Deck 51: Insurance Law

Question 1

Which of the following suggests that people who are insulated from risk sometimes behave differently?

A) Moral hazard
B) Negligence
C) Strict liability
D) Coverage insulation
E) Coverage protection

Answer 1

A
Explanation: Moral hazard suggests that individuals who are insulated from risk sometimes behave differently.

Question 2

Which of the following refers to the potential for loss in an insurance agreement?

A) Risk
B) Loss
C) Premium
D) Distribution
E) Outlay

Answer 2

A
Explanation: The most important element of the insurance agreement is risk, the potential for loss.

Question 3

As a matter of federal law,arbitration clauses are illegal in policies of insurance.

Answer 3

False
Explanation: Some insurance contracts include clauses that force both the insurer and the insured to submit any dispute to an arbitrator.

Question 4

Premiums for whole-life insurance are generally smaller than those for term-life insurance.

Question 5

A[n] ______ is a term identifying the person who receives insurance proceeds in the event of injury or damage.

A) Receiver
B) Obtainer
C) Insured
D) Beneficiary
E) Identified

Question 6

Which of the following is a term used to define the payment made by an insured party in exchange for a later payment by an insurer in the event of damage or injury to insured property or person?

A) Tag
B) Bill
C) Premium
D) Assessment
E) Requirement

Question 7

The parties express their agreement for insurance in a document called a[n] _____.

A) Catalog
B) Brochure
C) Application
D) Notification
E) Policy

Question 8

The government spends large amounts on social insurance.

Question 9

Which of the following was the result in Life Partners Inc.,v.Miller,the case in the text involving the validity of a state law in Virginia requiring that viatical insurance companies pay certain amounts to terminally-ill policyholders who sell their policies?

A) That the law constituted a valid exercise of the state's police powers and was therefore constitutional.
B) That the law discriminated against interstate commerce and was therefore unconstitutional.
C) That the law violated the commerce clause and was therefore unconstitutional.
D) That the law violated the equal protection clause and was therefore unconstitutional.
E) That the law violated the due process clause and was therefore unconstitutional.

Question 10

Life insurance protects a person who is unable to work due to disability.

Question 11

Which of the following is false regarding Internet liability protection policies?

A) They typically cover claims involving copyright and trade infringement.
B) They typically cover claims involving alleged plagiarism committed via the Internet.
C) They typically cover claims involving failure to protect confidential information gathered online.
D) They typically cover claims involving failure to stop a computer virus.
E) They typically cover claims involving related to patents or trade secrets.

Question 12

In an insurance contract,the beneficiary is another name for the insured.

Question 13

Federal law is the primary law addressing when an insurance company can cancel a policy of insurance.

Question 14

Which of the following was the result in Hartford Underwriters Insurance Company v.The Cincinnati Insurance Company,the case in the text involving whether insurance coverage was available to a party injured when a vehicle hit her while she was loading a van and the policy at issue provided coverage for a person "occupying" a vehicle defined as "in,upon,getting in,on,out or off"?

A) That a jury question was presented as to the meaning of the policy language.
B) That any ambiguity in the language was resolved against the insurer writing the policy, that a reasonable reading of the policy included the claim, and that coverage was therefore available.
C) That any ambiguity in the language was resolved against the claimant, that a reasonable reading of the policy indicated that incidents of the type involved were excluded, and that coverage was therefore unavailable.
D) That the language was not ambiguous and that it clearly provided coverage.
E) That the language was not ambiguous and that it clearly excluded coverage.

Question 15

A commercial general liability policy provides protection against intentional wrongful acts committed by an insured.

Question 16

Which of the following was the result in Royal Capital Development LLC v.Maryland Casualty Company,the case in the text involving whether on a policy of insurance covering "direct physical loss of or damage to" a building that allows the insurer the option of paying either "the cost of repairing the building" or "the loss of value," the insurer must also compensate the insured for the diminution in value of the building if the insured elects to repair the building?

