Lecture Dynamic business law - Chapter 51: Insurance law

After studying this chapter you will be able to understand: What is the nature of the insurance relationship? What does the insurance contract include? How is an insurance policy canceled? What are the obligations of the insurer and the insured? What is the insurer’s defense for nonpayment? What are the types of insurance available to consumers?

Insurance Law

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

 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

Elements of the Insurance Contract

 Incontestability Clause:  Ensures insurance company cannot 

contest statements made in insurance application after certain 

period of time

 Anti­Lapse 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

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

which insured party liable

Include (but are not limited to):

 Breach of contract;

 Lack of insurable interest; and

 Illegal activity

Types of Insurance

insurance

range of risks

injuries that might occur while completing a job (excluding injuries to 

employees)

persons injured by operation of the garage

from loss due to damages paid to people injured using the good

Exhibit 51­3:  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

 Whole­Life:  Protection for entire life of insured

 Term­Life:  Provides coverage for specified term 

(beneficiary paid only if insured party dies during 

designated term)