Chapter 1



Chapter 9

Insurance Law and Real Property Law

Chapter Outline

1. Introduction

2. Insurance Law

Chapter Objectives

After completing this chapter, you will know:

• The terminology used in insurance contracts and the various classifications of insurance

• What an insurable interest is and the difference between an insurance agent and an insurance broker

• They types of provisions that are typically included in an insurance contract and the rights and duties of the parties under insurance contracts

• The difference between real property and personal property

• How one acquires, holds and transfers ownership rights in property and what procedures are involved in the sale of real estate

Chapter Outline

I. INTRODUCTION

A. There is a great deal of overlap in the individual topics.

B. Insurance and contract law overlap significantly.

II. Insurance Law

A. Insurance is a contract in which the insurer in return for consideration, promises to pay a sum of money to another, if the insured suffers harm or loss from a stated peril.

B. Insurance transfers and allocates risk.

C. Insurance Terminology

i. Policy—Insurance Contract

ii. Premium—Consideration paid for the insurance contract.

iii. Insurer—Insurance company that issues the policy

iv. Insured—Person or entity covered by the policy.

v. Insurance Agent—works for the insurance company

vi. Insurance Broker—independent contractor, does not work for a particular agency, he or she works for the insured.

D. Insurable Interest

i. Insurable interest – an interest in a person’s life or well being or property that is substantial enough to justify insuring the interest.

ii. Must have an insurable interest to have an enforceable contract.

iii. For property the interest must exist at the time the loss occurs.

iv. For life insurance, the interest must exist when the insurance is obtained.

E. The Insurance Contract

i. Application

1. Application is part of the insurance contract.

2. Applicant is bound by any false statements.

3. False information can result in the policy being void.

ii. Effective Date

1. If the applicant uses an insurance broker, the applicant is not insured until the broker obtains the policy.

2. If the applicant uses an insurance agent, coverage usually begins when the application is made if consideration is paid.

a. Agent may issue a binder, a written temporary insurance policy.

3. Parties may agree that the policy will be effective at a later time.

4. Life insurance may be effective when the first premium is paid or when the applicant passes a physical exam.

iii. Coninsurance Clauses

1. Clause that requires a property owner to insure his or her property up to a specified percentage of its replacement value. If this is done the owner will be fully reimbursed for any loss.

iv. Indemnity clauses require the holder of the clause to be restored to the financial condition he or she had before the loss. A hold harmless clause is a type of indemnity clause and it means the person who holds the clause will not be held responsible for any of the loss suffered.

v. A subrogation clause allows the insurer to sue a third party who was responsible for the loss instead of the insured.

vi. Cancellation

1. Insured can cancel the policy at any time.

2. Insurer can cancel the policy if certain conditions are met. These are usually specified in the policy.

vii. Good Faith Obligations

1. Both parties are responsible for the obligations they assume under the contract.

a. Insured—Reveal everything necessary for the insurance company to evaluate the risk.

b. Insurer—Has a duty to investigate the facts surrounding a claim, to make reasonable efforts to settle claims, and defend suits against the insured.

viii. Defenses Against Payment

1. Regular contract defenses apply.

2. Lack of insurable interest.

3. Improper actions by the insured.

F. Insurance Law and the Paralegal.

i. Working for an insurance company a paralegal may research and analyze current legislation, draft insurance policies and amendments, and investigate the facts of claims.

ii. Working in a general law practice the paralegal may assist in bring a claim, and become involved in litigation regarding claims.

iii. A paralegal working for a real estate firm may analyze policies related to property.

iv. A paralegal working for a state insurance regulatory agency may assist in drafting administrative procedures, investigating insurance fraud and licensing violations, and responding to consumer’s insurance claims and questions.

III. REAL PROPERTY

A. The law has divided property into two classifications: real property and personal property.

B. Real Property

i. Real property, or real estate, is land and all things attached to the land, as well as the minerals below the surface of the land and the air above the land.

C. Personal Property

i. Personal property is all other property. Personal property can be either tangible or intangible.

1. Tangible personal property has physical substance, such as a television set or a car.

2. Intangible personal property represents a set of rights and interests but has no real physical existence, such as stocks or bonds.

D. Ownership Rights in Property

i. Property ownership is often viewed as a “bundle of rights.” One who owns the entire bundle of rights is said to own the property in fee simple.

1. An owner in fee simple is entitled to use, possess, or dispose of the real or personal property however he chooses during his lifetime.

2. There can be restrictions on the use of property even when it is owned in fee simple.

a. Zoning Laws

3. Easement, the right of another to use the owner’s land for a limited purpose.

4. Eminent Domain

a. Under the power of eminent domain, the government has a right to take private property for public use as long as the government compensates the owner for the value of the land taken.

ii. Concurrent Ownership

1. Tenancy in common is a form of co-ownership in which two or more persons own undivided interests in certain property. The interest is undivided because each tenant has rights in the whole property. If a tenant in common dies, the tenant’s ownership pass to his heirs.

2. A joint tenancy is a form of co-ownership where two or more persons own undivided interests in property with the “right of survivorship.” When a joint tenant dies, that tenant’s interest passes to the surviving joint tenant(s).

3. In a tenancy by the entirety, the co-owners are husband and wife. The spouses cannot separately transfer their interests in the property during their lifetimes.

4. In several states, community property is all property acquired during the marriage; each spouse technically owns an undivided one-half interest in the property.

iii. Life Estates

1. A life estate is an interest in real property that is transferred to another for the life of that individual.

iv. Future Interests.

1. A future interest is an interest that will only arise in the future, where property has been conveyed conditionally or for a limited period of time.

E. The Transfer and Sale of Real Property

i. Contract Formation: Offer and Acceptance

1. The common-law contractual requirements of agreement (offer and acceptance), consideration, contractual capacity, and legality all apply to real estate contracts.

2. The buyer normally gives a sum of money, called earnest money, along with the offer.

a. If the buyer defaults, then the earnest money goes to the seller as damages.

b. If the buyer purchases the property, the earnest money is applied to the purchase price.

3. Once the offer is submitted to the seller, the seller can accept the offer, reject it, or modify its terms.

ii. The Role of the Escrow Agent

1. The escrow agent can be a title company, bank, or special escrow company.

2. The escrow agent acts as a neutral party in the transaction and facilitates the sale between the buyer and seller.

iii. Financing

1. Most buyers need to secure financing to pay for the real property.

2. The loan for the property is called a mortgage.

iv. Inspection of the Premises

1. Buyers may have the premises inspected to see if there are any problems of defects.

v. Title Examination and Insurance

1. A title examination involves checking county records to determine whether claims on the property exist that were not disclosed by the seller.

2. The history of past ownership and transfers of the property is summarized in a document called an abstract.

vi. The Closing

1. The closing is coordinated by the escrow agent.

2. A deed is the instrument conveying the ownership of the real property.

3. Closing costs include fees for services performed by the lender, the escrow agent, and the title company.

F. Leases

i. A lease is a contractual agreement allowing a property owner (the lessor) to rent his property to another (the lessee).

ii. Leases are governed bythe common law of contracts and by state statutory law.

G. Property Law and the Paralegal

i. Paralegals need an understanding of the law governing real property.

ii. In a small legal practice, a paralegal will work in handling real estate transactions.

iii. In large law firms, paralegals may specialize in real estate transactions.

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