PowerPoint Slides to Accompany
BUSINESS LAW
E-Commerce and Digital Law
International Law and Ethics
5th Edition
by Henry R. Cheeseman
Chapter 51
Insurance
Slides developed by
Les Wiletzky
Wiletzky and Associates, Puyallup, WA
Copyright © 2004 by Prentice-Hall. All rights reserved.
Insurance
A means for persons and
businesses to protect themselves
against risk of loss.
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Regulation of the Insurance Industry
McCarran-Ferguson Act of 1945 – gave
regulation of insurance to the states and
exempted insurance companies from the
federal antitrust laws.
 Each state has enacted statutes that regulate
the operation of domestic insurance
companies and out-of-state insurance
companies that wish to do business in that
state.

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The Insurance Contract
Insurance is defined as a contract whereby
one undertakes to indemnify another against
loss, damage, or liability arising from a
contingent or unknown event.
 It is a means of transferring and distributing
risk of loss.
 The risk of loss is pooled.

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The Insurance Contract (continued)
Insured – the party who pays a premium to a
particular insurance company for insurance
coverage.
 Insurer – the insurance company that
underwrites the insurance coverage.
 Policy – the insurance contract.
 Premium – the money paid to the insurance
company.

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51 - 5
The Insurance Contract (continued)
Mandatory provisions.
 When an insurance contract becomes
effective.
 Modification of insurance contracts.
 Insurable interest

Insurable interest in life
 Insurable interest in property


Deductible clauses and exclusions from
coverage
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Life Insurance
A form of insurance where the
insurer is obligated to pay a
specific sum of money upon the
death of the insured.
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Kinds of Life Insurance
Life Insurance
Description
Whole life
Provides coverage during the entire life of the insured. Premiums
are paid during the life of the insured or until a certain age.
Limited-Payment
Premiums are paid for a fixed number of years. Coverage is
provided during the entire life of the insured.
Term
Insurance is issued for a limited period of time. Premiums are
payable and coverage effective during this term.
Universal life
Combines features of both term and whole life insurance.
Endorsement and
Annuity Contracts
Forms of retirement and life insurance contracts.
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Parties to a Life Insurance Contract
1. The insurance company issues the policy.
2. The owner of the policy is the person who
contracts with the insurance company and
pays the premiums.
3. The insured is the person whose life is
insured.
4. The beneficiary is the person who is to
receive the insurance proceeds when the
insured dies.
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51 - 9
Key-Person Life Insurance
Small businesses often purchase key-person
life insurance on the owners of the business.
 The company pays the premiums for the life
insurance policies.
 The life insurance is usually used to fund
buy-sell agreements among thee owners of
the business.

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Double Indemnity Clause

Clause that stipulates that the insurer will
pay double the amount of the policy if death
is caused by accident.

A small additional premium is charged for this
protection.
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Exclusions from Life Insurance Policies

Most life insurance policies exclude liability
for death caused by:
Military action
 Executions by government
 Accidents of private aircraft
 Suicide during the first year of the policy

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51 - 12
Health and Disability Insurance
Health Insurance
 Purchased to help
cover the costs of
medical treatment,
surgery, or hospital
care.
Disability Insurance
 Insurance that
provides a monthly
income to an insured
who is disabled and
cannot work.
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Fire and Homeowners Insurance
Standard Fire
Insurance Policy
Homeowners Policy
Renters Insurance
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Standard Fire Insurance Policy
Protects real and personal property against
loss resulting from fire, lightning, smoke, water
damage, and related perils.
 Most policies limit recovery to damage caused
by hostile fires and not friendly fires.
 No personal liability coverage is provided.

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Homeowners Policy
A comprehensive insurance policy that
includes coverage for the risks covered by a
standard fire insurance policy as well as
personal liability insurance.
 Includes coverage for:





The dwelling
Any appurtenant structures
Personal property
Protection for losses caused by theft
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Renters Insurance
Covers loss and damage to renter’s
possessions and provides personal liability
coverage.
 Insures against the same perils as a
homeowners policy.

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Collision
Automobile
Insurance
No-Fault
Comprehensive
Liability
Medical
Payment
Uninsured
Motorist
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Business Insurance

Business Interruption Insurance

Workers’ Compensation Insurance

Fidelity Insurance

Directors’ and Officers’ Liability Insurance

Product Liability Insurance
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Other Types of Insurance
Professional
Malpractice
Insurance
Title Insurance
Credit Insurance
Marine Insurance
Group Insurance
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Performance of Insurance Contracts
Insured’s Duties
Insurer’s Duties

Duty to pay premiums

Duty to defend

Duty to notify insurer


Duty to cooperate
Duty to pay insurance
proceeds
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Duty to Defend
An insurance company owes a duty to
defend an insured against a lawsuit.
 This includes:

Expenses for a lawyer
 Court costs
 Deposition fees

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Defenses of the Insurer

Misrepresentation

Concealment

Breach of Warranty
Affirmative warranty
 Promissory warranty

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Incontestability Clause

Prevents insurers from contesting statements
made by insureds in applications for
insurance after the passage of a stipulated
number of years.

The typical length of time is two to five years.
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Subrogation

If an insurance company pays a claim to an
insured for liability or property damage caused
by a third party, the insurer succeeds to the
right of the insured to recover from the third
party.
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