Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
54 Cards in this Set
- Front
- Back
What are the distinguishing characteristics of an insurance policy (what distinguishes them from other types of contracts)?
|
"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. |
|
Principle of Indemnity
|
The principle that insurance policies should compensate the insured only for the value of the loss.
|
|
Contract of Indemnity
|
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.
|
|
What types of insurance policies violate the principle of indemnity?
|
Valued policies...these are not contracts of indemnity. For example, rare pieces of art are sometimes insured this way.
|
|
In order to reduce or avoid moral hazards, insurance policies should not:
|
1. Overindemnify the insured ("other insurance provisions" limit multiple sources of recovery)
2. Indemnify the insureds more than once per loss. |
|
Collateral Source Rule
|
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.
|
|
Why is an insurance policy more vulnerable to abuses such as misrepresentation or opportunism?
|
*Information asymmetry
*Costly verification |
|
Utmost Good Faith
|
An obligation to act with complete honesty and to disclose all relevant facts.
|
|
What are the most common violations of the concept of Utmost Good Faith in insurance policies?
|
*Fraud
*Buildup in insurance claims |
|
What types of losses happen fortuitously but are not covered by insurance?
|
*Wear and tear
*Inherent vice (characteristic of property that causes it to destroy itself - fruit) |
|
Do insurance policies involve negotiation?
|
Typically, they involve little to no negotiation.
|
|
Contract of Adhesion
|
A contract to which one party must adhere as written by the other party.
|
|
Courts have ruled that any ambiguities in contracts are to be construed agains whom? Why?
|
The party who drafted the agreement.
That party had the opportunity to express its intent clearly in the agreement. |
|
Typically, ambiguities in an insurance policy are interpreted in whose favor?
|
The insured.
|
|
In what situations might the courts not interpret any ambiguity in the insured's favor?
|
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. |
|
Reasonable Expectations Deoctrine
|
A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in a way that an insured would reasonably expect.
|
|
The reasonable expectation doctrine is an extension of the _______ doctrine.
|
Contract of adhesion.
|
|
Give an example of the application of the reasonable expectation doctrine.
|
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.
|
|
There is not requirement that the amounts exchanged with an insurance policy be _______.
|
Equal in value.
|
|
Although the tangible values exchanged between an insurer and insured may not be _______, in general they are _______.
|
Equal
Equitable. |
|
Conditional Contract
|
A contract that one or more parties must perform only under certain conditions.
|
|
The _______ may not transfer the insurance policy to a 3rd party without the _______'s written consent.
|
Insured
Insurer. |
|
_______ frequently transfer policies to other _______. The written approval of _______ is not required.
|
Insurers
Insurers Insured. |
|
Courts resolve questions about what types of insurance-related issues not addressed in policy language?
|
1. Questions of liability
2. Questions of coverage 3. Questions of Law 4. Questions of Fact. |
|
Questions of Liability
|
*For liability claims...
*Is the insured legally obligated to pay damages to a 3rd party? |
|
Questions of Coverage
|
*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? |
|
Declaratory Judgment Action
|
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.
|
|
What is a tool used by insurers and insureds to help resolve questions of coverage?
|
A dec judgement action.
|
|
A dec judgement action resolves questions of _______ not questions of _______.
|
Coverage
Liability. |
|
In cases with no jury, the trial judge...
|
determines the law, finds facts, and applies law to the facts.
|
|
In jury trials, the jury....
And the judge... |
Hears the evidence and decides the facts.
Decides all questions of law. |
|
An insurer may deny a claim based on the following defenses:
|
*Fraud
*Misrepresentation *Concealment *Mistake *Breach of a condition. |
|
An insured may argue that an insurer has forfeited or is prevented from asserting a defense based on:
|
*Waiver of the defense
*Estoppel from asserting the defense. |
|
Waiver
|
The intentional relinquishment of a known right.
|
|
Estoppel
|
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.
|
|
Estoppel bars a person from...
|
Asserting a claim or right that goes against something that person has said/done previously.
|
|
Estoppel usually arises in insurance from the following sequence of events:
|
1. Insurer falsely represents a material fact.
2. Insured assumes a reasonable reliance on this. 3. The insured suffers resulting injury or detriment. |
|
Reservation of Rights Letter
|
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.
|
|
What are the main purposes of a ROR letter?
|
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). |
|
Nonwaiver agreement
|
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.
|
|
A ROR letter differs from a nonwaiver how?
|
*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. |
|
A liability insurance policy includes what duties?
|
*Agreement to pay damages on insured's behalf
*Duty to defend the insured. |
|
The duty to _______ is broader than the duty to _______ for insurers.
|
Defend
Pay damages. |
|
An insurer must defend an insured whenever a plaintiff alleges damages...
|
that could conceivably be covered by the policy...even if only a single allegation among many would be covered.
|
|
If an insurer is found to have mishandled a claim, what are the payments/fines/penalties it faces?
|
1. Compensatory Damages for breach of contract
2. Penalties under Unfair Claims Settlement Practices Acts. 3. Punitive damages for Bad Faith. |
|
With compensatory damages for breach of contract, courts award what types of damages?
|
*Original coverage (ex: property value)
*Damages for breach of contract (ex: loss of business). |
|
With compensatory damages for breach of contract, damages are often _______ limits of the original policy.
|
in excess of.
|
|
What do the Unfair Claims Settlement Practices Acts generaly require?
|
That insurers handle claims promptly (timely investigation and swift settlement).
|
|
State insurance departments will fine/penalize an insurer who has a pattern of unfair claim practices, indicating...
|
A general business practice.
|
|
In some cases, the results of an unfair claim settlement practice proceedings can be used as evidence in...
|
an insured's bad-faith action.
|
|
What are the possible penalties and sanctions for Unfair Claims Settlement Practices?
|
*Fines
*Interest on overdue claim payment *Payment of other fees *Cease-and-desist orders *Suspension/revocation of a CR's or insurer's license. |
|
If an insurer has been penalized under Unfair Claims Settlement Practices Acts, they pay fines to whom?
|
The state department of insurance, not a policyholder.
|
|
Bad Faith Claims are usually generated by an insurer...
|
wrongfully denying a claim.
|
|
Who can bring a Bad Faith Claim against an insurer?
|
Varies by state. In some, only a policyholder. In other states, policyholder, claimants and excess insurers can bring Bad Faith Claims.
|