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Lesson 6 - Lesson 6 Insurance Contracts Legal Framework of...

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1 1 Legal Framework of Insurance Requirements of a valid contract Characteristics of contracts Legal principles underlying insurance contracts Lesson 6: Insurance Contracts
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2 2 Contract= a legally binding agreement that creates rights and duties for those who are parties. Breach= either party fail to perform its duties Validity= the one that court will enforce. Void= court will not enforce because it lacks one or more features of a valid contract . As if it never exists Illegal purpose Voidable= allows one party the option of breaking the agreement because of an act or omission of an act by the other party. Defraud insurer
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3 3 Binder= a temporary contract before the formal insurance policy is issued. Often 30 days or less Provide coverage during the application process. Oral or written Parol evidence rule= after an oral agreement is put in writing, the written agreement’s terms take precedence over the oral agreement’s terms Although it is a clerical error/ typo error Not used in life insurance Use conditional receipt Francis Drake $400 premium with $180,000 insurance Passes a medical examination the next day Drowned before policy is issued… Contract is valid because of insurability and premium paid
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4 4 Requirements of a Valid Insurance Contract Legality Capacity Offer and acceptance Consideration In most states contracts can be oral or written
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5 5 Valid Insurance Contract - Legality From society’s standpoint “insurance” needs to be for a legal purpose Exp: insure boat but for drug trafficking Why? It shares and redistributes the cost of losses It must not encourage or protect illegal activities From an individual contract’s point of view Individual insurance contracts cannot pay for certain losses. (e.g. individual buys a life insurance contract with the intent to murder) In this case the contract is perfectly legal but the use and intent is malicious so the contract cannot be enforced.
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6 6 Valid Insurance Contract - Capacity The legal ability to enter into a contract Capacity is assumed except: Minors (<18 years old) Some states recognize that minors need to buy insurance. These are called reduced age statutes. Insane Intoxicated Corporation acting outside the scope of its charter
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7 7 Valid Insurance Contract - Offer and Acceptance A meeting of the minds between the parties of the contract. Does this really exist in insurance?
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