New Jersey Surplus Lines Practice Exam

In the context of insurance contracts, a unilateral contract is one where only one party, typically the insurer, makes a legally enforceable promise. The insurer promises to pay for covered losses, while the policyholder does not have to make any promises in return other than paying the premium.

When a breach occurs in a unilateral contract, the insurance company can be held liable because the company has made a commitment to provide coverage as stated in the policy. If the insurer fails to uphold its end of the bargain—such as denying a legitimate claim without proper cause—this breach enables the policyholder to seek legal remedies. Essentially, the enforceable promise made by the insurer is central to the contract's nature, and any failure to honor that promise can result in liability.

Understanding this nature of unilateral contracts is crucial, particularly within insurance contexts, where obligations are often unidirectional. Policyholders rely on the insurer's promises, and breaches of these promises can result in significant consequences for the insurer, making them liable to the policyholder.

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