Chapter 3

a contract of adhesion describes a contract that has been prepared by one party with no negotiation between the applicant and insurer. The applicant adheres to the terms of the contract on a “take it or leave it” basis when accepted.

An agent represents themselves and the insurer at the time of the application

An aleatory contract presents the potential for an unequal exchange of value or consideration between both parties. Aleatory contracts are conditioned upon the occurrence of an event.

is the appearance of the insurer providing the agent authority to perform unspecified take based on the agent-insurer relationship.

A Broker represents themselves and the injured at the time of the application.

A competent party is one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.

is the failure of the applicant to disclose a known material fact when applying for the insurance

A conditional policy describes the insurer's promise to pay benefits depends on the occurrence of an event covered by the contract.

is the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments.

is the legal impediment to one party denying the consequences of its own actions or deeds if such action or deeds results in another party acting in a specific manner or if certain conclusion are drawn.

is the explicit authority granted to the agent by the insurer, as written in the agency contract.

The responsibility an insurance producer has to account for all premiums collected and provide sound financial advice to clients. A fiduciary is in a position of trust with regards to the funds of their clients and the insurer.

Fraud includes the deliberate knowledge of or intentional deceit to make false statements to be compensated bt an insurance company.

is an authority not explicitly granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.

Contracts of indemnity attempt to return the insured to their original financial position.

(One person benefits from another person's continued life) Insurable interest is the financial, economic, and emotional impact associated with a person experiencing a specified loss. A person has an insurable interest in a loss if they have more to gain by not suffering the loss.

An insurance policy is a written contract in which one party promises to indemnify another against loss that arises from an unknown event.

legal purpose means an insurance contract must be legal in nature and not in opposition to public policy.

A material misrepresentation is a false statement made by an applicant that would influence an insurer in determining whether or not to accept the risk.

parol evidence rule involves parties put their agreement in writing, all previous verbal statements come together in that writing, and a written contract cannot be changed or modified by parol (oral) evidence.

A policy rider or endorsement is an amendment added to an insurance contract that overrides terms in the original policy; endorsements may add or remove coverages, change deductibles, or revise any other policy feature.

Reasonable expectations means the insured is entitled to coverage under a policy that any sensible and prudent person would expect it to provide.

Representations are statements made by the applicant that they consider to be true and accurate to the best of the applicant’s belief.

is the right for the insurer to pursue a third party that caused an insurance loss to the insured.

Unilateral contract means only one party, the insurer makes any kind of enforceable promise.

Utmost good faith involves the belief that both the policyowner and the insurer must know all material facts and relevant information, and as such, they will provide each other with all material facts and relevant information.

A valued contract pays a stated sum regardless of the actual loss incurred. Life insurance contracts are valued contracts.

A voidable contract is an agreement that, for a reason satisfactory to the court, may be set aside by one of the parties in the contract.

A waiver is the voluntary giving up of a legal, given right.

A warranty is a statement made by the applicant that is guaranteed to be true in every respect. It becomes part of the contract and, if found to be untrue, can be grounds for revoking the contract.