Cpcu 530 Ch 3

Front 1

Insurance policy

Back 1

is a written contract in which an insurer agrees to protect the insured against specified losses.

Front 2

Conditional contract

Back 2

makes performance dependent on an uncertain event or condition.

Front 3

Utmost good faith

Back 3

requires complete disclosure of all material facts.

Front 4

Material fact

Back 4

is one that would affect a party’s decision to enter into a contract with its exact terms.

Front 5

Misrepresentation

Back 5

is the false statement of past or present fact made before contract inception to induce the other party to contract or to secure more favorable contract terms.

Front 6

Incontestable clause

Back 6

eliminates a life insurance policy’s voidability after the contestable period.

Front 7

Contestable period

Back 7

is the period (usually two years) after which the life insurer agrees to waive the policy defenses of material misrepresentation, concealment, and fraud in connection with the application.

Front 8

Contract of adhesion

Back 8

is drafted by one party and presented to the other on a ‘take it or leave it’ basis.

Front 9

Contract of indemnity

Back 9

restores a person to the same financial position he held just prior to his loss.

Front 10

Principle of indemnity

Back 10

states that insurance should compensate the insured for the value of his loss, but should not provide a benefit greater than the loss.

Front 11

Valued policy

Back 11

requires the property value stated in the policy to be the amount paid for total loss; does not violate the principle of indemnity.

Front 12

Insurable interest

Back 12

exists in property if one would suffer financial loss from its damage or destruction.

Front 13

Binder

Back 13

is an informal, abbreviated insurance contract providing interim coverage until the insurer approves and issues the policy to the insured.

Front 14

Direct

Back 14

action statuteallows injured people to sue defendants’ insurers directly.

Front 15

Increase

Back 15

ofrisk statuterequires that, for the contract to be voidable, the misrepresentation must be of a fact that increased the risk; compare contributetoloss statute.

Front 16

Contribute

Back 16

to loss statuterequires that, for the contract to be voidable, the misrepresentation must be of a fact that actually contributed to the loss; compare increaseofrisk statute.

Front 17

Warranty

Back 17

is a contract provision that must be strictly true, or adhered to, to prevent contract voidability.

Front 18

Affirmative warranty

Back 18

is a statement of fact made at or before contract inception.

Front 19

Continuing (promissory) warranty

Back 19

is an agreement to continue or to create conditions or situations.

Front 20

Promissory warranty

Back 20

is another term for continuing warranty.

Front 21

Implied warranty

Back 21

is implied by law to make transactions reasonable and fair.

Front 22

Waiver

Back 22

is the voluntary and intentional forfeiture of a known right.

Front 23

Estoppel

Back 23

bars a course of action that would have been allowable had not one party 1) falsely represented a material fact that was relied on by the other party to his detriment or 2) previously chosen a mutually exclusive course of action.

Front 24

Election

Back 24

involves choosing of one course of action from two or more mutually exclusive courses of action; can create an estoppel.

Front 25

Reservation

Back 25

of rights letteris an insurer’s unilateral notice explicitly reserving all its policy rights; compare nonwaiver agreement.

Front 26

Nonwaiver agreement

Back 26

is a bilateral agreement not to waive any policy rights; compare reservationofrights letter.