not disclose all these facts, she is guilty of non-disclosure and may risk having coverage voided from inception.
Define concealment
As applied to insurance, the intentional withholding from an insurance company of information pertinent to a risk.
Define guaranteed replacement cost
A clause that pays replacement costs even if these exceed the amount of insurance on the dwelling building if all conditions are met.
