Contract law – insurance – USA

Contract law In general, an insurance contract must meet four conditions in order to be legally valid: it must be for a legal purpose; the parties must have a legal capacity to contract; there must be evidence of a meeting…

Contract law - insurance - USA

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Contract law
In general, an insurance contract must meet four conditions in order to be legally valid: it must be for a legal purpose; the parties must have a legal capacity to contract; there must be evidence of a meeting of minds between the insurer and the insured; and there must be a payment or consideration.

To meet the requirement of legal purpose, the insurance contract must be supported by an insurable interest (see further discussion below); it may not be issued in such a way as to encourage illegal ventures (as with marine insurance placed on a ship used to carry contraband).

The requirement of capacity to contract usually means that the individual obtaining insurance must be of a minimum age and must be legally competent; The contract will not hold if the insured is found to be insane or intoxicated or if the insured is a corporation operating outside the scope of its authority as defined in its charter, bylaws, or articles of incorporation.

The requirement of meeting of minds is met when a valid offer is made by one party and accepted by another. The offer is generally made on a written application for insurance. In the field of property and liability insurance, the agent generally has the right to accept the insured’s offer for coverage and bind the contract immediately. In the field of life insurance, the agent generally does not have this power, and the contract is not valid until the home office of the insurer has examined the application and has returned it to the insured through the agent.

The payment or consideration is generally made up of two parts — the premiums and the promise to adhere to all conditions stated in the contract. These may include, for example, a warranty that the insured will take certain loss-prevention measures in the care and preservation of the covered property.

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