CPCU 410 Flashcards – Module 3

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[h] CPCU 410 – Module 3

[q] Offer

[a] A promise that requires an action or actions by the recipient in order to form an agreement.

[q] Requirements of an offer

[a] Requirements:

Intent to contract.

Definite terms.

Communication of offer.

[q] Ways an offer can terminate due to operation of law

[a] Termination of offer due to operation of law:

Law enacted making it illegal to sell goods.

Subject matter is destroyed.

Offeror/offeree declared insane before acceptance.

[q] Counteroffer

[a] A proposal an offerree makes that varies materially from the original offer.

[q] Acceptance

[a] An assent to an offer.

[q] Requirements of an acceptance

[a] Requirements:

Accepted by offeree.

Unconditional and unequivocal.

Communicated to offeror.

[q] Forbearance

[a] Giving up a legal right.

[q] Genuine assent

[a]  A complete agreement between two competent parties.  Necessary for a valid contract.

[q] Circumstances when genuine assent may be lacking

[a] Circumstances:

Innocent misrepresentation.




Undue influence.

[q] Consideration

[a] The exchange of one thing of value for another.  Represents one element that is necessary for an enforceable contract.

[q] Types of consideration

[a] Types:

Valuable consideration.


Present consideration.

Future consideration.

Binding promises.

[q] Valuable consideration

[a] A type of consideration.  Represents the amount of consideration necessary to support a valid contract.

[q] Forbearance

[a] A type of consideration common in cases of compromise. Giving up a legal right.

[q] Present or future consideration

[a] A type of consideration that represents a present or future commitment.

[q] Types of consideration that are not sufficient to form a contract

[a] Not valid consideration:

Past consideration.

Promises to perform existing obligations.

Compromise and release of claims.

[q] Special characteristics of insurance contracts

[a] Special characteristics:

Conditional contract.

Contract of unequal amounts.

Contract of utmost good faith.

Contract of adhesion.

Contract of indemnity.


[q] Conditional contract

[a] A contract that must be performed only under certain conditions, such as a loss occurring.

[q] Contract of unequal amounts

[a] A contract, such as an insurance contract, in which the outcome is affected by chance.  Because of this uncertainty, one party may receive value much different than the other party.

[q] Contract of utmost good faith

[a] A contract in which there is an obligation to act in complete honesty.

[q] Incontestable clause

[a] A clause in an insurance contract which prohibits the insurer from contesting the contract after a certain period of time has elapsed.

[q] Contract of adhesion

[a] A contract drafted by one party and accepted as is by the other party without negotiation.

[q] Contract of indemnity

[a] An insurance contract in which the insurer agrees to pay an amount directly related to the amount of loss.

[q] Valued policy

[a] An insurance contract in which the insurer pays an amount stated in the contract, regardless of the actual value of the loss.

[q] Nontransferable contract

[a] A type of contract, such as an insurance contract, that cannot be assigned to another person without the insurer’s consent.

[q] Characteristics of a binding insurance contract

[a] To be binding, the following characteristics must exist:


Policy content.


[q] Binder

[a] A temporary agreement to provide insurance coverage until a policy is issued.

[q] Effective date of a property-casualty insurance policy

[a] A policy is generally effective at the time the binder is created.

[q] Required components of an insurance contract

[a] Insurance agreement must contain:

Types of coverage sought.

Object or premises to be insured.

Amount of insurance.

Insured’s name.

Duration of coverage.

[q] Delivery of an insurance policy

[a] Placing an insurance policy in the insured’s control. Provides evidence of contract formation and communication of the insurer’s acceptance of the insured’s offer.