Transcript Section I Slides - Bryant University

General Requirements - Enforceable Contract
1.
Offer and acceptance
2.
Consideration
3.
Legal object
4.
Competent parties
5.
Legal form
9-1
Offer and Acceptance
1.
Offer normally made by applicant
2.
Acceptance occurs when insurer approves
application
3.
In absence of statutory requirement, the
contract can be oral
4.
A “Binder” is a temporary contract (oral or
written) pending issuance of a policy
9-2
Agent’s Authority
Property and liability agent’s authority to act on
behalf of the insurer stems from three sources:
1. Express authority, specifically granted by
contract or agreement.
2. Implied authority (also called incidental
authority) required or reasonably necessary
to execute the express authority.
3. Apparent authority (also called ostensible
authority) is the power the public has come
to expect the agent to have.
9-3
Consideration
1.
Insurer’s consideration is the promise to
indemnify contained in the contract.
2.
Insured’s consideration is the premium and
an agreement to abide by the conditions of
the contract.
9-4
Competent Parties
1.
Parties must have capacity to enter into a
contract.
2.
Competency issues generally deal with
minors or mentally incompetent persons.
3.
In some states, minors have been granted
competency by statute for the purchase of
life insurance.
9-5
Legal Object
1.
The contract must be for a legal purpose.
9-6
Special Characteristics of Insurance Contracts
1. Insurance is a contract of indemnity.
2. Insurance is a personal contract.
3. Insurance is a unilateral contract.
4. Insurance is a conditional contract.
5. Insurance is a contract of adhesion.
6. Insurance is an aleatory contract.
7. Insurance is a contract of utmost good faith.
9-7
Insurance is a Contract of Indemnity
1. Indemnity means that the insured should not
be permitted to profit from existence of
insurance.
2. The principle of indemnity is enforced by the
following doctrines:
•
•
•
•
insurable interest
actual cash value
“other insurance” provisions
subrogation
9-8
Insurable Interest
Insurable interest is a relationship between the
insured and the subject of insurance such that
the insured will suffer financial loss in the event
of damage to or destruction of the property.
1. In life insurance, insurable interest must
exist at the inception of the policy.
2. In property and liability insurance, the
insurable interest must exist at the time of
the loss.
9-9
Actual Cash Value
1.
Actual cash value is the traditional measure
of value for payment of property losses.
2.
Generally, actual cash value is defined as
replacement cost minus depreciation.
3.
The rationale is that the insured should not
profit from the existence of the insurance.
9-10
Exceptions to Actual Cash Value Payment
1. Some modern property insurance forms
provide coverage for replacement cost
(without a deduction for depreciation).
2. Under a valued policy, insurer agrees to pay
the amount of insurance in the event of loss.
3. Under valued policy laws, insurer is required
to pay face of policy in event of total loss.
4. Cash payment policies (e.g., life insurance)
agree to pay stated sum regardless of the
amount of loss.
9-11
Other Insurance Provisions
The primary purpose of “Other Insurance”
provisions is to prevent insured from collecting
for the same loss under more than one policy.
1. Pro-rata provision: insurer will share
proportionately in loss with other insurers.
2. Excess provision: insurer will pay only after
other insurance is exhausted.
3. Exculpatory clause: the insurer will not
cover losses covered under other insurance
9-12
Subrogation
1.
Subrogation is the assignment of an
insured’s rights against a third party.
2.
Assignment is required only to the extent of
the amount paid by the insurer.
3.
Prevents the insured from collecting twice
for the same loss.
4.
Applicable mainly in property insurance but
sometimes in health insurance.
9-13
Insurance is a Personal Contract
1.
Although we speak of “insuring a house,”
the contract is between the insurer and the
specifically named insured.
2.
If the insured sells the house, the contract
is not binding between the insurer and the
new owner.
3.
Insured cannot transfer contract to another
party without the specific consent of the
insurer.
9-14
Insurance is a Unilateral Contract
1.
Only one party--the insurer--makes legally
binding promises.
2.
Although the insured agrees to do certain
things (such as file a proof of loss in the
event of a loss) he or she has no legal
obligation to do so.
9-15
Insurance is a Conditional Contract
Conditions of the contract are part of insured’s
consideration.
Insurer must fulfill its promises only if the
insured fulfills his or her obligations under the
contract.
9-16
Insurance is a Contract of Adhesion
1.
A contract of adhesion is contrasted with a
negotiated contract.
2.
One party--the insurance company--draws
the contract and offers it on a “take-it-orleave-it” basis.
3.
Because insurance contracts are contracts
of adhesion, in the event of ambiguity, they
are interpreted in favor of the insured.
9-17
Insurance is an Aleatory Contract
1.
Aleatory means that the outcome is affected
by chance and that the dollars risked by the
parties are unequal.
2.
The insured’s premium is small in relation
to the amount the insurer must pay if a loss
occurs.
9-18
Insurance is a Contract of Utmost Good Faith
1. Partly because the contract is aleatory, the
insurer and insured enter into an agreement
where mutual faith is of greatest importance.
2. Legal principle of uberrimae fidei (utmost
good faith) has deep historical roots and
originated in the early days of ocean marine
insurance.
3. The doctrine is enforced by doctrines of
misrepresentation, warranty, and
concealment.
9-19
Doctrines Related to Concept of Good Faith
1.
Misrepresentation
2.
Concealment
3.
Warranties
9-20
Waiver and Estoppel
1. Waiver is the intentional relinquishment of a
known right.
• An insurer can waive a violation or
breach of contract provision that
provides a basis for voiding the contract.
2. Estoppel prevents one from alleging or
denying a fact, the contrary of which he has
previously admitted.
• If an insurer or its agent waives a breach
of policy conditions, it is estopped from
later reasserting the breach as a defense.
9-21
The Insurance Contract as a Contract
1.
Reasonable expectations
2.
Complexity of insurance contracts
3.
Insurance contracts and the courts
9-22
Insurance Policy Construction
1.
Declarations
2.
Insuring agreement
3.
Exclusions
4.
Conditions
9-23