1.2 Form and Requisites

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

1.2 FORM AND REQUISITES

1.201 Offer and Acceptance. A contract of insurance is typically formed when an offer by the insured, most often in the form of an application, is accepted by the insurer. ² An application for insurance is a proposal, and no contract exists until it is accepted by the insurer. ³ Delay on the part of the insurer in acting upon the application-offer does not in and of itself create a contract, nor does a delay, absent an allegation of fraud or proof that the insured was misled, estop the insurance company from denying that a contract

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exists. ⁴ Likewise, a renewal contract of insurance requires the same essentials, such as mutual consent and new consideration. ⁵

Often, before the written policy is issued, the insurer and insured will enter into a temporary insurance agreement called a binder. For a valid binder, there must be a meeting of the minds as to the essential terms set forth in section 38.2-305 of the Virginia Code; however, under certain circumstances, some of those essential terms may be supplied by inference. ⁶ Binders may only be used or made for a period not exceeding 60 days, and unless otherwise agreed, the usual provisions, stipulations, and agreements that are commonly used in Virginia in effecting the class of insurance being written must be included in a binder. ⁷

1.202 Essential Terms. There are essential terms that must be agreed upon before an insurance contract can be formed. The contract must specify (i) the names of the parties to the contract; (ii) the subject matter to be insured; (iii) the risk insured against; (iv) the commencement and period of the risk undertaken by the insurer; (v) the amount of insurance; and (vi) the premium and time at which it is to be paid; and it must include a list of all policy forms and endorsements applicable to the contract. ⁸

1.203 Insurable Interest. Insurance contracts must be supported by an insurable interest on the part of the insured. ⁹ A case involving property insurance provides a good illustration of the scope of an insurable interest, which does not necessarily require even valid title to the property. ¹⁰ In Castle Cars, Inc. v. United States Fire Insurance Co., ¹¹ a car dealer bought a used car and obtained the seller's assignment of a title certificate. The car was then stolen from the dealer's lot, and the dealer's insurer paid his claim on the stolen car. The insurer later learned that the car had been stolen from its rightful owner before the dealer purchased the vehicle, and the insurer

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sought reimbursement from the dealer on the grounds that he never had an insurable interest. The court held that the dealer had an insurable interest because he had a substantial economic interest in the vehicle and had acquired the vehicle in good faith, for value, and without notice of the invalidity of the seller's title. ¹²

In claims arising from damage to real property, it is important to determine whether the named insured, if a corporate entity, actually owns the property. In Erie Insurance Exchange v. EPC MD 15, LLC, ¹³ an LLC was held not to have an insurable interest in a property actually owned by one of its subsidiaries, over which it had control. Mere control over a subsidiary not listed as an insured in the policy may not extend coverage to property not actually owned by the parent.

Cases involving life insurance and accident and sickness insurance provide other definitions of insurable interest.

In the case of individuals related closely by blood or by law, [an insurable interest is] a substantial interest engendered by love and affection . . . In the case of other...