1. Chapter 11 Insurance Contracts

2. Legal Framework of Insurance
Requirements of a valid contract
Characteristics of contracts
Legal principles underlying insurance contracts
It is important for students to understand the legal foundation of insurance contracts.
In this chapter the following topics are explored:
The requirements of a valid insurance contract
Legal characteristics of insurance contracts
The legal principles underlying the insurance transaction
Understanding these aspects will allow students to predict how the law will handle disputes or contract interpretation problems.

3. Requirements of a Valid Insurance Contract
Offer and acceptance
Consideration
In most states contracts can be oral or written
Capacity
Legal Purpose
There are four requirements for any legally enforceable contract. Regardless of whether this is an insurance contract or any other contract, the requirements are necessary and are specifically explored in the following overheads. These four requirements are:
Legality
Capacity
Offer and Acceptance
Consideration
Contracts in most states can be oral or written.
The above four aspects, explored in the following slides, are important since in many instances nothing of substance changes hands (like a lawn mower) and it is necessary to have rules of thumb to determine when a contract actually starts.

4. Valid Insurance Contract - Offer and Acceptance
A meeting of the minds between the parties of the contract. Does this really exist in insurance?
Who makes the offer?
Applicant always makes the offer
Property insurance:
Agent solicits offer, applicant offers, agent accepts (binds)
If the company does not want the contract, it may cancel the contract according to the contract’s cancellation clause
Offer and acceptance is usually referred to as “a meeting of the minds.”
It is interesting that there is no actual meeting of the minds in insurance contracts. Insurance contracts are entered into before the policy owner receives the wording. Also, most policy owners do not read nor understand their insurance contact.
Offer and acceptance is somewhat different in the property-liability area and life insurance.
The general rule is that the applicant always makes the offer. When agents market, they are soliciting the offer.
The agent can bind the contract in the property / liability area. If the company does not want the contract, the company can cancel based on the cancellation clause in the insurance contract.

5. Valid Insurance Contract - Offer and Acceptance
Life insurance:
Agent solicits offer
Applicant offers
Insurance company accepts, rejects, or counter offers
Counter offer may be accepted or rejected by the applicant
In the life insurance area, the offer and acceptance pattern is somewhat different because life insurance agents cannot bind the insurance contracts. Life insurance contracts do not have cancellation clauses so the insurance company totally controls who becomes and insured (the acceptance).
The pattern in the life insurance area is as follows:
agent solicits offer
applicant offers
insurance company accepts, rejects or counter offers
counter offer may be accepted or rejected by the applicant

6. Valid Insurance Contract - Consideration
Property: monetary payment and an agreement to abide by conditions and stipulations in the contract
Life: monetary payment and making truthful statements in the application
Checks must be honored by bank before that part of the “consideration” is fulfilled
Consideration is an exchange of value.
In the property / liability area consideration could be the payment in cash, check, a promissory note, or merely the promise to pay in the future. In addition, a second part is to abide by the conditions and stipulations in the contract.
In the life insurance area, legal offer in life insurance must be supported by a consideration which needs to be a check, cash or promissory note.
If consideration does not go with the application – the application is considered to be a “trial application.” The insurance company will issue the policy (not a contract) with the only intent for the agent to deliver the policy and be accepted by the applicant. Then when money exchanges hands – it becomes a contract.
Policy receipts are required for policies left with the applicant for inspection with no money exchanging hands as evidence that a contract does NOT exist.

7. Valid Insurance Contract - Capacity
The legal ability to enter into a contract
Capacity is assumed except:
Minors
Insane
Intoxicated
Corporation acting outside the scope of its charter
A person or other entity must have the legal capacity to enter into insurance contracts.
Insurance companies derive this capacity from state licensure laws and corporate chartering laws.
Individuals are assumed to have capacity except for the following classes of people.
minors
insane
intoxicated
Also corporations acting outside the scope of its charter do not have capacity. This would be quite rare and considered a mistake in charter construction.
Some states recognize that minors need to buy insurance. These are called reduced age statutes.

8. Valid Insurance Contract – Legal Purpose
From society’s standpoint “insurance” needs to be for a legal purpose
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.
The last requirement is that of legality.
First, the insurance contract, in general, is recognized as being a socially acceptable type of contract. In addition each insurance contract must be for legal purpose and cannot protect illegal type of activities.
For example, if a person buys a ocean racing boat and then purchases a marine contract to cover the exposure, this is a legal contract and recognized as one from the point of view of the courts and society. However, if the person uses the boat to transport illegal drugs, the contract would not pay for losses. It would be set aside since the contract cannot protect illegal ventures or activities.

