Chapter 2 Contract Law

A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.

The materiality of a given concealment determines the importance of a misrepresentation

Each contract must have the following 4 elements: agreement (offer and acceptance), legal purpose, competent parties, and consideration. Counteroffer, while sometimes used as part of the agreement, is not a required element.

Contract law applies to voluntarily undertaken written agreements between parties. The insurer’s failure to provide promised benefits to the insured would be in breach of contract, therefore, covered by contract law. All other scenarios illustrate tort law, which provides a remedy for civil, non-contractual wrong through legal action.

A material misrepresentation will affect whether or not a policy is issued. If the insured had been truthful, it is very likely that the policy would not be issued.

In a unilateral contract, only one of the parties to the contract is legally bound to do anything.

An injured party is entitled to rescind the policy regardless of whether the concealment was intentional or unintentional.

A policy is the written instrument that sets forth the terms and conditions of a contract of insurance. It outlines the coverage provided by the insurance company and the obligations of the insured. The policy serves as a legal document that both parties can refer to in case of any disputes or claims. It is a crucial component of the insurance contract as it defines the scope of coverage and the rights and responsibilities of both the insurer and the insured.

If a representation is false in a material point the injured party is entitled to rescind the contract from the time the representation becomes false.

an unintentional tort is the result of acting without proper care. This is generally referred to as negligence

Concealment, whether intentional or unintentional, entitles the affected party to rescind the insurance policy.

If it can be shown that either party did not act in "utmost good faith", the other party may void the insurance contract.

Misrepresentation is a written or oral statement that is intended to distract, mislead, or deceive a party to a contract.

According to Title 18, Sections 1033 & 1034 of the U.S. Code, any oral or written statements by any person engaged in the business of insurance that are false or any omissions of material fact are considered unlawful insurance fraud.

When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract. An intoxicated person, however, may not be mentally competent, and a 12-year-old student is considered to be underage in most states.

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

An insurance policy must be in writing to be legally binding. As defined by the California Insurance Code, "a policy" is a written instrument in which a contract of insurance is set forth.

In an aleatory contract, unequal amounts are exchanged between payments and benefits. In this instance, the insured receives a large benefit for a small price.

Although there is no exact figure it is believed that fraudulent activities account for billions of dollars annually in added health care cost nationally. This results in a significant increase in health care costs for everyone. (CIC 1871)

Representations are statements that the applicant believes to be true, but that are not guaranteed.

Concealment is a legal term for the intentional withholding of information by the insured that is material to the insurer (i.e. critical in making an underwriting decision). Information that is known or should be known, waived by the other party or immaterial to the risk, does not need to be communicated in a contract.

Withholding information that is material to the risk to be insured is concealment and makes a policy voidable.

In insurance, the offer is usually made by the applicant in the form of the application. Acceptance occurs when the underwriter approves the application, provided it's accompanied by the initial premium. Otherwise, acceptance occurs when the insurer receives payment, after the application has been approved.

A personal insurance contract is written between an insurance company and an individual, and the company has a right to decide with whom it will and will not do business. An insured can transfer an insurance contract to another person, but he or she must first obtain the written consent of the insurer.

Fraud is the intentional misrepresentation or intentional concealment of a material fact used to induce another party to make or refrain from making a contract, or to deceive or cheat a party.

A contract of adhesion is prepared by only the insurer; the insured’s only option is to accept or reject the policy as it is written.

Insurance policies are written by the insurer and submitted to the insured on a "take it or leave it" basis. The insured does not have any input into the contract, but simply adheres to the contract.

Once the policy is issued, representations cannot be withdrawn.

Consideration is something of value that each party gives to the other. The consideration on the part of the insured is the payment of premium and the representations made in the application.

In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

A conditional contract requires both the insurer and policy owner to meet certain conditions before the contract can be executed, unlike other types of policies, which put the burden of condition on either the insurer or the policy owner.

An insurance contract is an aleatory contract in that it requires a relatively small amount of premium for a large risk.

A warranty is an absolutely true statement to the insurer by the insured upon which the validity of the insurance policy depends.