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1. General Insurance Concepts
2. Producer Roles and Receipt Types
3. Underwriting
4. Health Insurance Basics
5. Required Policy Provisions
6. Optional Policy Provisions
7. Medical Expense Insurance
8. Group Health Insurance
9. The Affordable Care Act (ACA)
10. Disability Income Insurance
11. Accidental Death and Dismemberment Insurance
12. Long Term Care Insurance
13. Dental Insurance
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69. Wisconsin Laws & Ethics
69.11. Insurance Contracts in Wisconsin

Contract Basics & Insurable Interest

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We’re now shifting from licensing and marketing to the contracts themselves. Chapters 631 and 632 of the Wisconsin Statutes set the minimum standards regulating insurance contract terms. They establish explicit standards within which insurers and intermediaries have flexibility to develop terms that fit consumer needs.

What Contracts Are Covered

Chapters 631 and 632 apply to all insurance policies delivered or issued for delivery in Wisconsin on:

  • Persons residing in Wisconsin when the policy or group certificate is issued.
  • Property ordinarily located in Wisconsin.
  • Business operations in Wisconsin.

Exceptions

Unless otherwise specified by order or rule, chs. 631 and 632 do NOT apply to:

  • Death and disability benefits provided by organizations whose principal purpose is not insurance but charitable, educational, social, or religious objectives, when the organization doesn’t incur a legal obligation to pay a specified amount.
  • Group or blanket insurance covering Wisconsin risks if both the policyholder and the group don’t exist primarily to procure insurance, the policyholder isn’t a Wisconsin resident, doesn’t have its principal office in Wisconsin, fewer than 25% of the insureds are Wisconsin residents, and certain legal requirements are met.
  • Transactions independently procured through direct placement with unauthorized insurers in compliance with s. 618.42.
  • Business operations in Wisconsin if the contract is negotiated outside Wisconsin and the Wisconsin operations are incidental or secondary to operations elsewhere.
  • Reinsurance and ocean marine insurance, except for certain specific statutes.
  • Group policies and annuities for eleemosynary institutions (educational, research, religious, or charitable organizations licensed under ch. 615). The Commissioner may by rule exempt additional classes of insurance or insurers from chs. 631 and 632 if Wisconsin policyholders, creditors, or the public don’t require the regulation.

Binders and Oral Contracts

Wisconsin doesn’t forbid oral contracts of insurance or written promises to provide coverage. Both are valid. The insurer must, however, issue a policy as soon as reasonably possible after the negotiation of an oral contract or the issuance of any binder. This is one of the more practical rules — coverage can attach the moment the agent and applicant reach agreement, even before paperwork is processed. It also creates obligations: an agent who gives an oral binder is committing the insurer, so accuracy matters.

Insurable Interest

An insurance company may not knowingly issue a policy to a person who doesn’t have an insurable interest in the subject of the insurance. A person has an insurable interest if they would suffer a disadvantage or loss (especially monetary loss) if the insured event occurred. The owners of a farm have an insurable interest in their own farm. They don’t usually have an insurable interest in the neighbor’s farm.

Life and Disability — Consent of the Insured

For individual life and disability (accident & health) insurance, an insurer may only issue a policy to the person whose life or health is being insured, UNLESS that person gives written consent to the policy being issued to another. Consent is shown when the insured signs the application with the knowledge it concerns insurance on themselves. Consent may also be expressed in any other reasonable way.

Charitable Organizations

A charitable organization is deemed to have an insurable interest and may be the applicant, owner, or beneficiary of a life policy, endowment policy, or annuity issued on the life of any individual. For policies issued on or after March 1, 1994, the charitable organization must obtain the individual’s written consent (or consent by other means authorized by common law or statute).

When Consent Isn’t Needed

Life or disability policies may be taken out by a third party without consent in these situations:

  • Insurance on a dependent who lacks legal capacity.
  • A creditor obtaining a policy (at the creditor’s own expense) on a debtor, in an amount reasonably related to the debt.
  • Insurance on family members living with the policyholder or qualifying as dependents.
  • A disability policy on others that only covers expenses the policyholder would be legally or morally obligated to pay.
  • Limited-period policies on persons serving the federal government outside the continental U.S., when the policyholder is closely related by blood or marriage.

Consent by Another

Consent may be given by another person in these cases:

  • A parent, guardian, or person having legal custody may consent to a policy on a dependent child.
  • A grandparent may consent to life or disability coverage on a grandchild.
  • A court of general jurisdiction may consent when the facts justify it.

Effect of Missing Insurable Interest or Consent

No insurance policy is invalid just because the policyholder lacked an insurable interest or because consent wasn’t given. A court can order the proceeds paid to someone other than the named recipient — someone equitably entitled — or order the proceeds put into a constructive trust subject to the policy’s remaining terms.

Mistakes in Contracts

Unless otherwise provided, general contract law applies to mistakes in insurance contracts. In property insurance, a mistake in designating the person to whom insurance is payable does NOT void the policy. The mistake doesn’t give the insurer a defense unless it was due to misrepresentation or concealment by the owner (or someone representing the owner in getting the policy), or unless the insurer wouldn’t have issued or continued the policy if it had known the truth.

