Term
| What basic rule of construction do courts use in interpreting contracts of adhesion |
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Definition
| If the contract's wording is ambiguous, a court will generally apply the interpretation that favors the insured |
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Term
| What three tasks do agents usually perform for insurers? |
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Definition
- Solicit business
- Take applications
- Sometimes issue policies
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Term
| Explain under what circumstances an issued policy might be merely an offer |
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Definition
| If the policy as issued does not comply with the coverage or rates the applicant requested, the policy is a new offer that the applicant can accept or reject |
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Term
| When do parties make the offer and acceptance to form a life insurance contract? |
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Definition
| The prospective insured offers to contract by submitting an application. Acceptance of the offer and formation of the contract are not effective under most life insurance policies until actual delivery of the policy to the insured and payment of the first premium |
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Term
| What essential information must a binder contain for property casualty insurance? |
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Definition
- Identification of the insurer and the insured
- Description of the insured property
- Indicate types and amounts of coverage clearly enough to establish policy limits
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Term
| To what terms must parties agree to have a valid oral or informal insurance policy? |
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Definition
- The types of coverage sought
- The object or premises, if any, to be insured
- The amount of insurance
- The insured's name
- The duration of coverage
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Term
| Explain what contractual terms parties might imply and how courts determine those terms in case of an incomplete agreement. |
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Definition
- The type of policy, based on the type an insurer usually issues in a given situation or the type of policy most insurers usually issue
- The provisions of a policy, based on policies the insurer customarily issues
- A policy premium, based on the rate the insurer has filed with the insurance regulatory authorities in cases in which the parties have not specified the premium amount and the insurer and insured have had no previous dealings
- The insured's coverage needs, based on comparisons with the coverage needs of others engaged in similar endeavors
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Term
| Explain what claimants under liability policies are not considered third-party beneficiaries in states that have not adopted direct action statutes |
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Definition
| Claimants under liability policies can benefit from liability insurance. However, in states with out direct-action statutes, victims cannot sue a wrongdoer's insurer directly until a court orders a judgment against the insured. In these states the purpose of liability insurance is to indemnify the insured for losses in paying damages |
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Term
| Why does a buyer of real estate under an incomplete agreement of sale need insurance? |
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Definition
| Because the buyer bears the risk of loss under the doctrine of equitable conversion, even before the time of the actual title transfer |
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Term
| Does a buyer of undelivered goods face the same exposure as a buyer of real estate? |
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Definition
| No, the doctrine of equitable conversion applies only to real estate. The seller of the goods assumes all chance of loss until the buyer either receives or refuses to accept those goods |
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Term
| What is the effect of a policyholder’s misrepresentation? |
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Definition
| It makes the insurance contract voidable |
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Term
| What determines whether a fact is material? |
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Definition
| Whether the insurer was influenced or induced to enter into the contract in reliance on the representation |
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Term
| Explain why contribute-to-loss statutes create a more difficult standard for an insurer to show materiality sufficient to avoid a contract than do increase-of-risk statutes? |
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Definition
| Increase-of-risk statutes set either objective or subjective standards for determining materiality. Under contribute-to-loss states, regardless of materiality, a misrepresentation does not allow an insurer to avoid the contract if, from its very nature, the misrepresentation could not contribute to the destruction of the property |
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Term
| State the two requirements for a promise or stipulation to be a warranty in an insurance policy? |
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Definition
- The parties must have clearly and unmistakably intended it to be a warranty
- The statement must form a part of the contract itself
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Term
| Explain how warranties differ from representations? |
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Definition
- Warranties are part of the final insurance contract, representations are merely collateral inducements to the contract
- The law presumes warranties to be material, and their breach makes the contract voidable. To constitute a valid defense, representations must be proven to be material
- Warranties are either written in the policy of incorporated by reference. Representations can be oral, written in the policy, or written in another document and incorporated by reference into the policy
- Warranties require strict compliance. Representations require substantial truth only
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Term
| Explain the purpose and effect of the incontestable clause in life, accident, and health insurance policies? |
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Definition
| They assure policyholders that their beneficiaries will receive payment. An insurer cannot assess material misrepresentation, concealment, or fraud in connection with like insurance applications when the policy has been in force longer than the contestable period during the insured's life |
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Term
| How has the law lessened warranty effects? |
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Definition
- By interpreting warranties as affirmative rather than as continuing
- By interpreting policies as severable
- By not considering the use of the word "warranty" as conclusive
- By making a breach of warranty no more burdensome for the insured or beneficiary than a material false representation
- By preventing insurers from specifying that representations have the same effect as warranties
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Term
What are the requirements for a waiver?
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Definition
- An insurance policy must exist
- And insurer must know of a breach of condition under the policy before it can waive that condition
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Term
| Must consideration support waivers of insurance policy provisions? |
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Definition
| Some waivers are binding without consideration, such as when an insurer pays for a loss after the policy period for filing proof of loss has elapsed and without having received proof of loss |
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Term
| State the requisites of estoppel in insurance law |
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Definition
- False representation of a material fact
- Reasonable reliance on the representation
- Resulting injury or detriment to the insured
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Term
| Distinguish waiver from estoppel |
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Definition
- Waiver is contractual and rest upon agreement between parties. Estoppel is equitable and arises from false representation
- Waiver gives effect to the waiving party's intention. Estoppel defeats the inequitable intent of the estopped party
- The parol evidence rule applies to waiver but not to estoppel
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Term
| What is the effect of an election? |
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Definition
| A choice of one available right implies a relinquishment of the right not chosen |
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Term
| Explain the purpose and form of a nonwaiver agreement and a reservation of rights notice. |
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Definition
| To preserve certain defenses against liability that they might have had under policy terms. A reservation of right letter is usually in the form of a unilateral notice, usually a letter from the insurer to the insured. A nonwaiver will waive any of its rights under the policy resulting from the investigation or defense of a lawsuit against the insured |
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