Core Principles & Fundamentals Flashcards

An insured's home suffers $40,000 in damage, and the insured holds two property policies covering the same loss. Which principle prevents the insured from collecting $80,000?

Answer: Principle of indemnity

Indemnity limits recovery to restoring the insured to the pre-loss financial position, not a profit.

Because insurers draft the policy wording and insureds cannot negotiate it, courts generally resolve ambiguities in favor of the insured. This is because an insurance policy is a contract of:

Answer: Adhesion

Insurance policies are contracts of adhesion, so ambiguous language is construed against the drafter (the insurer).

After paying a collision claim, an auto insurer sues the at-fault driver to recover what it paid. What right is the insurer exercising?

Answer: Subrogation

Subrogation transfers the insured's right of recovery against a responsible third party to the insurer after payment.

Which element must a claimant prove, in addition to duty, breach, and damages, to establish negligence?

Answer: Proximate cause

Negligence requires duty, breach of duty, proximate cause, and actual damages.

A claim representative sends the insured a letter saying the insurer will investigate the loss but keeps the right to deny coverage later. This letter is called a:

Answer: Reservation of rights letter

A reservation of rights letter tells the insured the insurer may later deny coverage while it continues investigating.

Which feature of insurance contracts means that one party may pay much more in benefits than it ever received in premium?

Answer: Aleatory

Insurance is aleatory because what each party exchanges depends on uncertain events and may be unequal.

Under most state unfair claims settlement practices acts, which of these acts is prohibited?

Answer: Compelling insureds to sue by offering substantially less than amounts ultimately recovered

Lowball offers that force insureds to litigate to recover amounts due are a listed unfair claims practice.