Principles of Insurance Chapter 9 and 10

excluded property

pets are not covered as persona property in the homeowners policy

excluded losses

professional liability loss is excluded in the homeowners policy

personal

property insurance policy cannot be validity assigned to another party without the insurers consent.

straight deductible

the insured must pay a certain number of dollars of loss before the insurer is required to make a payment

named insured

the person of persons named in the declarations section of the policy

consideration

the value that each party gives to the other

waiver

the voluntarily relinquishment of a known legal right

aleatory

values exchanged are not equal - the performance of one or both parties is contingent upon the occurrence of a particular event.

Open perils or special coverage

where all losses are covered except those losses specifically excluded

named perils coverage

where only those perils specifically named in the policy are covered

competent parties

with legal capacity to enter into a binding contract

Law and the Insurance Agent

- an agents authority comes from three sources -express authority -implied authority -apparent authority Knowledge of the agent is presumes to be knowledge of the principle with respect to matters within the scope of the agency Insurers can place limitations on the power of agents be adding a non waiver clause to the application or policy

District legal Characteristics of insurance contracts

- an insurance contracts is - aleatory - unilateral - conditional - personal - contract of adhesion

Distinct legal characteristics of Insurance contracts

- courts have rules that any ambiguities of uncertainties in the contract are construed against the insurer. - principle pf reasonable;e expectations

Principle of Subrogation

- the insurer is entitled only to the amount it has paid the policy -the insured cannot impair the insurers subrogation rights -subrogation does not apply to life insurance contracts the insurer cannot subrogate against its own insureds

Several laws govern the actions of agents and their relationship to insured.

- there is no presumption of an agency relationship - an agent must be authorized to represent the principle - a principle is responsible for the acts of agents acting within the scope of their authority - limitations can be placed on the powers of agents

requirements of an insurance contract

- to be legally enforceable , an insurance contract most four requirements - offer and acceptance - consideration - competent parties - legal purpose

Exceptions of principle of indemnity

-a valued policy -replacement cost insurance

Declarations

-can usually be found on the first page of the policy - in property insurance, it contains name of the insured, location of property, period of protection, amount of insurance, premium and deductible information

an insurable interest can be supported by

-ownership of property -potential legal liability -serving as a secured creditor -contractual rights

insurable interest exist when

-property insurance at the time of the loss -life insurance: only at inception of the policy

Methods of actual cash value

-replacement cost less depreciation -fair market value -Broad evidence rule

basic parts of an Insurance contract

Declarations Insurance contracts insuring agreement exclusions

other oerties of insureds

a policy may cover other partied even though they are not specifically named.

deductibles

a provision by which a specified amount id subtracts form the total loss payment that otherwise would be payable

warranty

a statement that becomes part of the insurance contract and is guaranteed bu the maker to he true in all respects. -statements made by applicants are considered representations , not warranties

express authority

actual - granted to employee by business

apparent authority

agent represents that she had authority - 3rd party must believe that authority exists. - must be reasonable for 3rd party to believe it

first named insured

has certain additional reights and reponsibilities that do not apply to other named insureds.

insurance polices contain a variety of miscellaneous provisions

cancellations , suborgation, grace period, misstatement of age

the contract must exist for a

legal purpose

additional insureds

may be added using an endorsement

aggregated deductible

means that all losses that occur during a specified time period, usually a year, are accumulated to satisfy the deductible amount.

two basic forms of an insuring

named perils coverage open perils or special coverage

implied authority

not express - implied from job title - title (president of operation) implied to tale anything in contract - implied from past courses of action

Estoppel

occurs when a representation of fact made by one person to another person in reasonably relied on by that person to such an extent that it would be inequitable to allow the first person to deny the truth of the representation.

offer and acceptance

of the terms of the contract

delcarations

statements that provide information about the particular property of activity to be insured

principle of reasonable expectations

states that an insured is entitled to coverage under that an insured is entitled to coverage under a policy that he or she reasonably expects it to be effective, exclusions or qualifications must be conspicuous, plain, and clear.

Principle of Subrogation

substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance

insures agreement

summarizes the major promises of the insurer.

broad evidence rule

that the determination of ACV should include all relevant factors an export would use to determine the value of the property determining damages

Principle of Insurable Interest

The insured must be in a position to lose financially if a covered loss occurs.

