Today’s Lecture

• Fundamental Doctrines Agency Law Contract Requirements Distinguishing Characteristics of Insurance Contracts

Agency Law
Three Parties Principal -Insurer Agent -Has the right to fulfill the insurer’s responsibilities Third Party

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Agency Law
Agent’s authority can be 1. Actual authorityThis arises where the Principal's words or conduct reasonably cause the Agent to believe that he or she has been authorised to act.

Agency Law
Agent has binding authority An agent is able to secure (“bind”) coverage for an insured without any additional input from the insurer.

2. Apparent authorityIf 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.)
Estoppel - cannot claim a right previously waived Agency by estoppel is created if someone acts as an agent with the consent of the insurer

Requirements of a Contract
Offer and Acceptance Consideration Competent Parties Legal Purpose Legal Form

Distinguishing Characteristics of Insurance Contracts
• Based on Utmost Good Faith
– Representations – Concealment

Distinguishing Characteristics of Insurance Contracts
• Contracts of Adhesion
– Ambiguity is decided in favor of the insured

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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 Insurance Contracts (Cont.)
• Indemnity Concept
– Subrogation
• Insurer obtains right of recovery against other parties

Distinguishing Characteristics of Insurance Contracts (Cont.)
• Personal
– Property-liability policies cannot be assigned

– Actual Cash Value – Other Insurance Provisions

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Today’s Lecture
Insurance Contracts Applications and Binders Parts of the Contract Declarations Insuring Clauses Exclusions and Exceptions Conditions Endorsements and Riders

Application
The potential insured offers to buy coverage by submitting an application. The insurer decides whether to accept the offer.

Binders and Receipts
Binder - temporary contract to provide coverage until the policy is issued Conditional receipt - no coverage unless policy is issued, but coverage is retroactive Binding receipt - coverage is in force while application is being processed

Parts of an Insurance Contract
Declarations Identify insured Describe coverage Insuring Clause Open-Perils - covers any loss not excluded Named-Perils - covers specified losses

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Exclusions and Exceptions
Reasons for Exclusions Ideal Requisites for Insurability Possibility of catastrophe Fortuitous Definite Standardize the Risk Avoid Duplication of Coverage

Types of Exclusions
Excluded locations Excluded perils Excluded property Excluded losses

Conditions
Must be fulfilled by insured in order to obtain coverage Examples Notice and proof of loss Cooperation of the insured Protection of property after a loss Examination

Endorsements and Riders
Endorsements used in property-liability insurance Riders used in life-health insurance Both change the contract in some way

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