© 2007 West Legal Studies in Business, A Division of Thomson Learning Chapter 30 Insurance, Wills, and Trusts

© 2007 West Legal Studies in Business, A Division of Thomson Learning 2 What is an insurable interest? When must an insurable interest exist—at the time the insurance policy is obtained, at the time the loss occurs, or both? Is an insurance broker the agent of the insurance applicant or the agent of the insurer? What are the basic requirements for executing a will? How may a will be revoked? What is the difference between a per stirpes distribution and per capita distribution of an estate to the grandchildren of the deceased? What are the four essential elements of a trust? What is the difference between an express trust and an implied trust? Learning Objectives

© 2007 West Legal Studies in Business, A Division of Thomson Learning 3 Insurance Insurance is a contractual arrangement for transferring and allocating risk. Risk. –Prediction concerning potential loss based on known and unknown factors. Risk Management. –Involves the transfer of certain risks from the individual to the insurance company by a contractual agreement.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 4 Insurance Terminology Classifications of Insurance. –All risk insurance (added terrorism). –CASE 30.1 Omni Berkshire Corp. v. Wells Fargo Bank, N.A. (2004). Policy (Insurance contract). Premium is the consideration to be paid to the insurer. Underwriter (usually an insurance company). Broker v. Agent.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 5 Insurable Interest A person can insure anything in which he or she has an insurable interest. Types of insurable interest: –Life. –Property.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 6 The Insurance Contract Governed by the general principles of contract law, and regulated by the state. –Application is an offer, which insurance company can either reject or accept. Acceptance sometimes conditional. –Need consideration. –Parties need capacity.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 7 The Insurance Contract Application For Insurance. Effective Date. Provisions and Clauses. Interpreting Provisions of an Insurance. Contract. Cancellation. Basic Duties and Rights. Defenses Against Payment.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 8 Insurance Contract: Application Filled in application attached to the policy and made a part of the contract. Misstatements or misrepresentation can void a policy, specially if company can show it would not have issued policy if it had known the facts.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 9 Insurance Contract: Effective Date Broker is agent for the applicant. Agent is agent for the insurance company. He can issue a binder, if some consideration is paid, which will immediately bind the insurance company, depending on certain conditions being met. Parties may agree contract will not be effective until policy is issued and delivered or sent to applicant. Parties may agree policy will be binding, not be effective, until first premium paid, or physical exam passed.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 10 Insurance Contract: Provisions and Clauses Provisions Mandated by Statute. Incontestability Clauses. Coinsurance Clauses. Appraisal and Arbitration Clauses. Multiple Insurance Coverage. Antilapse Clauses.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 11 Insurance Contract: Incontestability Clauses State statutes sometimes provide that once a life or health insurance policy has been in force for a specified length of time, the insurer cannot contest statements made in the application.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 12 Insurance Contract: Coinsurance Clauses If owner insures her property for at least 80% of its value, owner will be able to recover up to the face value of the policy. If owner insures for less than 80%, owner will be responsible for a proportionate share of the loss. Amount of insurance recovery Coinsurance percentage = percentage (80%) x Property value

© 2007 West Legal Studies in Business, A Division of Thomson Learning 13 Insurance Contract: Appraisal and Arbitration Clauses If insurer and insured cannot agree on value of property, an appraisal can be demanded. Contract may also provide for arbitration.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 14 Insurance Contract: Antilapse Clause Policy does not lapse automatically upon nonpayment of premium. Insured has a grace period of thirty or thirty-one days within which to pay the overdue premium. –The insurer may be required to extend the insurance for a period of time. –Insurer may issue a policy with less coverage to reflect the amount of the payments made. –The insurer may pay the insured the cash surrender value of the policy.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 15 Insurance Contract: Cancellation and Good Faith Cancellation. –Insured can cancel policy at any time, and the insurer can cancel according to terms of policy. –Insurer must give written notice of cancellation. Good Faith Obligations. –CASE 30.2 Columbia National Insurance Co. v. Freeman (2002).

© 2007 West Legal Studies in Business, A Division of Thomson Learning 16 Defenses Against Payment Insurance company can raise any of the defenses that would be valid in any ordinary action or contract: –Fraud, misrepresentation. Not if information given was optional. Not incorrect statement of age. –Concurrent causation doctrine.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 17 Wills Will provides for a Testamentary disposition of property by the Testator (one making the will). –A will is the final declaration of how a person desires to have his or her property disposed of after death. Die testate (One who dies after having made a valid will) or intestate (without a will). Executor is a personal representative named in the will. Administrator appointed by court.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 18 Types of Testamentary Gifts Devise: gift of real estate. Bequest or Legacy: gift of personal property. Types of Gifts: specific, general, or residuary. Abatement. Lapsed Legacies.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 19 Probate Procedures Informal Probate Proceedings. –Family Settlement Agreements. –Small Estates. Formal Probate Proceedings. –Larger Estates. –Guardianship appointment to a minor or incompetent person and trust has been created to protect that minor or incompetent person.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 20 Requirements for a Valid Will Testamentary Capacity and Intent. Writing Requirements. Signature Requirements. Witness Requirements. Publication Requirements.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 21 Revocation of Wills Revocation by a Physical Act of the Market. Revocation by a Subsequent Writing. Revocation By Operation of Law.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 22 Intestacy Laws Statues of descent and distribution which attempt to carry out the likely intent and wished of the decedent. –Surviving Spouse and Children, Not in-laws. –Stepchildren, Adopted children, Illegitimate children. –Grandchildren.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 23 Surviving Spouse and Children Surviving spouse usually receives only a share of the estate. –1/3 if two or more children. –1/2 if one surviving child. –Entire estate if no children or grandchildren. If no surviving spouse or child the order of inheritance is: –Lineal descendants. –Collateral heirs (if no lineal descendants). Not spouses of the children, in-laws.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 24 Stepchildren, Adopted Children, Illegitimate Children Stepchildren -- not considered children of deceased. Adopted children -- considered children of deceased. Illegitimate -- must prove paternity.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 25 Grandchildren Per stirpes. –Method of dividing an intestate share by which a class or group of distributees take the share that their deceased parent would have been entitled to inherit had that parent lived. Per capita. –Each person takes an equal share of the estate.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 26 Trusts Trust -- A right of property (real or personal) held by one party for the benefit of another. Trustee: holds property on behalf of the Beneficiary. –Act with honesty, good faith, and prudence in administering the trust and must exercise a high degree of loyalty toward the trust beneficiaries.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 27 Essential Elements of a Trust Essential Elements: –Designated beneficiary. –Designated trustee. –Fund sufficiently identified to enable title to pass to the trustee. –Actual delivery to the trustee with the intention of passing title.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 28 Express Trusts Living Trusts. Testamentary Trusts. Charitable Trusts. Spendthrift Trusts. Totten Trusts.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 29 Implied Trusts Constructive Trusts. –Arises by operation of the law in th interest of equity and fairness. Resulting Trusts. –Arises from the conduct of the parties.

© 2007 West Legal Studies in Business, A Division of Thomson Learning 30 Special Trusts Spendthrift Trust: provide maintenance that prevents beneficiary from careless spending. Totten Trust: deposits of money by trustor for benefit of another. –Revocable while alive. –If trustor dies, trust may become irrevocable.