Deck 50: Insurance

Question 1

An insurer has a duty to avoid paying a claim even if it means acting in bad faith.

Answer 1

False

Question 2

Under a life insurance policy, in the absence of contractual exclusion, any cause of death is one of the insurer's risks.

Answer 2

True

Question 3

Under a coinsur?ance clause, a homeowner who insures a home for 80 percent of its value can recover only 80 percent of the cost for damage to it.

Answer 3

False

Question 4

An incontestability clause prohibits an insurer from contesting statements made in an insurance application until a specified time has elapsed.

Question 5

A broker is not an agent of the insurance company or the applicant.

Question 6

An absolute defense against payment exists if the insurer can show that the insured lacked an insurable interest.

Question 7

An insurance company may cancel an insured's policy for any reason and at any time.

Question 8

A business organization cannot obtain insurance on the life of a person, even on the life of an individual who is important to that organization.

Question 9

An insurance company may require an applicant to give the company permission to access the applicant's private medical records and credit ratings, for the purpose of evaluating the risk.

Question 10

Employer's liability insurance insures an employer against liability for injuries or losses sustained by employees during the course of their employment.

Question 11

When there is an ambiguity in an insurance policy, the provision generally is interpreted against the insurance company.

Question 12

Before a loss has occurred, a fire insurance policy is assignable without the consent of the insurer.

Question 13

A pro rata clause requires that all carriers proportionately share in any loss.

Question 14

The words used in an insurance contract are given their ordinary meanings in light of the nature of the coverage involved.

Question 15

A person who is obtaining insurance from an insurance company's agent is not usually protected until a formal written policy is issued.

Question 16

For an insurance contract to be binding, consideration in the form of a premium must be given.

Question 17

Misstatements or misrepresentations in an application for insurance can affect the amount of a premium but cannot void a policy.

Question 18

Businesses typically protect their financial interests by obtaining insurance.

Question 19

Comprehensive general liability insurance can encompass as many risks as the insurer agrees to cover.

Question 20

For property insurance, the insurable interest must exist when a policy is purchased.

Question 21

EquipLease Company pays a premium to Federated Insurance Inc. for fire insurance against the loss of EquipLease's offices, warehouse, and storage center. After EquipLease sells the facilities to Great State Trucking, Inc., the warehouse is lost in a fire. Under the policy, Federated must pay

A) neither EquipLease nor Great State.
B) EquipLease and Great State proportionately.
C) EquipLease only.
D) Great State only.

Question 22

Bev is an employee of the accounting firm Catz & Douglas, which ob?tains key-person life in?surance on Bev in the amount of $1 million from Equity Insurance Company. Bev quits Catz & Douglas to join Financial Analysis, LLC. Bev dies. Under the principle of insurable interest, Equity Insurance must pay the $1 million to

A) Bev's spouse Grant.
B) Catz & Douglas.
C) Financial Analysis.
D) no one.

Question 23

Estelle, who owns and operates a commercial dairy farm, obtains a policy from Farm & Ranch Insurance Company, which agrees to pay $500,000 to Gabe, Estelle's son and beneficiary, on her death. This is

A) disability insurance.
B) health insurance.
C) liability insurance.
D) life insurance.

Question 24

Myles obtains a property insurance policy from Nova Insurance Company for Myles's restored 1957 Chevy. Nova can cancel the policy

A) if Myles increases the risk assumed by the Nova.
B) if Myles files a claim under the policy.
C) if Myles appears as a witness in a case brought against Nova.
D) under no circumstances.

Question 25

Root & Branch Lumber Company obtains a fire insurance policy from Security Insurance, Inc., on a $400,000 warehouse. The policy includes an 80-percent coinsurance clause. Root & Branch insures the property for $320,000. In a fire, the warehouse suffers $200,000 in damage. Root & Branch can recover

A) $400,000.
B) $320,000.
C) $200,000.
D) $80,000.

Question 26

Dental Clinic obtains an insurance policy that protects its members against negligence claims by their pa?tients. This is

A) casualty insurance.
B) employer's liability insurance.
C) malpractice insurance.
D) workers' compensation insurance.

Question 27

The Fish House, a seafood restaurant, obtains from Guaranty Insurance Company a policy that pro?vides if a dispute arises between the parties concerning the settle?ment of a claim, the dispute must be submitted to an impartial third party, not a court, for resolution. This is

A) an antilapse clause.
B) an arbitration clause.
C) an appraisal clause.
D) an incontestability clause.

Question 28

Durant obtains a life insurance policy with no cash surrender value or cash value, and names his daughter Elise as the beneficiary. This is

A) limited-payment life insurance.
B) term insurance.
C) universal insurance.
D) whole life insurance.

Question 29

Grid Tool Company makes and sells tools and other hardware supplies. To cover injuries to consumers if the products prove de?fective, Grid Tool should obtain

A) disability insurance.
B) health insurance.
C) liability insurance.
D) life insurance.

