Policy Provisions and Contract Law

Which of the following is NOT an essential element of an insurance contract?

Counteroffer...In order for insurance contracts to be legally binding, they must have four essential elements: agreement (offer and acceptance), consideration, competent parties, and legal purpose. Counteroffer is not required.

The part of a property policy that shows the amount of insurance, premium, and policy term is the

Declarations

What part of a policy shows the amount of insurance, premium, and policy terms?

Declarations

What section 'personalizes' an insurance policy?

Declarations

What insurance principle does pro rata liability protect?

Indemnity

What process is used to settle a casualty claim when insured and insurer can't agree?

Arbitration which is a common form of private dispute resolution.

In return for premium, an insurance company must

Be fair in underwriting and pay covered losses....In return for premium, an insurance company must be fair and impartial in underwriting of risks and must pay claims made for all covered losses.

What does the exclusions section of a policy specify?

What perils are NOT insured against or what persons are NOT covered In a specific policy

In forming an insurance contract, when does acceptance usually occur?

When an insurer's underwriter approves coverage (In insurance, the offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.)

What is a warranty in an insurance contract?

An absolutely true statement upon which the validity of the policy depends

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the

An additional insured... is usually added by endorsement and is not named on the declarations page but is protected by the policy.

Where is the policy period stated in an insurance policy?

On the declarations page

What provision defines how a policy will respond if there is more than one insurance policy written on the same risk?

Other insurance

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?

Other insurance...which is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.

In commercial property policies who has control of the policy and who can cancel it?

First named insured person on policy

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Conditions...The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the

Conditions..the conditions is the part of an insurance policy that sets forth the obligations and duties of the insurer and the insured.

Who is responsible for filling out a notice of claim form?

Insured...(Notice of claim is a form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred.)

What part of an insurance policy contains the insurer's promise to pay a claim?

Insuring agreement

An insured stated on her application for life insurance that she had never had a heart attack, when in fact she had a series of minor heart attacks last year for which she sought medical attention. Which of the following will explain the reason a death benefit claim is denied?

Material misrepresentation bc it will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until then. Which of the following makes that possible?

A binder, which is a temporary agreement issued, usually in writing, but may be oral, by a producer or insurer providing temporary coverage until a policy can be issued.

What does the term unilateral contract mean?

A one-sided contract. This means only one party makes an enforceable promise.

What's consideration on the part of the insurer?

A promise to pay in the event to of a loss

What is additional coverage in an insurance policy?

A provision that adds coverage for a specific loss at no additional premium

What is a material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company. (A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company.)

What is proof of loss?

A sworn statement from an insured notifying the insurer about a loss

What is a binder?

A temporary insurance contract that goes in effect prior to the policy issue

Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?

A warranty in insurance is a statement guaranteed to be true. When an applicant is applying for an insurance contract, the statements he or she makes are generally not warranties but representations. Representations are statements that are true to the best of the applicant's knowledge.

In property and casualty policies what is required for an assignment to be valid?

A written consent of the insurer

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

Additional coverage bc the additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.

Persons who are not named on the declaration page of a policy are known as what type of insured?

Additional insured

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT

+Conditions+ are part of the policy structure. Consideration is an essential part of a contract.

What are the four elements of an insurance contract?

Agreement (with both an offer and acceptance), consideration, competent parties and legal purpose

Who is an insured in property and casualty insurance?

Anyone covered under the policy even if it is not specified

What is the difference between cancelation and non-renewal?

Cancellation is the termination of a policy before it expires. Non- renewal is termination at its expiration date by not continuing the policy

Which of the following would NOT be considered a source of insurability information by an insurer?

Marital status...An insurer may inspect, with the applicant's written permission, the following: application form, motor vehicle records, interviews with neighbors, friends and employers, inspection of property, and inspection of insurance history.

What does pro rata liability apply and what is it?

Pro rata signifies when something moves PROPORTIONATELY and it can be used when an insured has more than one policy covering a loss

A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as

Appraisal...If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal.

An insurance contract must contain all of the following to be considered legally binding EXCEPT

Beneficiary's consent....The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?

Company A will pay $16,000; Company B will pay $8,000....Each policy pays its pro rata share of the loss based upon each policy's share of the total amount of coverage.

Information about changes to the policy or return of premium can be found in what section of a policy?

Conditions

What part of an Insurance policy gets forth the rules of conduct, duties, and obligations of the parties to the contract?

Conditions

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material (misrepresentation would be considered fraud if it is intentional and material. Fraud would be grounds for voiding the contract.)

When is an appraisal needed? How is it requested?

If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal. Each party will select a competent appraiser who will then select an umpire if they are unable to agree on a fair value.

What does an endorsement do to con insurance contract?

It modifies the policy's original terms

What consideration in an insurance contract?

Consideration is something of value that each party gives to the other, consideration on the part of the insurer is BINDING

All of the following are found in the declarations section of a policy EXCEPT the

Exclusions bc declarations state who is insured, what is insured, where the property is located, when the policy begins and ends, how much insurance and how much premium. The exclusions tell what is not covered.

The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the

Insuring agreement. (The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.)

Before an insurer will pay any loss under a policy, what is usually required from the insured?

Proof of loss

What are an insured's duties after loss?

Protect the damaged property from further damage, cooperate with the insurer in settling a loss, and submit proof of loss

The Federal Fair Credit Reporting Act

Regulates consumer reports...The Federal Fair Credit Reporting Act regulates consumer reports, also known as consumer investigative reports, or credit reports.

What type of information would be found in a policy's insuring agreement?

Renewal dates

Which method of loss valuation is contrary to the basic concept of indemnity?

Replacement cost

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction....When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, a 12-year-old student is considered to be underage in most states and a person under mind-impairing medication most likely would not be mentally competent.

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education....The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

A sworn written statement that must be furnished by the insured to the insurer before any loss under a policy can be paid is called

The proof of loss... it is a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid. Proof of loss must be in writing.

In insurance contracts when is the offer usually made?

When the insurance application is initially submitted

In insurance contracts, when does acceptance usually occur?

When the insurer approves a prepaid application