Insurance Contracts, Policy Provisions, and Insurable Interest
This domain tests how an insurance policy is formed, read, and applied. The exam expects familiarity with contract elements, policy structure, indemnity, and the requirement of insurable interest in property claims.
Contract and policy structure
Insurance is a contract requiring offer, acceptance, consideration, competent parties, and lawful purpose. It is also a contract of indemnity, of utmost good faith, and often of adhesion. A policy typically contains declarations, an insuring agreement, definitions, conditions, exclusions, and endorsements. Endorsements modify the base form and control over conflicting printed language.
Insurable interest
Property insurance requires insurable interest at the time of loss. A person must have a lawful economic relationship to the property such that damage causes a direct financial loss. Ownership, mortgagee status, and certain contractual interests can qualify. Expectation of future ownership or a general concern for a neighbor's property is not enough.
Worked example
A seller deeds a house to a buyer on Friday; fire destroys the house on Saturday. The seller no longer owns or holds a mortgage interest, so the seller generally lacks insurable interest at the time of loss and cannot collect under the seller's former homeowner policy. The buyer, as owner, has insurable interest. The result changes if the seller retained a mortgage, a contract-for-deed interest, or another enforceable economic interest.
Traps
Do not confuse insurable interest at policy inception with the property rule requiring it at loss. Ambiguity may be construed against the drafter, but only if the language is genuinely ambiguous. Exclusions are read narrowly but still apply. Do not ignore endorsements.