Question 30

Reno is the beneficiary of a life insurance policy on Sula's life obtained from Traditional Insurance Company. The underwriter of this policy is

A) Reno.
B) Sula.
C) Traditional Insurance.
D) the agent or broker through whom the policy was obtained.

Question 31

Commerce & Business Insurance, Inc., has a valid reason to cancel a policy issued to DIY Auto & Truck Parts Company. In most states, Commerce & Business could cancel the policy

A) on advance oral or written notice.
B) on oral or written notice but only after arbitration.
C) without notice.
D) on advance written-not oral-notice.

Question 32

Ollie obtains a health-insurance policy for his family from Protection Insurance Company. The policy includes an incontestability clause. Under such a clause, after a policy has been in force for a specified period or time, such as two or three years

A) Ollie cannot contest Protection's insurable interest.
B) Ollie cannot contest Protection's refusal to pay a claim.
C) Protection cannot contest Ollie's eligibility for continued coverage.
D) Protection cannot contest Ollie's statements in the application.

Question 33

Rafe obtains a fire insurance policy on his vacation cabin near Smoky Mountain from Torchlight Insurance Company. The cabin is lost in a fire, but the parties dispute the amount of Torchlight's liability under an ambiguous clause in the policy. A court would most likely

A) interpret the clause against Rafe.
B) interpret the clause against Torchlight.
C) rewrite the clause and apply it as rewritten.
D) strike the clause from the policy.

Question 34

WeatherGuard Roofing Corporation obtains an insurance policy that protects WeatherGuard against liability in the event of injuries or losses sustained by its employees during the course of their employment that are not covered under workers' compensation insurance. This is

A) casualty insurance.
B) employer's liability insurance.
C) key-person life insurance.
D) term life insurance.

Question 35

Ethel obtains a life insurance policy from Fidelity Insurance Company, naming her spouse Grover as the beneficiary. Ethel and Grover are di?vorced. There is no provision in the policy about divorce. On Ethel's death, Fidelity must pay

A) no one because Ethel and Grover are divorced.
B) Ethel's estate and Grover jointly.
C) Grover.
D) Ethel's estate.

Question 36

Shipping Corporation applies to TransInsurance Company for a fire insurance pol?icy on Shipping's warehouse. On the application, Shipping understates the age of the property to obtain a lower premium. When a fire destroys the ware?house, TransInsurance can

A) deny payment, because a fire destroyed the warehouse.
B) deny payment, because of fraud in the application.
C) not deny payment, because a fire destroyed the warehouse.
D) not deny payment, because the application is not part of the policy.

Question 37

Anna obtains a business liability insurance policy for her Brew & Bagels Coffee Shop from ChoiceFirst Insurance Company. When an event occurs that gives rise to a claim, each party has a duty to

A) cooperate in an investigation to determine the facts.
B) file a suit against the other so that a court can settle the claim.
C) find a third party on whom to impose liability.
D) pay any outstanding premium or refund any unearned amount.

Question 38

Grace applies for a homeowners' insurance policy on her house with Heroic Insurance Company through Ian, a broker. In this transaction, Ian is

A) an agent for both parties.
B) Grace's agent, and not Heroic's agent.
C) Heroic's agent, and not Grace's agent.
D) not an agent for either party.

Question 39

Gwen applies for a homeowners' insurance policy on her house with Home & Life Insurance Company through Ivy, an agent who works for Home & Life. In this transaction, Ivy is

A) an agent for both parties.
B) Gwen's agent, and not Home & Life's agent.
C) Home & Life's agent, and not Gwen's agent.
D) not an agent for either party.

Question 40

Lamont applies for a health insurance policy with MedInsure, Inc., an insurance company, through Netta, an agent who works for MedInsure. Lamont pays the initial premium. Netta writes a binder, which

A) acknowledges the application and promises to consider it.
B) attests to the truth of each statement in the application
C) evidences receipt of the payment of the initial premium.
D) indicates that a policy is pending and states its essential terms.

Question 41

Francesca, who is divorced, owns a house. She has no reasonable expectation of benefit from the life of Gordo, her ex-spouse, but she applies for insur?ance on his life anyway. She also obtains a fire insurance policy on the house, which she later sells. Five years later, Gordo dies and the house is destroyed in a fire. Can Francesca obtain payment on either the death of Gordo or the loss of the house? Explain.

Question 42

eDigital Enterprise Corporation discovers a defect in its newly developed, recently marketed tablets. eDigital decides to recall the prod?uct and replace it with another. eDigital's in?surance policy with Finance & Business Insurance Company will cover any harm to customers that oc?curs before the tablets are returned. Is it likely that the policy will also pay for the recall and replacement? If so, what type of policy does eDigital have?