Property and Casualty Insurance: Policies are Contracts

Vocabulary flashcards covering the elements of a contract, sections of Property and Casualty policies, representations versus warranties, legal disclosure acts, and contract characteristics based on lecture notes.

Contract

A legally enforceable agreement between two or more parties consisting of an offer and its acceptance made by competent parties to provide something (consideration) for each other.

Agreement

The first component of a contract, consisting of two parts: offer and acceptance (offer + acceptance = agreement).

Offer

The starting component of an agreement that originates when an applicant fills out an application for coverage.

Acceptance

The completion of an agreement occurring when haggling is finished, both parties are satisfied, and one party accepts the other's offer.

Consideration

Something of value put on the table by each party; for insurance, the Insured provides premium payment and application statements, while the Insurer promises to indemnify in the case of a covered loss.

Legally Competent Party

A party who is sane, sober, and an adult at the time a contract is created, possessing the capacity to understand its terms.

Legal Purpose

The requirement that a contract's objective must be legal and not contrary to law for the contract to be valid and binding.

Declarations Section

The section of an insurance policy (usually the first page) listing unique policy details including insurer name, insured name, property description, policy term, premium amount, deductible, and limit of liability.

Insuring Agreements Section

The policy section containing the insurance company's promises and obligations to pay, repair, or replace, while listing covered perils and determining coverage types (Basic, Broad, or Special).

Conditions Section

The policy section setting forth the rules, duties, and obligations governing interactions between the Insurer and Insured, including definitions and claim reporting requirements.

Proof of Loss Form

A completed and sworn document required from the Insured within 60 days of request, detailing liens, other insurance policies, property value, and loss specifics.

Exclusions Section

The policy section stating specific losses, perils, or items of property that are not covered by the insurance policy.

Representation

A statement made on an application or Proof of Loss form to the best of the applicant's knowledge and belief, which is presumed true but not guaranteed to be absolutely true.

Warranty

A statement or promise made on an application form that the applicant guarantees to be absolutely and literally true, failure of which can void policy coverage.

Concealment

An intentional act of omission involving hiding the truth or telling only a partial truth regarding a material fact.

Material Fact

A fact that, if truthfully stated, would have caused the Insurer to not issue the policy or to charge a higher premium.

Misrepresentation

An intentional lie or false statement made by an Insured regarding a Material Fact on an application or Proof of Loss form.

Contract of Adhesion

A contract where the terms are set by one party and the consumer has no opportunity to negotiate terms (take it or leave it), resulting in any ambiguities being interpreted in favor of the Insured.

Binder

An oral or written temporary agreement issued by an authorized agent providing immediate insurance coverage until a regular policy can be issued.

Consumer Reporting Agency

A for-profit organization that collects, compiles, and sells information about applicants to insurance companies.

Federal Fair Credit Reporting Act (FCRA)

Federal legislation passed in the 1970s to curb abuse and bring fairness, impartiality, and respect for privacy to the information gathering process for consumer reports.

Credit Report

A consumer report assembling financial facts and numbers from banks and credit card companies to assess credit worthiness, requiring no prior permission or notice to the applicant.

Investigative Report

Also called an inspection report, a consumer report compiled by interviewing friends, neighbors, and colleagues about an applicant's character, reputation, and mode of living, requiring advance written notice to the applicant.

Gramm-Leach-Bliley Act

Also known as the Financial Services Modernization Act of 1999, federal law requiring Insurers to protect customer non-public personal information, provide annual privacy notices, allow customer opt-outs, and prohibit pretexting.

Pretexting

The practice of obtaining personal information through false pretenses.

Terrorism Risk Insurance Act (TRIA)

A federal law enacted in 2002 requiring P&C Insurers to offer terrorism coverage for certified acts of foreign terrorism resulting in losses exceeding $5 million.

Conditional Contract

A contract characteristic requiring the Insured to comply with policy terms and duties in order to collect for a claim.

Aleatory Contract

A contract characteristic where the values exchanged may be unequal, meaning the parties may collect significantly more or less than what was paid in premiums.

Unilateral Contract

A contract characteristic where only one party makes an enforceable promise; the Insurer promises to pay covered losses, but the Insured does not promise to pay future premiums.