9. Insurance by Type of Contract
Aleatory - dollar outcome is assumed unequal
Conditional - performance is conditional upon the occurrence of an uncertain event
Adhesion - ambiguities are construed against the writer of the contract
Personal - requires privity of contract – cannot freely exchange parties to the contract
Unilateral - only one party has to perform - the insurer
Insurance contracts are also classified by type of contract. These classifications are important because they provide guidance as to how the contract is treated in law.
Aleatory – unequal outcomes. A person pays the premium but may not get anything financial back in return. Normal contracts are equal exchanges. For example buying a shirt.
A conditional contract has performance by one or more parties a function of an uncertain event. The insurance company will only respond if a loss occurs.
A contract of adhesion is construed against the writer of the contract. Most insurance contracts are written or controlled by the insurer. Manuscript contracts are written by the insured and will be construed against the insured – writer.
Personal contracts are ones where you cannot freely change parties to the contract. The insured cannot freely exchange her interest to someone else unless the insurer consents. If you sell your home with the homeowners contract, the new owner cannot collect because there is no privity of contract and the old owner does not have insurable interest.
Unilateral contracts only have to be performed by one party. The insurer has to perform if the insured does all steps necessary to make the insurer perform.

10. Principle of Indemnity Principle of Insurable Interest
Legal Principles
Principle of Indemnity
Principle of Insurable Interest
Principle of Subrogation
Principle of Utmost Good Faith
These are the four main legal principles that underlie and control insurance contracts. Each will be addressed in turn.
Principle of Insurable Interest – Specifies who can collect from an insurance contract.
Principle of Indemnity – Specifies how much one can collect.
Principle of Subrogation – Provides rules as to what happens if the insurer pays you for your loss caused by a negligent party.
Principle of Utmost Good Faith – Provides guidance for when a party breaches the Utmost Good Faith standard.

11. Legal Principles - Principle of Indemnity
Principle of insurable interest determines if a loss is suffered; the principle of indemnity places a limit on the amount of the loss.
A person may not collect more than the actual loss sustained - cannot make a profit
The best that one can hope for is to be placed in the same financial position after the loss compared to before
The idea behind the principle of indemnity is that a person should be maximally put back in the same financial position she or he was in before the loss.
The person should not be able to gain from the transaction – otherwise the incentive would be to actually cause losses. If that were the case, the insurance contract would be not allowed because society would deem it to be against public policy.
Ask the class: “What would happen if not only you could insure other people or their property and when the loss occurs, you could collect much more than the actual loss?”

12. Legal Principles - Principle of Insurable Interest
Must demonstrate a “loss” to collect
Would be gambling or intentional loss if an insured could collect with no personal loss
Insurance is a “personal” contract
Follows the person - not the property
The principle of insurance interest answers the question – who can collect from an insurance contract. (This does not say “Who can buy an insurance contract?”)
The general rule is – you have to be able to demonstrate a financial or economic reduction in value to demonstrate a loss. There are some easy demonstrations, and not so easy demonstrations.
The concept of loss goes way beyond pure ownership (see list next overhead)
If people could recover for losses without insurable interest, what would happen from the point of view of society?

13. Legal Principles - Principle of Insurable Interest
What constitutes insurable interest?
Ownership
Leases (in some cases)
Secured creditors (not general creditors)
Legal liability
Care, custody, and control
Life insurance - exists for person voluntarily insuring ones own life - others must have insurable interest
I expand on the concept of insurable interest with the following examples of relationships that can create insurable interest.
ownership
leases (contracts) can cause – responsibility for property or legal liability
secured creditors - can have; general creditors do not
legal liability
care, custody, and control issues (bailments)
improvements and betterments
life insurance - exists for person voluntarily insuring ones own life - others must have insurable interest

14. Legal Principles - Principle of Insurable Interest
When must the insurable interest exist?
Property insurance - must exist at the time of the loss
Life insurance - must exist at the inception of the policy; continuing insurable interest is not necessary
The timing of the insurable interest and the loss is also important and is different in the life insurance field and the property / liability field.
In property insurance insurable interest must exist at the time of the loss. Therefore, people purchase contracts with no insurable interest in anticipation of having it. For example insuring a home before it is purchased so you can show insurance at the closing. Buying insurance on something purchased but you do not know when it is going to be shipped nor when you are actually going to take title.
In life insurance insurable interest is needed at the inception of the contract and you do not need a continuing insurable interest for the beneficiary to collect. This is because the life insurance contract is used for many reasons including saving for college educations and retirement that it would be unconscionable to destroy the contract – especially when the insured has become uninsurable.

