Unit 2: Contracts Flashcards
Elements of a Legal Contract: CLOAC
Consideration Legal Purpose Offer Acceptance Competent Parties
Consideration
Consideration = Money
It’s an exchange of value
Insured - statements made on the application + premium
Insurer - promise to pay claim (based on policy)
Legal Purpose
Risk transfer doesn’t violate the law.
Offer and Acceptance
OFFER (made by insured)
Insured submits an application and first-month premium to insurer.
Insurer accepts or insurer 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 theri application
Competent Parties
Legal age (usually 18)
Mentally sane
Sober
Adhesion
Policy written by the insurance company
Contract cannot be changed
Insured has no input
if ambiguous, court will take the side of the insured
Aleatory
Unequal value
Pay small premium and have a large claim, or pay premiums for many years without a claim
Utmost Good Faith
“PINKY PROMISE”
The insured and insurance company have a right to expect honesty from each other
Unilateral
Insured may cancel the contract anytime
Insurer must pay covered losses
Personal
Contract between the insurance company and the insured
Cannot be changed to someone else
Conditional
insured must pay the premium for coverage and file a claim if a loss occurs
Indemnity
Pay for the loss with no gain
No more! No less!
Representation and Misrepresentations
TRUE OR FALSE?
Representation - believed to be true. Statements on applications are considered representations.
Misrepresentation - information given that is not true but would not affect the insurance company’s decision.
Material misrepresentation - information given that is not true and DOES affect the insurer’s decision
Warranty
A PROMISE
Always made by the insurance company. Breach of warranty may void contract
MAY be made by the insured. Breach of warranty may void the contract
Concealment
Failure to disclose.
If intentional, and the information is material (important), coverage could be voided.
If NOT intentional, coverage can NOT be voided
