An experienced event planner is meeting with a broker to finalize a commercial general liability policy for an upcoming festival. In order for the insurance policy to become a legally binding contract, a valid exchange of consideration must occur.
Which of the following components accurately describe the mutual consideration required to form this insurance contract? Select all that apply.
- The event planner's initial premium payment and the representations made on the application.Answer
- The insurance company's promise to indemnify the policyowner in the event of a covered loss.Answer
- CThe event planner's absolute guarantee that every statement on the application is perfectly true, creating a warranty.
- DThe broker's express authority to represent the insurance company and negotiate the terms of the policy.
Answer
The correct components are the event planner's initial premium payment combined with the application representations, and the insurance company's conditional promise to pay for covered future losses.
A valid insurance contract requires mutual consideration. The insured provides consideration through the payment of premium and the statements made on the application. The insurer provides consideration through the promise to indemnify the insured in the event of a covered loss.
Step-by-Step Solution
Key Concept
Consideration in an Insurance Contract