Law and the Insurance Contract
CAL-STATE EXAMS
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TABLE OF CONTENTS
LAW AND THE INSURANCE CONTRACT
LESSON ONE — INSURANCE AND THE LAW
Overview - Structure and Source of Law - Common Law - Constitutions Statutes - Administrative Rules and Regulations - Courts - Court Trials - Pleadings - Courts of Law and Courts of Equity - Insurance Regulation
Overview - Two Definitions of Contract - Offer - Acceptance - Competent Parties - Contract Form - Illegality - Duress and Undue Influence - Rules of Contract Construction - Breach and Materiality - Third-Person Beneficiaries - Liberty of Contract - Constitutional Protection of Existing Contracts - Insurance Contract Law
Power and Authority - Acts and Knowledge of the Agent - Capacity of Principal and Agent - Creation of the Principal-Agent Relationship - Limitations of the Agent's Authority • Principal and Agent - Principal, Agent, and Third Persons - Classification of Agents - Termination of the Agent's Powers - Master and Servant - Employer and Independent Contractor
LESSON FOUR— WAIVER AND ESTOPPEL
Overview - Waiver and Estoppel Defined - Express and Implied Waivers - Intent to Waive - Knowledge of the Insurer - Authority of the Agent - Forbidden Waivers and Estoppels - Cancellation of Waiver - Election - Estoppel and the Parol Evidence Rule - Common Waiver and Estoppel Situations
LESSON FIVE — PRIVACY AND INSURANCE
Overview - History of Privacy Law - Federal Privacy Legislation - State Privacy Laws - The NAIC Model Privacy Act - Privacy for Business
LESSON SIX — INSURERS AND AGENTS AS EMPLOYERS
Overview - Statutory Protection of Employees - Disparate Treatment and Disparate Impact Discrimination - Employment Practices and Decisions
LESSON ONE: INSURANCE AND THE LAW
The student of insurance needs a basic understanding of the law for four reasons. First, an insurance policy represents a contract, and a contract is an agreement enforceable in a court of law. For this reason, an understanding of contract law is a necessary part of insurance education. Second, a study of contracts leads inevitably to many other areas of law. An acquaintance with the law of agency, property, estates, trusts, community property, creditor-debtor relationships, equitable remedies, and torts is necessary to an understanding of contracts and of the insurance business. Third, insurance is heavily regulated by a body of law which is becoming more complex every day. Insurers must work continually to bring themselves into compliance with these laws. Fourth, insurers must conduct their businesses in accordance with many laws which have nothing to do with insurance. As employers they must deal with employment laws and as issuers of securities with securities laws. The purpose of this chapter is to explain the structure of law and the way the laws governing insurers fit into that structure.
STRUCTURE AND SOURCE OF LAW
When people speak of a "law," they usually mean a specific rule or requirement, a statute, in legal terms, laid down by a legislative body. However, law is a great deal more than a collection of statutes. The structure of law is complex, and its sources manifold.
Structure of law. Included in the concept of law are the broad philosophies and principles of constitutional law, specific agreements embodied in treaties between nations, congressional enactments and state statutes, decisions of federal and state courts, rules and regulations of numerous administrative departments of federal and state governments, and many general principles of custom and public policy dating back so far that no one can say accurately when they originated. In its broadest sense, law can be defined as a system of rules and principles that comprise a definite and enforceable standard of human conduct.
The laws of a society are shaped by and tailored to the needs of that society. A law appropriate to and necessary for one society might be intolerable in another. Even within a country, different regions require different laws. In the United States, no two states have laws all of which are identical. Moreover, a federal law which applies to the entire country might be readily accepted in some states and not so readily accepted in others. Such was the case with the federal law requiring vehicles to limit their speed to 55 miles per hour. Many people in the western states where it is often necessary to travel great distances found this law difficult to accept, while people in small eastern states accepted it more readily. A lack of acceptance of a law will often cause it to be ignored, unenforced, modified, or repealed.
As society changes, some laws lose their acceptance. For example, at one time a state could lawfully deny women the right to practice law. Social changes caused this law to lose its acceptance, and the law was eliminated. Other changes in society make apparent the need for new laws. For example, when computers came into general use, it became necessary for the legislatures and courts to develop a body of computer law.
A society which changes rapidly will have a rapidly changing body of law. The United States with its rapid social and technological change is an example of such a society.