Insurance Chapter 9

Valued Policy

-Indemnification Exceptions- pays the face amount of insurance if a total loss occurs ($ amount agreed at time of contract)

Valued policy law

-Indemnification Exceptions- that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law. (MO - fire)

Contract must have these

-Offer and acceptance -Consideration -Legal capacity (both parties) -Legal Purpose

Legal documents that support utmost good faith

-Representation -Concealment -Warranty

Contract legal characteristics

-Aleatory -Unilateral -Conditional -Personal -Contact of adhesion

Legal Principles of Insurance

-Indemnification -Insurable interest -Subrogation -Utmost Good Faith

Replacement cost insurance

-Indemnification Exceptions- means there is no deduction for depreciation in determining the amount paid for a loss

Voidable

A contract is _______ by the insurer if the representation is material, false, and relied on by the insurer

C

An insurance contract must be accepted in its entirety and any ambiguity in the contract is construed against the insurer. Because of these characteristics, we can describe insurance contracts as A. valued contracts. B. bilateral contracts. C. contracts of adhesion. D. aleatory contracts.

C

For a legally binding property insurance contract to be in force, all of the following elements are necessary EXCEPT A. competent parties. B. exchange of consideration. C. written document. D. legal purpose.

Contract

Insurance policy is a __________

D

Property insurance contracts have all of the following distinct legal characteristics EXCEPT A. they are personal contracts. B. they are contracts of adhesion. C. they are aleatory contracts. D. they are bilateral contracts.

True

T or F Most property and casualty insurance contracts are contracts to indemnify. Life insurance is not.

False

T or F Subrogation applies to life insurance

Indemnification

The insurer agrees to pay for the loss - no more (and usually less) To prevent the insured from profiting from a loss To reduce moral hazard

Waiver

defined as the voluntary relinquishment of a known legal right Ex. Incomplete application and policy issued - can't deny claim based on fact that missing info

Warranty

is a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

Concealment

is intentional failure of the applicant for insurance to reveal a material fact to the insurer

Fair market value

is the price a willing buyer would pay a willing seller in a free market

Doctrines of waiver and estoppel

may require an insurer to pay a claim that it ordinarily would not have to pay

Innocent misrepresentation

of a material fact, if relied on by the insurer, makes the contract voidable

Representations

statements made by the insurer or insured post loss

Contract of adhesion

the insured must accept the entire contract with all of its terms and conditions

Estoppel

the loss of a legal defense because of previous actions that are now inconsistent with that defense Ex. Agent says No worries - don't need to disclose; insurer can't raise defense not disclosed

Principle of reasonable expectations

states that an insured is entitled to coverage under a policy that he or she reasonably expects it to provide, regardless of policy provisions.

Insurable interest in property and casualty supports

-Ownership of property -Potential legal liability -Serving as a secured creditor -Contractual rights

Aleatory

values exchanged are not equal - and may depend on an uncertain event

Unilateral

only the insurer makes a legally enforceable promise (promise for performance)

Needed to deny a claim based on concealment

-The concealed fact was known by the insured to be material -The insured intended to defraud the insurer (purposeful)

B

Denise purchased a dining room set for $2,800 and insured it on an actual cash value (ACV) basis. At the time the dining room set was destroyed by a covered peril, the set was 40 percent depreciated. A replacement set will cost $3,000. Assuming no deductible, how much will Denise collect from her insurer? A. $3,000 B. $1,800 C. $2,800 D. $1,880

B

Kyle purchased collision insurance on his new car. While Kyle was driving home from work, another driver failed to stop at a stop sign and hit Kyle's car. Kyle phoned his insurance agent and reported the accident. The agent said, "Don't worry, Kyle, we'll pay to get your car fixed. After we pay for the damage to your car, we will try to collect from the driver who damaged your car." The process the agent described is called A. consideration. B. subrogation. C. estoppel. D. waiver.

3 methods to determine actual cash value

Replacement Cost - depreciation Fair market Value Broad evidence rule

Representations

Statements made by applicants are considered __________ not warranties

Conditional

policy owner must comply with all policy provisions to collect for a covered loss

Personal

property insurance policy cannot be validly assigned to another party without the insurer's consent

Actual Cash Value (ACV)

In property insurance, indemnification is based on the ______________of the property at the time of loss

Life insurance contract

is a valued policy that pays a stated sum to the beneficiary upon the insured's death - face value

Material

means that if the insurer knew the true facts, the policy would not have been issued, or would have been issued on different terms

Broad evidence rule

means that the determination of ACV should include all relevant factors an expert would use to determine the value of the property

Reliance

means that the insurer relies on the misrepresentation in issuing the policy at a specified premium

Principle of utmost good faith

A higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts

D

The assignment of property insurance by the seller of the property to the purchaser of the property is only valid if the insurer approves the assignment. The reason that the insurer must approve the assignment of a property insurance policy is that A. insurance contracts are contracts of utmost good faith. B. insurance contracts are aleatory contracts. C. insurance contracts are bilateral contracts. D. insurance contracts are personal contracts.

Principle of insurable interest

The insured - party purchasing insurance - must be in a position to lose financially if a covered loss occurs - otherwise contract of insurance is legally unenforceable Ex. You have an insurable interest in your car - if it's damaged or stolen, you sustain a loss. Your neighbor does not have an insurable interest in your car.

Principle of Subrogation

The insurer is substituted for the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance. Ex. Insurer pays insured, and then attempts to recoup from the responsible party in an auto accident.

C

When Maria applied for a life insurance policy, she answered "No" in response to the question "Have you visited a doctor for any reason during the previous 12 months?" In fact, Maria visited a doctor five weeks ago after experiencing chest pains. She was referred to a specialist who determined that Maria has severe heart disease. If Maria dies shortly after the life insurance policy is issued, on what grounds will the insurer be successful in denying the claim? A. concealment B. waiver C. misrepresentation D. warranty

at issuance of the policy

When must insurable interest exist? Life:

at the time of the loss (contract of indemnity)

When must insurable interest exist? Property:

D

When someone reasonably relies upon a representation of fact, what legal doctrine prevents the representation of fact from being retracted if the individual who relied upon the representation of fact would be harmed? A. agency B. waiver C. warranty D. estoppel

Both I and II

Which of the following statements about law and the insurance agent is (are) true? An insurer is responsible for the acts of its agents when the agents are acting within the scope of the agency agreement. Consumers should not assume that an agency relationship exists just because someone claims to represent an insurance company. both I and II I only neither I nor II II only

II only

Which of the following statements about the principle of insurable interest is (are) true? In life insurance, the insurable interest requirement must be met only at the time of the loss to receive life insurance proceeds after the insured has died. The insurable interest requirement helps to reduce the problem of moral hazard. neither I nor II I only both I and II II only