Chapter 3 Summary Legal Concepts of Insurance Contract

insurance applicant

Are required to make a full, fair, and honest disclosure of the risk to the agent and insurer.

Insurable Interest

Can be defined as the kind of financial interest a person must have in order to possess legally enforceable insurance coverage.

gross negligence

Conduct that constitutes a willful or reckless disregard for a duty or standard of care.

Types of Negligence

Simple, Gross, Willful

Insurance contracts are unilateral which means

That only one party (the insurer) makes any kind of enforceable promise.

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

simple negligence

The failure to act as a reasonably prudent person would have acted under similar circumstances.

Insurance contracts are aleatory

This means there is an element of chance and potential for unequal exchange of value or consideration for both parties.

Stranger-Originated Life Insurance (STOLI)

transactions are life insurance arrangements where investors persuade individuals (typically seniors) to take out new life insurance.

An insurance contract is either:

valued contract or an indemnity contract.

When an offer is answered by a counter-offer, the first offer is

void

agent

A person who acts for another person or entity known as the principle with regard to contractual arrangements with third parties.

representation

A statement made by the applicant that they consider to be true and accurate to the best of the applicants belief

Insurance contracts are

Aleatory

There are two parties to an insurance contract

Insured and Insurer

policy

Is a written contract in which one party promises to indemnify another against loss that arises from an unknown event.

Concealment

Is defined as the failure or neglect by the applicant to disclose a known material fact when applying for insurance.

Rescission

Means the contract is made null and void

Aleatory

Means there is potential for unequal exchange of value or consideration for both parties.

For a contract to be legally valid and binding, it must contain:

Offer and acceptance Consideration Legal purpose Competent parties

The following four essential elements must be contained in every contract for it to be legally valid and binding (enforceable)

Offer and acceptance Consideration Legal purpose Competent parties

Insurance is a contract of

Utmost good faith

Insurance contracts are contracts of ___ because the contract has been prepared by one party (the insurance company) with no negotiation between the applicant and the insurer.

adhesion

The insurer is considered ___ if it has been licensed or authorized by the state in which it conducts business.

competent

The applicant gives ____ in exchange for the insurers promise to pay benefits.

consideration

Willfull and Wanton Negligence

extremely unreasonable behvaior that causes injury

For a contract to be enforceable by law, the purpose of the contract must be

formed for a legal purpose

solicitor

has the authority to seek insurance applicants for a company but does not have any authority to bind coverage on behalf of a company to a customer.

warranty

is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.

Voidable Contract

is an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.

indemnity contract:

is one that pays an amount equal to the loss.

Express Authority

is the authority a principal deliberately gives to its agent.

Implied Authority

is the unwritten authority that is not expressly granted, but which the agent is assumed to have in order to transact the business of the principal.

Waiver

is the voluntary giving up of a legal, given right.

policy rider

or endorsement is a legal attachment amending a policy.

Valued Contract

pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts.

The concept of tort law is

provide full compensation for proved harm

An insurance contract is conditional because

the insurer's promise to pay benefits depend on the occurrence of an event covered by the contract.