Today’s LectureInsurance Contracts

Applications and Binders

Parts of the Contract

Declarations

Insuring Clauses

Exclusions and Exceptions

Conditions

Endorsements and Riders

Application

The potential insured offers to buy coverage by submitting an application.

The insurer decides whether to accept the offer.

Binders and Receipts

Binder - temporary contract to provide coverage until the policy is issued

Conditional receipt - no coverage unless policy is issued, but coverage is retroactive

Binding receipt - coverage is in force while application is being processed

Receipts - ExampleOn September 20, 2006, a student applies for auto insurance with American Family. He does not list three speeding tickets he received on the application. The agent issues him a binding receipt. On September 23, 2006, the student is speeding again, and gets into an accident. On September 27, 2006, the underwriter rejects this application for coverage. Does American Family have to pay this claim?

Receipts - ExampleA No, since coverage is retroactive only when

issued

B No, since the student lied on the application

C No, since the rejection was related to the misrepresentation

D Yes, since the claim was not related to past incidents of speeding

E Yes, since the company had not yet rejected the application

Parts of an Insurance Contract

Declarations

Identify insured

Describe coverage

Insuring Clause

Open-Perils - covers any loss not excluded

Named-Perils - covers specified losses

Insuring Clause - Example

Which of your State Farm Car coverages have a Named-Peril insuring clause?

A All coverages

B Comprehensive and Collision

C Collision and Emergency Road Service

D Collision only

E None of the coverages

Exclusions and Exceptions

Reasons for Exclusions

Ideal Requisites for Insurability

Possibility of catastrophe

Fortuitous

Definite

Standardize the Risk

Avoid Duplication of Coverage

Exclusions – Example

Why does the State Farm Car policy exclude coverage when the vehicle is “used to carry persons for a charge”?

A To avoid the possibility of a catastrophe

B To avoid losses that are not fortuitous

C To avoid losses that are not definite

D To standardize the risk

E To avoid duplication of coverage

Types of Exclusions

Excluded locations

Excluded perils

Excluded property

Excluded losses

Conditions

Must be fulfilled by insured in order to obtain coverage

Examples

Notice and proof of loss

Cooperation of the insured

Protection of property after a loss

Examination

Endorsements and Riders

Endorsements used in property-liability insurance

Riders used in life-health insurance

Both change the contract in some way

Parts of a Contract - Example

On page 26 of the State Farm Car Policy the policy reads, “There is no coverage under this policy if you or any other person insured under this policy has made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under this policy.” This is an example of which part of the contract?

Parts of a Contract - Example

A Excluded peril

B Excluded loss

C Condition

D Endorsement

E Rider