Escolar Documentos
Profissional Documentos
Cultura Documentos
Overview
Principle of indemnity Principle of insurable interest Principle of utmost good faith Principle of subrogation
Direct Marketing
Exclusive Agent
Independent Agent
Property/Liability Insurance
Life/Health Insurance
Insurance as Contracts
Elements of contract
Agreement
Consideration
Offer and Acceptance Insured premium payment and fulfillment of policy conditions Insurer promise to do certain things as specified in the contract (insurance policy) Parties must have legal capacity to enter into a binding contract Contract must be for a legal purpose Contract may be oral or written Some insurance policy provisions and attachments must be approved by regulator before being marketed
Insurance as Contracts
Property - Casualty Offer
Life Offer
Acceptance
Binder
Submission of application with a down payment Issuance of a life insurance policy Conditional premium receipt
Acceptance
Note: Giving a quotation to a prospective insured is deemed as mere solicitation or invitation to make an offer.
Insurance protects insured, not the property or liability subject to loss. Assignment provision
In property insurance, if ownership of a property changes, insurance contracts (policies) cannot be transferred to another party (buyer) without the insurers written consent. In life insurance, the beneficiary or ownership of policy may be freely reassigned.
A contract whose value to either or both of the parties depends on chance or future events, or where the monetary values of the parties' performance are unequal.
The insurer's obligation to pay a loss depends on uncertain events Premium paid by Insured
Insurance contracts are drafted by an insurer and an insured must accept or reject all the terms and conditions. Insured gets the benefit of the doubt.
Rider or endorsement a document that amends or changes the original policy. Contracts are drafted by both parties.
An insurers obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions. The insurer may not pay a claim if one or more of policy conditions are not complied.
Duties after loss Homeowners (p. 562) Duties after an accident or loss Automobile (p. 585) Duties after in the event of loss or damage CP
Only one party makes a legally enforceable promise. Insured are not legally forced to pay premium or renew the policy.
Principle of Indemnity
The insurer agrees to pay no more than the actual amount of the loss suffered by the insured. Why?
The purpose of the insurance contract is to restore the insured to the same economic position as before the loss. The insured should not profit from a loss. It reduces the moral hazard by eliminating the profit incentive.
Principle of Indemnity
To support the principal of indemnity an insurance contact uses Actual Cash Value (ACV) method
RC current cost of restoring the damaged property with new materials of like kind and quality. The price of a wiling buyer would pay a willing seller in a free market.
The determination of ACV should include all relevant factors an expert would use to determine the value of the property.
Principle of Indemnity
To support the principal of indemnity insurance contact includes Other Insurance Provisions.
Escape clause
Primary-Excess
The policy (or insurance) would not apply if the insured was covered by another policy. It (or This insurance) is excess insurance over any other valid and collectible insurance.
Pro-rata provision
Principle of Indemnity
Primary-Excess
Accident while test driving a dealers car. Health insurance between a couple working for different employers.
Own insurance primary Spouse insurance excess Birthday rule for dependents coverage
Principle of Indemnity
It limits an insurers maximum obligation to the proportion of the loss that the insurers policy limit bears to the sum of all applicable policy limits. Assume that there are three polices covering the same loss and the loss amount is $150,000.
Insurer A Insurer B
$200,000 2/6 $50,000
Insurer C
$300,000 3/6 $75,000
Principle of Indemnity
The amount what would be payable under each policy in the absence of other insurance Assume that there are three polices covering the same loss and the loss amount is $150,000.
Insurer A Insurer B $200,000 $150,000 1.5/4 $56,250 Insurer C $300,000 $150,000 1.5/4 $56,250
Principle of Indemnity
$100,000 $60,000
Share
Payment
1/3
$20,000
1/3
$20,000
1/3
$20,000
Principle of Indemnity
Each insurer contributes equal amount until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first. Assume that there are three polices covering the same loss and the loss amount is $150,000
Insurer A Insurer B $200,000 $50,000 $50,000 Insurer C $300,000 $50,000 $50,000 $100,000 $50,000 $50,000
Principle of Indemnity
Insurer B $200,000
Insurer C $300,000
Equal Share 1
Equal Share 2 Payment
$100,000
N/A $100,000
$100,000
$50,000 $150,000
$100,000
$50,000 $150,000
Principle of Indemnity
Pays face value of insurance if a total loss occurs Life insurance, disability insurance, fine arts, antiques
Replacement cost
A law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a covered peril, regardless of the propertys ACV. No deduction for depreciation in determining the amount paid for a loss.
To prevent gambling
Insurance on a property and wait for a loss occur. Life insurance on a person and pray for his/her death for insurance proceeds.
Property-Casualty insurance
Life Insurance
At the time of a loss, an insured must have insurable interest. No insurable interest no financial loss no indemnity support Prin. of indemnity Insurable interest must exist at the time of a policy inception, but not at the time of a loss (death)
A higher degree of honesty is imposed on an insurance contract than is imposed on other contracts
Honesty is mainly imposed on the insurance applicants. It is supported by three legal doctrines
Representation Concealment Warranty
Representation
Concealment
Warranty
A statement of fact or a promise made by the insured, which is part of the insurance contract and must be true if the insurer is to be liable under the contract.
In exchange for a reduced premium, a store owner warrants that a burglar alarm will be always on.
Principle of Subrogation
Substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party wrongdoer for a loss paid by the insurer.
Why?
To prevent collecting twice To hold the negligent party responsible To hold down insurance rates
Principle of Subrogation
The insurer is entitled only to the amount it has paid under the policy.
What if the insurer collects more, from the negligent party, than the amount the insurer paid to its insured? The insured cannot impair the insurers subrogation rights.
Subrogation does not apply to life insurance and to individual health insurance contracts. The insurer cannot subrogate against its own insured.
Two insurers seek to void Enron policies Coming Clean on Insurance Applications Rescission of Life Insurance Policy Upheld on Finding of Intent to Deceive in Application