Deck 31: Security for Debt

Question 1

An insurer's liability is limited by

A) the doctrine of subrogation.
B) contribution.
C) the doctrine of utmost good faith.
D) B and C.
E) All of the responses are correct.

Answer 1

E

Question 2

An insurable interest

A) generally must exist both at the time the contract of insurance is made and when the event, resulting in a loss, occurs.
B) may be shown by a creditor.
C) is anything that benefits the insured by its continued existence which, if changed, would represent a loss.
D) may arise from a security interest in property.
E) All of the responses are correct.

Answer 2

E

Question 3

Franco loaned $1 million to Rocco. At the time the loan was made Franco purchased $1 million life insurance on Rocco's life. Rocco repaid the debt then died. Can Franco collect on the life insurance policy?

A) Yes, Franco had an insurable interest at the time the policy was purchased.
B) No, Franco did not ever have an insurable interest in Rocco's life.
C) No, Franco did not have an insurable interest in Rocco's life at the time of his death.
D) Yes, an insurable interest will exist if Rocco is Franco's father.
E) Yes, unless Rocco committed suicide.

Answer 3

A

Question 4

Where two or more insurers properly pay out funds against a loss to an insured, it is as result of

A) subrogation.
B) contribution.
C) co-insurance.
D) endorsements.
E) None of the responses are correct.

Question 5

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. If the fire damage was
$8,000, the insurer would only be obliged to pay one half of the loss, because Henderson had insured the building for half of its value.

Question 6

The contract of insurance is

A) not subject to the general laws of contract and the Common Law.
B) substantially the same as a wagering agreement.
C) treated as a contract of utmost good faith.
D) None of the responses are correct.
E) All of the responses are correct.

Question 7

The doctrine of subrogation

A) protects the insured against double recovery.
B) entitles the insured to sue third parties.
C) arises where loss is caused to the insured by a third person.
D) All of the responses are correct.

Question 8

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% coinsurance clause. Some time later, the building was damaged by fire. Under the co-insurance clause, the insurer would only be required to pay 80% of the face amount of the policy if the building was totally destroyed by fire.

Question 9

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. If the fire damage was
$8,000, the insurer would only be obliged to pay $5,000 of the claim.

Question 10

Is a disability insurance policy a contract?

A) Yes.
B) No, there is no mutual consideration
C) No, there is no capacity by the insured once the disability results.
D) No, it is a contract of wager, which is illegal.
E) Yes, unless the beneficiaries are minors.

Question 11

Giant Motor Car Co. is in the business of automobile manufacturing and parts assembly. It uses a Just-In-Time inventory system, which greatly reduces inventory costs. The only difficulty, however, is that it leaves Giant somewhat vulnerable to supply stoppages. Giant has only 48 hours of raw materials inventory at any given time.

A) Giant has an insurable interest in maintaining inventory supply.
B) Giant could obtain insurance against a strike at the plant of a parts supplier.
C) Giant could obtain life insurance for its inventory scheduler.
D) All of the responses are correct.

Question 12

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. Under a co-insurance clause, the insured becomes a partial insurer if he fails to maintain the required amount of insurance on the insured property.

Question 13

Martin was injured in a fall while visiting Adam's home when Adam negligently failed to clear snow and ice from his walkway. Both Martin and Adam carry liability coverage.

A) Adam may claim under his policy for amounts he will have to pay to Martin to compensate for his injuries.
B) Martin may claim indemnity for loss due to his injuries under his own policy of insurance.
C) Martin's insurer may take legal action against Adam for damages on Martin's behalf.
D) Martin's insurance premiums are likely to rise.
E) None of the responses are correct.

Question 14

The insurance agent

A) acts for the insured.
B) is responsible to ensure that the insurer meets its obligations under the insurance contract.
C) may be liable where an insured suffers a loss due to insurance coverage.
D) All of the responses are correct.

Question 15

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. Assuming that the fire completely destroyed the building, Henderson would only be entitled to claim for $10,000 under his insurance policy.

Question 16

In every insurance contract

A) there is an endorsement.
B) an insurable interest must be present.
C) the insured pays the premiums.
D) there is an endorsement and an insurable interest must be present.
E) All of the responses are correct.

Question 17

Eugene's car is rear-ended by Larissa's car. Eugene's car is totalled. Eugene's insurance company compensates him for all damages arising from the accident. What right does Eugene's insurance company have to his car?

A) Salvage
B) Subrogation
C) Contribution
D) Co-insurance
E) Indemnity

Question 18

What is the legal test for determining whether an insured had an obligation to disclosure a particular fact to the insurer?

A) Whether withholding the information breached the doctrine of utmost good faith.
B) Whether withholding the information breached the insurable interest.
C) Whether withholding the information constituted a breach of the insurance policy.
D) Whether withholding the information have influenced the insurer's decision to decline the risk or stipulate a higher premium.
E) None of the responses are correct.

