CPCU 530 Applying Legal Concepts to
Insurance
Elements of a legally binding contract ANS: -Agreement (includes the offer and acceptance)
-Capacity (or competence) of all involved parties
-Mutual assent
-Consideration
-Legal purpose
-Proper, legally required form
-pg. 1.4
Offeror ANS: The party to a contract who promises to give something in return for a promise or an act
by another party
-pg. 1.4
Offeree ANS: The party to a contract who makes a promise or acts in return for something offered by
another party
-pg. 1.4
For an agreement to be valid, it must include an offer and acceptance ANS: -Offer: intent to contract,
definite terms, and communication to the offeree
-Acceptance: acceptance by the offeree, unconditional and unequivocal acceptance, and the offeree's
communication of acceptance
-pg. 1.4
Five circumstances under which genuine asset to a contract may be considered lacking ANS: -Fraud
-Mistake
-Duress
,-Undue influence
-Innocent misrepresentation
-pg. 1.5
Fraud ANS: -The intentional misrepresentation of facts that causes harm to a person or an organization.
-The offended party usually has the option of rescinding the contract or suing for damages
-pg. 1.5
Mistake ANS: -Mistakes can be made regarding the facts of a transaction or laws affecting an agreement
-Some mistakes don't affect the parties' rights, but others can make an agreement voidable or
unenforceable
-pg. 1.5
Duress ANS: A party who enters a contract under duress may not have given genuine asset
-pg. 1.5
Undue influence ANS: -The improper use of power or trust to deprive a person's free will and to
substitute that person's objective w someone else's can remove the possibility of genuine asset
-Ex. an attorney who gives advice to a client that benefits the attorney rather than ensures the best
possible outcome for the client
-pg. 1.5
Innocent misrepresentation ANS: -Important facts are incorrectly portrayed
-Can lead to a contract being voided, but monetary damages aren't awarded for it
-pg. 1.5
Consideration ANS: -Something of value or bargained for and exchanged by the parties to a contract
,-The promisor must receive a legal benefit, such as money, or the promisee must suffer a legal
detriment, such as inconvenience, loss, or relinquishment of something of value
-Consideration necessary to make a promise enforceable can be a return promise, an act performed, or
giving up a legal right
-pg. 1.5
Bilateral contract ANS: -A contract in which each party promises a performance
-pg. 1.6
Unilateral contract ANS: -A contract in which only one party makes a promise or undertakes the
requested performance
-One party promises to pay for an act of the other party. If the act isn't performed, no payment is
required.
-pg. 1.6
Executed contract ANS: -A contract that has been completely performed by both parties
-Requires nothing more of either party to be fulfilled
-pg. 1.6
Executory contract ANS: -A contract that hasn't been completely performed by one or both of the
parties
-Hasn't been fully executed
-Ex. fire insurance policy (insurer's promise to perform (provide coverage) is conditional on the
occurrence of a fire. As long as no fire occurs, the contract remains executory
-pg. 1.6
Express contract ANS: -A contract whose terms and intentions are explicitly stated orally or in writing
-pg. 1.7
, Implied contract ANS: -A contract whose terms and intentions are indicated by the actions of the
parties to the contract and the surrounding circumstances
-Created by the nonverbal, nonwritten conduct of the parties
-Can be implied-in-fact contracts or implied-in-law contracts
-pg. 1.7
Sales contracts ANS: -Legally enforceable agreement between a buyer and seller that involves
transferring ownership of goods for a price
-It needs to be signed by the party facing legal action
Title and risk of loss as a component of sales contract performance: ANS: -When title to a good is
transferred from the seller to the buyer, the risk also transfers to the buyer.
