Flashcards in Legal Concepts Deck (44)
A feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal. The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss. Consideration may be unequal. The outcome depends on chance or uncertain event. A legal bet is considered an aleatory contract.
Deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship. Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power an authority to bind the principle.
One who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.
Means certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable. All insurance contracts are conditional contracts.
The failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.
Something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit
Contract of adhesion
In a contract of adhesion there is only one author - the insurance company. If there is an ambiguity in the contract, the courts always favor the insured over the insurer. Because of insurance contract has been prepared by an insurance company with no negotiation, it is considered a contract of adhesion.
The explicit authority granted to the agent by the insurer as written in the agency contract.
Describes the relationship between the agent or producer and client or company funds. Because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents o mix premiums collected from applicants with their own personal funds. This is called commingling.
Health Insurance Contracts
are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.) You cannot profit from an indemnity contract.
authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Requires that an individual has a valid concern for the continuation of the life of well-being of the person insured. Without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. Note: Insurable interest only needs to exist at the time of the application (the inception of the contract).
Law of Agency
Establishes a relationship in which one person is authorized to represent and act for another person or company. In applying the law of agency, the insurance company (insurer) is the principle. An agent or producer will always be deemed to represent the insurance company and not the applicant. In regard to the insurance contract, any knowledge of the agent is considered to be the knowledge of the insurance company (insurer). If the agent is working within the conditions of his/her contract, the insurance company is fully responsibile.
Means an insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void.
Life Insurance Contracts
Are valued contracts, which means it will pay a stated amount.
Offer and acceptance
An offer that may be made by the applicant by signing the application, paying the fir premium, and if necessary, submitting to a physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or, the offer may be made by the company when no premium payment is submitted with application. Premium payment on the offered policy then constitutes acceptance by the applicant.
a written contract in which one party promises to indemnify another against loss that arises from an unknown event.
Legal attachment amending a policy. Additional benefits or a reduction in benefits are often incorporated in policies by the attachment of either a benefit or an exclusion rider.
Statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief., but that are not warranted as exact in every detail.
Stranger-Originated Life Insurance (STOLI)
Life insurance arrangements where investors persuade consumers (usually seniors) to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums for a defined period. The insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies The insured receives additional financial benefits, such as an upfront payment or a loan.
One sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.
Utmost Good Faith
Implies that there will be no attempt by either party to misrepresent, conceal, or commit fraud as it pertains to insurance policies.
Contract that can be made void at the option of one or more parties to the agreement.
Agreement without legal effect: an invalid contract. Fraud can be a reason to void a contract.
Statements made on an application for insurance that are warranted to be true; that is, they are exact in every deal as opposed to representations. Statements on applications for insurance are rarely warranties, unless fraud is involved.
Agreement waiving the company's liability for a certain type of types of risks ordinarily covered in the policy; a voluntary giving of a legal, given right.
For a contract to be legally binding, it must contain certain elements:
Offer and Acceptance, consideration, legal purpose, and competent parties.
Valued insurance contract
A Valued contract pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts. If someone insures a life policy for $1M, that amount is payable at death. There is no attempt to value actual financial loss upon a person's death.
Pays an amount equal to the loss. Contracts of indemnity attempt to return the insured to her original financial position. Fire and health insurance policies are examples of indemnity contracts. An insured who owns a $100k fire insurance policy and suffers only $5k loss due to a fire will be able to collect up to to $5k, not $100k