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54 Cards in this Set
- Front
- Back
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What are the distinguishing characteristics of an insurance policy (what distinguishes them from other types of contracts)?
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"U & I Can Never Eat Fat Cats"
1. Utmost Good Faith 2. Indemnity 3. Contract of Adhesion 4. Nontransferable 5. Exchange of unequal amounts 6. Fortuitous losses 7. Conditional. |
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Principle of Indemnity
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The principle that insurance policies should compensate the insured only for the value of the loss.
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Contract of Indemnity
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A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss.
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What types of insurance policies violate the principle of indemnity?
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Valued policies...these are not contracts of indemnity. For example, rare pieces of art are sometimes insured this way.
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In order to reduce or avoid moral hazards, insurance policies should not:
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1. Overindemnify the insured ("other insurance provisions" limit multiple sources of recovery)
2. Indemnify the insureds more than once per loss. |
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Collateral Source Rule
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A legal doctrine that provides that the damages owed to a victim shouldn't be reduced because the victim is entitled to recover $$ from other sources such as an insurance policy.
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Why is an insurance policy more vulnerable to abuses such as misrepresentation or opportunism?
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*Information asymmetry
*Costly verification |
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Utmost Good Faith
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An obligation to act with complete honesty and to disclose all relevant facts.
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What are the most common violations of the concept of Utmost Good Faith in insurance policies?
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*Fraud
*Buildup in insurance claims |
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What types of losses happen fortuitously but are not covered by insurance?
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*Wear and tear
*Inherent vice (characteristic of property that causes it to destroy itself - fruit) |
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Do insurance policies involve negotiation?
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Typically, they involve little to no negotiation.
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Contract of Adhesion
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A contract to which one party must adhere as written by the other party.
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Courts have ruled that any ambiguities in contracts are to be construed agains whom? Why?
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The party who drafted the agreement.
That party had the opportunity to express its intent clearly in the agreement. |
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Typically, ambiguities in an insurance policy are interpreted in whose favor?
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The insured.
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In what situations might the courts not interpret any ambiguity in the insured's favor?
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If the insured had some understanding and ability to alter the policy wording before entering the agreement.
Typically, this would be for medium to large organizations with dedicated risk management functions. |
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Reasonable Expectations Deoctrine
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A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in a way that an insured would reasonably expect.
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The reasonable expectation doctrine is an extension of the _______ doctrine.
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Contract of adhesion.
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Give an example of the application of the reasonable expectation doctrine.
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If a renewal insurance policy is issued with changes from the original, unless a notification comes with the renewal, the insured can reasonably expect the renewal policy is the same as the original policy.
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There is not requirement that the amounts exchanged with an insurance policy be _______.
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Equal in value.
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Although the tangible values exchanged between an insurer and insured may not be _______, in general they are _______.
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Equal
Equitable. |
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Conditional Contract
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A contract that one or more parties must perform only under certain conditions.
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The _______ may not transfer the insurance policy to a 3rd party without the _______'s written consent.
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Insured
Insurer. |
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_______ frequently transfer policies to other _______. The written approval of _______ is not required.
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Insurers
Insurers Insured. |
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Courts resolve questions about what types of insurance-related issues not addressed in policy language?
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1. Questions of liability
2. Questions of coverage 3. Questions of Law 4. Questions of Fact. |
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Questions of Liability
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*For liability claims...
*Is the insured legally obligated to pay damages to a 3rd party? |
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Questions of Coverage
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*For both property and liability claims...
*Is the insurer obligated to pay the claim to, or on behalf of, the insured...and if so to what extent? |
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Declaratory Judgment Action
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A legal action in which the insurer (or insured) presents a coverage question to the court and asks the court to declare the rights of the parties under the applicable insurance policy.
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What is a tool used by insurers and insureds to help resolve questions of coverage?
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A dec judgement action.
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A dec judgement action resolves questions of _______ not questions of _______.
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Coverage
Liability. |
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In cases with no jury, the trial judge...
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determines the law, finds facts, and applies law to the facts.
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In jury trials, the jury....
And the judge... |
Hears the evidence and decides the facts.
Decides all questions of law. |
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An insurer may deny a claim based on the following defenses:
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*Fraud
*Misrepresentation *Concealment *Mistake *Breach of a condition. |
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An insured may argue that an insurer has forfeited or is prevented from asserting a defense based on:
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*Waiver of the defense
*Estoppel from asserting the defense. |
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Waiver
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The intentional relinquishment of a known right.
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Estoppel
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A legal principle that prohibits a party from asserting a claim or right that is inconsistent with that party's past statement or conduct on which another party has detrimentally relied.
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Estoppel bars a person from...
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Asserting a claim or right that goes against something that person has said/done previously.
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Estoppel usually arises in insurance from the following sequence of events:
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1. Insurer falsely represents a material fact.
2. Insured assumes a reasonable reliance on this. 3. The insured suffers resulting injury or detriment. |
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Reservation of Rights Letter
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A notice sent by an insurer advising the insured that the insurer is proceeding with a claim investigation but that that insurer retains the right to deny coverage later.
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What are the main purposes of a ROR letter?
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1. Protect the insurer's right to deny coverages, if warranted, without facing the accusation that its previous actions waived that right.
2. Inform the insured that a coverage problem might exist and give the insured an opportunity to protect its interests (retain legal counsel). |
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Nonwaiver agreement
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A written contract in which insured and insurer agree that neither will waive any rights under the policy as a result of the investigation or defense of a lawsuit against the insured.
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A ROR letter differs from a nonwaiver how?
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*A ROR is unilateral, usually in the form of a letter to an insured from insurer.
*A nonwaiver is bilateral, agreed to and signed by both parties. |
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A liability insurance policy includes what duties?
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*Agreement to pay damages on insured's behalf
*Duty to defend the insured. |
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The duty to _______ is broader than the duty to _______ for insurers.
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Defend
Pay damages. |
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An insurer must defend an insured whenever a plaintiff alleges damages...
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that could conceivably be covered by the policy...even if only a single allegation among many would be covered.
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If an insurer is found to have mishandled a claim, what are the payments/fines/penalties it faces?
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1. Compensatory Damages for breach of contract
2. Penalties under Unfair Claims Settlement Practices Acts. 3. Punitive damages for Bad Faith. |
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With compensatory damages for breach of contract, courts award what types of damages?
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*Original coverage (ex: property value)
*Damages for breach of contract (ex: loss of business). |
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With compensatory damages for breach of contract, damages are often _______ limits of the original policy.
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in excess of.
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What do the Unfair Claims Settlement Practices Acts generaly require?
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That insurers handle claims promptly (timely investigation and swift settlement).
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State insurance departments will fine/penalize an insurer who has a pattern of unfair claim practices, indicating...
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A general business practice.
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In some cases, the results of an unfair claim settlement practice proceedings can be used as evidence in...
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an insured's bad-faith action.
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What are the possible penalties and sanctions for Unfair Claims Settlement Practices?
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*Fines
*Interest on overdue claim payment *Payment of other fees *Cease-and-desist orders *Suspension/revocation of a CR's or insurer's license. |
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If an insurer has been penalized under Unfair Claims Settlement Practices Acts, they pay fines to whom?
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The state department of insurance, not a policyholder.
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Bad Faith Claims are usually generated by an insurer...
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wrongfully denying a claim.
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Who can bring a Bad Faith Claim against an insurer?
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Varies by state. In some, only a policyholder. In other states, policyholder, claimants and excess insurers can bring Bad Faith Claims.
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