15. Principle of Indemnity Actual Cash Value
Actual Cash Value = Replacement Cost Less Depreciation
ACV loss = [RC loss – DEP loss]
RC = the cost to repair or replace with like kind and quality of material
loss = calculation is performed only on the part that was damaged
DEP = A measure of “betterment” Not an accounting concept
The formula for theoretically calculating how much to indemnify is provided.
The amount is equal to the ACV or actual cash value. This is equal to the amount that it would cost to repair or replace with like kind and quality of material (not reproduction cost) less an amount for “betterment.”
Theoretically if you can calculate the new for old amount (RC) and subtract out an amount for “betterment” the insured will be put in the same financial condition in before the loss.
Note: Reproduction cost is very expensive. Also, sometimes the concept of replacement cost or depreciation does not make sense. For example life insurance or irreplaceable items.

16. Principle of Indemnity Exceptions
Valued policies
Valued policy laws
Replacement cost coverage
Life insurance - not an indemnity contract
These are the general exceptions to the principle of indemnity.
Valued policies - Valued policies are contracts where the value of items are agreed at the time of inception.
Valued policy laws - Valued policy laws force an insurer to pay the face amount of the contract when there is a total loss. This discourages insurer/agent induced over-insurance.
Replacement cost coverage – Using the ACV formula without the deduction for depreciation.
Life insurance - not an indemnity contract. The concept of ACV is as it applies to life insurance does not make sense.
Students can confuse easily valued policies with valued policy laws.

17. Legal Principles Principle of Subrogation
If insurance did not exist
injury
Negligent
party
Injured
suit
I start explaining subrogation by pretending that insurance did not exist and explain what would happen under our legal system.
The injured party would have to sue the negligent party. The injured party may or may not receive partial or full restitution.

18. Legal Principles - Principle of Subrogation
One who indemnifies another’s loss is entitled to recovery from any liable third parties
Negligent
party causes
injury
Injured
insured
To further explain subrogation, I now assume insurance does exist.
In this case the injured is reimbursed by the insurer and is made whole.
Now the insurer is substituted for the injured and receives the rights of recovery to the extent that it was paid for.
Insurer
pays
Insurer subrogates
against negligent party

19. Principle of Subrogation
Reinforces the principle of indemnity - can only collect once
Holds rates below what they would otherwise be - salvage
Places burden of the loss on those responsible (i.e. negligence)
Many students have trouble understanding the concept of subrogation, a substitution of rights and why it is legally recognized. These are three reasons why it exists.
Reinforces the principle of indemnity - can only collect once
Holds rates below what they would otherwise be - salvage
Places burden of the loss on those responsible i.e. negligence

20. Principle of Subrogation
Subrogation does not exist where the principle of indemnity does not apply - life insurance
Subrogation is ALWAYS waived for AN INSURED
If an insured violates or destroys insurer’s subrogation rights, insured may forfeit collection rights under the contract
The insurer is entitled to subrogation dollars only after insured has collected fully for the loss
These are important aspects and implications of subrogation.
Subrogation does not exist where the principle of indemnity does not apply - life insurance. Injured parties can collect infinite amounts and not be reimbursed fully. So to give any collection back to the insurer will never happen.
Subrogation is ALWAYS waived for AN INSURED. If a person is an insured (not necessarily the insured) under a contract the insurer cannot subrogate. If they could the insurance would be worthless for insureds not the named insured who were negligent
If an insured violates or destroys insurer’s subrogation rights, insured may forfeit collection rights under the contract
The insurer is entitled to subrogation dollars only after insured has collected fully for the loss

21. Principle of Subrogation Example
Insured has
$10,000 loss and
recovers $7,000
from insurer
injury
Negligent Party
pays $5,000
This slide shows how mechanically subrogation works.
If the insured is injured $10,000 and collects $7,000 from the insurer, she is still owed $3,000.
If the insurance company subrogates and collects anything, the insured collects the first $3,000 and if anything in addition is collected, the insurance company keeps it.
Insurer pays
$8,000 less $1,000
Deductible
subrogates
$3,000 to insured
$2,000 to insurer

