Chapter 3 legal concepts of the insurance contract

Contracts of insurance are?

Binding and enforceable

Offer

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

material misrepresentation

false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk

Representation

statement made by applicant that they consider to be true and accurate to the best of the applicants belief. not a part of the contract.

warranty

statement made by the applicant that is guaranteed to be true in every respect., part of legal contract --presumed to be material because they affect the insurers decision to accept or reject an applicant

agents as fiduciary

governs the activity of the agent. a person who holds a position of financial trust and confidence

Stander-Originated life insurance

investors persuade individuals to take out new life insurance naming the investors as beneficiary. ----investors loan money to the insured to pay the premiums for a defined period

consideration

can be defined as the value given in exchange for the promises sought. --insurance contract- consideration is given by the applicant in exchange for the insurer's promise to pay benefits -schedule and amount of premium payments

brokers

legally represent the insureds --may rep a number of insurance companies under separate contractual agreements. --

concealment

the failure by the applicant to disclose a known material fact when applying for insurance. --legal term for the intentional withholding of information which is crucial in making a decision --withholding of information by the applicant that results in an inaccurate underwriting decision and can void the policy

Legal purpose

the object of the contract and the reason the parties enter into the agreement must be legal --if an insurance contract has a insurable interest and the insured has provided written consent it has a legal purpose

Aleatory

***chance and potential for unequal exchange of value. --there is not equal exchange of value or consideration for both parties. -premiums paid by the sundered are small in relation to the amount that will be paid by the insurance company in the net of a loss --both insurance and gambling contracts are considered aleatory

insurable interest

-compononet of legal purpose --person acquiring the contract must be subject to loss upon the death illness or disability of the person being insured. *--must have reasonable expectation of benefiting from the other persons continued life. --most important --policy owner must face possibility of losing money or something of value when a loss happens --only needs to exist at the time of original application

conditional

insurers promise to pay benefits depends on the occurrence of an event covered by the contract. -if event does not materialize no benefits are paid. --if policy owner is past on payments and insured dies. insurance company does not have to pay for death benefit because condition was not met

implied authority

unwritten authority that is not expressly or written granted but which the agent is assumed to have in order to transact the business of the principal

waiver

voluntary giving up of a legal, given right. If an insurer fails to enforce a provision of a contract it cannot later deny a claim bases on a violation of that provision --Giving up a known right on a voluntary basis

Contract

agreement enforceable by law. one or more parties bind themselves to certain promises

express authority

authority a principal is deliberately gives to its agent --authority granted to the agent by the principal which is the insurance company, as written in the agency contract --The powers directly given to a producer in an agency contract are called

contract law

a contract as a legally binding agreement between two or more parties where a promise of benefits is exchanged for a consideration

agent authority

authority is whats given by an insurer to a licensee to transact insurance on their behalf --lisenced insurance producer

Utmost good faith contract

both policy owner and the insurer must know all material facts and relevant information. --insurance applicants are required to make full fair and honest disclosure of the risk to the agent and insurer -- no fraud --rely on each other for relevant and accurate info -An insurance application requires an applicant to make a full, accurate disclosure of the risk factor involved

void

an agreement without legal effect --insurer may also void an insurance policy if a misrepresentation on the application if proven to be material

professional liability insurance

insurance agents need errors and omissions professional liability insurance. The insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from pro services that he rendered or failed to render

estoppel

legal impediment to one party denying the consequences of its own actions or deeds if such actions or meds result --loss of defense --legal process used to prevent a party from reclaiming a right or privilege that was already waived

voidable

may be set aside by one of the parties to the contract .

indemnity contract

one that pays an amount equal to the loss. --return the insured to their original financial position. fire and health policies EX health insurance

patrol evidence role

oral or verbal evidence that is given verbally in a court of law. states that partied put their agreement in writing, all previous verbal statements come together in that writing and a written contract cannot be changed

Valued contract

pays a stated sum regardless of the actual loss incurred -life insurance contracts are valued contracts, which pays stated amount. -no attempt to value actual financial loss upon a persons death

Reasonable expectations

reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder

assignment

to assign a policy a policy owner simply notifies the insurer writing.

Competent parties

to be enforceable contract must be entered into by competent parties. --all parties must be legal---legal age, mentally capable of understanding the terms, and not under drug or alclonal

Offer and acceptance

to be legally enforceable a contract must be made with an offer by one party and an acceptance of its exact terms by the other. ---an offer is made when the applicant submits an application for insurance to the insurance company --acceoted after its been approved by the companies underwriters.

Law of agency

word

Principles of agency law

word

Edorsement

written form attached to an insurance policy that alters the policy's coverage, terms, or conditions (Rider)

apparent authority

appearance or assumption of authority base on the actions. words, or deeds of the principal. also can exist because of circumstances the principal created ex when

insurance contract

is given by the applicant in exchange for the insurers promise to pay benefits must have 4 elements

personal contract

life insurance is a personal contract or personal agreement between the insurance company --cannot transfer ownership without the insurance company's written consent -people who buy life insurance policies are called policy owners --

Adhesion

means that the contract has been prepared by one party with no negotiation between the applicant and insurer. --insurance company can modify confusing language in the contract, inter --take it or leave it agreements --accepted or rejected by the other party

3 exceptions the applicant doesn't have to be competent

minors, the mentally infirm, those under influence of alcohol or drugs

unilateral

one party (the insurer) makes any kind of enforceable promise. --promise to pay benefits upon the occurrence of a specific event such as death or disability. applicant makes no promise. --one sided agreement is legally bound to do anything --if the policy owner does not pay their preemies insurance company has right to terminate policy