Essential elements required to form any contact - CALC:
1. Competent Parties
2. Agreement
3. Lawful Objective
4. Consideration
Competent Parties
At least age 18 and adjudged sane and sober
Agreement
Consists of an offer and an acceptance
Consideration
An exchange of value between parties to a contract (insured's premium and insurer's promise to pay the claim.)
Unique characteristics of insurance contracts: CAUCP
1. Contract of Adhesion
2. Aleatory Contract
3. Unilateral Contract
4. Conditional Contract
5. Personal Contract
Contract of Adhesion
all parties agree to adhere to the entire contract as a whole; when ambiguities arise, the court will rule in favor of the insured
Aleatory Contract
a contract in which the values exchanged are not equal
Unilateral Contract
only one party makes a legally enforceable promise
Conditional Contract
the contract may be voided if all policy conditions are not met
Personal Contract
the insured may not transfer rights and duties in the contract without the
insurer's written permission
Concepts that affect how insurance contracts are interpreted: WRMMCWE
1. Warranties
2. Representations
3. Misrepresentations
4. Material Misrepresentation
5. Concealment
6. Waiver
7. Estoppel
Warranties
written promise in the policy that the insured will do (or will not do) something; if a warranty is breached, coverage will be suspended and a claim denied as it relates to a warranty
Representations
statements made by the prospective insured on an application for insurance that are believed to be entirely true
Misrepresentations
incorrect information given by the prospect/insured that does not affect coverage; the insurer would have made the same coverage decisions whether or not the truth was known
Material Misrepresentation
incorrect information given by the prospect/insured that void the insurance contract because the insurer would have made a different decision regarding the coverage had it known the truth
Concealment
deliberately withholding material information from the insurer; this will void coverage
Waiver
the voluntary relinquishment of a known right
Estoppel
the involuntary relinquishment of a known right
Insurance
a contract based upon the principle of indemnity that transfers risk from one person or organization to an insurance company
Binder
a temporary insurance contract
Risk
chance of a loss or uncertainty of loss; insurance companies do not insure speculative
risk because there is a simultaneous chance of loss or gain
Perils
causes of loss
The Law of Large Numbers
a mathematical concept used by insurance companies to predict
future losses in order to charge an appropriate premium
4 Types of Losses
1. Direct Loss
2. Indirect Loss
3. Consequential Loss
4. Liability Loss
Direct Loss
immediate actual physical damage to tangible property
Indirect Loss
inability to use property as a result of a direct loss
Consequential Loss
loss usually resulting from spoilage or temperature change
Liability Loss
a damage/injury claim that arises out of actions that cause loss to a third party
3 Types of Hazards
1. Physical Hazards
2. Moral Hazards
3. Morale Hazards
Physical Hazards
Visible Hazards
Moral Hazards
Hazards arising from dishonesty of an insured
Morale Hazards
Hazards arising from an attitude of carelessness or indifference to loss
Four Parts of an Insurance Contract: DICE
1. Declarations
2. Insuring Agreement
3. Conditions
4. Exclusions
Declarations
______________ page is like the receipt for the policy and includes information like the property description, parties to the contract, policy period, policy limits/deductibles, and the premium.
Insuring Agreement
contains the insurer's promise including the covered perils.
Conditions
contain the territorial restrictions, procedures, duties, and rights of the
insured/insurer.
Exclusions
list the property and perils that are not covered.
Endorsements
changes that add, delete, or modify a policy in some way.
Policy Territory
Territory where coverage applies
Subrogation Rights
the right of the insurer, who has settled the insured's loss, to recover from an at-fault third party.
Assignment Clause
Explains the policy may only be assigned to another with the insurer's
written consent.
Right of Salvage
states that the insurer may take possession of totaled property after a
financial agreement is settled upon between the parties involved; selling of the salvage is a
way for the insurer to recoup some of the loss that was paid.
Supplementary payments are found on all liability policies and are paid in addition to the policy limits (BAILED):
1. Bonds
2. Aid
3. Interest
4. Loss of Earnings
5. Expenses
6. Defense and Investigation Costs
Bonds
paid with no limit (except $250 limit on bail bonds)
Aid
first aid expenses at the scene of an accident with no limit
Interest
on judgments against insured with no limits
Loss of Earnings
up to $250/day to assist in defending or investigating a claim
Expenses
incurred at request of insurer
Defense and Investigation Costs
paid with no limit
Pro rata liability
the bigger policy pays proportionally more than the smaller policy
Primary Liability
the primary policy will pay first
Excess Liability
the excess policy will pay after the primary policy is exhausted