22. Principle of Utmost Good Faith
Higher standard of honesty is imposed on insurance contracts as compared to other contracts
Categories of abuse:
Material misrepresentation
Material Concealment
Breach of a warranty
Breach of utmost good faith
The principle of utmost good faith is important to understand since the insurance policy is held to a different and higher standard of honesty than normal business contracts. Each of these will be addressed in turn.
a material misrepresentation
a concealment
a breach of a warranty
a breach of utmost good faith

23. Principle of Utmost Good Faith Representations
Statements made before a contract starts to induce a party to enter the contract
Oral or written statements
Contract can be avoided if the representation is false and material
The principle of utmost good faith raises the degree of honesty above normal business contracts and requires that statements made before the contract is entered into is truthful. These statements provide specific information so the underwriters can get a clear picture of the exposure and are able to price the exposure correctly.
These statements can be in writing or be oral.
In order for a company to avoid payment the representation must be material and false.

24. Material Misrepresentations
Material Misrepresentation Tests
False - not true at the time of the statement
Material - would the insurer have declined the contract, changed the wording, or priced it differently if the truth were known
Statement of opinions are not sufficient to avoid the contract
Representations must be false and material in order for a company to avoid payment.
False means not truthful at the time of the statement. (Must be some deception present.)
Material means that if the truth were known the insurer would have:
worded the contract differently
priced the contract differently
or declined to write the contract
These are the tests for materiality. If the test is passed, then it was important to the insurer and would be classified as a material misrepresentation.
Statement of opinions are not sufficient to avoid the contract. For example if a person stated that he was free of cancer and this was the truth to the best of her knowledge and later it was found that (undiagnosed) cancer had been present for three years this would be an opinion because there was no deception involved.

25. Principle of Utmost Good Faith Concealments
Silence when there is an obligation to speak
Utmost good faith imposes a duty to voluntarily divulge material information
When a material fact is concealed the insurer can avoid the contract
Generally involves an element of deception
Concealments can also occur because of the elevation of honesty by the principle of utmost good faith.
The principle imposes an obligation to divulge information.
When the information is material (same test as representation)
Allows the insurer to avoid the contract.

26. Tests for Concealment Did the insured know of a certain fact?
Was the fact material?
Was the insurer ignorant of the fact?
Material concealments generally involve an element of deception.
And these are the tests for concealment:
Did the insured know of a certain fact?
Was the fact material?
Was the insurer ignorant of the fact?
In general, insureds are not mind readers and cannot know what is important from the insurer’s point of view.

27. Principle of Utmost Good Faith Warranties
A warranty creates a condition in a contract
Any breach of warranty, even if not material, will allow the insurer to avoid the contract (strict interpretation)
A warranty is another situation created by the principle of utmost good faith.
A warranty creates a condition in a contract.
Example could be a guarantee of a night guard or working sprinkler systems.
Any breach of warranty, even if not material, will allow insurer to avoid the contract (strict interpretation).
So, if a tornado destroyed a warehouse and it is found out that the warranty of sprinklers was breached, there is no coverage even though the damage was caused by a tornado.
For personal exposures, this is not interpreted as strictly.

28. Types of Warranties Express - written
Implied - not written, understood by all
Promissory - condition to continue throughout contract period
Affirmative - exists at contract’s inception; promises nothing about the future
There are different types of warranties that one will encounter in insurance.
Express – these are written in the contract
Implied – these are not written but understood by all parties
Promissory – this is a condition that is to continue throughout the contract period
Affirmative – this is a condition that currently exists at the contract’s inception but there is no promise about the future conditions

29. Warranties - Examples Implied affirmative Implied promissory
Express affirmative
Express promissory
Examples of warranties include:
Implied affirmative - seaworthiness
implied promissory - legality
express affirmative - there is a sprinkler system
express promissory - the sprinkler system will work
Policy owners generally receive rate reductions for express promissory warranties.