Imputed Knowledge of the Agent

Here’s a rule that catches a lot of new agents off guard. The insurance company is deemed to know any fact material to the risk, or any fact that violates a condition of the policy, IF:

  • The company’s agent who bound the company, issued the policy, or transmitted the application knew the fact at the time, OR
  • Any of the company’s agents later learned the fact during the course of dealing with the policyholder, and knew the fact pertained to the policy. In other words: what you know, the insurer knows. If you write the application and you observed the client’s medical condition or noticed
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Contract Basics & Insurable Interest

We’re now shifting from licensing and marketing to the contracts themselves. Chapters 631 and 632 of the Wisconsin Statutes set the minimum standards regulating insurance contract terms. They establish explicit standards within which insurers and intermediaries have flexibility to develop terms that fit consumer needs.

What Contracts Are Covered

Chapters 631 and 632 apply to all insurance policies delivered or issued for delivery in Wisconsin on:

  • Persons residing in Wisconsin when the policy or group certificate is issued.
  • Property ordinarily located in Wisconsin.
  • Business operations in Wisconsin.

Exceptions

Unless otherwise specified by order or rule, chs. 631 and 632 do NOT apply to:

  • Death and disability benefits provided by organizations whose principal purpose is not insurance but charitable, educational, social, or religious objectives, when the organization doesn’t incur a legal obligation to pay a specified amount.
  • Group or blanket insurance covering Wisconsin risks if both the policyholder and the group don’t exist primarily to procure insurance, the policyholder isn’t a Wisconsin resident, doesn’t have its principal office in Wisconsin, fewer than 25% of the insureds are Wisconsin residents, and certain legal requirements are met.
  • Transactions independently procured through direct placement with unauthorized insurers in compliance with s. 618.42.
  • Business operations in Wisconsin if the contract is negotiated outside Wisconsin and the Wisconsin operations are incidental or secondary to operations elsewhere.
  • Reinsurance and ocean marine insurance, except for certain specific statutes.
  • Group policies and annuities for eleemosynary institutions (educational, research, religious, or charitable organizations licensed under ch. 615). The Commissioner may by rule exempt additional classes of insurance or insurers from chs. 631 and 632 if Wisconsin policyholders, creditors, or the public don’t require the regulation.

Binders and Oral Contracts

Wisconsin doesn’t forbid oral contracts of insurance or written promises to provide coverage. Both are valid. The insurer must, however, issue a policy as soon as reasonably possible after the negotiation of an oral contract or the issuance of any binder. This is one of the more practical rules — coverage can attach the moment the agent and applicant reach agreement, even before paperwork is processed. It also creates obligations: an agent who gives an oral binder is committing the insurer, so accuracy matters.

Insurable Interest

An insurance company may not knowingly issue a policy to a person who doesn’t have an insurable interest in the subject of the insurance. A person has an insurable interest if they would suffer a disadvantage or loss (especially monetary loss) if the insured event occurred. The owners of a farm have an insurable interest in their own farm. They don’t usually have an insurable interest in the neighbor’s farm.

Life and Disability — Consent of the Insured

For individual life and disability (accident & health) insurance, an insurer may only issue a policy to the person whose life or health is being insured, UNLESS that person gives written consent to the policy being issued to another. Consent is shown when the insured signs the application with the knowledge it concerns insurance on themselves. Consent may also be expressed in any other reasonable way.

Charitable Organizations

A charitable organization is deemed to have an insurable interest and may be the applicant, owner, or beneficiary of a life policy, endowment policy, or annuity issued on the life of any individual. For policies issued on or after March 1, 1994, the charitable organization must obtain the individual’s written consent (or consent by other means authorized by common law or statute).

When Consent Isn’t Needed

Life or disability policies may be taken out by a third party without consent in these situations:

  • Insurance on a dependent who lacks legal capacity.
  • A creditor obtaining a policy (at the creditor’s own expense) on a debtor, in an amount reasonably related to the debt.
  • Insurance on family members living with the policyholder or qualifying as dependents.
  • A disability policy on others that only covers expenses the policyholder would be legally or morally obligated to pay.
  • Limited-period policies on persons serving the federal government outside the continental U.S., when the policyholder is closely related by blood or marriage.

Consent by Another

Consent may be given by another person in these cases:

  • A parent, guardian, or person having legal custody may consent to a policy on a dependent child.
  • A grandparent may consent to life or disability coverage on a grandchild.
  • A court of general jurisdiction may consent when the facts justify it.

Effect of Missing Insurable Interest or Consent

No insurance policy is invalid just because the policyholder lacked an insurable interest or because consent wasn’t given. A court can order the proceeds paid to someone other than the named recipient — someone equitably entitled — or order the proceeds put into a constructive trust subject to the policy’s remaining terms.

Mistakes in Contracts

Unless otherwise provided, general contract law applies to mistakes in insurance contracts. In property insurance, a mistake in designating the person to whom insurance is payable does NOT void the policy. The mistake doesn’t give the insurer a defense unless it was due to misrepresentation or concealment by the owner (or someone representing the owner in getting the policy), or unless the insurer wouldn’t have issued or continued the policy if it had known the truth.

Imputed Knowledge of the Agent

Here’s a rule that catches a lot of new agents off guard. The insurance company is deemed to know any fact material to the risk, or any fact that violates a condition of the policy, IF:

  • The company’s agent who bound the company, issued the policy, or transmitted the application knew the fact at the time, OR
  • Any of the company’s agents later learned the fact during the course of dealing with the policyholder, and knew the fact pertained to the policy. In other words: what you know, the insurer knows. If you write the application and you observed the client’s medical condition or noticed

More from Insurance Contracts in Wisconsin

  • Representations, Warranties & Policy Forms