2.3 Legal Interpretations Affecting Contracts Copy

An insurance applicant is required to exercise “utmost good faith” in providing information on which the insurer must rely.

Ambiguities in a Contract of Adhesion

Any ambiguity must be interpreted in favor of the insured, because the insured has little or no control over policy content.

Indemnity and Subrogation

Most property and liability insurance is written on an indemnity basis – the intent being to make someone “whole” again by paying actual losses while preventing any gain.

Utmost Good Faith

The insurance contract requires utmost good faith between the parties. This means that each party is entitled to rely upon the representations of the other and each party should have a reasonable expectation that the other is acting in good faith without attempts to conceal or deceive.

Warranties

A warranty carries greater weight than a representation because it is part of the actual contract. It can be interpreted that is guaranteed to be true, in both contracts and presentations.

Concealment

A failure to disclose known facts is concealment. The insurance applicant has a duty to disclose material facts that the insurer could not be expected to know. Generally, an insurer may be able to void the insurance if it can prove that the insured intentionally concealed a material fact. In reality, it is difficult to prove such intent in a court of law.

Fraud

Fraud is a deliberate misrepresentation that causes harm.

An act of fraud contains four elements:

• Someone deliberately lies.
• The intent of the lie is for someone else.
• Another person relies on that lie.
• The other person suffers harm as a result of relying on that lie.

Fraud differs from misrepresentation in that misrepresentation may be either intentional or unintentional. Fraud is always intentional and involves an effort by one party to deceive and cheat the other.

Waiver and Estoppel

The legal definition of waiver is the intentional relinquishment of a known right. Estoppel means that the insurance company is prevented from denying a fact. As a professional adjuster, you should protect yourself legally with an Errors & Omissions Policy. This is commonly known as an E&O Policy.