Hayley Kai Fundamentals - Chapter 2

Personal risk - financial loss is with loss of one's health or life

Property risk- financial loss occurs when owned property is lost or damaged

Liability risk - actions result on injuries or damage to others. Held financially responsible .

1) avoidance of risk - no risk of financial loss if you avoid ever driving. Not practical method

2) controlling risk - measures taken to reduce risk (burglar alarm or smoke detector ). Reduces risk but not total solution

3) retention of risk - Self insurance. Assume responsibility for their own losses . Large corporations like to do. Persons can't afford to totally finance their own losses

4)transfer of risk -can transfer all or portion of their risks . Through in insurance is most popular and practical.

Speculative risk - possibility of either financial loss or gain (ex opening a new buisness could be either )not insurable because society can't profit from failure (gambling. Win or lose. Can't insure )

Pure risk- chance of financial loss and no chance of financial gain. When there is no chance to profit from a loss the risk is pure. Only pure risk is insurable

an agreement between two or more parties which is enforceable by law ( oral , implied or written ) It can be as simple as buying coffee ( consideration is money for coffee)
has five basic elements :
1) agreement,
2)consideration ,
3)legality of object,
4) legal capacity of the parties to contract,
5)genuine intention

Three essential elements :insurable interest , utmost good faith and indemnity

Must be a meeting of minds, offer made and UNCONDITIONAL acceptance of terms in the offer.
Negation is finished. Terms are accepted by all parties AS IS , with no further changes or adjustments to be made . ( can be oral or written )

consideration is the exchange of something of value between parties . ( ex, you can give car away for free but that not a consideration as you receive nothing in return . NOT legally a contract)
consideration is needed to make contract legal
insurance consideration is the payment of premium

Contracts contrary to public good is not enforceable by law. illegal acts like killing, maiming people or illicit drugs are non legal contracts

in insurance: illegally acquired property or fraudulent claims would be ruled against in court

law enforces those that have legal capacity to contract
those who do NOT :
minors - usually 21, but some lowered to 19 . Except minors can contract for necessaries ONLY food clothing lodging. minors can void contracts of nessecaties with in reasonable time. after reasonable time they loose status as " minor"
mental incompetents - insane , senile or mental defects. ignorance or mental weakness does not count . Brokers can not make that call. legallity of contract will be determined in court by professionals
persons under influence - ONLY when it can be SHOWN that they were TOTALLY incapable of understanding, or deliberately drugged or made drunk. extremely difficult to prove
legal entities - sole proprietorships, partnerships, and corporations have same right as persons to contract ( LTD or INC ) . seperate legal identity as the owners . ( butlers own butlers funiture inc ) trade names do not count. must be Butlers trading as butlers furniture( t/a)

trade names are not legal entity . must be Incorp or ltd to prevent owners from being personally liable.
When using trade names, owners must be tied to it so that it is legally enforceable .
ex. Butlers t/a Butlers furniture ( trading as )
d/b/a ( doing business as )
o/a ( operation as )

enforceable when it can be shown that parties actually INTENDED to enter into contract.
parties can not be engaged in :
fraud- false suggestions, trickery or cunning by one party
Duress - illegal imprisonment or force to make people act contrary to free will
concealment - misrepresent past or present facts or fail to disclose pertinent facts ( in insurance usually applicant is guilty of concealment. grounds to void contract )
mistake- when legal docs are signed in error or mistake contract may be void

required by all insurance contracts .
insurable interest is when an applicant can show they would suffer financially by a loss
ex. owners of property ( and buisness partners)
Mortgagee - loan provider ( bank or person ) has insurable interest
bailees to whom property is entrusted for repair service or safe keeping ( dry cleaners, repair shops)
legally responsible parties for third party injury or damage

NO FINANCIAL STAKE - NO INSURABLE INTEREST . if you do not own ( neighbors property, future inheritance ) you can not loose it. MUST BE PURE RISK. no gain/ just loss

must be 100% honest for contracts . it is an obligation for bother insurer and insured to operate in utmost good faith

insurer - clear and unambiguous language for contract to be understood. claims handled fairly and with no delays

insured - truthful details and information about risk and prior claims . valuing property lost must be in utmost good faith

law restricts payments to the ACTUAL value of property lost. insured can not PROFIT off a loss.

it is the value DIRECTLY before the loss.
can be cash sum or repair/ replace
indemnity ensures people receive the actual amount, no more , no less

If any of the 8 elements ( 5 basic, 3 essential ) are missing in the contract it may be considered
void- contract that is considered to never have existed ( law can not support purpose intended )
voidable - contract is VOID TO WRONGDOER but not to the wronged party ( unless wronged party elects to treat it as so ) bob tricked sally . sally does not have to give bob her consideration , but bob still owes sally

Bound on risk means broker has committed insurer ( agency) to provide a contract on the subject matter discussed to insured
oral binder- just as binding as written , but should always be written down immediately after to have confirmed evidence of what was agreed upon
written binder - contract details will be on cover note or binder. These documents form the basis of the contract until insurer prepares formal policy documents

Binders are subject to all conditions that apply for contracts . - must have a meeting of minds which is why written is important - no disagreement

Agency agreements will provide brokerage with authority to bind insurer for certain classes of risks and limits. ( ex commercial is $x, industrial is $x , farms are declined )

when a broker exceeds limit of binding authority and loss occurs, brokerage faces E&O claim . Brokerage not the insurer agency is responsible for the loss
Binding Authority set out in Agency Agreement can be adjusted to fit market conditions

every contract MUST have basis for termination
usually expiry date, but can be requested by insured or insurer . rules for termination must be stated in contract , but will also be in Statute

termination - rules set out in contract
endorsements or riders - issued to acknowledge change in contract
floaters- provides coverage for property with high degree of mobility . interchangeable with rider ( camera equip, dj equip )
separate policies -additional coverage needed by insured but there are no changes to original contract. does not need to be original insurer ( Butler office is insured, starts renting out basement suite. office insurance does not change,but needs additional for rental

An agreement between two or more parties which is enforceable at Law. Has five elements:

1) agreement

2) consideration

3) legality of object

4) legal capacity of parties to contract

5) genuine intention