-Not true when goods remain at the seller's residence or place of business and the buyer has to pick
them up
Delivery as a component of sales contract performance: ANS: -If the time for delivery isn't stated in or
can't be inferred from the contract or the parties' past practices, delivery must occur within a
reasonable time
-Unless a seller inserts an obligation into the contract, such as "time is of the essence," a delay in a
delivery isn't a breach of contract if performance becomes impractical bc of an occurrence that neither
party could foresee
Inspection as a component of sales contract performance: ANS: -Buyer has the right to inspect all goods
upon delivery
-Often a condition of acceptance and payment and include testing at the buyer's expense
-A buyer who rejects goods for failure to conform to the contract specs may be able to recover testing
costs from seller
Insurance
Elements of a legally binding contract ANS: -Agreement (includes the offer and acceptance)
-Capacity (or competence) of all involved parties
-Mutual assent
-Consideration
-Legal purpose
-Proper, legally required form
-pg. 1.4
Offeror ANS: The party to a contract who promises to give something in return for a promise or an act
by another party
-pg. 1.4
Offeree ANS: The party to a contract who makes a promise or acts in return for something offered by
another party
-pg. 1.4
For an agreement to be valid, it must include an offer and acceptance ANS: -Offer: intent to contract,
definite terms, and communication to the offeree
-Acceptance: acceptance by the offeree, unconditional and unequivocal acceptance, and the offeree's
communication of acceptance
-pg. 1.4
Five circumstances under which genuine asset to a contract may be considered lacking ANS: -Fraud
-Mistake
-Duress
,-Undue influence
-Innocent misrepresentation
-pg. 1.5
Fraud ANS: -The intentional misrepresentation of facts that causes harm to a person or an organization.
-The offended party usually has the option of rescinding the contract or suing for damages
-pg. 1.5
Mistake ANS: -Mistakes can be made regarding the facts of a transaction or laws affecting an agreement
-Some mistakes don't affect the parties' rights, but others can make an agreement voidable or
unenforceable
-pg. 1.5
Duress ANS: A party who enters a contract under duress may not have given genuine asset
-pg. 1.5
Undue influence ANS: -The improper use of power or trust to deprive a person's free will and to
substitute that person's objective w someone else's can remove the possibility of genuine asset
-Ex. an attorney who gives advice to a client that benefits the attorney rather than ensures the best
possible outcome for the client
-pg. 1.5
Innocent misrepresentation ANS: -Important facts are incorrectly portrayed
-Can lead to a contract being voided, but monetary damages aren't awarded for it
-pg. 1.5
Consideration ANS: -Something of value or bargained for and exchanged by the parties to a contract
,-The promisor must receive a legal benefit, such as money, or the promisee must suffer a legal
detriment, such as inconvenience, loss, or relinquishment of something of value
-Consideration necessary to make a promise enforceable can be a return promise, an act performed, or
giving up a legal right
-pg. 1.5
Bilateral contract ANS: -A contract in which each party promises a performance
-pg. 1.6
Unilateral contract ANS: -A contract in which only one party makes a promise or undertakes the
requested performance
-One party promises to pay for an act of the other party. If the act isn't performed, no payment is
required.
-pg. 1.6
Executed contract ANS: -A contract that has been completely performed by both parties
-Requires nothing more of either party to be fulfilled
-pg. 1.6
Executory contract ANS: -A contract that hasn't been completely performed by one or both of the
parties
-Hasn't been fully executed
-Ex. fire insurance policy (insurer's promise to perform (provide coverage) is conditional on the
occurrence of a fire. As long as no fire occurs, the contract remains executory
-pg. 1.6
Express contract ANS: -A contract whose terms and intentions are explicitly stated orally or in writing
-pg. 1.7
, Implied contract ANS: -A contract whose terms and intentions are indicated by the actions of the
parties to the contract and the surrounding circumstances
-Created by the nonverbal, nonwritten conduct of the parties
-Can be implied-in-fact contracts or implied-in-law contracts
-pg. 1.7
Sales contracts ANS: -Legally enforceable agreement between a buyer and seller that involves
transferring ownership of goods for a price
-It needs to be signed by the party facing legal action
Title and risk of loss as a component of sales contract performance: ANS: -When title to a good is
transferred from the seller to the buyer, the risk also transfers to the buyer.
-Not true when goods remain at the seller's residence or place of business and the buyer has to pick
them up
Delivery as a component of sales contract performance: ANS: -If the time for delivery isn't stated in or
can't be inferred from the contract or the parties' past practices, delivery must occur within a
reasonable time
-Unless a seller inserts an obligation into the contract, such as "time is of the essence," a delay in a
delivery isn't a breach of contract if performance becomes impractical bc of an occurrence that neither
party could foresee
Inspection as a component of sales contract performance: ANS: -Buyer has the right to inspect all goods
upon delivery
-Often a condition of acceptance and payment and include testing at the buyer's expense
-A buyer who rejects goods for failure to conform to the contract specs may be able to recover testing
costs from seller
