Today’s Lecture Agency Law

Three Parties
• Fundamental Doctrines Principal
Agency Law -Insurer
Contract Requirements Agent
Distinguishing Characteristics -Has the right to fulfill the
of Insurance Contracts insurer’s responsibilities
Third Party

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 Agency Law Agency Law
Agent’s authority can be Agent has binding authority
1. Actual authority- An agent is able to secure
This arises where the Principal's words or conduct
(“bind”) coverage for an insured
reasonably cause the Agent to believe that he or she has
been authorised to act. without any additional input
2. Apparent authority- from the insurer.
If a Principal creates the impression that an Agent is
authorised but there is no actual authority, Third Parties are
protected so long as they have acted reasonably.

Agency Law (Cont.)

Waiver - intentional relinquishment of a
known right

An insurance company may waive its right

to cancel a policy for nonpayment by
accepting late payments.

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 Agency Law (Cont.) Requirements of a Contract
Estoppel - cannot claim a right previously Offer and Acceptance
waived Consideration
Agency by estoppel is created if someone acts Competent Parties
as an agent with the consent of the insurer Legal Purpose
Legal Form

Distinguishing Characteristics of Distinguishing Characteristics of

Insurance Contracts Insurance Contracts
• Based on Utmost • Contracts of Adhesion
Good Faith – Ambiguity is decided in favor of the insured
– Representations
– Concealment

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Distinguishing Characteristics of
Insurance Contracts (Cont.)
• Indemnity Concept
– Insurable Interest
• Life - at inception of contract
• Property - at time of loss
Wal-Mart Collected On Deaths
• TAMPA - When Karen
Armatrout died in 1997, her
employer, Wal-Mart, collected
thousands of dollars on a life
insurance policy the retail giant
had taken out without telling her,
according to a lawsuit filed in
U.S. District Court. Armatrout
was one of about 350,000
employees Wal-Mart secretly
insured nationwide, said Texas
attorney Michael D. Myers, who
estimated the company collected
on 75 to 100 policies involving
Florida employees who died.

Distinguishing Characteristics of Distinguishing Characteristics of

Insurance Contracts (Cont.) Insurance Contracts (Cont.)
• Indemnity Concept • Personal
– Subrogation – Property-liability policies cannot be assigned
• Insurer obtains right of recovery against other
parties
– Actual Cash Value
– Other Insurance Provisions

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 Today’s Lecture Application
Insurance Contracts The potential insured offers to buy coverage
Applications and Binders by submitting an application.
Parts of the Contract The insurer decides whether to accept the
Declarations offer.
Insuring Clauses
Exclusions and Exceptions
Conditions
Endorsements and Riders

Binders and Receipts Parts of an Insurance Contract

Binder - temporary contract to provide Declarations
coverage until the policy is issued Identify insured
Conditional receipt - no coverage unless Describe coverage
policy is issued, but coverage is retroactive Insuring Clause
Binding receipt - coverage is in force while Open-Perils - covers any loss not excluded
application is being processed
Named-Perils - covers specified losses

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 Exclusions and Exceptions Types of Exclusions
Reasons for Exclusions Excluded locations
Ideal Requisites for Insurability Excluded perils
Possibility of catastrophe Excluded property
Fortuitous Excluded losses
Definite
Standardize the Risk
Avoid Duplication of Coverage

Conditions Endorsements and Riders

Must be fulfilled by insured in order to obtain Endorsements used in property-liability
coverage insurance
Examples Riders used in life-health insurance
Notice and proof of loss Both change the contract in some way
Cooperation of the insured
Protection of property after a loss
Examination