Part 1 (10 Points):
Use the terms and explanation of the steps of contract creation from the course text, Business Law for Insurance Professionals to explain the process of contract creation from this scenario:
Gary goes to an insurance agent Bob for business insurance for his small retail store. Gary explains that he would like to insure his building against fire and against lawsuits to his business. He also wants workers compensation but that is later. Bob explains that he knows of Gary’s business and that barring unforeseen circumstances he probably can provide coverage for Gary.
Gary says, “great, what do we have to do next?” Bob explains that building insurance covers more than just fire and that liability coverage is for slips and falls on premises and for products liability. Gary says that he understands, “but how much does it cost.” Bob obtains additional information from Gary and runs the numbers and comes back with a price from Insurer A and one from Carrier B and C. Bob explains the differences between the three companies which are minor in price and coverage. Company C Gary has heard of but not the others. Bob says to Gary, “We can bind coverage today.” When he sees the prices, Gary goes, “argh…is there something we can do to reduce the cost I am paying far less today.” Bob says, “Well there are things we can do and asks to look at Gary’s current policy to compare.” After comparing and explaining the differences, Gary says, “Well, can we run the numbers with a higher deductible and without that special endorsement that Company C wants.” You want
Company C,” Bob asks, and Gary replies, “yes.” Bob runs the numbers and the price is less than before but still higher than Gary’s current policy. “I need to think about it,” said Gary. “Fine,” said Bob, “But your old policy renews in two days so we better get moving so that there is no gap in coverage.” They shake hands and the meeting is over. A day later, Gary calls Bob after hours and says “Bind the coverage we discussed with Company C and bill me for it.” Bob calls Gary the next morning to confirm and says to Gary, “I am binding coverage as we discussed effective tomorrow and I will send a bill today.” Gary says, “Yes, bind it for tomorrow and send the bill.” Two weeks later the policy is mailed to Gary by Insurer C but the premium is higher than what was quoted. Gary calls Bob to discuss. It appears that the Insurer’s predictive modeling pricing tool uncovered some credit history of Gary’s that Bob was not aware of. Bob explained this to Gary who was not at all happy with the price increase but understood Bob’s explanation and that it was not Bob who made an error. Gary said to Bob he needed to think about this. The next day Gary called Bob and asked him to increase the deductible even more to reduce the cost. Bob agreed and submitted an endorsement to the effect retroactive to the policy’s inception.
Part 2 (10 Points):
Answer the following questions:
- Describe the five types of consideration that are sufficient to form an enforceable contract.
- Describe three types of consideration that are insufficient for forming a binding contract.
- Discuss exceptions to the consideration requirements in contracts.
- Explain the considerations for both stakeholders in the part 1 scenario of this week’s project