Content of Insurance Policies

An insurance policy specifically describes the coverage it provides. Since no insurance policy can cover every contingency, the policy must describe its limitations, restrictions, and exclusions as clearly as possible. The best way to determine the coverages provided by a particular policy is to examine its provisions, which are generally included in the following sections of the policy: -

· Declarations

· Definitions

· Insuring Agreements

· Exclusions

· Conditions

· Miscellaneous provisions

Declarations

The declaration page (also simply called declarations or dec) of an insurance policy is an information page that provide specific details about the insured and the subject matter of the insurance, such as

· Name and location of the Insurer

· Name and address of the insured

· Policy Number

· Policy Period

· Description of covered property or locations

· Schedule of coverages and limits

· Deductibles

· Premium(s)

· Policy forms

· List of endorsements, if any

· Agent’s name

· Other important details

Definition

Since insurance policy contains technical terms or words that are used for specific purpose. Most policies define these terms that have specific meanings with regard to the coverages provided.

Insuring Agreements

An Insurance agreement in an insurance policy is a statement that the insurer will under certain circumstances, make a payment or provide service.

Exclusions

Exclusions are policy provisions that eliminate coverage for specified exposures.

Reasons for Exclusions

· To avoid covering uninsurable losses.

· To avoid insuring losses that could be prevented.

· To eliminate duplicate coverage.

· To eliminate coverage that most insured do not need.

· To eliminate coverage for exposures that requires special handling by the insurer.

· To keep premium reasonable.

Conditions

Insurance policy contains several conditions relating to the coverage provided. The insured must generally comply with these conditions if coverage is to apply to a loss.

Miscellaneous Provisions

Insurance policies often contain provisions that do not qualify as one of the policy components. These miscellaneous provisions sometimes deal with the relationship between the insured and the insurer, or they might help to establish procedures for carrying on the terms of the contract.

Insurance Contracts, Loss Exposures and Risk Management

Insurance Contracts

Special Characteristics of Insurance Contracts

· 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

Insurance Contracts, Loss Exposures and Risk Management

Elements of a Contract

Insurance Contract, called a policy, is an agreement between the Insured and the Insurer. An insurance policy must meet the same requirements as a valid contract which is legally enforceable agreement between two or more parties.

The validity of the contract depends upon four essential elements: -

· Agreement (Offer and Acceptance)

· Competent Parties

· Legal Purpose

· Consideration

Agreement (Offer and Acceptance)

The One essential element of the contract is that agreement must exist between the parties of the contract. One party must make a legitimate offer and another party must accept the offer. In other word there must be mutual assent.

To be enforceable, the agreement cannot be the result of duress, coercion, fraud or a mistake. If either party to the contract can prove any of these circumstances, a court declare the contract to be void.

Competent Parties

For the contract to be enforceable, all the parties must be legally competent. In other words, each party must have legal capacity to make agreement binding. Individuals are generally considered to be contract and able to enter into legally enforceable contracts unless they are one or more of the following: -

· Insane

· Under the influence of drug or alcohol

· Minors

Another aspect of legal capacity involves the fact that, in most states, an insurer must be licensed to do business in the state.

Legal Purpose

The courts might consider a contract to be illegal if its purpose is against the law or against public policy.

Insurance contracts must involve a legal subject matter. If the property is illegally owned or illegally possessed goods then it is a invalid contract. In addition, no insurance contract will remain valid if the wrongful conduct of the Insured causes the operation of the contract to violate public policy.

Consideration

Consideration is something of value given by each party to a contract. In insurance, consideration given by the insured is the payment of the premium. Consideration on part of the insurer is promise to pay covered losses. Eventhough, someone purchasing insurance receives only a document containing a promise, that promise has a value because it is a legal obligation.

Insurance Contracts, Loss Exposures and Risk Management