Exam fx ch 2

Representations

Representations are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true. For insurance purposes, representations are the answers the insured gives to the questions on the insurance application.

Competent Parties

The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.

unilateral contract,

In a unilateral contract, only one of the parties to the contract is legally bound to do anything. The insured makes no legally binding promises. However, an insurer is legally bound to pay losses covered by a policy in force.

Insurance contracts are aleatory,

Insurance contracts are aleatory, which means there is an exchange of unequal amounts or values. The premium paid by the insured is small in relation to the amount that will be paid by the insurer in the event of loss.

Legal Purpose

The purpose of the contract must be legal and not against public policy. To ensure legal purpose of a Life Insurance policy, for example, it must have both: insurable interest and consent. A contract without a legal purpose is considered void, and cannot be enforced by any party.

unintentional tort

An unintentional tort is the result of acting without proper care. This is generally referred to as negligence.

a personal contract

In general, an insurance contract is a personal contract because it is between the insurance company and an individual. Because the company has a right to decide with whom it will and will not do business, the insured cannot be changed to someone else without the written consent of the insurer, nor can the owner transfer the contract to another person without the insurer's approval. Life insurance is an exception to this rule: A policyowner can transfer (or assign) ownership to another person. However, the insurer must still be notified in writing.

Insurer's consideration is the promise

Insurer's consideration is the promise to pay for losses; insured's consideration is the premium and statements on the application.

A contract is defined as

A contract is defined as "an agreement between two or more parties enforceable by law." In order for a contract to be legally binding or enforceable by law, it must have certain essential elements. The following are 4 essential elements of all legal contracts: 1) Agreement: offer and acceptance; 2) Competent parties; 3) Legal purpose; and 4) Consideration.

A contract of adhesion is prepared

A contract of adhesion is prepared by one of the parties (insurer) and accepted or rejected by the other party (insured). Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. In other words, insurance contracts are offered on a take-it-or- leave-it basis by an insurer. Any ambiguities in the contract will be settled in favor of the insured.

A representation cannot

A representation cannot qualify an express provision in a contract of insurance; but it may qualify an implied warranty

tort

A tort is a private, civil, non-contractual wrong for which a remedy through legal action may be sought. A tort can be either intentional or unintentional. Insurance generally will only respond to unintentional torts (losses other than those acts by an insured that are deliberate and intended to cause loss or damage).

intentional tort

An intentional tort is any deliberate act that causes harm to another person regardless of whether the offending party intended to injure the aggrieved party. For purpose of this definition, breach of contract is not considered an intentional tort.

Concealment

Concealment is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision. In insurance, concealment is the withholding of information by the applicant that will result in an imprecise underwriting decision. Concealment may void a policy.

Insurance policy —

a contract between a policyowner and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events

A warranty is a statement considered to be guaranteed to be true and

A warranty is a statement considered to be guaranteed to be true and becomes part of the contract. According to the California Insurance Code, a certain format of words is not necessary to create a warranty. Warranties can either be expressed or implied. Statements in a policy are considered express warranty. Every express warranty becomes part of the insurance contract. Implied warranty is an unwritten or unspoken guarantee presumed to be made based on the circumstances of a transaction.

Representations Insured's statements on the application are

Representations are statements believed to be true. Insured's statements on the application are representations.

materiality

The concept of materiality is based on the idea that all parties to a contract are entitled to all information necessary to make an informed decision about the quality or nature of the contract. Materiality is determined by the "probable and reasonable influence of the facts" that they would have on the party that needs the facts to make a decision, whether that party is the insurer or the insured. Failure to disclose material information may entitle the "injured" party to rescind the contract.

The insurance policy

The insurance policy is the written instrument in which a contract of insurance is set forth.

Unilateral contract

a contract that legally binds only one party to contractual obligations (one-sided)

Consideration

something of value that each party gives to the other (binding force in any contract) *The binding force in any contract is the consideration. * Consideration is something of value that each party gives to the other. * The consideration on the part of the insured is the payment of premium and the representations made in the application. * The consideration on the part of the insurer is the promise to pay in the event of loss.

Agreement

There must be a definite offer by one party, and the other party must accept this offer in its exact terms. In insurance, the applicant usually makes the offer when submitting the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

misrepresentations

Untrue statements on the application are considered misrepresentations and could void the contract. A material misrepresentation is a statement that, if discovered, would alter the underwriting decision of the insurance company. Furthermore, if material misrepresentations are intentional, they are considered fraud.

a conditional contract requires

a conditional contract requires that certain conditions must be met by the policyowner and the company in order for the contract to be executed, and before each party fulfills its obligations. For example, the insured must pay the premium and provide proof of loss in order for the insurer to cover a claim.

Misdemeanor

a minor criminal offense, considered less serious than a felony

Fraud

intentional misrepresentations or deceit with the intent to induce a person to part with something of value

Lapse

policy termination due to nonpayment of premium