2.1 The Insurance Contract

Aleatory contract

Contingent on an uncertain event, a loss, providing unequal transfer of value between the parties. premiums can be paid with loss never occurring and premiums can be pd shortly with a payout more than the premium was being pd.

Conditions

Ground rules for policy. Responsibilities of both parties involved (insured and insurer).

Insuring Agreements

Heart of policy. in general what is to be covered, losses for which the insured will be indemnified. Type of property covered and perils against which it is insured.

Contract

Legal agreement between two competent parties that promises a certain performance in exchange for consideration. eg. premium pd=coverage (2party)

Doctrine of Reasonable expectations

States that a policy includes coverage that an average person would reasonably expect to include regardless of what policy states. Courts resolve ambiguity in policy wording.

consideration

The Fourth requirement for a valid contract. insurer pays premium and insurance pays for loss suffered

Declarations

Almost always on top of page, name of insured...address...amount to be covered...description of property...and cost of policy.

Insurance contracts must have...

competent parties legal purpose offer and acceptance (agreement) consideration

personal contract

contract does not insure property, it insures the person who owns the property.

parts of the insurance contract

declaration insuring agreements conditions exclusions Definitions

competent parties

first requirement for legal contract: no drugs, alcohol, minors, or incapacitated, insane.

unilateral

insurance contract is one sided. only the insurer in bound to perform its part of the agreement, upon payment of premium.

conditional

insurer includes conditions that the insured and insurer must comply with. eg. loss must be reported and insured must use valuation methods specified by in policy to settle loss

Exclusions

losses that are not covered. if excluded loss occurs, insurer will not be indemnified.

principle of indemnity

one of the most important characteristics of an insurance contract. when a loss occurs, individual should be restored to financial condition he was in before loss, no less and no more. you cant double collect on a stolen item. if car totalled valued at 6,000 that is what you receive despite once being 15,000 in value

adhesion

one party has greater power over the other in drafting the contract. provisions are drafted by insurer. The insured does not take part in contract. special request may be made but provisions are made by insurer

policy organization

policies can be organized in a number of ways. some are continuos pages and are organized differently

characteristics of insurance company

principle of indemnity personal aleatory adhesion unilateral contract of utmost good faith conditional

Legal Purpose

second requirement for a valid contract: formed for legal purpose. Contract against public policy

utmost good faith

the insurer relies on truthfullness and integrity of applicant when issuing a policy and vice versa

Offer and Acceptance

third requirement for contact: involves two parties: offer made and offer accepted, aka agreement,

Definitions

usually last, the meanings of certain terms in the policy.

endorsement

when changes need to be made, broadening coverage, restricting coverage, name changes, etc

policy jacket

aka skeleton policy, contains general conditions and declarations. a policy form of coverage must be attached with all five parts.

declarations format

a coverage form containing the coverages and certain exclusions, definitions, and conditions, separate general conditions form and a cause of loss form listing perils insured against and additional exclusions.