Yay for more random lessons on insurance. I'm officially sick of this.
Contracts
Big Hero 6 plus Tadashi has a very entertaining pizza party that would probably be more fun to read than this stupid textbook.
BAYMAX: Now that we have had our lunch, we can continue to go over insurance basics.
WASABI: Aren't we going to question how the space time continuum got so messed up that Tadashi is both dead and alive at the same time?
HIRO: Hey, like Schrodinger's cat!
FRED: The guy from Peanuts?
HONEY: That's Schroeder.
FRED: I didn't know he had a cat! What's that got to do with Tadashi though?
BAYMAX: If you like, I can explain Schrodinger's cat-
HIRO: Ah no, that's fine. I think we've sufficiently confused the readers of this pointless tale. Back to insurance!
GOGO: I thought you found insurance boring.
HIRO: I do. But it's better than watching Baymax explain scientific principles.
TADASHI: Plus he wasn't ever programmed with that information. I did program him with some basic veterinary procedures.
BAYMAX: Perhaps after this, we can go over the basics of veterinary insurance.
HIRO: Ugh, no thanks.
BAYMAX: Then let us move on. The next section of this lesson is Contracts. A Contract is an agreement between two or more parties in which an offer is made and accepted and enforceable by law. There are four essential elements in order to have a legally enforceable contract. Offer and Acceptance is the terms of the contract offered by one party to another and accepted in its entirety. The application plus the initial premium constitutes the offer. Acceptance occurs when an underwriter works for an insurance company and the company approves an application.
FRED: So... okay say I drew up a contract saying that Wasabi has to clean my house for a week and in exchange, I would stop messing with his stuff.
WASABI: I'd say you're insane but your place really does need to be cleaned up.
FRED: Exactly! And if he accepted and signed it, it would be enforceable by law?
WASABI: You'd have to give me an application first. And I'd have to pay the initial premium, say like vacuuming your floor.
FRED: Yeah. Would that be an example?
BAYMAX: An unconventional one but correct in essentials. Moving on, Consideration is something of value which is the binding force in the contract. In insurance, the consideration offered by the client or insured is the premium and the representations on the application. The consideration offered by an insurance company is the promise to pay in accordance with the terms of the policy, or contract, in the event of a loss or a claim.
FRED: So in our contract, the consideration is Wasabi vacuuming my place and my consideration is keeping my hands off his stuff.
BAYMAX: Exactly. The third essential element of a contract is a Competent Party. A competent party must be 18 years old and mentally capable to comprehend the contract. The party must not be under the influence of drugs of alcohol upon entering the contract.
HIRO: Ha! I'm not a competent party. And neither is Baymax. Especially at low battery.
WASABI: But Fred and I are unless we get drunk.
BAYMAX: That is correct. Finally, the contract must have Legal Purpose. That means that the purpose and performance of a contract must be legal.
FRED: So I can't hire someone to rob a bank.
BAYMAX: Yes because that would be illegal. Distinct characteristics of an insurance contract are as follows: a Unilateral Contract is means that one party, an insurer or company, is bound to pay for any losses covered in an enforced policy. An insured does not make a promise but pays a premium, which is an insured's part of the consideration. An insurer must pay the claim.
FRED: So if I had insurance on my rare 1973 first edition of Inertially Guided Prepubescent War Monger Chipmunks issue number 1 and it was stolen by those crazies at Con-Fransokyo, my insurance would have to pay for it because there's a unilateral contract between myself and the insurer and because I paid the premium?
BAYMAX: That is correct.
FRED: Good. That issue is worth a lot of money.
BAYMAX: A Personal Contract is a contract between an insurer and an individual. An insurer, or company, has the right to decide with whom it is going to do business. As a result, the client cannot transfer the contract to someone else without the written consent of an insurer.
HONEY: So if we got that kind of contract, we'd need written permission from our insurer to switch to another company but use the same contract?
BAYMAX: Yes. A Contract of Adhesion is a unilatral contract which is offered on a "take it or leave it" or "accept it or reject it" or "as is" basis. Insurance contracts are Contracts of Adhesion because the terms are drawn up by an insurer and an insured simply adheres to the contract terms. It cannot be negotiated in regard to the terms or conditions.
FRED: So my comic insurance, say they drew up the contract themselves and I signed it. I would then have to pay the premiums without negotiating them?
