A contractual claim requires an entity that has issued a security to make payments to its purchaser in amounts and intervals specified by the original purchase contract. The person who purchases a bond has a contractual claim on the bond's coupon payments at times indicated in the original bond issue.

Understanding Claims Settlement

A legal contract dispute about how much consideration one of the parties is owed can be settled in several ways:

  • With accord and satisfaction, one party attempts to force action by the other party to settle the dispute. This means that the parties reach an accord with new terms that replace those of the original contract. Satisfaction means that the accord is successfully executed with an exchange of a new consideration that was not included in the original contract.
  • Release from legal contracts settles the dispute by establishing promises on behalf of both parties not to file a lawsuit associated with the claim in question. This release must be made in writing, signed by the parties or their representatives in good faith, and accompanied by distinct consideration.
  • A covenant not to sue is similar to a release from legal contracts except the parties only agree not to file suit about the claim in question, not from suing for breach of contract. Unlike the other two settlement methods, covenants not to sue supplant rather than replace the original contract.

Essential Insurance Contract Components

A valid insurance contract must include the following sections:

  • Offer and acceptance: The offer is the information you send to the insurance company with the terms you are looking for, usually in a form that the company provides. If they agree to provide you an insurance policy in exchange for a premium cost, this constitutes an acceptance.
  • Consideration: These are payments you will make to the insurance company and the settlement funds you receive if you file an insurance claim. Each party must provide consideration, or value for the other party.
  • Legal capacity: You cannot enter into a contract if you are a minor or otherwise mentally unable to consent. Insurers must be licensed and in compliance with applicable laws.
  • Legal purpose: A valid contract must cover only legal activities.

Insurance Contract Values

In most cases, insurance contracts measure loss in terms of money, which makes them indemnity contracts. The principle of indemnity indicates that the insurer pays only for the amount of the loss. If your car is a total loss, you will receive a settlement for its actual value.

Underinsurance occurs if you carry a policy for less than the actual value of your property. For example, say your home is worth $200,000 and your insurance policy is for $150,000, if your home is a total loss you will not receive its full value from the insurance company. Claims must also exceed a minimum amount to be valid, a principle known as excess.

A deductible is the amount you must pay upfront before your insurance covers the rest. If you have a $20,000 loss and a $5,000 deductible, the insurance company will pay the remaining $15,000.

Life insurance and personal accident insurance are typically non-indemnity contracts since your life cannot be quantified by a dollar amount.

Insurable Interest

You can insure any type of property that has the potential to create legal liability or financial loss, a concept known as insurable interest. For example, you can't obtain homeowner's insurance on a house you rent because you do not own the property and thus have no monetary interest. Life insurance policies operate on the same principle since the rest of the family may suffer financial hardship if a parent dies.


This term means that an insurance company can seek legal damages from a third party who caused the insured to suffer a loss. For example, if your car is totaled in an accident where another driver was at fault, the insurer can sue that driver to cover the settlement it pays to you.

Good Faith

Insurance contracts rely on the concept of mutual good faith between the insurer and the insured. This means that you have given truthful information and relevant facts to one another when entering an insurance agreement.

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