Insurance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Insurance

A means for persons and businesses to

protect themselves against risk of loss.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Insurance
• Insurance is defined as a contract
whereby one undertakes to
indemnify another against loss,
damage, or liability arising from a
contingent or unknown event.
• It is a means of transferring and
distributing risk of loss.
• The risk of loss is pooled.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Terms
• Insured – the party who pays a
premium to a particular insurance
company for insurance coverage.
• Insurer – the insurance company
that underwrites the insurance
coverage.
• Policy – the insurance contract.
• Premium – the money paid to the
insurance company.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Insurable Interest
• Anyone who would suffer a
monetary loss from the destruction
of real or personal property has
insurable interest.
– Person who has close family
relationship or economic benefit from
the continued life of another has
insurable interest.
– Can insure own life

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Insurance Policy
• Governed by contract law
• Most prepared on standardized
forms
Coverage in place when policy issued
Insured may cancel policy at any time
• Insurer may cancel for nonpayment

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Performance of Insurance Contracts

Insured’s Duties Insurer’s Duties

• Duty to pay • Duty to defend
premiums • Duty to pay
• Duty to notify insurance
insurer proceeds
• Duty to
cooperate

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Duties of Insured
• The insured owes the insurer the
duties of:
– Paying premiums stipulated
– Notifying insurer of occurrence of
insured event in timely fashion
– Cooperation during investigation

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Duties of Insurer
• An insurance company owes a duty
to defend an insured against a
lawsuit.
• This includes:
– Providing for and paying for a lawyer
– Court costs
Insurer owes duty to pay legitimate
claims up to policy limit.
– If insurer wrongfully refuses, they are
liable for damages.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Deductible Clause
• Clause in insurance policy that
provides that insurance proceeds
are payable only after the insured
has paid a specified amount of the
damage or losses.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Coinsurance Clause
• A clause in an insurance policy that
requires the insured to pay a
percentage of an insured loss.
• Also called a co-pay clause.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Misrepresentations and Concealment

• Insurer may avoid liability on

policy if it was issued based upon:
– Material misrepresentations by
insured, or
– Applicant concealed material
information.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Subrogation
• If an insurance company pays a
claim to an insured for liability or
property damage caused by a third
party, the insurer succeeds to the
right of the insured to recover from
the third party.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Life Insurance

A form of insurance where the insurer is

obligated to pay a specific sum of money
upon the death of the insured.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Kinds of Life Insurance
Life Insurance Description
Whole life Provides coverage during the entire life of the insured.
Premiums are paid during the life of the insured or until a
certain age.
Limited-Payment Premiums are paid for a fixed number of years. Coverage is
provided during the entire life of the insured.
Term Insurance is issued for a limited period of time. Premiums are
payable and coverage effective during this term.

Universal life Combines features of both term and whole life insurance.

Endorsement and Forms of retirement and life insurance contracts.

Annuity Contracts

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Double Indemnity Clause
• Clause that stipulates that the
insurer will pay double the amount
of the policy if death is caused by
accident.
– A small additional premium is
charged for this protection.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Parties to a Life Insurance Contract
1. The insurance company issues the
policy.
2. The owner of the policy is the
person who contracts with the
insurance company and pays the
premiums.
3. The insured is the person whose life
is insured.
4. The beneficiary is the person who is
to receive the insurance proceeds
when the insured dies.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Suicide Clause
• A clause in a life insurance contract
that provides that if an insured
commits suicide before a stipulated
date, the insurance company does
not have to pay the life insurance
proceeds.
• Usually two years.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Health and Disability Insurance
Health Insurance Disability Dental
• Purchased to Insurance Insurance
help cover the • Insurance
•Insurance
costs of that that covers
medical provides a the cost of
treatment, monthly dental care.
surgery, or income to
hospital care. an insured
who is
disabled and
cannot
work.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Fire and Homeowners Insurance

Standard Fire Insurance

Policy

Homeowners Policy

Renters Insurance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Standard Fire Insurance Policy
• Protects real and personal property
against loss resulting from fire,
lightning, smoke, water damage,
and related perils.
• Most policies exclude coverage for
losses caused by enemy attack,
civil war, revolution, landslides,
and floods.
• Most policies provide replacement
cost insurance.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Homeowners’ Policy
• A comprehensive insurance policy
that includes coverage for the risks
covered by a standard fire insurance
policy as well as personal liability
insurance.
• Includes coverage for:
– The dwelling
Personal property
– Protection for losses caused by theft

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Personal Liability Coverage
• Insurer must pay property damage,
personal injuries, and medical
expenses to persons injured on the
insured’s property and to persons
injured by the insured or members
of the insured’s immediate family
away from the insured’s property.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Renters Insurance
• Covers loss and damage to renter’s
possessions and provides personal
liability coverage.
• Insures against the same perils as a
homeowners policy.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Other Types of Insurance
Professional
Malpractice Insurance

Title Insurance

Credit Insurance

Group Insurance Marine Insurance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Title Insurance
• Insurance that owners of real
property purchase to insure that
they have clear title to the property.
• Protects against defects in title and
liens and encumbrances that are
undisclosed on title insurance
policy.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Collision

Comprehensive

Automobile Liability
Insurance
Medical
Payment
Uninsured
No-Fault Motorist
© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman
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 Auto Insurance
• Collision insurance insures auto
against risk of loss.
– Pays damages if car is hit by another
vehicle.
• Comprehensive insurance covers
auto from loss or damages other
than from collision.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Auto Insurance (continued)
• Liability insurance covers damages
to third parties.
• Medical payment coverage policy
covers medicals for authorized
drivers and passengers.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Auto Insurance (continued)
• Uninsured motorists coverage
provides coverage for driver and
passengers injured by hit-and-run
or uninsured motorist.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 No-Fault Automobile Insurance
• Driver’s insurance company pays
claims from driver’s car.
– Medical expenses
– Lost wages
– Sometimes pain and suffering
• Doesn’t consider who was at fault.
• Assures coverage is available.

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Marine Insurance
• Insures against loss or damage of
vessel or cargo
• Comprehensive
• Shippers purchase to cover risk of
loss of goods

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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 Business Insurance
• Business Interruption Insurance
• Workers’ Compensation Insurance
• Key Person Life Insurance
• Fidelity Insurance
• Directors’ and Officers’ Liability
Insurance
• Product Malpractice Insurance
• Product Liability Insurance

© 2007 Prentice Hall, Business Law, sixth edition, Henry R. Cheeseman

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