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PC Unit 2 Cram Sheet

The document outlines the essential elements of a legal contract in insurance, including consideration, legal purpose, offer and acceptance, and the requirements for competent parties. It explains key concepts such as adhesion, aleatory nature, utmost good faith, and the implications of unilateral promises. Additionally, it covers representation, misrepresentation, warranties, concealment, fraud, waiver, and estoppel in the context of insurance contracts.

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75 views2 pages

PC Unit 2 Cram Sheet

The document outlines the essential elements of a legal contract in insurance, including consideration, legal purpose, offer and acceptance, and the requirements for competent parties. It explains key concepts such as adhesion, aleatory nature, utmost good faith, and the implications of unilateral promises. Additionally, it covers representation, misrepresentation, warranties, concealment, fraud, waiver, and estoppel in the context of insurance contracts.

Uploaded by

Batgirl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Unit 2 Cram Sheet

Elements of a Legal Contract—CLOAC


• Consideration—giving something of value
‒ Insured—statements made on the application + premium
‒ Insurer—promises to pay claim (based on policy)
• Legal purpose—risk transfer doesn’t violate the law
• Offer
• Acceptance
• Competent parties— legal age, sane, and sober
Consideration—premium and statements made on application
Legal purpose—risk transfer doesn’t violate the law
Offer and Acceptance
• Offer (made by insured)
‒ Insured submits application and first month premium to insurer
‒ Insurer accepts or insurer declines the risk
• Counteroffer (made by insurer)
‒ Agrees to issue policy but with higher premium or restrictions/exclusions
‒ Insured either accepts the conditions or withdraws their application
Competent Parties
• Legal age (usually 18)
• Mentally sane
• Sober
Adhesion
• Policy written by the insurance company
• Contract is like glue—cannot be changed
• Insured has no input
• If ambiguous (not clear), court will take the side of the insured
Aleatory
• Not equal value
• Small premium for a large amount of coverage
Utmost good faith—the insured and insurance company have a right to expect honesty from each other
Unilateral—Only one legally enforceable promise made
• Uni = one
• Insurance company promises to pay for a covered loss
• Insured does NOT promise to pay the premium
• What happens if the insured doesn’t pay premiums?
‒ The insurance company will cancel the policy.
• What happens if the insurer doesn’t pay the claim?
‒ The insured will sue, and the insurer is legally bound once the policy is issued.
Personal—contract between the insurance company and the insured; cannot be changed to someone
else
Conditional—insured must pay the premium for coverage and file a claim if a loss occurs
Indemnity—makes whole
• Restores the insured to a pre-loss state
• Pays for the loss with no gain
• No more! No less!
Representation—believed to be true
• Statements on applications are considered representations.
Misrepresentation—information given that is not true but would not affect the insurance company’s
decision
Material misrepresentation— information given that is not true and DOES affect the insurer’s decision
Warranty—promise
• May be made by the insured
‒ Breach of warranty may void the contract
Concealment—failure to disclose; hiding information
• If intentional and the information is material (important), coverage could be voided
• If NOT intentional, coverage can NOT be voided
Fraud—intentional act to cheat another
Waiver—voluntarily giving up a right
Estoppel
• Once a waiver has been created, it can’t be reinstated.

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