Insurance Contracts and Legal Concepts

What relationship demonstrates insurable interest in the absence of economic interest?

marriage partners

Principles of Agency Law

- The acts of the agents are the same as the company - Contracted completed by the agent is same as company doing it - Payment made to an agent is same as paying the company - Knowledge of the agent is the same as the company knowing it

Material Misrepresentation

- a false statement by the applicant that changes the outcome of issuing a policy

All these statements correctly describe an aleatory contract EXCEPT 1) A legal wager is considered an aleatory contract 2) Potential unequal exchange of value for both parties 3) Only one party makes any kind of legally enforceable offer 4) Element of chance is involved

3) Only one party makes any kind of legally enforceable offer

Estoppel

A legal impediment to denying a fact or restoring a right that has been previously waived.

Agent Authority

A relationship in which one person is authorized to represent and act for another person or company is established through the law of agency.

Parol Evidence Rule

A rule of evidence designed to achieve a degree of certainty in a transaction and to prevent fraudulent and perjured claims. Although the word parol means oral, in this context, it refers to evidence that is extrinsic to, or outside and separate from, the writing. (Must be in writing to be enforceable in court)

Void Contract

Agreement without legal effect due to it lacking one of the elements specified by law to be a valid contract

Example of Implied Authority

An agent printing business cards that contain the company's name not being disclosed in the contract, but is implied.

Example of Express Authority

An agent soliciting applications for insurance on behalf of the company

Voidable Contract

An agreement that may be terminated by one of the parties

Use of XYZ insurance company brochures, business cars, and rating guides is an example of

Apparent Authority

Utmost Good Faith

Both policy owner and insurer must know all material facts an relevant information (Include, warranties, representations, concealment)

Brokers versus agents

Brokers: Legally represent the insureds, may be multiple companies

Agent Authority Types

Express Implied Apparent

Conditional

Conditions that must be met for the insurers promise to pay if the condition occurs (ie death)

An agreement is reached when an insurance contract is formed. Which of the following is NOT considered to be an element of an agreement? 1) Meeting of the minds 2) Offer 3) Acceptance 4) Equity

Equity

Concealment

Failure by the applicant to disclose a known material fact when applying for insurance

Consideration

Given by the applicant in exchange for the insurers promise to pay benefits

Example of Apparent Authority

Giving an individual a rate book, application form, and sales literature creates the impression that a relationship exists. The company later will not be allowed to deny the relationship.

XYZ insurance company gives direct authority to its producers to sell insurance through an agency contract, but nothing is stated regarding the collection of premiums. Which authority grants the producer the right to collect premiums?

Implied Authority

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract

Significance of Authority

It ties the company to the acts an deeds of its agents

Define competent insurer parties

Licensed and authorized insurers in their state of business

Stranger-Originated Life Insurance (STOLI)

Life insurance arrangement in which a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

Exceptions of perceived competent buyers

Minors Mentally Infirm Under the influence of alcohol/narcotics

Which element of a contract constitutes a definite and unqualified proposal by one party to another?

Offer

Legally valid contracts must contain what to be valid and binding?

Offer and Acceptance Consideration Legal Purpose Competent Parties

Ambiguities in insurance contracts are typically interpreted in favor of the insured. This rule is referred to as

Reasonable expectations

Unilateral

Only one party (the insurer) makes any kind of enforceable promise

Contract of Adhesion

Policy that can be modified by the insurer- the policy will be interpreted in favor of the insured if not clear

An insured is entitled to coverage under a policy that a prudent person would expect it to provided. This principle is called

Reasonable expectations

What is the insurer responsible for when a producer is acting within the scope of authority granted in the agency contract?

Responsible for acts by the producer that are authority only

Fidicuary

Someone who is responsible for the management of someone else's money

Representation

Statement by the applicant that they consider to be true and accurate to the best of the applicants belief

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.

Insurable Interest

The applicant must be subject to loss upon death, illness, or disability of the person being insured.

Express Authority

The authority a principle deliberately gives to its agent

Law of Agency

The law that governs the relationship between a principal and his or her agent.

Cancellation

The voluntary act of terminating an insurance contract

Aleatory

Unequal exchange of value. One party may obtain a far greater value than the other under the contract.

During the application process, a statement made by an applicant that becomes part of the contract is considered to be a(n)

Warranty

When is the first offer void

When an offer is answered by a counteroffer

Warranty

a confirmation by the applicant that is guaranteed to be true in every respect

Personal Contract

agreement between an insurance company and an individual that states that insurance policies cover the individual's insurable interest

Implied Authority

an agent's authority to do things not specifically authorized in order to carry out express authority

The powers directly given to a producer in an agency contract are called

express

The unwritten authority given to a producer to carry out necessary incidental acts of the agency agreement is called

implied authority

Valued Contract

pays a stated sum regardless of the actual loss incurred (ex: life insurance)

Indemnity Contract

pays an amount equal to the loss (ex: Fire, Health)

Under the law of agency, the principal is considered to be

the insurer

An insurance company failure to enforce a contracts provision is called a(n)

waiver

Giving up a known right on a voluntary basis is called a(n)

waiver