CPCU 530 cheat sheet

Contract formation requires offer, acceptance, consideration, and legal purpose; insurance adds insurable interest, indemnity, utmost good faith, and fortuity as special characteristics.

Utmost good faith imposes a duty of disclosure on both parties; material misrepresentation, concealment, or warranty breach can give the insurer a defense to coverage.

A warranty is a condition the insured promises to satisfy; a representation is a statement of fact made before contract formation that merely needs to be substantially true.

Insurable interest in property must exist at the time of loss; in life insurance it must exist at policy inception, not at death; lack of it makes the contract unenforceable.

Indemnity limits recovery to actual loss; valued policies, replacement cost coverage, and agreed-value endorsements are recognized exceptions to strict indemnity.

Aleatory contract: the parties exchange unequal and contingent performances, so premiums paid may be far less than a covered loss or far more than any claim.

Contract of adhesion: the insurer drafts the terms; ambiguity in wording is construed against the insurer (contra proferentem) in most jurisdictions.

A condition precedent (e.g., proof of loss, prompt notice) must occur before the insurer's duty to pay arises; a condition subsequent terminates an existing duty.

Waiver is the voluntary relinquishment of a known right; estoppel bars a party from asserting a right when its earlier conduct induced the other party's detrimental reliance.

Void vs. voidable: a void contract is unenforceable from inception (e.g., fraud in the factum); a voidable contract may be rescinded at the option of the injured party.

Material misrepresentation supports rescission or denial if the insurer relied on it and would have acted differently; innocent misrepresentation may still allow rescission in many states.

Concealment requires intentional withholding of a material fact; an insurer must show materiality to avoid the contract.

Negligence by the insured generally does not bar coverage unless the policy excludes it; intentional acts are often excluded, and courts apply an intent-to-injure test.

Statutes and case law override policy language: standard fire policies, valued policy laws, and notice-prejudice rules can limit an insurer's technical defenses.

Unfair claim practices acts (e.g., NAIC model) prohibit misrepresenting policy provisions, failing to investigate promptly, and refusing to pay without a reasonable basis; remedies include bad-faith damages.

Subrogation transfers the insured's right of recovery against a third party to the insurer after payment, preventing double recovery and shifting loss to the responsible party.

Contribution allocates loss among insurers covering the same interest; other insurance clauses (pro rata, excess, escape) determine priority and shares.

The reasonable expectations doctrine can override unambiguous policy language where coverage was reasonably expected, though adoption varies by jurisdiction.

Agency requires consent, control, and authority; actual authority is express or implied, apparent authority arises from the principal's manifestations to third parties.

A principal is bound by an agent's acts within actual or apparent authority; undisclosed limitations generally bind the agent, not third parties who reasonably relied.

Respondeat superior holds an employer liable for employee torts within the scope of employment; independent contractors generally do not create vicarious liability.

Negligence elements: duty, breach, actual and proximate cause, and damages; comparative or contributory negligence rules vary by state and affect recovery.

Strict liability applies to ultrahazardous activities and defective products; it does not require proof of fault, so insurers price liability exposure accordingly.

Intentional torts (battery, trespass, conversion) are typically excluded from liability policies; some policies cover intentional acts resulting in unintended injury.

Punitive damages are generally uninsurable where the insured is personally liable for willful misconduct, but insurable for vicarious liability in some states.

Statutes of limitation set the maximum time to file suit; statutes of repose set an outer limit regardless of when the injury is discovered.

The doctrine of laches bars stale claims where delay prejudiced the defendant, independent of any statutory filing period.

Courts interpret policy language by its plain meaning; technical terms are construed as used in the trade, and ambiguity is resolved in favor of coverage.

Ejusdem generis: general words following a list are limited to items of the same class as those enumerated.

Expressio unius: the express mention of one thing excludes others, which supports narrow reading of enumerated exclusions.

An exclusion's burden of proof rests with the insurer; the insured bears the burden of showing a claim falls within the insuring agreement.

Occurrence vs. claims-made triggers: occurrence policies respond to injury during the policy period; claims-made policies respond to claims reported during the policy period.

Notice-prejudice rule: an insurer cannot deny coverage for late notice absent prejudice in many jurisdictions; proof of loss deadlines are treated similarly.

Reservation of rights letters preserve an insurer's coverage defenses while it continues to defend; failure to reserve can waive defenses.

The duty to defend is broader than the duty to indemnify and is triggered by any potentially covered claim in the complaint.

Bad faith requires an unreasonable denial or failure to investigate; remedies include contract damages, consequential damages, and in some states punitive damages.