In this chapter, the learning objectives are: Principle of Utmost Good Faith, Representations, Warranties, Concealments, Requisites of Insurable Risks, large number of similar objects, accidental and unintentional loss, determinable and measurable loss,. | Insurance Company Operations Lecture No. 12 1 2 Principle of Utmost Good Faith A higher standard of honesty is imposed on parties to an insurance agreement than is imposed through ordinary commercial contracts Casts a very different light on the interpretation of insurance agreements than many persons often suppose 3 Representations Statements made by an applicant for insurance before the policy is issued Usually embodied in a written application If the representation is relied on by the insurer in entering into the contract and if it proves to have been false at the time it was made or becomes false before the contract is signed There exists legal grounds for the insurer to avoid the contract Avoiding the contract does not follow unless the misrepresentation is material to the risk If the truth had been known, the contract either would not have been issued or would have been issued on different terms If the misrepresentation is inconsequential, its falsity will not affect the . | Insurance Company Operations Lecture No. 12 1 2 Principle of Utmost Good Faith A higher standard of honesty is imposed on parties to an insurance agreement than is imposed through ordinary commercial contracts Casts a very different light on the interpretation of insurance agreements than many persons often suppose 3 Representations Statements made by an applicant for insurance before the policy is issued Usually embodied in a written application If the representation is relied on by the insurer in entering into the contract and if it proves to have been false at the time it was made or becomes false before the contract is signed There exists legal grounds for the insurer to avoid the contract Avoiding the contract does not follow unless the misrepresentation is material to the risk If the truth had been known, the contract either would not have been issued or would have been issued on different terms If the misrepresentation is inconsequential, its falsity will not affect the contract Generally, even an innocent misrepresentation of a material fact is no defense for the insured if the insurer elects to avoid the contract 4 Warranties A clause in an insurance contract stating that before the insurer is liable A certain fact, condition, or circumstance affecting the risk must exist Creates a condition of the contract, and any breach of warranty, even if immaterial, will void the contract This is the central distinction between a warranty and a representation 5 Warranties Express warranties Stated in the contract Implied warranties Not found in the contract but are assumed by the parties to the contract Promissory warranty Describes a condition, fact, or circumstance to which the insured agrees to be held during the life of the contract Affirmative warranty One that must exist only at the time the contract is first put into effect 6 Concealments Silence when obligated to speak Has approximately the same legal effect as the misrepresentation of a material fact The .
