2.1 The Insurance Contract
Aleatory contract
Contingent on an uncertain event, a loss, providing unequal transfer of value between the parties. premiums can be paid with loss never occurring and premiums can be pd shortly with a payout more than the premium was being pd.
Conditions
Ground rules for policy. Responsibilities of both parties involved (insured and insurer).
Insuring Agreements
Heart of policy. in general what is to be covered, losses for which the insured will be indemnified. Type of property covered and perils against which it is insured.
Contract
Legal agreement between two competent parties that promises a certain performance in exchange for consideration. eg. premium pd=coverage (2party)
Doctrine of Reasonable expectations
States that a policy includes coverage that an average person would reasonably expect to include regardless of what policy states. Courts resolve ambiguity in policy wording.
consideration
The Fourth requirement for a valid contract. insurer pays premium and insurance pays for loss suffered
Declarations
Almost always on top of page, name of insured...address...amount to be covered...description of property...and cost of policy.
Insurance contracts must have...
competent parties legal purpose offer and acceptance (agreement) consideration
personal contract
contract does not insure property, it insures the person who owns the property.
parts of the insurance contract
declaration insuring agreements conditions exclusions Definitions
competent parties
first requirement for legal contract: no drugs, alcohol, minors, or incapacitated, insane.
unilateral
insurance contract is one sided. only the insurer in bound to perform its part of the agreement, upon payment of premium.
conditional
insurer includes conditions that the insured and insurer must comply with. eg. loss must be reported and insured must use valuation methods specified by in policy to settle loss
Exclusions
losses that are not covered. if excluded loss occurs, insurer will not be indemnified.
principle of indemnity
one of the most important characteristics of an insurance contract. when a loss occurs, individual should be restored to financial condition he was in before loss, no less and no more. you cant double collect on a stolen item. if car totalled valued at 6,000 that is what you receive despite once being 15,000 in value
adhesion
one party has greater power over the other in drafting the contract. provisions are drafted by insurer. The insured does not take part in contract. special request may be made but provisions are made by insurer
policy organization
policies can be organized in a number of ways. some are continuos pages and are organized differently
characteristics of insurance company
principle of indemnity personal aleatory adhesion unilateral contract of utmost good faith conditional
Legal Purpose
second requirement for a valid contract: formed for legal purpose. Contract against public policy
utmost good faith
the insurer relies on truthfullness and integrity of applicant when issuing a policy and vice versa
Offer and Acceptance
third requirement for contact: involves two parties: offer made and offer accepted, aka agreement,
Definitions
usually last, the meanings of certain terms in the policy.
endorsement
when changes need to be made, broadening coverage, restricting coverage, name changes, etc
policy jacket
aka skeleton policy, contains general conditions and declarations. a policy form of coverage must be attached with all five parts.
declarations format
a coverage form containing the coverages and certain exclusions, definitions, and conditions, separate general conditions form and a cause of loss form listing perils insured against and additional exclusions.