Fundamental Legal Principles (Unit 4 Exam)

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  1. Principle of Indemnity
    the insurer agrees to pay no more than the actual amount of the loss; stated differently, the insured should not profit from a loss
  2. Actual Cash Value
    • replacement cost less depreciation
    • Replacement cost ($1000) - Depreciation ($500)= $500
  3. Fair Market Value
    the price a willing buyer would pay a willing seller in a free market
  4. Broad Evidence Rule
    • the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property
    • - relevant factors include replacement cost less depreciation, fair market value, present value of expected income from the property, comparison sales of similar property, opinions of appasiers, and numberous other factors
  5. Exceptions to the Principle of Indemnity
    • -valued policy
    • -valued policy laws
    • -replacement cost insurance
    • -life insurance
  6. Value Policy
    a policy that pays the face amount of insurance if a total loss occurs
  7. Value Policy Law
    a law that exists in some states that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law
  8. Replacement Cost Insurance
    there is no deduction for physical depreciation in determining the amount paid for a loss
  9. Life Insurance
    this is not a contract of indemnity but is a valued policy that pays a stated sum to the beneficiary upon the insured's death
  10. Principle of Insurable Interest
    the insured must be in a position to lose financial if a covered loss occurs
  11. Insurance contracts must be supported by an insurable interest for the following reasons
    • -to prevent gambling
    • -to reduce moral hazard
    • -to measure the amount of the insured's loss in property insurance
  12. Subrogation
    substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance
  13. Pecuniary (financial) Interest
    even when there is no relationship by blood or marriage, one person may be financially harmed by the death of another
  14. Purposes of Subrogation
    • -prevents the insured from collecting twice for the same loss
    • -used to hold the negligent person responsible for the loss
    • -helps to hold down insurance rates
  15. Principle of Utmost Good Faith
    a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts
  16. Principle of Utmost Good Faith is Supported by Three Important Legal Doctrines
    • -representations
    • -concealment
    • -warranty
  17. Representations
    statements made by the applacants for insurance
  18. Material
    if the insurer knew the true facts, the policy would not have been issued, or it would have been issued on different terms
  19. Innocent Misrepresentation
    if this is relied by the insurer, this makes the contract voidable. This is unintentional
  20. Warranty
    a statement that becomes parts of the insurance contract and is guaranteed by the maker to be true in all respects
  21. Offer and Acceptance
    the applicant for insurance makes the offer, and the company accepts ot rejects the offer
  22. Binder
    a temporary contract for insurance and can be wither writen or oral
  23. Conditional Premium Receipt
    if the applicant is found insurable according to the insurer's normal underwriting standards, the life insurance becomes effective as of the date of the application
  24. Consideration
    the value that each party gives to the other
  25. Legally Competent
    the parties must have legal capacity to enter into a binding contract
  26. Legal Purpose
    an insurance contract that encourages or promotes something illegal or immoral is contrary to the public interest and cannot be enforced
  27. Distinct Legal Characteristics
    • -aleatory contract
    • -unilateral contract
    • -conditional contract
    • -personal contract
    • -contract of adhesion
  28. Aleatory Contract
    a contract where the values exchanged may not be equal but depend on an uncertain event
  29. Commutative Contract
    the values exchanged by both parties are theoretically equal
  30. Unilateral Contract
    only one party makes a legally enforceable promise
  31. Conditional Contract
    the insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions
  32. Conditions
    provisions inserted in the policy that qualify or place limitations on the insurer's promise to perform
  33. Personal Contract
    the contract is between the insured and the insurer
  34. Contract of Adhesion
    the insured must accept the entire contract, with all of its terms and conditions
  35. Principle of Reasonable Expectations
    an insured is entitled to coverage under a policy that he or she reasonably expects it to provide and that to be effective, exclusions or qualifications must be conspicious, plain, and clear
  36. An agent's authority comes from three sources
    • -express authority
    • -implied authority
    • -apparent authority
  37. Express Authority
    powers specifically conferred on the agent
  38. Implied Authority
    the authority of the agent to perform all incidental acts necessary to fulfill the purposed of the agency agreement
  39. Apparent Authority
    if an agent acts with this to do certain things, and a third party is led to believe that the agent is acting within the scope of reasonable and appropriate authority, the principal can be bound by the agent's actions
  40. Waiver
    the voluntary relinquishment of a known legal right
  41. Estoppel
    occurs when a representation of fact made by one person to another person is reasonably relied on by that person to such an extent that it would be inquitable to allow that first person to deny the truth of the representations
  42. In property and casualty insurance, these can support the insecurable interest requirement
    • -the ownership of property
    • -potential legal liability
    • -secured creditors
    • -contractual rights
  43. In property insurance, the insurable interest requirement must be met
    at the time of lose
  44. In life insurance, the insurable interest requirement must be met only
    at the inception of the policy
  45. If the insurer exercises it's subrogration rights,...
    the insured generally must be fully restored before the insurer can retain any sims collected form the negligent third party
  46. The insured cannot..
    do anything that might impair the insurer's subrogation rights. However, the insurer can waive it's subrogation rights in the contract either before or after the loss
  47. Subrogation does not apply to...
    life insurance contracts and to most individual health insurance contracts
  48. To have a valid insurance contract, four requirements must be met:
    • -there must be an offer and acceptance
    • -consideration must be exchanged
    • -the parties to the contract must be legally competent
    • -the contract must be for a legal purpose
  49. Four general rules of agency govern the actions of agents and their relationship to insureds
    • -there is no presumptions of an agency relationship
    • -an agent must have the authority to represent the principal
    • -a principal is responsible for the actions of agents acting within the scope of their authority
    • -limitations can be placed on the powers of agents
  50. Based on the legal doctrines of waiver and estoppel,..
    an insurer may be required to pay a claim that it ordinarily would not have to pay
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Fundamental Legal Principles (Unit 4 Exam)
2012-04-30 21:43:07
Fundamental Legal Principles

Fundamental Legal Principles
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