Insurance Terms, Policy Structure, and Contract Law
This domain asks how a policy is built and how courts read it. Questions often turn on the declarations page, insuring agreement, conditions, exclusions, and the legal characteristics of insurance contracts.
Policy anatomy
- Declarations identify insureds, property, limits, deductibles, and policy period.
- The insuring agreement states the core promise; exclusions narrow it; conditions set duties; definitions control meaning; endorsements amend the form.
- Read endorsements before the base form because endorsements can add, delete, or reshape coverage.
Contract characteristics
- Insurance is a contract of adhesion: the insurer drafts, so ambiguity is generally construed against the insurer.
- It is aleatory because performance depends on chance; unilateral because only the insurer makes an enforceable promise to pay; conditional because recovery depends on duties after loss; and personal because it follows the insured's interest, not the property itself.
- Utmost good faith requires disclosure of material facts. A representation is a statement believed true; a warranty is a promise that must be literally true. Concealment is intentional silence about a material fact.
- Waiver is voluntary surrender of a known right; estoppel prevents an insurer from taking a position inconsistent with earlier conduct if the insured relied on it.
Worked example
An applicant says the roof is 8 years old when it is 22 years old. The insurer would have declined or surcharged. This is a material misrepresentation. If the insurer can show reliance, it may rescind the policy. If the age was never asked and was not obviously material, rescission is weaker.
Traps
Do not call insurance bilateral or negotiated. Do not confuse a condition with an exclusion. Do not assume every misstatement voids coverage; materiality and reliance matter.