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in this video we're going to discuss the insurance contract this comes primarily from chapter 10 of the raita MacNamara text the importance of the insurance contract in the insurance transaction cannot be overlooked the contract is in fact the product you are purchasing or the insurance are purchasing it is also the agreement between the insured and the insurer one way I like to explain this is that in insurance you're actually not getting anything tangible besides the premium for the promise to pay that promise is in the form of the insurance contract and in fact we'll look at the specific promise as we go through the details of the contract also remember that insurance contracts typically are contracts of adhesion which means they're drawn up by one party and adhered to by the other in other words the insurance company draws up the contract and the insured's basically adhere to the terms of the contract in other words they are not negotiated the wording is typically standardized so that there's no question about any ambiguities in the contract because remember any ambiguities in the contract would typically be interpreted in favor of the insured since they are contracts of adhesion the major exception here is the access and surplus lines which ensures remember oil and gas and entertainment risks for example but do you realize that even the excess and surplus lines has many of the same parts of the contract that we're going to be discussing today let's start with a look at what I consider the main parts of the insurance contract the declarations the definitions and the insuring agreement and coverages the declarations is almost always the first page of an insurance policy this is a sample declarations page from the appendix of your textbook this happens to be the homeowner's policy declarations and we'll use excerpts from the homeowners policy from the appendix of your textbook throughout this discussion today but look a little more closely at this page first at the top part of the page and we want to know what questions are answered by the declarations page well this top part answers the what where who and wind in other words what is actually being insured so we want to know where the insurance exposure is in who the insurers are and they're named here these are also known as the named insured's also very important is the when in other words this tells us exactly when coverage begins and when it ends also note here that there is a mortgagee listed remember that a lender or mortgagee actually has an insurable interest in the exposure and therefore is able to be uninsured and should be uninsured under this policy now let's look at the bottom half of this declarations page this actually describes the coverage amounts in this case the different coverages are listed with the limits dwelling for 250 other structures for 25 personal property for 125 etc and we'll study each one of these coverage sections in the next video on the bottom half here you see different risk factors such as the construction type of this building it happens to be masonry veneer how many families live there the year built and the protection class which has to do with fire protection also at the bottom is the premium oftentimes though you'll see the premium listed up here next to the coverages and split out by each different type of coverage in this case though it's just all one premium notice over here is the deductible on this particular policy so there's a lot of information that's provided in the declarations page of any insurance policy the declarations page of a policy is what makes it unique to the particular insured aside from in some cases the endorsements in most cases everything else in the policy will be standard now let's look at the definitions of the policy definitions usually are right after the declarations the definitions define certain words or word combinations so that those don't have to be defined and written out every time in the policy for example you and your bodily injury and insured location these are as I show above typically in bold or italics or sometimes in quotes throughout the policy when you see a word within the policy that is either quoted italicized or bold you know that you really need to look back at the definitions page to understand what is meant by those words let's look more closely at a definition so in this policy you and your refer to the named insured shown in the declarations the name that I underlined just a moment ago we US and are refer to the company providing this insurance and then as another example this is a bit hard to read but business is defined as a trade profession or occupation engaged in on a full-time part-time or occasional basis however there is an exception in this definition that basically says that business means any other activity engaged in for money or compensation except activities not described below for which no insured receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period one thing I often say is that definitions make the policy shorter and more readable but it's necessary to refer back to them because they define some of the most important words in the policy so you'll find that sometimes while the purpose of the definitions is to make the policy shorter and more readable they can sometimes complicate the interpretation of the policy because it forces you to go back and forth as you read through the policy now let's look at the ensuring agreement and coverages the insuring agreement and coverages are often in the same section of the contract which is why I'm discussing them here together the insuring agreement is the legal promise of an insurer to provide coverage for loss as I said insurance is the premium for the promise to pay the insuring agreement is this legal promise let's look at an example this said we will provide the insurance in return for the premium and compliance with all applicable provisions of this policy that's what's being referred to here it's very common for the insuring agreement to be very short like this one the insuring agreement also is typically followed by a perilous covered section well spend a lot of time discussing the specific coverages in our discussions of homeowners insurance and auto insurance so you'll learn a lot more about the coverages which are an extremely important part of the policy in the next few lectures now let's look at other important parts of the insurance contract just because they weren't discussed as the main parts doesn't mean that these aren't just as important let's look at the exclusions first exclusions in an insurance policy exclude losses perils or certain property that are not practical for the insurer to cover because of one of the following reasons may be because they are uninsurable because they don't meet the requirements of an ideally insurable risk a common reason risks are uninsurable is because there's a potential for catastrophic loss such as flood or nuclear hazard second they encourage fraud and/or moral hazard intentionally caused losses and neglect are both excluded in order to reduce morale and morale hazard three they might be covered under other insurance contracts workers compensation is typically excluded under most contracts because workers compensation is generally primary and for most insurance do not need this coverage such as hovercraft or aircraft liability now let's look at examples of exclusions again this is an excerpt from the appendix in the text this is the homeowner special form by the way but interestingly the exclusions are very similar in most property and liability insurance policies let's look at the power failure exclusion power failure means the failure of power or other utility service if the failure takes place off the residents premises but if the failure results in a loss from apparel insured against on the residents premises we will pay for the loss caused by that peril why do you think the insurance company wants to exclude losses that take place off the residents premises the reason is that losses that originate off the residents premises can often be catastrophic to the insurance company think of when entire cities have a power failure this could create a catastrophic loss situation for the insurer and then notice as I mentioned neglect and down here intentional loss and nuclear hazard are all excluded and war is excluded now let's talk about the conditions and provisions of an insurance policy these give the insured certain duties and responsibilities they often place some of the lost control burden on the insured let's look at some examples the insurance duties after a loss include giving prompt notice to the agent notifying the police but only in the case of loss by theft and remember this is a homeowner's insurance policy and skipping down here you should also protect the property from further damage if repairs to the property are required you must make the reasonable and necessary repairs and keep an accurate record of repair expenses additionally you should cooperate with us meaning the insurance company on the investigation of a claim the conditions and provisions section which by the way has many names like duties after an accident or explanation of insurance duties also explain certain procedures for example cancellation of the policy if the insured wishes to cancel their coverage subrogation which we've talked about and litigation where the insured and the insurer have a dispute this explains in detail how a dispute between the insured and the insurer must be handled in the case that for example uninsured disagrees with how the insurer handles claim or how much is paid note that the insurance contract is void or voidable if the insured doesn't follow the conditions remember that this is a conditional policy as we discussed in the fundamental legal principles finally let's look at the endorsements and rider section an endorsement and rider might add or delete coverage this is often missed on an exam because many people assume that by the term endorsement or rider that this means that this section adds to coverage but it is just as common for endorsements to delete or reduce coverage for example an endorsement might exclude a dilapidated storage unit in your back yard or it might exclude coverage associated with a pool an endorsement and rider can be an exception to adhesion this is because endorsements and riders can sometimes be negotiated between the insured and the insurer some standard endorsements do exist especially in commercial insurance otherwise the endorsement or rider make the policy unique along with the declarations page note that an endorsement takes precedence over the rest of the policy unless it violates a law or regulation and that's the end of our discussion let me know as always if you have any questions