A) That the insurer could choose between repairing the building or paying for its loss of value and that once proper repairs were made, the insurer had no obligation to cover any diminution in value.
B) That unless the insured notified the insurer prior to the beginning of repairs that a claim for diminution in value would be made, the issue was waived because the insurer was entitled to take such a claim into consideration in making its decisions.
C) That a claim for diminution in value could be made only if the insurer delayed in making repairs such that the insured had an equitable claim for diminution in value.
D) That when a policy promised to pay the insured's loss, the insured has no claim for diminution in value if repairs are made.
E) That when a policy promised to pay the insured's loss, the insured had a claim for diminution in value even if repairs were made.

Question 17

The insured party in insurance law is the party who makes a payment to an insurance company,called a premium,in return for insurance coverage.

Question 18

Insurance is defined as a contract in which the insured party makes payments to the insurer in exchange for the insurer's promise to make payment or transfer goods to another party in the event of injury or destruction to the insured party's property or life.

Question 19

An insurer may also be called a[n] _____.

A) Overseer
B) Underseer
C) Overwriter
D) Underwriter
E) Guarantor

Question 20

Through the insurance agreement,the insured party transfers his or her risk of loss of property or life to the insurance company.

Question 21

A workers' compensation insurance policy is an example of which of the following types of insurance?

A) Casualty
B) Loss
C) Economic
D) Business
E) Injury

Question 22

A policy of fidelity insurance is an example of which of the following types of insurance?

A) Business loss
B) Profit loss
C) Commercial
D) Economy
E) Economic

Question 23

An individual would purchase ______ insurance to protect his or her business from tort liability to third parties.

A) Tort
B) Property
C) Litigation
D) Group
E) Liability

Question 24

The ______ is the term used for the date an insurance policy begins coverage of an insured.

A) Insured date
B) Effective date
C) Application date
D) Acceptance date
E) Covered date

Question 25

Which of the following types of insurance should a business manager purchase to obtain protection against a broad range of risks?

A) A commercial general liability policy
B) A business tort policy
C) A litigation commercial policy
D) An economic protection policy
E) A business approved policy

Question 26

A[n] ______ is an agreement between an applicant and an insurance company that gives temporary insurance until the company decides to accept or reject the insurance application.

A) Application
B) Binder
C) Notarization
D) Approval
E) Anticipatory agreement

Question 27

If insurance covers some type of business risk,the insurance is called ______ insurance.

A) Business loss
B) Profit loss
C) Commercial
D) Economy
E) Economic

Question 28

If the purpose of an insurance policy is to protect property from loss or damage,the insurance is ______ insurance.

A) Material
B) Loss
C) Economic
D) Business
E) Property

Question 29

A policy of title insurance is an example of which of the following types of insurance?

A) Business loss
B) Profit loss
C) Commercial
D) Economy
E) Economic

Question 30

Penny,a bit of a hypochondriac,decides that she should have MRIs covering her whole body and insists that her doctor order them.Penny tells her doctor that she is not concerned about cost because she has great insurance.Which of the following is the appropriate and recognized term for the problem associated with her behavior as far as an insurer is concerned?

A) Hypochondria neurosis
B) Hypochondria psychosis
C) Moral hazard
D) Medical excessiveness
E) Unfair persuasiveness

Question 31

If an insurance policy covers an individual's life or health,the insurance is ______ insurance.

A) Personal
B) Unitary
C) Individual
D) Family
E) Protection

Question 32

Which of the following was the result on appeal in Equity Fire & Casualty Company v.Laurence Traver,the case in the text in which an insured on a policy of automobile insurance mailed a premium to the insurer,but it did not reach the insurer prior to the expiration date of the policy; and the insurer refused to provide coverage for a motor vehicle accident that occurred after the expiration date of the policy and before the premium was received?

A) The court ruled that coverage was required under the policy because of the mailbox rule.
B) The court ruled that coverage was not required under the policy because of the mailbox rule.
C) The court ruled that coverage was not required under the policy because the insured did not meet his obligation of seeing that the premium amount was received by the insurer in a timely manner.
D) The court ruled that coverage was required because the insured had a grace period of 7 days in order for the payment to arrive.
E) The court ruled that under the unique facts of the case, there was acceptance of the renewal offer preventing a lapse of the policy.

