UNIT-4: LEGAL ISSUES IN INSURANCE
An insurance policy is a contract. Contracts are agreements that are enforceable by law. We have contracts in insurance to allow two parties, typically an insurance company and an insured, to reach a mutual agreement to bind each other to certain promises- such as the insurer covering a particular risk of loss, and the insured agreeing to pay a premium (cost) for this protection. However, in order for a contract to be valid and enforceable, it must contain certain fundamentals.
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LEGAL ASPECTS OF INSURANCE
Principle of Indemnity:
The indemnity principle applies to most insurance contracts whereby the insurer seeks to reimburse the insured for approximately the amount lost, no more and no less. The purpose of an indemnity contract is to return the insured back to his or her original financial position.
Subrogation
In the event that a claim is paid, the insurer acquires the insured's right to action against any negligent third party that may have caused or contributed to the loss.
Value Contract
A value contract differs from indemnity in that it pays a stated sum, regardless of the actual amount of the loss.
Insurable Interest
An important element of a valid insurance contract is insurable interest. This is a relationship between the applicant and individual being insured whereas the person seeking the contract (applicant) must be subject to loss upon the destruction, damage, illness, disability, or death of the insured.
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To be Legally Binding an insurance contract must have the following five elements:
�1) Offer and Acceptance
To be legally enforceable, a contract must be made with a definite, unqualified offer by one party and the acceptance of its exact terms by the other party.
The Offer- with many insurance contracts, the offer is made when the applicant submits the application with the initial premium.
The Acceptance- the acceptance is confirmed when the insurance company accepts the offer and issues a policy. The company may counteroffer and then the applicant has the choice to accept or reject the new terms.
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No Initial Premium- When the applicant does not submit an initial premium with the application, the role of offer and acceptance is reversed. The insurer can respond by issuing a policy (the offer) that the applicant can accept by paying the planned premium when the policy is delivered.
2) Consideration
In order for an insurance contract to be legally binding, there must be an exchange of value. Consideration is the value given in exchange for the services sought after.
The submission of the completed application (offer) plus the payment of the initial premium (consideration) to the insurance company generally creates a binding contract provided that the application passes the underwriting process.
3) Legal Intent :The subject of the insurance contract must be of legal purpose and/or a legal business entity in order for the contract to be enforceable. A contract whereas one party agrees to commit a crime for payment of services would not be enforceable in court because the subject matter is not of legal content.
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4) Competent Parties �To cement a valid contract, the parties involved (individuals, groups, or businesses) must be capable of entering into a contract per the law. For an insurance contract, the insurer (insurance company) is considered competent if it is licensed or approved by the state or states in which it conducts business. ��The applicant is presumed to be a competent party, unless one of these exceptions apply:
5) Legal Form
�Contracts must also follow the laws and guidelines of state regulations. For example- not all contracts are required to be in written form, but state laws might mandate a written contract to make it binding.
�State Insurance Regulation attempts to accomplish the following (MAPS):
�If an insurance contract lacks one of the five characteristics of a valid contract above, the contract will not posses legal effect and cannot be enforced by either party.
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Legal Issues in Life Insurance Claims
�It's hard to believe, but the last thing you might expect to happen is an insurance company denying your death benefits under a life insurance policy. Believe it or not, but this happens all the time and insurance companies, under certain situations, can and will deny a death benefit claim. In this article, we briefly explore the issues involved when an insurance company fails to make payment of proceeds of a claim. If you are a beneficiary under a policy, here are some things you should be aware of:
�Contestability. The insurer has the right to deny payment under a claim during the "contestable" period. Stated simply, if the insured (the person who bought the policy) dies within less than 2 years after the policy was issued, the company can investigate the insured's responses on the application for insurance. Typically, the company will request to review the medical records of the insured. If the insurer discovers that the applicant misrepresented his or her medical condition, or omitted pertinent information, it can deny payment. The law allows insurance companies to take such action. Even if the denial occurs, however, it doesn't mean that the beneficiary doesn't have recourse. Certain arguments may be available to the beneficiary to counter the denial of the claim.
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Materiality:
In general, for a company to deny payment under a policy, the misrepresented or omitted fact must be material in nature. A particular fact is "material" if, had it been fully and correctly disclosed on the application, the insurer would have either denied coverage or provided coverage to the insured under different terms. Unfortunately for the beneficiary, it is not difficult to prove that the fact at issue was material.
�Knowledge and Belief:
To assess whether the applicant made a material omission or misrepresentation on the application, the lawyer for the beneficiary must examine the application itself. Many applications contain language which requires the insured to attest to his or her "knowledge and/or belief" that the information provided is accurate. Such language is critical because it may impose a tougher burden on the company to prove that a misrepresentation was made. For example, if the insured stated he did not see a doctor in the last 5 years, even though his medical records indicated otherwise, and his statement was made honestly and not with an intention to deceive, arguably there is no misrepresentation.
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Disclosure of Information to the Agent:
In some situations, the insured might have disclosed information about his medical condition to the agent, and the agent failed to transmit that information on the application. In such case, the company may be legally charged with having knowledge of such information. For this reason, it is important to go over the application process carefully with your attorney.
If your claim for life insurance proceeds has been denied, you may take the following steps to pursue your rights:
�1) Contact an attorney who is familiar with insurance law.
�2) Ask the attorney if he charges on an hourly basis or contingency fee. If he or she charges hourly, find out the hourly rate. If he or she charges a contingency, find out what the contingency fee is.
�3) Ask the attorney to provide you with a copy of the fee agreement.
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4) Ask the attorney whether your claim is viable and, if so, what arguments and defenses might be raised.
�5) Ask the attorney if he or she will try to settle your claim before litigation or if he or she will sue immediately.�We believe that by taking the steps noted above, you will be informed in prosecuting your claim against the insurance company.��
SOCIAL INSURANCE
Social insurance is one of the devices to prevent individual from falling into deep poverty and contingencies. It helps a person at the time of uncertainties and misfortun
The I.L.O. (International Labour Organization) defines ‘Social Insurance’ as a scheme that provides benefits for persons of small earning granted as of right in amounts which includes in it combine contribution of insured person as well as employer and state.
It is a group idea which helps a needy. In this insurance workers have to contribute a little but major portion is paid by employer or state and in return of a little contribution, a worker will get every kind of help in emergency.
standard of living to the beneficiaries.
Social Assistance
Social assistance is a device of social security to provide every kind of help to a person at the time of earning loss. It depends on certain conditions and legalities between worker and the state. This assistance is purely a matter of government and beneficiary has not to pay for it.
Social assistance is provided until need remains continue. For this help a person needs not to give any service in return but means test is necessary, a person has to prove himself capable for this benefit. public revenue funds are being utilized for it.
Public Services�
Public services are also a important type of social security constituents. It provides both cash and medical benefits. It covers the programmes such as National Health Services, Old Age Pensions, Pension for Invalidism, Survivor’s Pension to Widow or Orphan etc.
Allied Services�
Social insurance and Social assistance are two main constituents of social security but allied services include some other schemes of social security, such as mutual benefits schemes in which labourers contribute, the employer’s financed schemes which are made by employers to help the workers and employers’ .