Unit 2 - The Insurance Contract

Conditions

State the ground rules for the policy

Definitions section

clarifies the meanings of certain terms used in the policy

Contract

A legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration.

Doctrine of reasonable expectations

A policy includes coverages that an average person would reasonably expect it to include, regardless of what the policy actually provides.

Consideration

A thing of value exchanged for the performance promised in the contract.

Exclusions

Describe the losses for which the insured is not covered

Adhesion contracts

Insurance contracts have one party that has greater power over the other party in drafting the contract

Offer and Acceptance

The contract involves two parties: one who makes an offer and one who accepts it. Also called an agreement.

Contract of utmost good faith

The insurance company relies on the truthfulness and integrity of the applicant when issuing a policy. The insured relies on the company's promise and ability to provide coverage and pay claims.

Five parts of an insurance policy

declarations, insuring agreements, conditions, exclusions, and definitions

Competent parties

two parties who are considered competent under the law

Legal Purpose

A contract that is against public policy or in violation of the law is not enforceable.

Personal contract

An insurance contract does not insure property; it insures the person who owns the property.

Aleatory

An insurance contract is contingent on an uncertain event (a loss) that provides for unequal transfer of value between the parties.

Conditional Contract

An insurance policy includes a number of conditions that both the insured and the insurer must comply with.

Unilateral

An insurance policy is one sided because only the insurance company is legally bound to perform its part of the agreement.

What are the characteristics insurance contracts must exhibit to be legally enforceable?

Competent parties, legal purpose, offer and acceptance (agreement), and consideration

Declarations

Contain information such as the name of the insured, the address, the amount of coverage provided, a description of the property, and the cost of the policy

Insuring agreements

State in general what is to be covered or, in other words, the losses for which the insured will be indemnified. Also describes the type of property covered and the perils against which it is insured.