Insurance Law

Chapter 51Insurance LawCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.51-2The Nature of the Insurance RelationshipInsured Party: Party who makes a payment (a premium) in exchange for a payment in the event of damage/injury to property/personPremium: Payment on policyInsurer (Underwriter): Party who receives premiums from insured partyBeneficiary: Person who receives insurance proceedsPolicy: Document that expresses agreement between the insured party, beneficiary, and insurerRisk: Potential lossInsurable Interest: Economic interest in life/propertyLife interest must exist at time policy obtainedProperty interest must exist at time of loss51-3The Insurance ContractApplication For Insurance: Party with insured interest makes an offer to purchase insurance (Based on information described in application, insurance company evaluates the risk and determines whether to accept/reject offer)Effective Date: Date policy becomes effectiveBinder: Gives temporary insurance until decision to accept/reject application made51-4Elements of the Insurance ContractIncontestability Clause: Ensures insurance company cannot contest statements made in insurance application after certain period of timeAnti-Lapse Clause: Grace period for insured to pay premiumAppraisal Clause: Insured party and insurer select disinterested appraiser for second opinion on damagesArbitration Clause: Disputes must be submitted to an arbitratorCanceling the Insurance PolicyWhile insurer/insured may cancel policy at specified times, insurer limited as to when it may cancel the policy; if either party breaches its duties as established in the insurance policy, the other party has legal remedy51-551-6Insurer and Insured ObligationsInsurer Duties:Defend insured; insurer must defend insured party from claims for which insured party liablePay sums owed by insuredInsured Duties:Disclose material (significant, relevant) information on applicationCooperate with insurer (on defense of claims)51-7Insurer’s Defenses For Non-Payment of Claims Include (but are not limited to):Breach of contract;Lack of insurable interest; andIllegal activity51-8Types of InsuranceIndividual Insurance: Insured party is party purchasing insuranceGroup Insurance: Party who is neither insured party nor insurer purchases insurancePersonal Insurance: Covers individual’s life/healthCommercial Insurance: Covers business interestsProperty Insurance: Protects property from loss/damageCasualty Insurance: Protects person/property from accidental injuryLiability Insurance: Protects business from tort liability to third partiesCommercial General Liability Policy: Protects business against broad range of risks51-9Exhibit 51-2: Types of Liability InsuranceContractor’s Liability Insurance: Protects contractors against liability for injuries that might occur while completing a job (excluding injuries to employees)Garage Liability Insurance: Protects garage owner from liability to persons injured by operation of the garageProduct Liability Insurance: Protects producer or manufacturer of good from loss due to damages paid to people injured using the goodProfessional Liability Insurance: Protects members of specific professions from liability associated with their professional acts51-10Exhibit 51-3: Types of Property InsuranceFire Insurance: Protects property from loss or damage from fireLivestock Insurance: Protects owner from loss due to injury or death of livestockWater, Weather, and Natural Forces Insurance: Flood insurance, water damage insurance, weather insurance, hail insurance, lightning insurance, etc.51-11Life InsuranceWhole-Life: Protection for entire life of insuredTerm-Life: Provides coverage for specified term (beneficiary paid only if insured party dies during designated term)