AAii 303 Legal Principles of Insurance flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Insurable interest

A legal or equitable relationship to the subject matter such that the insured benefits from its preservation or suffers loss from its destruction; required for a valid policy.

Indemnity principle

The insured is restored to the pre-loss financial position, no better and no worse; life and personal accident policies are exceptions as valued contracts.

Utmost good faith

A mutual duty of fair dealing requiring disclosure of material facts by the insured and fair presentation of cover by the insurer.

Material fact

A fact that would influence a prudent insurer's decision to accept the risk or the premium charged; non-disclosure can render the policy voidable.

Proximate cause

The dominant and effective cause of a loss; remote causes are disregarded unless an intervening event breaks the chain of causation.

Subrogation

The insurer's right, after paying a claim, to step into the insured's shoes and recover from the third party who caused the loss.

Contribution

The right of one insurer to recover a share of a loss from other insurers covering the same risk, preventing double recovery by the insured.

Warranty

A policy term whose breach discharges or suspends the insurer's liability; under modern statutes, breach suspends rather than avoids cover.

Contra proferentem

The rule that ambiguous policy wording is construed against the party who drafted it, usually the insurer.

Condition precedent

A term that must be satisfied before the insurer's liability arises; failure defeats the claim rather than merely giving rise to damages.

Claims-made policy

A policy responding to claims first made during the policy period, regardless of when the underlying event occurred.

Occurrence policy

A policy responding to injury or damage that occurs during the policy period, regardless of when the claim is made.

Average clause

A clause reducing the claim in proportion to underinsurance: payment equals sum insured divided by value at risk, multiplied by the loss.

Salvage

Damaged property remaining after a total loss; the insurer may take it over or sell it, reducing the net amount paid.

Reinstatement

The insurer's option to repair or rebuild damaged property rather than pay cash, restoring the insured to pre-loss condition.

Co-insurance

Multiple insurers sharing a single risk, each liable severally for its subscription percentage unless joint liability is agreed.

Reinsurance

A contract of indemnity between insurers under which the reinsurer covers part of the ceding insurer's risk; the original insured has no direct right.

Estoppel

A legal bar preventing a party from asserting a right after conduct led the other party to rely on a different state of affairs.

Waiver

The voluntary relinquishment of a known right, such as an insurer's right to avoid a policy after learning of a breach.

Reservation of rights

A notice by the insurer that it will defend a claim while preserving the right to deny coverage later.

Duty to defend

The insurer's obligation to fund the insured's legal defence, broader than the duty to indemnify and triggered by potentially covered claims.

Bad faith

Unreasonable denial or delay of a claim, exposing the insurer to extra-contractual damages including punitive damages in some jurisdictions.

Insurable interest in life

A financial or emotional interest in the continued life of the person insured; without it, the policy is a void wagering contract.

Proportionate remedy

A statutory remedy for breach of the duty of fair presentation, scaling the insurer's response to the insured's culpability.

Fraudulent claim

A claim made with intent to deceive; the insurer may recover sums paid and terminate the policy from the date of the fraud.

Third-party direct action

A statutory right allowing an injured third party to sue the insurer directly, typically where the insured is insolvent.

Governing law clause

A policy term specifying which jurisdiction's law governs interpretation, remedies, and limitation periods.

Arbitration clause

A term requiring disputes to be resolved by arbitration rather than litigation; enforceable under the New York Convention where adopted.

Unfair terms control

Consumer protection legislation allowing courts to strike down policy terms that cause a significant imbalance in the parties' rights.

Solvency capital

Regulatory capital an insurer must hold against underwriting, market, and credit risk to protect policyholders.

Limitation period

The statutory time within which a claim must be brought; it runs from the date the cause of action accrues, usually the loss date.

Cover note

Temporary evidence of insurance pending issue of the full policy; its terms bind the insurer to the same extent as the policy.