Unit 2 Cram Sheet - Legal Contracts and Insurance

Vocabulary terms and definitions covering the elements of legal contracts, insurance policy characteristics, and legal principles from the Unit 2 Cram Sheet.

CLOAC

The acronym for the Elements of a Legal Contract: Consideration, Legal purpose, Offer, Acceptance, and Competent parties.

Consideration (Insured)

Consists of the statements made on the application and the payment of the premium.

Consideration (Insurer)

The promise to pay a claim based on the policy.

Legal purpose

A requirement that the risk transfer does not violate the law.

Offer

The action made by the insured when they submit an application and first month premium to the insurer.

Counteroffer

Made by the insurer when they agree to issue a policy but with a higher premium or specific restrictions/exclusions.

Competent parties

Parties of legal age (usually $18$) who are mentally sane and sober.

Adhesion

A contract written by the insurance company where the insured has no input; it is 'like glue' and cannot be changed, and if ambiguous, the court will side with the insured.

Aleatory

A contract of unequal value where a small premium is paid for a large amount of coverage.

Utmost good faith

The principle that the insured and insurance company have a right to expect honesty from each other.

Unilateral

A contract where only one legally enforceable promise is made; the insurance company promises to pay for a covered loss, while the insured does not promise to pay the premium.

Personal

A contract between the insurance company and the insured that cannot be changed to someone else.

Conditional

Requires the insured to pay the premium for coverage and file a claim if a loss occurs.

Indemnity

A concept that makes whole by restoring the insured to a pre-loss state with no gain; 'No more! No less!'

Representation

Statements on applications that are believed to be true.

Misrepresentation

Information given that is not true but would not affect the insurance company's decision.

Material misrepresentation

Information given that is not true and DOES affect the insurer's decision.

Warranty

A promise that may be made by the insured; a breach of this may void the contract.

Concealment

The failure to disclose or hiding of information; coverage could be voided if intentional and the information is material.

Fraud

An intentional act to cheat another.

Waiver

Voluntarily giving up a right.

Estoppel

A legal concept stating that once a waiver has been created, it cannot be reinstated.