OK Adjusters (Contract Law) Part 2 pages 4-7

Felony

Fraud is a _______ and is punishable by the following: - Civil penalty of up to $10,000 - Imprisonment for up to 10 years - Combination of both

False statement

If the applicant for insurance makes a ___________ regarding a material fact on the application for property and casualty insurance the applicant has committed fraud.

Material facts

Information that impacts the insurer's decision to accept.

Premium or money

Insured's consideration is ________.

Promise

Insurer's consideration is a ______.

Concealment

Intentional failure to disclose a material fact to an insurance company

What are the 4 essential elements of a legally binding contract?

Legal Purpose, Agreement, Competent Parties, and Consideration.

Acceptance

Made when insurance policy is approved by the underwriter.

Offer

Made when the application is submitted; making a request to the insurance company for insurance coverage.

Legal Purpose

Not against the public interest

Competent Parties

Parties entering a contract must, at the time of agreement, be considered legally competent to enter into an agreement. People who are minors, legally insane, or intoxicated are NOT competent.

Agreement

Requires both an offer and an acceptance

Consideration

Something of value which both parties must give (aka trade value) -can be: a)an act b)a promise c) money

Representations

Statement made on the application regarding material facts that the insured believes to be true.

QUIZ: Representation (B)

Statements made by the applicant on an insurance application are considered: a. warranties b. representations c. guarantees d. misrepresentations

Contract of Adhesion

The insurance policy, a legally binding contact, is drafted by only one party which is the insurance company. The insured must "adhere" to the contact terms without negotiation "accept or reject in full" The courts will interpret any ambiguity(unclear) of a policy provision in favor of the insured. Insured CANNOT alter a policy provision.

Contract of Indemnity

The intent of insurance is to make the insured financially "whole" again by paying losses but not allowing gain(profit). - a feature designed to avoid over-payment while allowing the insured to be reimbursed for loss. - a feature which allows the insured to be reimbursed and restore to his/her original financial position prior to the loss.

QUIZ: Contract of adhesion (A)

When one party constructs the contract and the other party has no input, it is known as: a. contact of adhesion b. aleatory contract c. unilateral contract d. conditional contract

QUIZ: Arson (B)

Which of the following would be a moral hazard? a. wet pavement on the highway b. arson c. leaving building unlocked d. a banana peel on the floor

QUIZ: A person confined to hospital due to heart attack

Which of the following would be considered competent to enter a contract? a. retired person committed to a mental hospital b. a girl scout, age 13, selling girl scout cookies c. individual having a difficult time walking after a tavern d. person confined to hospital due to heart attack.

QUIZ: Warranty (B)

Which statement made by the insured automatically voids the insurance coverage if not true? a. fraud b. warranty c. representation d. misrepresentation

Warranties

Written statements regarding material facts the insured guarantee's to be true. Breach of warranty automatically voids the insurance contact: therefore, warranties carry greater weight than representations.

QUIZ: HAZARD (A)

A banana peel on the floor of a grocery store on which a person could slip and fall is a: a. hazard b.peril c. cause of loss d. pure risk

Fraud

A knowing misrepresentation of truth or concealment of a material fact to include another to act to his/her detriment (harm)

QUIZ: The contract is enforceable by the insurer (D)

All of the following are characteristics of an insurance contract, EXCEPT? a. the insured must give consideration b. the insurer must give consideration c. the contract is enforceable by the insured d. the contract is enforceable by the insurer.

QUIZ: Both parties must sign the contract (B)

All of the following are requirements for a contract to be legally binding contract, EXCEPT? a. both parties of equal consideration b. both parties must sign the contract c. both parties must, at the time of the contract, be considered legally competent d. both parties must come to an agreement which requires both an offer and acceptance

QUIZ: An exchange of equal consideration (A)

All of the following are requirements of legally binding contracts, EXCEPT? a. an exchange of equal consideration b. an offer and acceptance c. competent parties d. legal purpose

QUIZ: Insurance contract are bilateral contracts (D)

All of the following statements are true regarding an insurance contract, EXCEPT? a. consideration is something of value which is required of both parties b. the insured must adhere to the terms of the contract without negotiations. c. insurance contracts are enforceable by the insured. d. insurance contracts are bilateral contracts

QUIZ: Contract of indemnity (D)

An insurance contract is a legally binding contract. Which of the following best describes a policy concept which allows the insure to be reimbursed without making a gain? a. conditional contract b. unilateral contract c. conditional contract d. contract of indemnity

QUIZ: Bilateral Contract (C)

An insurance contract is all the following, EXCEPT? a. contract of utmost good faith b. aleatory contract c. bilateral contract d. unilateral contract

QUIZ: Contract of adhesion (A)

An insurance contract is legally binding contract. Which of the following best describes the insured must accept or reject all the policy provisions? a. contract of adhesion b. unilateral contract c. contract of indemnity d. conditional contract

QUIZ: Contract of utmost good faith

An insurer must rely on the truthfulness and integrity of the applicant. This is called: a. conditional contract b. bilateral contract c. contract of utmost good faith d. unilateral contract

Conditional Contract

Certain Conditions (rules) are required of both parties that must be fulfilled to make the contract legally enforceable. Ex.. -the insurer must pay the claim based on the valuation method stated in the policy. -the insured must pay premiums -the insured must protect the property in the event of a loss.

Contract of Utmost Good Faith

Each party is entitled to reply upon the representations of the other. -The insured tells the truth regarding material facts expecting the insurer to fulfill promise to pay any covered loss.

Unilateral Contract

Enforceable by only one party. The insurer has the duty to perform. The contract is enforceable by the insured. -Insured pays the premium -Insurer promised to pay policy proceeds for covered losses.

Aleatory Contract

Equal value is not given by both parties. One party can benefit more than the other based on change (or the occurrence of an uncertain event.)

Misrepresentation

False information given to an insurance company regarding a material fact.