AIC 301 EXAM QUESTIONS AND ANSWERS LATEST
VERSION (ALREADY GRADED A+)
Material breach of contract
Violation of the agreement that would justify a nonbreaching party's termination of the contract.
Compensatory damages
A payment awarded by a court to reimburse a victim for actual harm.
Consequential damages
A payment awarded by a court to indemnify an injured party for losses that result indirectly from a
wrong such as a breach of contract or a tort.
Punitive damages (exemplary damages)
A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter
similar conduct; the award need not bear any relation to a party's actual damages.
Bad faith
An insurer's intentional or reckless act (extreme or outrageous in nature) or denial of coverage without
proper cause, often causing emotional distress and resulting in extracontractual and/or punitive
damages.
Extracontractual damages
A payment awarded by a court that exceeds the usual contract damages for a breach of contract.
Mitigation of damages
A duty owed by an injured party to a claim to take reasonable measures to minimize or avoid additional
injury or loss.
Liquidated damages
A reasonable estimation of actual damages, agreed to by contracting parties and included in the
contract, to be paid in the event of a breach or for negligence.
Specific performance
A court-ordered equitable remedy requiring a party to perform a certain act, often—but not always—as
a result of breach of a contract.
Injunction
A court-ordered equitable remedy requiring a party to act or refrain from acting.
Conditional contract
, A contract that one or more parties must perform only under certain conditions.
Utmost good faith
An obligation to act in complete honesty and to disclose all relevant facts.
Misrepresentation
A false statement of a material fact on which a party relies.
Incontestable clause
A clause that states that the insurer cannot contest the policy after it has been in force for a specified
period, such as two years, during the insured's lifetime.
Contestable period
A period during which an insurer can challenge the validity of a life insurance policy.
Contract of adhesion
Any contract in which one party is put in a "take-it-orleave-it" position and must either accept the
contract as written by the other party or reject the contract entirely.
Contract of indemnity
A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related
to the amount of the loss.
Principle of indemnity
The principle that insurance policies should provide a benefit no greater than the loss suffered by an
insured.
Valued policy
A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss),
regardless of the actual value of the loss.
Binder
A temporary written or oral agreement to provide insurance coverage until a formal written policy is
issued.
Direct-action statute
A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and
wrongdoer jointly.
Waiver
The intentional relinquishment of a known right.
Consideration
VERSION (ALREADY GRADED A+)
Material breach of contract
Violation of the agreement that would justify a nonbreaching party's termination of the contract.
Compensatory damages
A payment awarded by a court to reimburse a victim for actual harm.
Consequential damages
A payment awarded by a court to indemnify an injured party for losses that result indirectly from a
wrong such as a breach of contract or a tort.
Punitive damages (exemplary damages)
A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter
similar conduct; the award need not bear any relation to a party's actual damages.
Bad faith
An insurer's intentional or reckless act (extreme or outrageous in nature) or denial of coverage without
proper cause, often causing emotional distress and resulting in extracontractual and/or punitive
damages.
Extracontractual damages
A payment awarded by a court that exceeds the usual contract damages for a breach of contract.
Mitigation of damages
A duty owed by an injured party to a claim to take reasonable measures to minimize or avoid additional
injury or loss.
Liquidated damages
A reasonable estimation of actual damages, agreed to by contracting parties and included in the
contract, to be paid in the event of a breach or for negligence.
Specific performance
A court-ordered equitable remedy requiring a party to perform a certain act, often—but not always—as
a result of breach of a contract.
Injunction
A court-ordered equitable remedy requiring a party to act or refrain from acting.
Conditional contract
, A contract that one or more parties must perform only under certain conditions.
Utmost good faith
An obligation to act in complete honesty and to disclose all relevant facts.
Misrepresentation
A false statement of a material fact on which a party relies.
Incontestable clause
A clause that states that the insurer cannot contest the policy after it has been in force for a specified
period, such as two years, during the insured's lifetime.
Contestable period
A period during which an insurer can challenge the validity of a life insurance policy.
Contract of adhesion
Any contract in which one party is put in a "take-it-orleave-it" position and must either accept the
contract as written by the other party or reject the contract entirely.
Contract of indemnity
A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related
to the amount of the loss.
Principle of indemnity
The principle that insurance policies should provide a benefit no greater than the loss suffered by an
insured.
Valued policy
A policy in which the insurer pays a stated amount in the event of a specified loss (usually a total loss),
regardless of the actual value of the loss.
Binder
A temporary written or oral agreement to provide insurance coverage until a formal written policy is
issued.
Direct-action statute
A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and
wrongdoer jointly.
Waiver
The intentional relinquishment of a known right.
Consideration
