Insurance and risk management

Negligence

Negligence

the failure to exercise the required amount of care to prevent injury to others.

Absolute liability (strict liability)

imposed on some parties without regard to fault (refers to legal liability)

Imputed negligence + vicarious liability

the principal is responsible for the acts of his agents

family purpose doctrine

holds parents responsible for the negligent acts of their children

dram shop law

holds the seller of alcoholic beverages liable for drunken patrons

res ipsa loquitur

"the thing speaks for itself" -- some actions so obviously negligent that the law presumes negligence

Legal liability arises from 3 general classes of legal wrongs

crime

Crime

a wrong in which a person intentionally inflicts injury

Torts

legal or civil wrongs committed against people or organizations

Intentional torts

willful acts or the willful failure to act when required to do so that causes injury to someone else

Breach of contract

the lack of performance by a party to another to satisfy a contract that the parties agreed to

proximate cause

a cause that directly caused the loss or suffering so that if the proximate cause didn't happen

Contributory negligence

negligence that is caused by both plaintiff and defendant --> in some states: no awards to plaintiff

Comparative negligence

allows the plaintiff to collect some damages

last clear chance rule

if defendant had a choice to prevent injury

assumption of risk

one assumes risk by engaging in an activity that is inherently risky

three damages awarded for negligence

special damages

special damages

awarded for losses where the financial impact is quantifiable and can be itemized (medical expenses + loss of income)

general damages

losses that cannot be known with certainty or cannot really be compensated with money (pain suffering loss of consortium)

punitive damages

assessed to deter the tortfeasor from committing the act again (for intentional torts)

personal umbrella insurance (excess liability insurance)

provides protection against legal liability that is over and above that provided by auto

Professional liability insurance

for doctors

D & O Insurance

covers directors and officers of insurance companies to protect them from lawsuits of mismanagement etc

Indemnity

the payment of a loss by the insurer to the insured

Actuary

uses statistics and the law of large numbers to determine expected losses and the probability of how much actual losses can deviate from expected losses

----------- expected value of probability distribution

sum of possibility of event happening x possible event (or amount of loss)

3 ways of determining amount of indemnity

actual cash value

fair market value

broad evidence rule

actual cash value

the loss at the time of the loss

(replacement cost or current price - depreciation(decrease in market bc of wear and tear))

. Depreciation is calculated as the age of the item divided by its useful life; doesnt depend on purchase price of item

amount of indemnity

based on actual cash value

Fair market value

the price that a property would fetch in an open market (price that seller + buyer agree on)

replacement cost

current price of a NEW item

depreciation

decrease in market value because of wear and tear

broad evidence rule

uses all relevant factors in determining the cash value for the loss

appraisal

impartial assessment of an item's worth

valued policy

pays face amount for items that are hard to put a price for

replacement cost insurance

pays for the replacement value of the loss

insurable interest

need in order to buy insurance. insured thing must affect you (loss for you)= insurable interest // the insurable interest must exist at the time of the loss.

Subrogation

the right for an insurer to pursue a third party that caused an insurance loss to the insured

if company finds material information was false when a loss occurs

insurance company can deny coverage

Utmost good faith (uberrimae fidei)

complete and total honesty—all statements must be true and all material facts must be revealed; otherwise

Representation

the statements made by the insured on the insurance application

Material Representation

convincing statement made to induce someone to enter into a contract to which the person would not have agreed without that assertion

misrepresentation

A false or misleading statement that

concealment

failure to disclose material information; to deny insurance bc of concealment to prove: 1. the insured knew that the fact was important in regard to the insurance being applied for; 2. there was an intention to defraud insurer

warranty

a promise by the insurance applicant to do certain things or to satisfy certain requirements

affirmative warranty

statement of fact (basically representation)

promissory warranty

promise to do something or that something will be done in a specific way

express warranty

specifically stated in the contract

implied warranty

one that is presumed

insuring agreement (insurance contract)

specifies the risks that are covered

conditions

requirements of the insured

limitations

specify the limits of the policy

exclusions

specify what is not covered by the contract

4 requirements for valid contract

1.offer and acceptance

2.consideration

3.competent parties

and

4.legal purpose.

consideration

the value that the parties to a contract give to each other

binder

temporary contract that can be oral or written that binds the insurance company to the contract immediately until it has a chance to examine the application

parole evidence rule

written policy determinative where there is any conflict between the oral and written agreement

life insurance process

apply; pay 1st premium; receive conditional premium receipt

conditional premium receipt

like a binder

insurability premium receipt

if applicant is insurable according to company's underwriting standards

contract of adhesion

contract drafted by one party and signed by the weaker party

endorsement (rider)

an amendment or addition to the basic policy that allows the policy to be tailored in acceptable ways for individual situations

Case law to benefit insured(insurance contracts not negotiable) 1

if the terms of a contract are not specific

principle of reasonable expectations

requires that any exclusion or other qualification be conspicuous (clear to see); otherwise

unilateral contracts (insurance)

only the insurer makes a legally enforceable promise to pay for covered losses

bilateral contracts

the promises that each party makes are enforceable by the other party through legal proceedings

commutatie contacts

the amount of consideration given by both parties are usually fairly equal; (most non-insurance contracts are this)

conditional contracts (insurance)

if the insured fails to pay the premium

aleatory contracts

characterized by unequal consideration // insurance company only has to pay if certain events occur // (noninsurance is equal consideration)

indemnity contracts

insurance company is only required to compensate for actual losses

breach of contract

If the insured fails to perform these duties or satisfy these conditions

condition precedent

either a condition that must be satisfied or something that the insured must do before or when a loss occurs and before the insurer will perform

condition subsequent

a condition that must be fulfilled after an event that required an act by the insurer

waiting period

of 1 or more months

recission

can be ended by mutual agreement

incontestable clause

prevents an insurer from canceling a life insurance policy after a 1 or 2 year period

ISO and AAIS

national insurance advisory organization that develops policy forms

declarations

name and age of insured + issued date; 1st part of contract that contains info derived from insurance application; premium amount

definitions

lists key terms + phrases to minimize ambiguity

named insured

includes any others who are included for coverage even if not named specifically

insuring agreement

states what insurer promises + under which conditions

named perils coverage policy

covers ONLY what is specifically stated in the policy

all risk coverage policy

covers any risk that is not specifically excluded

conditions

required actions by the insured after a loss

endorsements are for

riders are for

property + liability insurance

life + health insurance

other provisions

additional info

deductible

amount of money subtracted from the value of a loss

high deductible

low premium

large loss principle

main purpose of insurance is to cover large catastrophic losss

property insurance deductibles include

lump sum deductible; percentage deductible; straight or aggregate

lump sum deductible

equal to a specific amount