Question 33

A[n] ______ clause states that after an insurance policy has existed for a specified period of time,the insurance company cannot contest any statements made in the insurance application.

A) Antilapse
B) Incontestability
C) Assurance
D) Approval
E) Waiver

Question 34

If a policy of insurance protects a person or property from accidental injury,the insurance is referred to as ______ insurance.

A) Casualty
B) Loss
C) Economic
D) Accidental
E) Injury

Question 35

Which of the following is true regarding whether the insureds in the "Case Opener" were entitled to insurance coverage for imported toxic Chinese drywall used in their home?

A) The court ruled that the insureds were entitled to coverage for both property damage and personal injury based on their insurance company's warranties.
B) The court ruled that the insureds were entitled to property damage coverage because of their insurance company's warranties, but not coverage for personal injuries.
C) The court ruled that the insureds were entitled to coverage for personal injuries because of their insurance company's warranties, but not coverage for property damage.
D) The court ruled that the insureds were entitled to full coverage only if they could establish that the insurer knew of the drywall problems when it issued the policy.
E) The court ruled that the insureds were not entitled to coverage.

Question 36

To have a[n] ______ in property or life,a person must be subject to economic loss if there is damage or harm to the person or property.

A) Acknowledged loss
B) Protected loss
C) True injury
D) Insurable interest
E) Understandable failure

Question 37

Which of the following types of insurance protects contractors against liability for injuries that might occur while completing a job,excluding injuries to employees?

A) Professional liability
B) Compensation insurance
C) Contractors' liability
D) Building liability
E) Harm liability

Question 38

Which of the following is false in regard to an insurer's right to cancel a policy of insurance?

A) An insurer who rightfully cancels a policy is not required to a refund of premium payments covering future time periods.
B) Typically a grace period is required before a policy may be cancelled.
C) State statutes usually govern the circumstances under which an insurer may cancel a policy.
D) If an insured fails to pay premiums after a certain period, the insurance company may cancel.
E) Car insurance may be canceled if the insured loses her license because of a driving violation.

Question 39

A[n] ______ clause states that the insured has a grace period in which to make an overdue payment during which time the insurance is effective.

A) Antilapse
B) Incontestability
C) Assurance
D) Approval
E) Waiver

Question 40

The transfer and distribution of risk done by an insurer is known as _____.

A) Insurance management
B) Insured protection
C) Spread protection
D) Risk management
E) Casualty management

Question 41

Which of the following is most likely true regarding Sally's reliance on an incontestability clause if typical state laws are in effect?

A) Sally is correct, and the insurance has been in effect over one year, a sufficient length of time for the incontestability clause to bar any defense by the insurer based on her failure to mention Bobby on the application.
B) Sally is incorrect because the incontestability clause does not generally apply until coverage has been in effect for at least two years.
C) Sally is incorrect because the incontestability clause operates to deny her the right to dispute inaccuracies on the application, not as a bar against the insurer.
D) Sally is correct because the incontestability clause acts to bar an insurer from denying coverage in cases in which any driver with permission is driving an insured's vehicle.
E) Sally is incorrect because incontestability clauses were barred by federal law a number of years ago.

Question 42

Which of the following types of insurance provides a specific sum of money on the death of the insured?

A) Casualty
B) Consumer
C) Risk
D) Life
E) Occurrence

Question 43

Which of the following is true regarding the assertion of Alice that the insurer was not liable for accidents that were the fault of the insured?

A) Alice is correct because insurance on vehicles is meant to assist drivers who are involved in accidents through no fault of their own.
B) Alice is correct only if Prudence has had at least two previous accidents.
C) Alice is only correct if Prudence is still carried on a parent's insurance policy.
D) Alice is likely correct only because Prudence is a student with a student policy.
E) Alice is incorrect.

