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Fundamentals of Risk and Insurance, 11th Edition by Therese M. Vaughan, Emmett J. Vaughan

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CHAPTER OBJECTIVES

When you have finished this chapter, you should be able to

  • Identify and explain the essential elements of a contract
  • Explain how the general law of contracts applies to insurance contracts
  • Explain why the principle of indemnity is important to the operation of the insurance mechanism
  • Explain the ways in which the principle of indemnity is enforced in insurance contracts
  • Explain what is meant by the statements that insurance contracts are contracts of adhesion, aleatory contracts, conditional contracts, unilateral contracts, and contracts of utmost good faith
  • Define and explain the nature of waiver and estoppel
  • Explain the application of the doctrines of concealment and misrepresentation in the insurance transaction

The transfer of risk from the individual to the insurance company is accomplished through a contractual arrangement under which the insurance company, in consideration of the premium paid by the insured and his or her promise to abide by the provisions of the contract, promises to indemnify the insured or pay an agreed amount in the event of the specified loss. The instrument through which this transfer of risk is accomplished is the insurance contract, which, as a contract, is enforceable by law.

A great deal of the law that has shaped the formal structure of insurance and influenced its content derives from the general law of contracts. But because ...

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