Unit 2 - Contracts

Question 1

Elements is a Legal contract-CLOAC

Answer 1

•Consideration: Giving something of value
-insured: statements made on the application and premium
-Insurer: promises to pay claim (based on policy)
•Legal Purpose: risk transfer doesn’t violate the law
•Offer
•Acceptance
•Competent parties: legal age, sane, and sober

Question 2

Consideration

Answer 2

Premium and statements made on application

Question 3

Legal Purpose

Answer 3

Risk transfer doesn’t violate the law

Question 4

Offer (made by insured)

Answer 4

•insured submits application and first month premium to insurer

•insurer accepts or insurer declines the risk

Question 5

Counteroffer (made by insurer)

Answer 5

Also known as > Acceptance

•Agrees to issue policy but with higher premium or restrictions/exclusions

•Insured either accepts the conditions or withdraws their application

Question 6

Competent Parties

Answer 6

•Legal Age (usually 18)
•Mentally sane
•Sober

Question 7

Adhesion

Answer 7

•Policy written by the insurance company
•Contract is like glue-cannot be changed
•Insured has no input
•If ambiguous (not clear), count will take the side of the insured

Question 8

Aleatory

Answer 8

•Not equal value
•Small premium for a large amount of vegetate

Question 9

Utmost good faith

Answer 9

The insured and insurance company have a right to expect honesty from each other

Question 10

Unilateral (uni=one)

Answer 10

Only one legally enforceable promise made

Example:

• insurance company promises to pay for a covered loss
• insured does NOT promise to pay the premium

Question 11

What happens if the insured doesn’t pay premiums?

Answer 11

The insurance company will cancel the policy

Question 12

What happens if the insurer doesn’t pay the claim?

Answer 12

The insured will sue, and the insurer is legally bound once the policy is issued

Question 13

Personal

Answer 13

Contract between the insurance company and the insured; cannot be changed to someone else

Question 14

Conditional

Answer 14

Insured must pay the premium for coverage and file a claim if a loss occurs

Question 15

Indemnity

Answer 15

Makes whole
Examples:
• Restores the insured to a pre-loss state
•Pays for the loss with no gain
•No more! No Less!

Question 16

Representation

Answer 16

Believed to be true

Example:

• statements on applications are considered representations

Question 17

Misrepresentation

Answer 17

Information given that is not true, but would not affect the insurance company’s decision

Question 18

Material misrepresentation

Answer 18

Information given that is not true and DOES affect the insurer’s decision

Question 19

Warranty

Answer 19

Promise

Examples:
•Always made by the insurance company:
Breach of warranty may void the contract
•May by made by the insured:
Breach of warranty may void the contract

Question 20

Concealment

Answer 20

Failure to disclose; hiding information

•if intentional and the information is material (important), coverage could be voided
•If NOT intentional, coverage can NOT be voided

Question 21

Fraud

Answer 21

Intentional act to cheat another

Question 22

Waiver

Answer 22

Voluntarily giving up a right

Question 23

Estoppel

Answer 23

Once a waiver has been created, it can’t be reinserted