Insurance Legal Concepts and Tort Law Flashcards

A set of vocabulary flashcards covering the essential legal principles, contract elements (CLOC), agency law, and tort law basics as presented in the insurance training review notes.

CLOC

A mnemonic for the four essential elements of a valid insurance contract: Competent parties, Legal purpose, Offer and acceptance, and Consideration.

Competent Parties

An essential contract element requiring that both the insurer and applicant have legal capacity; excludes minors, mentally incompetent, and intoxicated persons.

Offer and Acceptance

An essential element where the offer is the application plus premium payment, and acceptance is evidenced by policy issuance or delivery.

Consideration

An essential element where the applicant provides premiums and truthful statements while the insurer provides a promise to pay claims.

Aleatory Contract

A contract feature where an unequal exchange is possible and benefits depend on an uncertain event, such as paying a premium of $1,200/year$ for $500,000$ in coverage.

Contract of Adhesion

A contract written only by the insurer on a take-it-or-leave-it basis, where any legal ambiguities favor the insured.

Unilateral Contract

A contract where only the insurer makes an enforceable promise; the insurer can cancel if premiums are unpaid, but policyholders do not promise to pay.

Personal Contract

A contract between the insurer and a specific person that cannot be transferred; life insurance is an exception allowing assignment.

Conditional Contract

A contract type where benefits depend on specific conditions, such as premium payment and proof of loss.

Valued Contract

A contract that pays a predetermined amount regardless of the actual loss, used for life insurance where the death benefit is fixed at policy issue.

Indemnity Contract

A contract that pays based on the actual loss to restore the insured to a pre-loss position, typically used in property and health insurance.

Insurable Interest

A financial or economic interest in the subject of insurance; for life insurance, it must exist at the time of application.

Warranty

Statements that are guaranteed to be true, are part of the contract, and are material to the risk.

Representation

Statements believed to be true but not part of the contract; they must be material to the risk to void a policy.

Concealment

The failure to disclose material facts; it can void a policy but must be proven by the insurer.

Subrogation

The insurer's right to 'step into the shoes' of the insured to recover claim payments from the party responsible for the loss.

Void Contract

A contract that was never legally in force because it is missing an essential element, such as a contract with a minor.

Voidable Contract

A valid contract that can be terminated or rejected by one party, such as a policy when premiums are unpaid.

Waiver

The voluntary and intentional surrendering or abandonment of a known right by the insurer.

Estoppel

A legal principle that prevents an insurer from denying a claim if the client relied on an agent's statement and suffered financial harm.

Parole Evidence Rule

A rule stating that only the written terms of a contract are legally binding and cannot be changed by prior verbal agreements.

Principal

In the law of agency, this refers to the insurer that an agent acts on behalf of.

Agent

A representative of the insurer who can bind coverage, solicit applications, and has fiduciary responsibility to the company.

Broker

A representative of the client or applicant who can solicit insurance but cannot bind coverage.

Solicitor

A representative with limited authority who can only seek applicants and cannot bind coverage.

Express Authority

Powers specifically stated in writing within the agent's contract, such as the authority to collect premiums.

Implied Authority

Unwritten authority that is necessary to perform duties and transacting business, such as ordering business cards.

Apparent Authority

Authority created by the actions of the insurer that leads the public to reasonably believe the agent has certain powers.

Fiduciary

A person in a position of financial trust and confidence who must put the client's interests first.

Tort Law

The area of law involving private wrongs independent of contracts, handled in civil courts to provide compensation for harm.

Simple Negligence

The failure to act or not act in a reasonable or prudent manner, such as an agent forgetting to submit an application.

E&O Insurance

Errors and Omissions insurance; professional liability coverage protecting agents against losses from administrative errors and failure to recommend coverage.