Question 44

On which of the following legal theories would the insurer likely attempt to deny coverage?

A) Negligence
B) Recklessness
C) Breach of contract
D) Misrepresentation
E) Illegality

Question 45

Which of the following is false regarding marine insurance in Scotland?

A) Scotland has a Marine Insurance Act in its mercantile law that addresses insurance contracts.
B) Marine insurance policies cover most marine activities including liability to third parties in the event of difficulties while at sea.
C) Marine insurance policies are among the most simple and easy to understand insurance policies.
D) Marine insurance policies tend to be exacting.
E) Before an insurer will sign a policy, the value of the item insured must be specified in the contract.

Question 46

Which of the following is true regarding Mark's statement that Sally would never see a jury?

A) He is correct based on provisions in most policies denying the insured the right to contest policy provisions.
B) He is incorrect, and insurers may not require as a condition of a policy that an insured give up the right to a trial by jury.
C) He is correct based on provisions in most policies providing that the insurance company has the final word regarding coverage.
D) He is likely referencing a provision requiring arbitration contained in some policies.
E) He is likely referencing a provision requiring that any dispute be settled by the Insurance Adjustors of America contained in some policies.

Question 47

Which of the following types of insurance protects a garage owner from liability to persons who are injured by the operation of the garage?

A) Transportation liability
B) Employee liability
C) Garage liability
D) Vehicle liability
E) Peril

Question 48

Which of the following is true regarding whether ABC Insurance will be required to provide coverage on the jeep?

A) ABC will likely not be required to provide coverage on the jeep because Image made material misrepresentations in the renewal of the policy that would have prevented its renewal.
B) ABC will likely be required to provide coverage on the jeep because any misrepresentations made were innocently made in the belief that the jeep would be returned soon.
C) ABC will not have to provide coverage because Image did not have an insurable interest in the jeep.
D) ABC will have to provide coverage unless Bruno had already obtained his own insurance on the vehicle because one vehicle may only be insured under one policy.
E) ABC will not likely be required to provide coverage because Bruno's new employer was liable under workers' compensation.

Question 49

Which of the following types of life insurance provides protection for the entire life of the insured and has a cash-surrender value?

A) Whole-life
B) Term-life
C) Surrender-life
D) Useful-life
E) Entire-life

Question 50

Which of the following is true regarding the assertion of Alice that vehicle insurance policies do not generally provide coverage for legal representation?

A) She is incorrect.
B) She is correct only in situations in which a student with a student policy is involved in an accident.
C) She is correct only in situations in which an insured has had at least two previous accidents.
D) She is correct only in situations in which a student is carried on a parent's insurance policy.
E) She is correct because insureds are expected to shoulder some of the burden of accidents.

Question 51

Property of Mary is damaged in a fire.She claims the property damage amounted to $10,000,and the insurer claims it only amounted to $5,000.Which of the following is true in this situation?

A) Mary should demand an appraisal under her policy's appraisal clause.
B) Mary has no alternative because she must accept the insurer's valuation.
C) The insurer is required to accept the insured's valuation unless the insurer can establish that the insured failed to act in good faith.
D) Mary should call the state inspector who investigates and makes rulings in such cases.
E) Mary should file for a field evaluation.

Question 52

Which of the following is true regarding Alice's complaint that Prudence failed to help?

A) Prudence had a duty to cooperate with the insurer.
B) Prudence's only duty was to show up for court; otherwise she had no duty to assist the insurer.
C) Prudence's only duty was to show up for a court and for any depositions for which she received a subpoena; otherwise, she had no duty to cooperate with the insurer.
D) Prudence had a duty to assist the insurer and to provide a share of funds to help the insurer in defending her claim.
E) Prudence had a duty to cooperate with the insurer only because it appears that the accident was her fault.

Question 53

Which of the following is a term referencing the concept that a sufficient interest must exist on the part of an insured in order to take out a policy of insurance?

A) Insurable interest
B) Pecuniary interest
C) Financial concern
D) Financial effect
E) Profit impact

Question 54

Which of the following types of insurance protects the producer or manufacturer of a good from loss incurred by people who are injured using the good?

