Today’s Lecture Insurance Contracts Applications and Binders Parts of the Contract Declarations Insuring Clauses Exclusions and Exceptions Conditions Endorsements and Riders

Application The potential insured offers to buy coverage by submitting an application. The insurer decides whether to accept the offer.

Binders and Receipts Binder - temporary contract to provide coverage until the policy is issued Conditional receipt - no coverage unless policy is issued, but coverage is retroactive Binding receipt - coverage is in force while application is being processed

Receipts - Example On September 20, 2006, a student applies for auto insurance with American Family. He does not list three speeding tickets he received on the application. The agent issues him a binding receipt. On September 23, 2006, the student is speeding again, and gets into an accident. On September 27, 2006, the underwriter rejects this application for coverage. Does American Family have to pay this claim?

Receipts - Example ANo, since coverage is retroactive only when issued BNo, since the student lied on the application CNo, since the rejection was related to the misrepresentation DYes, since the claim was not related to past incidents of speeding EYes, since the company had not yet rejected the application

Parts of an Insurance Contract Declarations Identify insured Describe coverage Insuring Clause Open-Perils - covers any loss not excluded Named-Perils - covers specified losses

Insuring Clause - Example Which of your State Farm Car coverages have a Named-Peril insuring clause? AAll coverages BComprehensive and Collision CCollision and Emergency Road Service DCollision only ENone of the coverages

Exclusions and Exceptions Reasons for Exclusions Ideal Requisites for Insurability Possibility of catastrophe Fortuitous Definite Standardize the Risk Avoid Duplication of Coverage

Exclusions – Example Why does the State Farm Car policy exclude coverage when the vehicle is “used to carry persons for a charge”? ATo avoid the possibility of a catastrophe BTo avoid losses that are not fortuitous CTo avoid losses that are not definite DTo standardize the risk ETo avoid duplication of coverage

Types of Exclusions Excluded locations Excluded perils Excluded property Excluded losses

Conditions Must be fulfilled by insured in order to obtain coverage Examples Notice and proof of loss Cooperation of the insured Protection of property after a loss Examination

Endorsements and Riders Endorsements used in property-liability insurance Riders used in life-health insurance Both change the contract in some way

Parts of a Contract - Example On page 26 of the State Farm Car Policy the policy reads, “There is no coverage under this policy if you or any other person insured under this policy has made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under this policy.” This is an example of which part of the contract?

Parts of a Contract - Example AExcluded peril BExcluded loss CCondition DEndorsement ERider