The ___ states that the insurer will agree to pay no more than the actual amount of the loss.
Principle of Indemnity
What are the 2 reasons for the principle of indemnity?
- To prevent an insured from profiting from a loss
- To reduce moral hazard
In property insurance, indemnification is based on the ___ of the property at the time of the loss.
Actual Cash Value
Name the three main methods to determing actual cash value.
- Replacement cost less depreciation
- Fair Market Value is the price that a willing buyer would pay a willing seller in the free market
- The Broad Evidence Rule means that determination of actual cash value should include all relevant factors that an expert would use to determine the value of the property
What are the four exceptions to the principle of indemnity?
- A Valued Policy pays the face amount to insurance if a total loss occurs
- Some states have a Valued Policy Law 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.
- Replacement Cost Insurance means that there is no deduction for depreciation in determining the amount paid for the loss
- A life insurance contract is a valued policy that pays a stated sum to a beneficiary upon the insured’s death
The ___ states that the insured must be in a position to lose financially if the covered loss occurs.
Principle of Insurable Interest
What are the 3 reasons for the principle of insurable interest?
- To prevent gambling
- To reduce moral hazard
- To measure the amount of the insured’s loss
The principle of insurable interest can be supported by:
(4 points)
- Ownership of property
- Potential legal liability
- Serving as a secured creditor
- Contractual rights
Regarding property insurance, when must an insurable interest exist?
At the time of the loss
Regarding life insurace, when must an insurable interest exist?
Only at the inception of the policy
Insurable interest in another person’s life can be shown by:
(3 points)
- Close family ties
- Marriage
- Pecuniary interest
The ___ refers to the 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.
Principle of Subrogation
What are the 3 purposes of the principle of subrogation?
- To prevent the insured from collecting twice for the same loss
- To hold the negligent person responsible for the loss
- To hold down insurance rates
The ___ means that a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts.
Principle of Utmost Good Faith
The principle of utmost good faith is supported by which 3 legal doctrines?
- Representations
- Concealments
- Warranty
___ are statements made by an applicant for insurance.
Representations
___ means that if the insurer knew the true facts, the policy would not have been issued, or would’ve been issued on different terms.
Material
___ means that the insurer relies on the misrepresentation in issuing a policy at a specified premium.
Reliance
A(n) ___ is intentional failure of an applicant for insurance to reveal a material fact to the insurer.
Concealment
To deny a claim based on concealment, a nonmarine insurer must prove:
(2 points)
- The concealed fact was known by the insured to be material
- The insured intended to defraud the insurer
A(n) ___ is a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects.
Warranty
Name the 4 requirements of an insurance contract.
- Offer and Acceptance of the terms of the contract
- Exchange and Consideration - the value that each party gives to the other
- Competent Parties with the legal capacity to enter into a binding contract
- The contract must exist for a Legal Purpose
An insurance contract is ___, which means that the values exchanged aren’t equal.
Aleatory
An insurance contract is ___, which means that only the insurer makes a legally enforceable promise.
Unilateral
