Unit 2 - Contracts Flashcards
Elements of a Legal Contract?
CLOAC
Consideration
Legal Purpose - risk transfer doesn’t violate the law
Offer
Acceptance
Competent parties - legal/sane/sober
Elements of a legal contract:
What is Consideration?
giving something of value:
Insured - statements made on the application + premium
Insurer - promises to pay claim (based on policy)
Consideration?
premium and statements made on application
Legal purpose?
Risk transfer doesn’t violate the law
Offer and acceptance?
Offer (made by insured)
- Insured submits application and first month premium to insurer
- insurer accepts or declines the risk
counteroffer? (made by insurer)
Agrees to issue policy but with higher premium or restrictions/exclusions
insured either accepts the conditions or withdraws their application
Competent parties?
Legal age (usually 18)
Mentally sane
Sober
Adhesion?
Policy written by the insurance company
contract is like glue – cannot be changed
insured has no input
if ambiguous (not clear), court will take the side of the insured
Aleatory?
Not equal value
Small premium for a large amount of coverage
Unilateral?
only one legally enforceable promise made
uni = one
Insurance company promises to pay for a covered loss
What happens if the insured doesn’t pay premiums?
the insurance company will cancel the policy
What happens if the insurer doesn’t pay the claim?
the insured will sue, and the insurer is legally bound once the policy is issued
conditional?
insured must pay the premium for coverage and file a claim if loss occurs
indemnity?
MAKES WHOLE
Restores the insured to a pre-loss state
pays for the loss with no gain
No more! No less!
Representation?
believed to be true
Statements on applications are considered representations
