Business Law 4510 Chapter 30 Notes Insurance Wills and Trusts 1 I Insurance a A contract where the insurance company insurer promises to pay a certain amount or give something of value to another the insured or the beneficiary in the event that the insured is injured dies or sustains damage to their property as a result of particular stated contingencies i By insuring our property we protect ourselves against damage and loss way to transfer and allocate risk b Classifications of Insurance c Insurance Terminology i Classified according to nature of risk involved i Policy insurance contract ii Premium consideration paid to insurer iii Underwriter insurance company insurer iv Obtained through an agent employee of insurance company or broker independent contractor 1 Broker acts as insured persons agent d Insurable Interest i A person can insure anything that they have an insurable interest in 1 An insurable interest exists when the insured derives a pecuniary benefit a benefit consisting of or relating to money from the preservation and continued existence of the property a b For life insurance a person must have a reasonable expectation of benefit from the continued life of another in order to have an insurable interest when policy is obtained i Can be pecuniary or may be founded on relationship between parties For property insurance insurable interest must exist at the time the loss occurs but need not exists when the policy is purchased e The Insurance Contract i Application ii Effective Date 1 2 1 Application attached to policy and made part of contract a Any misstatements or misrepresentations can void the policy If using a broker applicant is not insured until broker obtains a policy If using an agent applicant usually insured from moment application is made and premium paid Covered while application is received and either rejected or accepted a b Agent writes a memo or binder to indicate policy is pending and stating essential terms 3 4 If parties agree on date policy will be issued and delivered contract not effective till that date Parties may agree life insurance policy begins when first premium paid or physical exam is passed If applicant pays premium but dies before passing the exam the applicants estate must show the applicant would have passed in order to collect a iii Coinsurance Clauses 1 Only for instances of partial loss such as a fire 2 Provides that if the owner insures the property up to a specified percent usually 80 of its value they will recover any loss up to the face amount of the policy a If insures less than specified percent owner responsible for proportionate share of loss iv Other Provisions and Clauses 1 Words used in insurance contracts have ordinary meanings and interpreted based on coverage 2 Antilapse clause provides that policy wont automatically lapse if no payment made on due date a Given a grace period to pay before policy canceled 3 Appraisal clause if parties can t agree on amount of loss covered under policy or the value of the property lost an appraisal or estimate by an impartial and qualified third party can be demanded 4 Arbitration clause for disputes that may arise between parties concerning settlement of claims 5 Incontestability clause provides that after a policy has been in force for a specified length of time 2 3 years the insurer can t contest statements made in the application 6 Multiple insurance if multiple policies cover the same property and the amount of coverage exceeds loss loss will be shared proportionately by all insurance companies v Ambiguities are Interpreted against Insurance Companies 1 Any doubts will be resolved in favor of insured against insurance company vi Cancellation 2 1 Insured can cancel policy at any time but insurer can only cancel under certain circumstances a When insurer cancels a policy they must give advance written notice to the insured and any advance premiums must be refunded or life insurance policys cash surrender value Insurer can cancel for various reasons including b i Non payment of premiums ii False statements misrepresentations before incontestability date vii Good Faith Obligations 1 All parties have implied duty to act in good faith Party applying for insurance must reveal any necessary info for insurer to evaluate risk Insurer must investigate all claims to determine facts If policy provides insurances against third party claims insurer must make reasonable efforts to settle claims If settlement can t be reached insurer must defend any suit against insured i Or if complaint against insured alleges facts that could impose liability on insured within scope of coverage e Insurer has duty to pay any legitimate claims up to face amount of policy 2 Woo v Fireman s Fund Insurance Co Issue did the insurance company have an obligation to defend a customer dentist who as a practical joke temporarily installed a set of boar tusk flippers into his patient employee s mouth during a routine dental procedure Yes the policys professional liability provision stated it would defend any claim brought against the insured even if allegations of the claim are groundless false or fraudulent viii Bad Faith Obligations ix Defenses against Payment 1 1 If an insurer in bad faith denies coverage of a claim the insured may recover in tort an amount exceeding the policy s coverage limits and large punitive damages If insurance company can show that policy was procured by fraud or misrepresentation it may have a valid defense for not paying on a claim If insured lacked an insurable interest policy is void from beginning a b Improper actions such as those against public policy or illegal also valid defense c Does not work for information given voluntarily by application things not mandatory a b c d a b II Wills a The final declaration of how a person desires to have their property disposed of after death i Testamentary disposition of property one who dies after having made a valid will died testate ii One who dies without having created a valid will died intestate 1 State intestacy laws prescribe distribution of property among kin if none then state b Terminology of Wills i Testator person who makes out a will ii Probate court court responsible for administering any legal problems surrounding a will iii Executor personal representative named in the will to administer the estate and settle all affairs 1 Administrator personal representative appointed by the court for a decedent who dies intestate or without