· A personal contract
· A conditional contract
· A contract involving the exchange of unequal amounts
· A contract of utmost good faith
· A contract of adhesion
· A contract of indemnity
Personal Contract
The identities of the people insured are extremely relevant to the insurance company, which has a right to select the insureds with whom it is willing to enter into contractual agreement. Most insurance policies contain a provision (called assignment) that states that insurer’s written permission is required before an insured can transfer a policy to another party.
Conditional Contract
A conditional contract is a contract in which one more parties must perform only under certain conditions. Coming to insurance contract, for instance, in the event of a loss, insurer shall pay the same only if covered under policy conditions and insured has certain duties as to the loss such as immediate notification, etc.,
Contract Involving the Exchange of Unequal Amounts
Insurance contracts can involve exchange of unequal amounts. For instance, in the event of a claim, it can be such that the claim amount paid is lesser than the premium collected and vice versa.
Contract of Utmost Good Faith
Utmost Good Faith is the obligation to act in complete honesty. Insurance contracts rely exclusively on the information provided by the proposer except in cases where the insurer carries out pre acceptance inspection. Hence it is the duty of the proposer to disclose all facts material to the subject mater. An Insurance company could be released from a contract because of concealment or misrepresentation by the insured.
Concealment
Concealment is an intentional failure to disclose a material fact.
Material Fact
For insurance purposes, a material fact is any information that would affect the insurer’s underwriting decision to provide or maintain insurance or that would affect claim settlement.
Courts have held that the insurer must prove two things in order to establish that concealment has occurred.
First, it must establish that the failure to disclose information was intentional.
Second, the insurer must establish that the information withheld was material fact.
Misrepresentation
As used in insurance, misrepresentation is a false statement of the material fact on which insurer relies. Unlike concealment, the insurer does not have to prove misrepresentation to be an intentional one.
Contract of Adhesion
A contract of adhesion is a contract in which one party (insured) must adhere to the agreement as written by the other party (insurer).
If dispute arises between the parties as to words and phrases used in the policy document which results in ambiguity, the court will generally apply the interpretation that favors insured.
Contract of Indemnity
In a contract of indemnity, the insurer agrees, in the event of covered loss, to pay an amount directly related to the amount of the loss. Property insurance policies contain a valuation provision that explains how the value of the insured property is to be established at the time of loss. Liability insurance policies agree to pay on behalf of the insured amounts that the insured becomes legally obligated to pay to others.
The principle of indemnity, states that the insured should not be better off financially after a loss than before. In other words, the insured should not profit from an insurance.
Some insurance contracts are not contracts of indemnity but valued policies.
A valued policy is one in which the insurer pays a stated amount in the event of a specified loss regardless of the actual value of the loss.
Insurance Contracts, Loss Exposures and Risk Management
