Insurance Principles and Concepts
The doctrines behind every policy
Property and casualty insurance rests on a handful of doctrines that exam writers love to twist. Insurable interest must exist at the time of loss for property coverage; a buyer under a valid contract can have it, a stranger cannot. Indemnity means restoring the insured to roughly the pre-loss financial position - no profit. Utmost good faith obligates both sides: the applicant must disclose material facts, and the insurer must deal fairly. Subrogation lets the insurer step into the insured's shoes after paying, but never to collect from the insured's own recovery. The contract is one of adhesion (the insurer drafts it, so ambiguities are construed against the insurer) and aleatory (an unequal exchange of value).
Distinguish three bad-faith fact patterns: a misrepresentation is a false statement of material fact; concealment is intentional silence about a material fact; a warranty is a promise that must be literally true, though modern policies usually soften warranties into representations. Waiver is the voluntary surrender of a known right; estoppel prevents a party from asserting a right after the other side reasonably relied on its conduct. Proximate cause - an unbroken chain from peril to loss - decides whether the fire, not the smoke, is the covered peril.
Producer authority comes in three forms: express, implied, and apparent. Only apparent authority can bind a company that clothed its agent with the appearance of power.
Trap: questions swap cancellation (statutory notice required) with nonrenewal and refusal to renew.
Rule of thumb: ask "who bears the risk, and was the insured honest and interested?" If either answer fails, coverage probably fails.
Example: An applicant omits that he runs a welding business in his garage. When a fire spreads to the house, the insurer may rescind for concealment of a material fact.