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.
Fraud.
Mistake.
Duress.
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.
Forbearance.
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.
Nontransferable.
[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:
Agreement.
Policy content.
Delivery.
[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.
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