Insurance Law: Contract Formation, Terms and Remedies
Contract fundamentals
An insurance policy is a contract requiring offer, acceptance, consideration, capacity, and lawful purpose. The application is normally the offer and the policy or binder the acceptance. Consideration is the premium plus the insured's representations. Insurers draft the wording, so policies are contracts of adhesion and ambiguities are construed contra proferentem against the drafter. Read the entire contract, including the declarations, insuring agreement, conditions, exclusions, and definitions; definitions control meaning throughout.
Warranties, representations and conditions
Distinguish a representation (statement believed true, materiality matters) from a warranty (promise that must be exactly complied with). Conditions precedent must be satisfied before liability attaches, such as notice of loss. Conditions subsequent relate to matters after the loss. The duty of utmost good faith requires disclosure of material facts; non-disclosure or misrepresentation may allow avoidance or rescission.
Remedies and interpretation
Know rescission, reformation, waiver, estoppel, and the doctrine of reasonable expectations. Waiver is voluntary surrender of a known right; estoppel prevents a party from asserting a right after inducing reliance. Proximate cause determines whether a loss falls within the insuring agreement, and exclusions are read narrowly but plainly.
Traps and worked example
Questions often confuse avoidance (treating the contract as never existing) with cancellation (ending it prospectively). A binder gives temporary cover pending issue of the policy and is subject to the same terms. Worked example: an applicant fails to disclose a known structural defect that materially increases fire risk; the insurer may rescind from inception, return premium, and deny the claim. Rule of thumb: materiality is judged by what a prudent underwriter would consider relevant to acceptance or rating.