Today’s Lecture

1. Today’s Lecture Insurance Contracts Applications and Binders Parts of the Contract Declarations Insuring Clauses Exclusions and Exceptions Conditions Endorsements and Riders

2. Application The potential insured offers to buy coverage by submitting an application. The insurer decides whether to accept the offer.

3. Binders and Receipts Binder - temporary contract to provide coverage until the policy is issued Conditional receipt - no coverage unless policy is issued, but coverage is retroactive Binding receipt - coverage is in force while application is being processed

4. Receipts - Example On September 20, 2006, a student applies for auto insurance with American Family. He does not list three speeding tickets he received on the application. The agent issues him a binding receipt. On September 23, 2006, the student is speeding again, and gets into an accident. On September 27, 2006, the underwriter rejects this application for coverage. Does American Family have to pay this claim?

5. Receipts - Example A No, since coverage is retroactive only when issued B No, since the student lied on the application C No, since the rejection was related to the misrepresentation D Yes, since the claim was not related to past incidents of speeding E Yes, since the company had not yet rejected the application

6. Parts of an Insurance Contract Declarations Identify insured Describe coverage Insuring Clause Open-Perils - covers any loss not excluded Named-Perils - covers specified losses

7. Insuring Clause - Example Which of your State Farm Car coverages have a Named-Peril insuring clause? A All coverages B Comprehensive and Collision C Collision and Emergency Road Service D Collision only E None of the coverages

8. Exclusions and Exceptions Reasons for Exclusions Ideal Requisites for Insurability Possibility of catastrophe Fortuitous Definite Standardize the Risk Avoid Duplication of Coverage

9. Exclusions – Example Why does the State Farm Car policy exclude coverage when the vehicle is “used to carry persons for a charge”? A To avoid the possibility of a catastrophe B To avoid losses that are not fortuitous C To avoid losses that are not definite D To standardize the risk E To avoid duplication of coverage

10. Types of Exclusions Excluded locations Excluded perils Excluded property Excluded losses

11. Conditions Must be fulfilled by insured in order to obtain coverage Examples Notice and proof of loss Cooperation of the insured Protection of property after a loss Examination

12. Endorsements and Riders Endorsements used in property-liability insurance Riders used in life-health insurance Both change the contract in some way

13. Parts of a Contract - Example On page 26 of the State Farm Car Policy the policy reads, “There is no coverage under this policy if you or any other person insured under this policy has made false statements with the intent to conceal or misrepresent any material fact or circumstance in connection with any claim under this policy.” This is an example of which part of the contract?

14. Parts of a Contract - Example A Excluded peril B Excluded loss C Condition D Endorsement E Rider