1. Chapter 51 Insurance Law Chapter 51: Insurance Law
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

2. The Nature of the Insurance Relationship
Insured Party: Party who makes a payment (a premium) in exchange for a payment in the event of damage/injury to property/person
Premium: Payment on policy
Insurer (Underwriter): Party who receives premiums from insured party
Beneficiary: Person who receives insurance proceeds
Policy: Document that expresses agreement between the insured party, beneficiary, and insurer
Risk: Potential loss
Insurable Interest: Economic interest in life/property
Life interest must exist at time policy obtained
Property interest must exist at time of loss
In terms of the nature of the insurance relationship, an insured party is a party who makes premium payments on an insurance policy in exchange for payment in the event of damage or injury to property or person. An insurer, or underwriter, is a party who receives premiums from the insured party. The beneficiary is the person who receives the insurance proceeds. A policy is a document that expresses an agreement between the insured party, the beneficiary, and the insurer. Risk constitutes potential loss. Finally, an insurable interest is an economic interest in life or property; in order to constitute an insurable interest, a life interest must exist at the time the policy is obtained, and a property interest must exist at the time of the loss.

3. The Insurance Contract
Application For Insurance: Party with insured interest makes an offer to purchase insurance (Based on information described in application, insurance company evaluates the risk and determines whether to accept/reject offer)
Effective Date: Date policy becomes effective
Binder: Gives temporary insurance until decision to accept/reject application made
In an application for insurance, a party with an insured interest makes an offer to purchase insurance. Based on information described in the application, the insurance company evaluates the risk, and determines whether to accept or reject the offer. The “effective date” is the date the policy becomes effective. A “binder” gives temporary insurance until a decision to accept or reject the application is made.

4. Elements of the Insurance Contract
Incontestability Clause: Ensures insurance company cannot contest statements made in insurance application after certain period of time
Anti-Lapse Clause: Grace period for insured to pay premium
Appraisal Clause: Insured party and insurer select disinterested appraiser for second opinion on damages
Arbitration Clause: Disputes must be submitted to an arbitrator
An incontestability clause in an insurance contract ensures that the insurance company cannot contest statements made in an insurance application after a certain period of time. An anti-lapse clause ensures a grace period for the insured to pay a premium. By way of an appraisal clause, the insured party and the insurer select a disinterested appraiser for a second opinion on damages. Fnally, with an arbitration clause, insurance disputes must be submitted to an arbitrator for resolution.

5. Canceling the Insurance Policy
While insurer/insured may cancel policy at specified times, insurer limited as to when it may cancel the policy; if either party breaches its duties as established in the insurance policy, the other party has legal remedy
While the insurer or the insured may cancel a policy at specified times, the insurer is limited as to when it may cancel the policy; if either party breaches its duties as established in the insurance policy, the other party has legal remedy.

6. Insurer and Insured Obligations
Insurer Duties:
Defend insured; insurer must defend insured party from claims for which insured party liable
Pay sums owed by insured
Insured Duties:
Disclose material (significant, relevant) information on application
Cooperate with insurer (on defense of claims)
An insurer has the obligation to defend the insured from claims for which the insured party is or may be liable, and to pay sums owed by the insured. An insured has the duty to disclose significant and relevant information on application, and cooperate with the insurer on the defense of claims.

7. Insurer’s Defenses For Non-Payment of Claims
Include (but are not limited to):
Breach of contract;
Lack of insurable interest; and
Illegal activity
An insurer’s defenses for non-payment of claims include, but are not limited to, breach of contract, the lack of an insurable interest, and the insured’s participation in an illegal activity.

8. Types of Insurance
Individual Insurance: Insured party is party purchasing insurance
Group Insurance: Party who is neither insured party nor insurer purchases insurance
Personal Insurance: Covers individual’s life/health
Commercial Insurance: Covers business interests
Property Insurance: Protects property from loss/damage
Casualty Insurance: Protects person/property from accidental injury
Liability Insurance: Protects business from tort liability to third parties
Commercial General Liability Policy: Protects business against broad range of risks
Types of insurance include individual insurance, where the insured party is the party purchasing insurance. With group insurance, a party who is neither the insured party nor the insurer purchases the insurance. Personal insurance covers an individual’s life or health, while commercial insurance covers business interests. Property insurance protects property from loss or damage, while casualty insurance protects a person or property from accidental injury. Liability insurance protects a business from tort liability to third parties. A commercial general liability policy protects a business against a broad range of risks.

9. Exhibit 51-2: Types of Liability Insurance
Contractor’s Liability Insurance: Protects contractors against liability for injuries that might occur while completing a job (excluding injuries to employees)
Garage Liability Insurance: Protects garage owner from liability to persons injured by operation of the garage
Product Liability Insurance: Protects producer or manufacturer of good from loss due to damages paid to people injured using the good
Professional Liability Insurance: Protects members of specific professions from liability associated with their professional acts
There are several different forms of liability insurance. Contractor’s liability insurance protects contractors against liability for injuries that might occur while completing a job (excluding injuries to employees). Garage liability insurance protects the garage owner from liability to persons injured by the operation of the garage. Product liability insurance protects the producer or manufacturer of a good from loss due to damages paid to people injured using the good. Professional liability insurance protects members of specific professions from liability associated with their professional acts.

10. Exhibit 51-3: Types of Property Insurance
Fire Insurance: Protects property from loss or damage from fire
Livestock Insurance: Protects owner from loss due to injury or death of livestock
Water, Weather, and Natural Forces Insurance: Flood insurance, water damage insurance, weather insurance, hail insurance, lightning insurance, etc.
There are several types of property insurance. Fire insurance protects property from loss or damage from fire. Livestock insurance protects the owner from loss due to injury or death of the livestock. Water, weather, and natural forces insurance includes flood insurance, water damage insurance, weather insurance, hail insurance, lightning insurance, etc..

11. Life Insurance Whole-Life: Protection for entire life of insured
Term-Life: Provides coverage for specified term (beneficiary paid only if insured party dies during designated term)
Life insurance can be either “whole-life” or “term-life.” Whole-life insurance is protection for the entire life of the insured, while term-life provides coverage for a specified term, and the beneficiary is paid only if the insured party dies during the designated term.