General Insurance Concepts, Contracts, and Policy Provisions
Core vocabulary
Risk is the chance of loss; a peril is the cause of loss (fire, windstorm, collision); a hazard increases the chance or severity of loss (physical, moral, morale). Insurance handles pure risk (loss or no loss), never speculative risk. The guiding principles are indemnity (restore, don't profit), insurable interest (must exist at policy inception for property, at the time of loss for liability), utmost good faith, subrogation, and contribution among policies covering the same loss.
Characteristics of the insurance contract
It is a contract of adhesion (insurer writes it, ambiguities construed against the insurer), aleatory (unequal exchange of value), unilateral (only the insurer makes an enforceable promise once premium is paid), and conditional (benefits depend on the insured's compliance). Valid contract elements: offer and acceptance (application = offer, policy = acceptance), consideration (premium and the promise to pay), legal purpose, and competent parties.
Policy architecture
Declarations identify who, what, where, when, and how much. The insuring agreement states the promise to pay. Conditions set duties - proof of loss, appraisal, other insurance, cancellation, subrogation, mortgage clause. Exclusions remove coverage. Definitions control meaning throughout. Endorsements amend the policy and prevail over conflicting printed text.
Doctrines tested often
Waiver (voluntary surrender of a known right) and estoppel (preventing a party from asserting a right after the other relied on its conduct). Concealment, misrepresentation, and fraud can void coverage. Other insurance clauses typically pay pro rata by limits.
Worked example (coinsurance): an 80% coinsurance clause on a $100,000 building requires $80,000. The insured carries $60,000 and suffers a $40,000 loss: (60,000 ÷ 80,000) × 40,000 = $30,000, less the deductible.
Traps: mislabeling adhesion as aleatory; assuming an agent can orally expand coverage; forgetting that exclusions, not insuring agreements, usually decide the answer.