RMI Ch. 9 Review Questions

Define contract of adhesion

the insured must accept the entire contract, with all of its terms and conditions since the insured must accept the entire contract as it is written, any ambiguites are construed against the insurer

Explain the principle of indemnity

the insurere agrees to pay no more than the actual amount of the loss

Define Waiver

the voluntar relguishment of a known legal right

What is a replacement cost policy?

there is no deduction for depreciation in determining the amount paid for a loss

List the four requirements that must be met to form a valid insurance contract

1. Offer and Acceptance, 2. consideration, 3. legally competent parties, 4. legal pupose

Define misrepresentation

Material or false statements made by the applicant for insurance

Explain the principle of subrogation

Substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third person for a loss covered by insurance.

How does the concept of actual cash value support the principle of indemnity?

The insured does not profit from a loss because the ACV is paid by the insurer (replacement cost - deprecation). The insurer pays what the damage is actually worth thus not overpaying.

Explain the meaning of an insurable interest.

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

Explain the general rules of agency that govern the actions of agents and their relationship to insureds

There is no presumption of an agency relationship. The agent must be authoized to represent the principle. Knowledge of the agent is presumed to be knowledge of the principle with respect to materials within the scope of the agency relationship. Limitations can be placed on the power of agents.

Define Aletor contract

a contract where values exchanged may not be equal, but depend on an uncertain event

What is a valued policy, and why is it used?

a policy that pays the face amount of insurance if a total loss occurs because of the difficulty in determining the actual cash value of the property at the time of the loss because some things cannot be replaced through money

Define warranty

a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects

Define concealment

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

Define unilateral contract

only the insurer (one party) makes a legally enforcable promise

Define conditional contract

policy owner must comply with all policy provisions to collect for a covered loss

How is actual cash value calculated?

replacement cost less depreciation

What is a valued policy law?

requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law

Define personal contract

the contract is between the insured and the insurer property insurance policy cannot be validly assigned to another party without the insurer's consent

Why is an insurable interest required in every insurance contract?

to prevent gambling to reduce moral hazard to measure the amount of loss

Why is a subrogation used?

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

Define Estopel

when one person makes a statement of fact to another person who then reasonably relies on the statement to his or her detriment, the first person cannot later deny the statement was made To prevent persons from changing their minds to the detriment of another party represention of a fact made by one persion to another person is resonalby relied on by that persion so such an extent that it would be inequitable to allow the first person to deny the truth of the representaion