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contract
an agreement between two or more parties
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contract of utmost good faith
insurance is a good faith contract because there is a mutual reliance of truthfulness of both parties
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doctrine of reasonable expectations
what is expected
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elements of a contract
offer and acceptance, consideration, legal purpose, and legal capacity
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consideration
something of value, the companys consideration is the promise to pay
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insurable interest
exists if the owner would suffer a financial consequence if the loss occured
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legal capacity
requires both parties to be legally competent
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contract of adhesion
legal contract that is written by the insurance company, applicant does not take part in the writing of the contract
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aleatory
contract in which the dollar value exchanged by the two parties is not necessarily equal due to the uncertain timing of the even which the subject of the contract
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unilateral
two parties to a contract but only one party (the insurer) makes legally enforceable promise
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personal contracts
insurance contracts that are personal in nature
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conditional contracts
certain events must have taken place, transpire, before they can be fully executed
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warranties
absolute truth
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representation
simply the truth to the best of you knowledge and belief
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misrepresentation
simply a lie
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concealment
partial truth but failing to tell the whole truth
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fiduciary
an individual responsible for another's financial well being
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fraud
act of deceiving someone in order to gain financially at their expense
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waiver
voluntary relinquishment of a right or privelage
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estoppel
legally prevents one from exercising that right or privilege
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best of your knowledge
belief
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misrepresentation
utilizing concealment, simply a lie, can invalidate a contract if it is both material
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insurable risk elements
large number of similar risks, quantifiable in dollars, financially significant to the insured, an element of risk
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underwriting information sources
the application itself, physical inspections, and consumer credit reports
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class rates
rates that apply to all members of a larger group of similar risks (law of large numbers)
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manual rates
when class rates are printed in a manual
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merit rates
are customized class rates
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schedule rating
would lower class rates for a building that was upgraded
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experience rating
would add or subtract from the class rates depending on actual loss experience
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retrospective rates
can adjust the class rates based upon experience with the same policy year
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individual rates
rates that are too uncommon to generate the large numbers necessary for a class rate
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judgement rates
rates based partially and if not exclusively on the judgement of the underwriter
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loss ratio
losses paid / earned premiums
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expense ratio
expenses paid / written premium
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combined ratio
loss ratio + expense ratio (underwriting profit)
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