BAYMAX: Put simply, yes. An Aleatory Contract is one in which the number of dollars or values exchanged are not equal. For example, a premium of $1000 may be paid for one million dollars in coverage. An insured pays a small premium amount for the large amount of risk to be covered in their policy.
TADASHI: That would have to be a big risk. And a rare one.
BAYMAX: Exactly. Just remember that an Aleatory Contract is one of unequal value. The next contract is called a Conditional Contract. Certain conditions, like paying the premium, following the Code of Ethics, and answering questions properly must be met by an owner and an insurer in order for the contract to be fulfilled.
HIRO: So the contract is valid as long as the conditions are met on both sides.
BAYMAX: You are correct. Now there are a number of legal interpretations affecting contracts. The courts have determined that because an insurer has the right to draw up a contract, any ambiguity in the contract should be ruled in favor of the insured. The privilege of an insurer is the right to determine the wording.
TADASHI: Basically the insured has the rights and the courts are more likely to rule in their favor so the advantage of the insurer is the contract's wording to prevent such ambiguities?
BAYMAX: You have explained it well. Now there are some Reasonable Expectations that are expected in an insurance policy and they must be provided even though they are not specifically stated in the policy. In addition to literature and statements presented by an agent, an insured would, within reason, expect coverage. The courts have deemed that the coverage must be provided.
GOGO: So if a person buys a boat, they'd reasonably expect it to float, even if they haven't seen it in the water?
BAYMAX: Correct. Indemnity is a contractual agreement in an insurance policy to compensate or reimburse an insured to the extent of their loss without financial gain. Insurance is designed to restore an insured's financial status to the level it was before their loss. A policyholder may only receive the maximum amount stated in their policy.
TADASHI: So indemnity means reimbursing the insured to the extent of their loss as covered in the contract to attempt to restore them to the way they were before the loss?
BAYMAX: That is a good definition. In an insurance contract, each party is entitled to rely on valid critical information of the other party without any attempt to conceal or deceive each other.
GOGO: Basically don't try to trick each other.
BAYMAX: Yes. Representations are statements on an application in the absence of fraud. They are questions answered to the best of one's knowledge on an application.
FRED: I think we went over this.
BAYMAX: We did but repetition can be helpful to keep the information in mind. Misrepresentations are the opposites of representations. They are fraudulent, material, and intentional statements. Questions answered untruthfully on an application are an attempt to defraud an insurance company and are misdemeanors. A material representation is a statement, if discovered by the insurance company, would change their underwriting decision. If convicted, one may be fined $100-$1000 and possibly sentenced for 30 days or up to 1 year in jail.
FRED: So don't lie on an application because that would be misrepresentation.
BAYMAX: A Warranty is a statement that is absolutely true. The validity of an insurance policy depends on true information. If untrue in any respect, the contract may be voided. Statements on Life and Healthy policies are not considered warranties except in cases of fraud.
WASABI: Okay so a warranty is always true and it it's not true, the contract is voided.
BAYMAX: You are correct. Based on my previous definitions, can anyone tell me what Fraud is?
HIRO: Misrepresentation.
BAYMAX: Yes. It is an intentional misrepresentation or suppression of facts made by a person with the sole intent to gain from their acts. Fraud can void a contract if found in the first two years.
FRED: So don't lie on an application!
BAYMAX: That would be unethical. Moving on, Waiver is the release of a known right or claim. Estoppel is a legal right to stop someone from reasserting a right that was previously waived.
FRED: So if I waived a right and tried to get it back, estoppel would be the insurer's legal right to stop me from reasserting it?
BAYMAX: Correct.
FRED: This insurance stuff is amazing. I never know how interesting it could be. Thank you, Baymax.
BAYMAX: You're welcome but I've only just started going over this information.
FRED: Yes but I am enlightened. Enlightened, I say!
BAYMAX: Let's move on. Concealment is an intentional suppression and failure to disclose information, facts, and circumstances.
FRED: So it's not lies per se, just sort of lies by omission?
BAYMAX: That is a good way of putting it. Now, an insurer has the right to cancel a policy if an applicant intentionally refuses to provide an insurer with pertinent information regarding their policy. This act is called Rescission and the insurer will have the right to rescind the policy.
TADASHI: So if the applicant refuses to answer important questions, the insurer can rescind their policy?
BAYMAX: Yes. That concludes lesson 4.
2 more lessons and I can take the practice test and go on to chapter 2! I've actually read all this before but it does help to see it all out in writing and to explain it in my own words. I'll try and break the 4th wall more in the next chapter.
~KateMarie999