Principles of Indemnity

The insurer agrees to pay no more than the actual amount of the loss to return to original state. Ins will provide coverage only to losses. Ins is not there for you to profit off of.

Example of Subrogation

dishwasher starts on fire and burns your house. Ins co. coverage contacts dishwasher co. to get coverage against dishwasher

contribution by equal shares

each insurer shares equally in the loss until the share paid by each insurer equals the lowest limit of liability under any policy or until the full amount of the loss is paid.

the purpose of a deductible is to

eliminate small claims that are expensive to handle and process reduce premiums paid nu the insured reduce moral hazard and attitudinal (moral) hazard.

three major types of exclusions

excluded perils excluded losses excluded property

excluded perils

flood intentional act

Principle of Utmost Good faith

higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts make to read all documents and make sure display (list) items and how much they cost. List what is in the ins.

coinsurance clause-

in a property insurance contract encourages the insured to insure the property to a stated percentage of its insurable value. - if the coinsurance requirement is not met at the time of the loss the insured mist share in the loss as a coinsurance.

coordination of benefits provision

in group health insurance is designs to prevent over insurance and the duplication of benefits if one person is covered under more than one group health insurance plan.

rider

in health insurance a rider is a provision that amends of changes the original policy - waiver of premium rider on a life insurance policy

endorsements and riders

in property and liability insurance and endorsement is a written provision that adds to deletes from or modifies the provisions in the original contract - earth quake endorsement to a homeowners policy

conditional

policy owner must comply with all policy provisions to collect for a covered loss -drop date - key risk management tool. seller securing money of sale of land option of conditional contract drop date

pro rata liability

provision each insureds share of the loss is based on the proportion that is insurance bears to the total amount of insurance on the property

primary and excess insurance

provisions the primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted

Insurable interest in another persons life can be shown by

close family ties, marriage, or pecuniary (financial) interest

unilateral

only the insurer makes a legally enforceable promise -option - reward or contest (one promise)

Why are exclusions necessary

-some perils are not commercially insurable - catastrophic -extraordinary hazards are present - using the automobile for a taxi -coverage is provided by other contracts- use of auto excluded on homeowners policy -moral hazard problem - coverage of money limited to $200 in homeowners policy -Attitudinal hazard problems- individuals are forced to bear losses that result from their own careless -Coverage not needed by typical insureds

purposes of insurable interest

-to prevent gambling -To reduce moral hazard -to measure the amount of the insureds loss

Purpose of principle of subrogation

-to prevent the insured from collecting twice for the same loss -to hold the negligent person responsible for the loss -to hold down insurance rates

Law and the Insurance Agent

an agent in someone has the authority to act on behalf of a principle (the insurer)

Insured

an insurance contract must identify the persons who are insured under the policy -named insured -first named insured - other parties endorsements

Conditions

are provisions on the policy that qualify or place limitations on the insurers promise to perform - if policy conditions are not met, the insurer can refuse to pay the claim

Principle of Utmost Good Faith Representations

are statements made by the applicant for insurance - a contract is viable if the representation is material false and relied on but the insurer -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. - and innocent misrepresentation of a material fact of relied on by the insurer , makes the contract voidable

concealment

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

elimination (waiting) period

is a stated period of time at eh beginning of a loss during which no insurance benefits are paid. - disability income contracts that replace part of a disabled workers earnings typically have elimination periods of 30,60, or 90 days or longer

calendar year deductible

is a type of aggregated deductible that is found in basic medical expense and major medical insurance contracts

equity in rating

the fundamental purpose of coinsurance us to achieve equity in rating. - the property owner wishing to insure for a total loss would pay an inequitable premium if other property owners only insure for partial losses -if the coinsurance requirement is met the insured receives a rate discount, and the insured receives a rate discount and the policy owner who is under insured is penalized through application of the coinsurance formula.

contract of adhesion

the insured must accept the entire contract with all of its terns and conditions - one party of other little guy with contract can get a court to decide if landlord can kick him out

Fair market value

the price a willing buyer would pay a willing seller in a free market. the estimate of the market value of a property