2 - 1Copyright 2008, The National Underwriter Company Legal Aspects of Insurance & Risk Management Principal of indemnity Indemnify means to make whole or to reimburse Ideally, after a loss an insured should not be in a worse position or a better position prior to the loss Insurable interest A party must have an insurable interest in property in order to enter into an insurance contract or policy An insured must have a legitimate financial interest in the property Does not have rise to the level of ownership Its loss must cause the insured money Chapter 2 Risk Management For Financial Planners
2 - 2Copyright 2008, The National Underwriter Company Other insurance contract characteristics Doctrine of Utmost Good Faith it is in the interest to the general public good to hold insurers to higher standards of good faith and fair dealing than other types if private contracts Aleatory Contract Insurance contracts are aleatory because the dollar amount exchanged is unequal Small premium for a large death benefit Contract of Adhesion Policy is written and drawn by the insurer Offered to the applicant on a “take it or leave it” basis Courts find ambiguity in the contracts in favor of the insured Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management
2 - 3Copyright 2008, The National Underwriter Company Insurance regulations and contract requirements 1945 McCarran-Ferguson Act Allowed individual states to regulate insurance and insurance companies within their borders 1887 Fire property policy Created by New York legislature The beginning of insurance policy regulation Updated in 1918 and again in 1943 The 1943 New York Standard Fire Policy adopted by nearly all states 1976 Simplified language homeowners policy and the simplified commercial policies of the 1980’s Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management
2 - 4Copyright 2008, The National Underwriter Company Insurance policy characteristics Property & Casualty Policies Declarations page Contains basic information about the insured, policy period, limits of liability, etc. Insuring agreement The coverage pledge Exclusions page What is not covered by the policy Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management
2 - 5Copyright 2008, The National Underwriter Company Insurance policy characteristics (cont'd) Property & Casualty Policies (cont'd) Reasons for exclusions Loss is not insurable Flood or war Loss is more appropriately covered in another type of policy Automobile, aircraft Loss is wholly or partially in control of the insured Exclusion of marring and scratched damage Loss is more appropriately covered by an endorsement Jewelry Small predictable losses Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management
2 - 6Copyright 2008, The National Underwriter Company Insurance policy characteristics (cont'd) Conditions Sections How to file a claim How and when each party may cancel the contract What each party must do after a loss How disagreements between parties are handled Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management
2 - 7Copyright 2008, The National Underwriter Company Insurance policy analysis (property & casualty) Questions to ask Who is the insured? What property or activity is insured? What locations are insured? What is the time period of the coverage? What are the perils insured against? What is not covered under the policy (exclusions)? Are direct losses, indirect losses or both types insured? What are the coverage limits? Are there any miscellaneous clauses? Chapter 2 Risk Management For Financial Planners Legal Aspects of Insurance & Risk Management