AIC 301 EXAM QUESTIONS AND ANSWERS LATEST
VERSION (ALREADY GRADED A+)
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.
Consequential 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.
Punitive damages (exemplary damages)
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.
Bad faith
A payment awarded by a court that exceeds the usual contract damages for a breach of contract.
Extracontractual damages
A duty owed by an injured party to a claim to take reasonable measures to minimize or avoid
additional injury or loss.
Mitigation of 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.
Liquidated damages
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.
Specific performance
A court-ordered equitable remedy requiring a party to act or refrain from acting.
Injunction
A contract that one or more parties must perform only under certain conditions.
Conditional contract
An obligation to act in complete honesty and to disclose all relevant facts.
Utmost good faith
A false statement of a material fact on which a party relies.
, Misrepresentation
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.
Incontestable clause
A period during which an insurer can challenge the validity of a life insurance policy.
Contestable period
Any contract in which one party is put in a "take-it-or-leave-it" position and must either accept the
contract as written by the other party or reject the contract entirely.
Contract of adhesion
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.
Contract of indemnity
The principle that insurance policies should provide a benefit no greater than the loss suffered by an
insured.
Principle of indemnity
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.
Valued policy
A temporary written or oral agreement to provide insurance coverage until a formal written policy is
issued.
Binder
A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and
wrongdoer jointly.
Direct-action statute
The intentional relinquishment of a known right.
Waiver
Something of value or bargained for and exchanged by the parties to a contract.
Consideration
The voluntary act of choosing between two alternative rights or privileges.
Election
An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a
claim with the understanding that the insurer may later deny coverage should the facts warrant it.
VERSION (ALREADY GRADED A+)
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.
Consequential 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.
Punitive damages (exemplary damages)
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.
Bad faith
A payment awarded by a court that exceeds the usual contract damages for a breach of contract.
Extracontractual damages
A duty owed by an injured party to a claim to take reasonable measures to minimize or avoid
additional injury or loss.
Mitigation of 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.
Liquidated damages
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.
Specific performance
A court-ordered equitable remedy requiring a party to act or refrain from acting.
Injunction
A contract that one or more parties must perform only under certain conditions.
Conditional contract
An obligation to act in complete honesty and to disclose all relevant facts.
Utmost good faith
A false statement of a material fact on which a party relies.
, Misrepresentation
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.
Incontestable clause
A period during which an insurer can challenge the validity of a life insurance policy.
Contestable period
Any contract in which one party is put in a "take-it-or-leave-it" position and must either accept the
contract as written by the other party or reject the contract entirely.
Contract of adhesion
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.
Contract of indemnity
The principle that insurance policies should provide a benefit no greater than the loss suffered by an
insured.
Principle of indemnity
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.
Valued policy
A temporary written or oral agreement to provide insurance coverage until a formal written policy is
issued.
Binder
A law that permits a negligence victim to sue an insurer directly or to sue both the insurer and
wrongdoer jointly.
Direct-action statute
The intentional relinquishment of a known right.
Waiver
Something of value or bargained for and exchanged by the parties to a contract.
Consideration
The voluntary act of choosing between two alternative rights or privileges.
Election
An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a
claim with the understanding that the insurer may later deny coverage should the facts warrant it.
