insurance law

  1. Uberrimae Fidei
    utmost good faith
  2. insurance
    • K whereby one undertakes to indemnify another or pay a
    • specified amt upon determinable contingencies.
  3. book
    • K where one party (insurer) – in exchange for consideration by the
    • other party (insured) – assumes the other party’s risk and distribute it across a
    • grp of similarly situated people.
  4. two concepts of insurance
    indemnity against a fortuitous loss
  5. fortuity
    • Ins responds only to accidents – not to purposeful conduct.
    • Beyond control of the insured
    • 1. Ins is based on risk – doesn’t respond to purposeful conduct.
  6. insurable interest
    • any lawful and subst economic interest in the safety or preservation of
    • the subj of the ins free from loss/destruction/pecuniary damage.
  7. Indemnify
    To make whole
  8. ISO
    Insurance services office- which is an insurance trade organization
  9. Self insurance
    If comp assumes its own risk by setting aside the $ it normally would spend on premiums on ins K’s into a special fund to be used to pay valid claims.
  10. Self insured retention(SIR)
    • Similar to a deductible - $ taken off the top
    • Here no coverage till $ is taken off the top – ins starts at certain pt after they’ve eaten away a certain amt
  11. captive insurer
    • Prevelant these days w/specialty ins comp’s such as –
    • a. Aviation/drugs/oil/film
  12. Insurable interest
    Req of every insurance policy. Situation where you benefit from the existence of something or suffer from it destruction.
  13. purpose of insurable interest requirement
    • Stops gamblings
    • Decreased moral hazards 1. Remove incentive for insured to destroy item simply to collect ins
    • premium.
    • d. Developed b/c ins trans serves a useful function of protecting against fortuitous losses
    • – its purpose is not to provide the insured w/an incentive/opp for profit.
  14. types of insurance categories(5)
    • property & casualty
    • health
    • life
    • indemnity
    • liability
  15. Property insurance
    Protect you and indemnifies you when your prop is damaged

    Only indemnifies


    a. Homeowner/Profit Stream
  16. business interruption insurance
    • Protect insured against indirect or consequential losses by fire,
    • water, incurred by the insured’s prop
  17. casualty insurance characteristics
    Similar to liability

    • Concerned w/insured’s legal liability for injuries to others or for
    • damage to other person’s prop.
  18. liability insurance
    • In essence its purpose is to provide coverage for legal liability that one might
    • incur to others.

    • 1. Never a Q about insurable interest b/c you always have interest in
    • protecting yourself against potential 3rd party liability.
  19. difference between liability and property?
    • Prop –
    • 1. Indemnifies.

    • 2. First party policy
    • a. Exs–

    • ii. Liability –
    • 1. Protects.

    Business interruption




    2. Third party policy
  20. excess coverage
    coverage over the policy limits
  21. vanishing policy
    not sure what this is
  22. underexposed
  23. bond
    • Ins-like device – regulated by the Ins Commission
    • Promise to a creditor that one person or comp (surety) will pay the debt or perform the obligation of some other person (obligee) should that person fail to pay or perform.
  24. surety bond(used in construction)
    • Principle will build obligee’s house
    • If principle doesn’t build the right house the bond will step in to compensate obligee.
  25. difference btwn an bond and insurance
    • i. Bond doesn’t indemnify principal in the event of a loss instead it will turn around and will go after principle for the loss sustained.
    • Ii. Normal ins policy – bars insure comp from going after principle for loss.
    • iii. Makes someone else whole/indemnifies the obligee not the principal.
  26. Fidelity bond
    Gurantee that the party is representing their actual net worth

    Difficult to now get due to accting scandals at Enron, and Worldcom.
  27. broker
    • an agent working for the policyholder
    • Duty is to shop for best premium/get best policy/coverage for
    • PH
    • Loyalty is to PH
  28. reinsurance
    • Ins for an ins comp.
    • i. Insurer underwriting the consumer’s risk transfers a part of the assumed risk to some other ins comp.
  29. reason for reinsurance
    • Finality
    • 1. Distribution of profits (London Mkt)
    • Expands power/ability to write more risk
    • get premium and sell risk
    • Make a little on each policy Profit thru volume
    • Get out of policy mkt
    • 1. Ex -MedMal
    • a. Get out completely thru reinsurance
    • iv. Sell where there not allowed to get into mkt –
    • 1. Fronting ins –
  30. ceding insurer
    one who sells risk
  31. what are reinsurance contracts called
  32. facultative reinsurance
    By exception – one policy at a time approach.

    Deal by deal

    Ins comp approaches reins comp policy by policy

    Similar to broker approaching ins comp’s for PH

    2. Treaty
  33. treaty(reinsurance)
    Reinsurance every policy w/n a yr.

    Commitment to reinsurance exists

    Charge cost to re-insure
  34. ways to determine amount of reinsurance

    • % of risk/losses/premiums/expenses are divided btw insurer
    • and reinsurer

    • % of every insurable dollar is divided at some agreed upon %
    • btw the parties.

    2. Excess

    Once certain threshold is reached – reinsurer’s commits to pay

    any add’l losses.

    Ex - Everything over $1M.
  35. insurance commissioner
    State regulator of ins – every state has one.

    Commissioner decides who will be admitted carriers –

    1. Ins comp’s which are accepted/regulated by the state.
  36. surplus lines insurance
    • ns that is not protected/backed by the state ins office – no
    • protection for insolvency.

    Not covered by the guarantee fund – no access to it.
  37. If an insurance company becomes insolvent
    • LIGRA (state protection will kick in
    • for insured’s – public funds) - therefore state regulation over those
    • offering ins to the public is paramount.
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insurance law
insurance law