Insurance policies are contracts that share attributes with all legal contracts but also have unique characteristics that define their purpose and function. This study guide covers the key elements and legal concepts of insurance contracts for the FL Adjusters Claim Professional Exam.
A contract is a legally enforceable agreement requiring:
In insurance, the applicant (offeror) makes an offer to the insurer (offeree) through a signed application and premium deposit. Without a premium, the applicant invites the insurer to make an offer.
Key Point: An insurance offer requires both an application and a premium deposit.
The insurer can:
Example: Joe applies for $3M liability insurance. The insurer counters with a $500,000 limit policy, which Joe can accept or reject.
Consideration is something of value exchanged by both parties:
All parties must be legally competent:
Note: Some states allow minors (e.g., over 15) to enter binding insurance contracts.
Contracts must serve a legal purpose. Insuring illegal activities (e.g., stolen goods) is unenforceable.
In the typical insurance sales transaction, the insurance company makes the initial offer to the applicant. True or False?
Click to reveal the answer.
False
Insurance contracts are:
Example: A warehouse insured for $1M burns down after six months. The claim payout far exceeds the premium, illustrating an aleatory contract.
Courts interpret ambiguities in favor of the policyholder due to the contract’s adhesion nature.
If a policyholder has reasonable expectations of coverage, courts may enforce coverage despite policy wording.
Example: A policyholder expects identical coverage upon renewal, but a minor change excludes a loss. Courts may enforce the expected coverage.
Indemnity Contracts: Pay based on the loss amount, up to policy limits (e.g., property, medical insurance).
Valued Contracts: Pay a predetermined amount (e.g., life insurance, agreed value policies for art).
Both parties must be fully honest. Failure to disclose material facts can void the contract.
Representations are statements believed true but not guaranteed. Misrepresentations (false material facts) can void the contract.
Deliberate withholding of material facts can void the contract if it affects the insurer’s decision.
Deliberate deception to gain value (e.g., false claim information) can void the contract.
Example: A policy may state it’s void if obtained through material misrepresentation or fraud.
A warranty guarantees a condition remains true (e.g., an active burglar alarm). Breach can lead to claim denial.
Waiver: Voluntarily giving up a right (e.g., accepting late premiums).
Estoppel: Prevents enforcing a right after waiving it.
Example: An insurer accepting late premiums cannot later cancel for late payment.
Rescission declares a policy never in effect, typically due to concealment or material misrepresentations.