General Insurance Concepts
Domain 2 tests the contract and risk principles that apply even when the policy comes from a nonadmitted insurer. Iowa contract law and common-law insurance principles still govern the surplus lines policy.
Risk and insurable interest
- Insurance transfers pure risk, not speculative risk. Insurable interest is the legal right to insure because loss would cause financial harm.
- Property insurable interest must exist at the time of loss; life insurable interest must exist when the policy is issued.
Contract principles
- A policy needs offer, acceptance, consideration, legal purpose, and competent parties.
- Insurance is a contract of adhesion; ambiguity is construed against the drafter, and reasonable expectations can matter.
- Indemnity restores the insured to approximately the pre-loss financial position, subject to limits, deductibles, and coinsurance.
Agency and representations
- Agency can be express, implied, or apparent. A producer's knowledge can be imputed to the insurer.
- A representation is a statement believed true; a warranty is a promise that a fact is true, and a material breach can void coverage. Concealment of a material fact can also defeat the claim.
Worked example: An application asks whether the building is sprinklered. The insured says yes; the policy contains no warranty, but the insured later admits the system was disconnected. Reasoning: this is a material misrepresentation, not an automatic warranty breach; the insurer must show materiality and reliance.
Traps: requiring insurable interest only at inception for property; treating every application answer as a warranty; ignoring ambiguity rules because the insurer is nonadmitted.