Elements of Insurance Contracts and Policy Structure

Agreement (Offer and Acceptance)
- A contract starts with a clear offer from one party and acceptance by another.
- Insurance Example: The applicant makes an offer by submitting an insurance application. Acceptance occurs when the insurer’s underwriter approves it and issues a policy.
Consideration
- Refers to the exchange of value that makes the contract enforceable.
- Insured’s Consideration: Payment of premiums and truthful statements on the application.
- Insurer’s Consideration: A binding promise to compensate for covered losses.
Competent Parties
- Both parties must be legally competent.
- Competency Requirements:
- The insured must be of legal age (usually 18+).
- The insured must be mentally sound and comprehend the contract terms.
- The insured must not be under the influence of substances at the time of agreement.
Legal Purpose
- The insurance contract must serve a lawful reason.
- Contracts promoting illegal activities or violating public policy are unenforceable.

Representations
- Statements by the insured that are believed to be true but not guaranteed.
- Example: Claiming non-smoker status on a health insurance application.
Misrepresentations
- Untrue statements on an application.
- Material Misrepresentation: A statement that could influence the insurer’s underwriting decision.
- Fraudulent Misrepresentation: Intentional dishonesty leading to policy cancellation and legal consequences.
Warranties
- Absolutely true statements critical for policy validity. Breach can lead to voidance or denial of claims.
Concealment
- Intentional withholding of critical information.
- Omitting significant details may result in contract voidance.

A binder is a temporary contract providing coverage until a formal policy is issued.
It can be verbal or written, serving as evidence of immediate protection.
Expires upon issuance of the official policy; its effective date remains as stated in the binder.
If coverage is declined, the binder expires upon cancellation notice date.

Declarations
- Found on the first page; includes underwriting details:
- Policyholder’s name/address
- Coverage type/amount
- Policy term/premium amount
- Description of insured locations/property.
Definitions
- Clarifies specific terms within the policy, often formatted distinctly to indicate defined meaning.
Insuring Agreement
- Core of the policy outlining the insurer’s promise to pay, including covered risks and perils.
Additional/Supplementary Coverage
- Provides extra coverage for specific expenses without extra premiums (e.g., legal defense costs).
Conditions
- States the obligations of both insured and insurer (e.g., right to inspect).
- Example: Premium refunds calculated based on unused coverage if canceled.
Endorsements
- Legal modifications to the policy; must be executed by an insurer’s executive.
Exclusions
- Lists perils not covered (e.g., earth movement, water damage).
Policy Limits
- Maximum amount payable for a covered loss, which may apply per claim or per term.

Definition and Duties of the Insured
- The insured is anyone covered by the policy, regardless of whether named.
- Named insured: the individual(s) listed on the policy's declarations.
- First named insured: has control over the policy (can cancel/change it, responsible for premiums).
- Additional insureds: not named but protected under the policy, usually via endorsement.

Insured’s Duties in Event of Loss:
- Protect property from further damage, prepare an inventory of it, cooperate with investigations, notify authorities about theft, submit signed proof of loss (typically within 60 days).
Insurance Company’s Obligations:
- Fair underwriting and prompt claims settlement once liability is determined.

Assignment
- Transfer of rights/interest in a policy requires insurer approval.
Appraisal
- Resolving disputes on claim value; appraisers may be appointed, with a third-party umpire if necessary.
Other Insurance
- Explains how the policy interacts with other valid insurance covering the same risk.
Pro Rata
- Shares loss with other insurance in proportion to their coverage limits, adhering to the principle of indemnity.
Notice of Claim
- Insured must inform insurer as soon as possible post-loss; proof of loss (written statement) required from the insured before payment (60 days).
Cancellation & Nonrenewal
- Cancellation terminates the policy before expiration. Nonrenewal means the insurer does not extend coverage past the expiration date.
Mortgagee Rights
- Protects lenders, ensuring claim payments go directly to them, irrespective of the insured's negligence.

Common sources include application form, motor vehicle records, property inspections, interviews, insurance history.

Establishes procedures for consumer reporting agencies, ensuring confidentiality, accuracy, and proper use of records to protect consumers from inaccurate information.

Insurers assess risk levels using various factors.
Two primary report types for underwriting: Consumer Reports and Investigative Consumer Reports, retrieved by legitimate business purposes only.

Limits sharing of nonpublic personal information unless conditions met, including customer disclosure and opt-out opportunity.
Requires privacy disclosures at the relationship's establishment and before sharing information.

Created a federal program helping insurers manage risks from terrorism; mandates insurers provide terrorism coverage with government reimbursement for losses.

Elements of a Legal Contract: Agreement, Consideration, Competent Parties, Legal Purpose.
Legal Terms: Representations, Misrepresentations, Material Misrepresentation, Warranty, Concealment.
Binders: Temporary agreements. Expiration on issuing actual policy.
Policy Components: Declarations, Definitions, Insuring Agreement, Additional Coverage, Conditions, Endorsements, Exclusions, Policy Limits.