30. Principle of Utmost Good Faith - Breach of Utmost Good Faith
Commonly referred to as a “bad faith claim”
Used when the insured feels the insurer is not acting in “good faith”
Used to force insurance companies to perform according to the contract
The last problem that is caused by the principle of utmost good faith is when there is a “breach of utmost good faith” or commonly called a “bad faith claim.”
This is used when the insured feels the insurer is not acting in “good faith” and dealing fairly.
Used to force insurance companies to perform according to the contract.
Insurance companies are afraid of bad faith claims because the idea is to ask for a very large judgment against the insurer to punish to deter the insurer from letting it happen again.

31. Basic Parts of an Insurance Policy31

32. Standardized Insurance Policies - Why?
More economical to print and maintain
Eases the development of rates - given a standard coverage set
Loss and claim data of different companies can be combined to provide more credible data
Meaning of standardized policies becomes known to attorneys, courts, insurer’s employees, and consumers
The policies studied in this text are called “standard” contracts because they are widely used and accepted. They form the foundation for many “non-standard” contracts. Standard insurance contracts are used by and are promoted by the industry for the following reasons:
They are more economical to print and maintain
They ease the development of rates - given a standard coverage set
They provide uniformity in loss and claim data of different companies so information can be combined to provide more credible data
The meaning of standardized policies becomes known to consumers and through court interpretation

33. Standardization of Contracts
Not all US policies are “standard”
Personal and Commercial policies are generally standardized – variations are found
The larger commercial policies can be “manuscript” but based on standard clauses
Many international policies are standardized too
Several Spanish-language (South American) policies are translations of US policies
Austrians use standardized HO and Auto policies
As stated all insurance policies have the same parts and must do essentially the same types of things to constrain and define the scope of the insurance contract.
whether they are standard forms
Lloyds' manuscripts
An insured’s manuscript (one-of-a-kind)
Or alien contracts (outside the US - international)
Note: domestic is in the state, foreign is outside the state, alien is outside the US.

34. A NON-Exhaustive List of Questions to Ask
Is the property / event / liability covered?
Is the person sustaining the loss covered?
Is the loss caused by a covered peril?
Do any exclusions apply?
Are there any special / sufficient limits or penalties?
Do any deductibles apply?
Are there any territorial restrictions?
Did the loss occur during the policy period?
I find that students generally do not like going through insurance contracts because they must deal with many issues at the same time. I try to provide a non-exhaustive check list of issues that must be dealt with.
Is the property/event/liability covered?
Is the person sustaining the loss covered?
Is the loss caused by a covered peril?
Do any deductibles apply?
Do any exclusions apply?
Are there any special limits / does the insured have sufficient limits?
Do any conditions limit the amount of coverage (penalties)?
Are there any territorial restrictions?
Did the loss occur during the policy period?

35. Basic Parts of an Insurance Contract - Declarations
Personalizes the insurance contract to the insured
What makes this contract different than others issued?
Usually first page of an insurance contract contains such things as:
Identifies the insurance company
Identifies the named insured
Policy period
Policy limits
Deductibles
Premium
Identifies forms and / or endorsements
The declaration page is usually the first page of the insurance contract and personalizes the contract to the insured.
The insured typically finds the following information about the coverage.
identifies insurance company
identifies the named insured
identifies the insurance agent
policy period
policy limits for each insuring agreement
deductibles
premium
rating information
identifies forms and / or endorsements that are packaged together to make up the contract or modify the standard contract
Declarations -- facts of policy, named insured, coverages paid for, rating information.

36. Basic Parts of an Insurance Contract - Insuring Agreements
Broadly describes what is covered and the insurer’s and the insured’s rights, obligations, and duties
Examples from:
Homeowners (HO)
Auto (PAP)
Each insurance contract has at least one insuring agreement. The insuring agreement spells out in broad terms the rights and duties in the contract. Examples can be taken from the Homeowners and Auto insurance contract.
The homeowners has the following insuring agreements:
Dwelling
Other Structures
Personal Property
Loss of use
Personal Liability
Medical payments to others
The auto contract has these:
Liability
Medical payments
Physical damage
Uninsured motorist
Note: It doesn't have to mention insurance, "we will forgive car loan if car is stolen or destroyed" was held to be insurance by Arkansas insurance commissioner.

