Business Law Test 3

Why buy insurance

Insurance is required for mortgage; some buyers can’t afford the loss of not being insured

Don’t insure against losses

that you can afford to pay

One way to control is by selecting a {} deductible amount

higher; this means a lower premium, where theres a lower deductible, premiums increase

“insurance is indemnity not gambling” explain this

you cannot recover more than you lost; if you lost more than the amount you were insured for (aka face amount) you only get the face amount not the entire amount lost

How does life insurance work? GR

One collects the face amount, not some measure of the loss

Insurable Interest

must be in a position where if the event happened you would face a loss

Who must have an insurable interest in both property and life policies?

The owner not the beneficiary

Describe the key difference in insurable interest between life and property policies?

The owner must have an insurable interest at the time of purchase for life insurance BUT the owner must have an insurable interest at the time of the loss for property insurance

Key person insurance

Key person insurance (also called key man insurance) is a life or disability insurance policy that a business buys on a crucial employee (the “key person”) whose loss would financially hurt the company.

• The business is both the policy owner and the beneficiary.

• The key person is the insured (the person whose life or ability is being insured).

Can insurance be assigned to someone else

Typically no because the risk levels of people are different; insurance companies must consent to a switch but even then most polices are non-assignable; you can in some life insurances but cannot with most property insurances;

Pro-rata(other insurance) clause

if the owner has more than one insurer, the insurances share the loss in proportion to the coverage

whats the calculation for pro-rata clause

add the total of the amount insured by each party; divide the amount insured by one party over the total; multiply that fraction by the loss; repeat for other insurers

co-insurance clause

unless the owner insures for a certain minimum percentage if the property’s value at the time of loss (usually 80%) the owner will bear a porion of any partial loss (formula: amount of partial loss x (total insurance/ MV of property * co-ins %).

Liability insurance

Insuring against legal liability and third-party claims; esentially, it pays any TP that you have injured/ etc

Subrogation

when the insurance company recovers from someone else for the loss; aka your insurance will pay you and then go after wrong doer for money

claims made coverage

covers liability for claims made against the insured during the period of the policy. The time when the tort occurred may or may not be important to the coverage

Prior acts endorsement

A prior acts endorsement protects you from claims about things you did before your current policy began — as long as the claim is made during the policy period.

exclusion

an exclusion of some events to the prior endorsement acts.

occurence coverage

covers liability for any torts that occur during the period of the policy, regardless of when the claim is made against the insured

Which type of coverage do insurers prefer

claims made insurance; the insurance only applies when the claim is made within the policy period. There is less liability compared to occurence coverage.

tail coverage

paying a reduced premium since the policy ended to insure against the torts that happend during policies.

Loan covenants

agreement between the debtor and creditor

debtor can provide creditor other protections

such as right to security interest in personal property

Security Interest (Lien)

A security interest (lien) is a creditor’s legal right to specific property as collateral for a loan or obligation.

Guaranty/ Suretyship

Both are agreements where a third party promises to be responsible for the debt or obligation of another if that person fails to perform;

Banks recover from the guarantor should the borrower fail to pay; they have to try to recover first. Banks can immediately ask for money from the suretyship if the borrower misses a payment.

Gratuitous Guarantor

a guarantor who is signing w/o compensation from the debtor

Compensated Guarantor

guarantor is signing w/ compensation from the debtor

Guarantor and Bank General Rule

guarantor cannot force the creditor to look to the debtor or debtor’s property first

If forced to pay the guarantor gets:

reimbursement, subrogation, and contribution

Suppose the debtor commits fraud against the guarantor, is the guarantor still liable to the creditor?

It depends, if the creditor was aware of the fraud, then the guarantor is NOT liable. If the creditor wasn’t aware, then the guarantor is liable but can sue the debtor

what are the 5 ways for the guarantor to avoid paying the creditor

• if the debtor pays the debt

• raise defenses the guarantor has against the creditor

• raise defenses the debtor has against the creditor

• if the creditor refuses payment when its due, that releases the guarantor

• guarantor is released to the extent creditor, without guarantor’s consent

  • relases a coguarantor

Tax lien

a legal claim by the government against a taxpayer’s property—real or personal—for unpaid taxes, giving the government priority over other creditors in collecting the debt.

• the IRS gets a tax lien on all assets for tax, fines, penalties, and interest, including future assets recieved

Mechanic’s Lien

A lien on real property for someone who makes improvements to your property; they can force a foreclosure if money is not collected

Artisan’s lien

artisans lien is someone who makes improvements to the owner’s personal property. They have a possessory lien on your property until you pay in full.

possesory lien

A possessory lien is a right to keep someone’s personal property until you're paid for labor or services you performed on it — and it's valid only while you possess the item.

secured transactions

upon any default, the secured party’s interests are greater than the debtors

PMSI (perfected money security interest)

a form of automatic perfection that exists when the secured debt provided money to purchase the collateral (consumer goods). For example, buying a TV on credit with the TV as collateral; the creditor automatically has an interest

What are the 3 requirements to attach

1. debtor must have rights in the collateral

2. there must be a debt; it need not be new value; collaterla can be given to secure an old debt

   1. Security Agreement: proof that the creditor must either have physical possession of the collateral or a writing signed by debtor

control

when the secured party has the power to sell the property without any further action from the owner

3 ways to perfect

file a financing statement; have a physical possession or control of the collateral; automatic perfection for PMSI

Proceeds

anything the debtor receives in exchange for collateral

After- acquired property

a clause stating that the secured party will have an automatic security interest in “after acquired property”

Line of Credit

bank permits the lender up to x amount of dollars given some conditions the lender must fulfill

voluntary petition

filed by the debtor

involuntary petition

filed by the creditor