A) Contractors' liability
B) Strict liability
C) Product liability
D) Business operations
E) Consumer protection

Question 55

Which of the following is true regarding the reduction of the impact of moral hazard by insurers?

A) It is not possible for insurers to reduce the risk of moral hazard, and this is seen as a risk of doing business.
B) Insurers refuse to pay claims believed to result from the effects of moral hazard.
C) The only avenue for insurers seeking to reduce moral hazard is through the use of deductibles.
D) The only avenue for insurers seeking to reduce moral hazard is through refusing to insure those who have previously made multiple insurance claims.
E) Insurance companies lessen the impact of moral hazard by requiring that individuals with insurance make co-payments or pay a deductible.

Question 56

Which of the following is false regarding insurance and the international sale of goods?

A) Manufacturers typically have insurance only in their home country because, under international law, the home country's law would be applied in the event of disputes.
B) Product liability awards may vary in amount from country to country.
C) Complications may arise from having insurance companies in several different countries.
D) A manufacturers in Germany, for example, could seek insurance through a German insurance company regardless of where its products are shipped.
E) Today, manufacturers are likely to have an insurance company in every country to which they ship goods.

Question 57

Which of the following types of insurance protects members of specific professions from liability associated with their professional acts?

A) Business liability
B) Licensed
C) Trained liability
D) Professional liability
E) Consumer

Question 58

Which of the following is true regarding the contention of ABC Insurance that it is not required to pay to Image Company the amount for which Bruno's life was insured?

A) ABC Insurance Company is incorrect because Image Company held an economic interest in Bruno's life at the time the insurance was purchased.
B) ABC Insurance Company is correct because Image Company no longer had an economic interest in Bruno's life.
C) ABC Insurance Company is correct only if Bruno's new employer had purchased life insurance on his life.
D) ABC Insurance Company is incorrect because Image Company had an economic interest in Bruno based on his possession of the jeep that Image Company still owned.
E) ABC Insurance Company is incorrect only if Image Company owed Bruno retirement or some other sort of benefit.

Question 59

Which of the following,if any,will ABC Insurance most likely be required to prove in order to deny coverage based on the discrepancy between the application and Bobby's driving?

A) Only that Sally's misrepresentation was material.
B) Only that the company's knowledge of the misrepresentation would have resulted in rejection of Sally's application.
C) Both that Sally's misrepresentation was material and that knowledge of the misrepresentation would have resulted in the refusal to provide insurance.
D) That Sally's misrepresentation was material; that knowledge of the misrepresentation would have resulted in rejection of her application; and that the insurer's loss would be in an amount over $10,000.
E) There is no proof that ABC Insurance can provide to avoid coverage because, as a matter of law, it is clear that coverage must be provided based on Bobby's permissive use of the vehicle.

Question 60

Which of the following types of life insurance provides coverage for a specified term?

A) Whole-life
B) Term-life
C) Surrender-life
D) Useful-life
E) Entire-life

Question 61

What is meant by an antilapse clause,and how do these usually work? Do you believe that all states and all types of policies should have antilapse clauses,and why or why not?

Question 62

What is usually the effect if a person who is in good health lies about their age on an application for life insurance and the misrepresentation is discovered at the time of the person's death?

Question 63

What is the effect of an appraisal clause in a policy of insurance,and how do these usually work?

Question 64

What is an incontestability clause in a policy of insurance,and what is its effect? Discuss whether you believe that ethically these clauses should be required of insurers.

Question 65

Sally is involved in a motor vehicle accident.She is sued by George,the driver of the other vehicle.Sally calls her insurer and tells them to handle it for her.Later,she is asked to give some information to the insurer regarding the incident and to give a deposition in litigation.She tells the insurer that she is too busy and that the insurer should simply handle the matter because that is the reason she has insurance; and that,furthermore,the insurer should not call her again regarding the accident.Is Sally correct about her duties and why or why not?