37. Basic Parts of an Insurance Contract - Deductibles
Straight deductible - amount paid by insured before the insurer pays any money
Example: from the loss v. from the claim
$25,000 loss
$20,000 coverage
$ 1,000 deductible
Deductible from the loss
$25,000 - $1,000 = $24,000; $20,000 paid because hit policy limit
Deductible from claim
$20,000 - $1,000 = $19,000; deductible taken from claim
Deductibles are amounts that the policy owner pays before the insurance company is obligated to pay anything. In that case, the insurance company pays the excess up to policy limits. Different types of deductibles exist and they are applied in different ways. This overhead demonstrates the straight deductible and how the payment can be changed by the mere change of one word in the contract.
Payment from the loss vs. payment from the claim.
$25,000 loss
$20,000 coverage
$ 1,000 deductible
deductible from the loss
$25,000 - $1,000 = $24,000; $20,000 paid because hit policy limit
deductible from claim
$20,000 - $1,000 = $19,000; deductible taken from claim
Personal lines coverage generally uses a deductible that applies from the loss.

38. Basic Parts of an Insurance Contract - Deductibles
Reasons for deductibles
Reduces moral and morale hazard since insured pays a small portion of each loss
Eliminates the expenses involved in small, frequent claims and most losses are small
As a result premiums are lower
The rationale for having a deductible in insurance contracts is outlined in this overhead.
Reduces moral and morale hazard since insured pays a small portion of each loss and there is an incentive to protect and preserve the property – not have the loss.
Eliminates the expenses involved in small, frequent claims. The expense associated with adjusting small frequent claims is great compared to the cost of the losses.
Lowers premium for the insured.

39. Basic Parts of an Insurance Contract - Definitions
Clarify meaning of words and terms in contract - [remember the doctrine of adhesion]
Found in definitions page, glossary, or throughout the contract
Reduces the word count in insurance policies
Definitions are included in insurance contracts when the insurer wants to define very carefully and specifically what a word or phrase means.
So the purposes of the definition page is to:
Clarify meaning (remember adhesion)
Keep the meaning of words consistent
Reduce word count
The definitions are needed to prevent ambiguities, can be found in glossary, or throughout the policy.
Ambiguities remain, and many cases each year involve the legal meanings of words as well as sentence construction.

40. Basic Parts of an Insurance Contract - Exclusions
Identify losses that are not covered
Designed to:
Eliminate catastrophic events - flood, war
Eliminate moral or morale hazards - intentional loss, failure to protect property
Require extra charge - unfair to charge all insureds for covering $100,000 gun collections
Eliminate coverage where another policy is specifically designed for the coverage
To truncate the doctrine of proximate cause
Exclusions -- "We do not cover" limits perils, losses, property, people. I stress that it is important to know what the exclusions are – probably more important than what is covered – because uncovered losses will hurt you.
Not all exclusions are found in the exclusion section. For example the peril of theft presents exclusions applying only to theft coverage.
Reasons for exclusions include:
exclude specified (catastrophic) perils: water damage, earthquake, nuclear
control moral(e) hazard: neglect, intentional loss (communicable disease)
insurer plans to charge more for non-standard coverages: business pursuits
also, many policies have internal limits, causing insureds with specified exposures to purchase more coverage (see coverage C special limits – Homeowners contract)
coverage provided by other contracts: automobile, watercraft

41. Basic Parts of an Insurance Contract - Conditions
If you want the claim paid, you must meet the conditions stated in the contract. These include:
No Concealment or Fraud
No Suspension of coverage
Cancellation – policy must be in force
Other insurance does not apply or loss is shared
Meet your duties after a loss
Abide by the appraisal procedure
Agree to salvage
Agree to claims payment - time limits
The conditions section in an insurance policy spells out the conditions for collecting for a loss as well as other stipulations – these can be referred to as the insurance company’s rules.
Commonly conditions include:
What happens when there is concealment or fraud
When there is a suspension of coverage
How to cancel the contract and who can cancel
What happens when there is other insurance that applies to the claim
What are the duties after a loss
How one deals with disagreements as to how much should be paid – the appraisal procedure
Who owns and gets salvage
What are the time limits for claims payment

42. Basic Parts of an Insurance Contract - Endorsements
Modify standard insurance contracts in predetermined ways - examples
Expand coverage
Delete exclusions in contract
Change definitions
e.g.: “ sporadic baby-sitting is not a “business”
Add locations / insureds / perils
Add additional insureds
Insurance policies can be modified by adding documents that have been previously approved. For example, common changes might include adding a vacant lot for liability or adding liability for a business pursuit.
But in general, the reasons for these endorsements include:
Expand coverage
Delete exclusions in contract
Change definitions
Add locations
Add additional insureds