Question 19

Eugene's car is rear-ended by Larissa's car. Eugene's car is totalled. Eugene's insurance company compensates him for all damages arising from the accident. What right does Eugene's insurance company have to sue Larissa for negligence?

A) Salvage
B) Subrogation
C) Contribution
D) Co-insurance
E) Indemnity

Question 20

Monique, a sculptor, insured one of her pieces she was displaying at an art show. On the first day of the show she sold the piece for $1,000 cash to Brown, who agreed to leave it on display until the show's completion in five days. That night the piece was stolen.

A) Monique may claim her loss from the insurance company.
B) Brown may claim the loss under the insurance policy.
C) Monique may claim the loss under the insurance policy on Brown's behalf.
D) Neither Monique nor Brown may recover under the insurance policy.
E) None of the responses are correct.

Question 21

Through the principle of co-insurance, the insured may in fact become his or her own insurer.

Question 22

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. Henderson's failure to disclose the true value of the property to the insurer is misrepresentation, and would allow the insurer to avoid paying anything to Henderson when the loss occurred.

Question 23

Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500, and dismantled it. If the insurer, unaware of the fraud, paid Andre for the claimed loss of his automobile, the insurer is entitled to a transfer of the title to the vehicle.

Question 24

Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Tom cannot collect the proceeds of the insurance policy on Leanne's life because Tom was responsible for Leanne's death.

Question 25

Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500, and dismantled it. The insurer may claim the parts of Andre's automobile if it later discovers that the parts are in the possession of Andre's friend.

Question 26

Where an insured places coverage with three different brokers, each broker will have to contribute to a loss, but the total paid to the insured may not exceed the loss itself.

Question 27

A building worth $200,000 sustains $10,000 in damage. It was covered by a $120,000 policy with an 80% co-insurance clause. The indemnity paid by the insurer will be $7,500.

Question 28

Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500, and dismantled it. Andre's actions in this case would constitute a fraud on the insurer if he claimed that the automobile had been stolen.

Question 29

A pecuniary interest in property of another is insufficient to create an insurable interest in that property.

Question 30

The chief difference in law between insurance contracts and wagering is that one cannot make a profit from having insurance.

Question 31

Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Rahini may collect the proceeds of the insurance policy she held on Leanne's life because she was the named beneficiary.

Question 32

George, a former intravenous drug user, was worried about his future health. To him it was easier to live in doubt as to whether he had contracted the AIDS virus than face the fact if the test was positive, so he never obtained a blood test. He applied for life insurance and answered the general questions truthfully, adding the phrase "as far as I know." Should his past later come to light, the insurance company could refuse to honour the policy.

Question 33

Liability insurance is designed to compensate for losses experienced by an individual through the negligence of another.

Question 34

Where a building, insured against fire, burns to a source of fire totally unforeseen by the insured and the insurer, no obligation to indemnify rests upon the insurer.

Question 35

Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Neither Tom nor Rahini had an insurable interest in Leanne's life.

Question 36

Where an insurer pays indemnity to an insured, the insurer could have a right of salvage and will have a right of subrogation if a third party caused the damage.

Question 37

Andre insured his automobile against theft under a policy of insurance. Shortly after he had insured the vehicle, he found himself short of cash, and offered to sell the vehicle to his friend for $500 if his friend would dismantle it for parts. Andre did not tell his friend that he intended to claim that the car had been stolen. His friend bought the car for $500, and dismantled it. If the loss is paid by the insurer, and the insurer later becomes aware of the fraud, the insurer may recover the money paid to Andre.

Question 38

The main principle of law in the case Fine's Flowers Ltd. et al. v. General Accident Assurance of Canada et al. (1974), 81
D.L.R. (3d) 139 is that an insured may sue an insurance agent if the agent fails to included requested coverage in a policy and subsequent loss occurs.

Question 39

Henderson owned a concrete block building valued at $20,000. Because it was virtually fireproof, he insured it for only $10,000 under a policy of insurance which contained an 80% co-insurance clause. Some time later, the building was damaged by fire. A fire insurance policy is a contract of utmost good faith.

Question 40

Tom, Leanne, and Rahini carried on business together in partnership. Arrangements were made whereby each partner held a policy of life insurance on the other partners, and were the beneficiaries named in the policies. Several years later, Tom murdered Leanne. Neither Tom nor Rahini may recover the proceeds of the insurance policies they carried on Leanne because, as partners, Rahini would also be liable for the act of Tom.

Question 41

The nature of insurance is to provide indemnity for loss rather than to profit from loss. Explain how the structure of the insurance relationship prevents profiting from insurance claims.

Question 42

The enterprising editor of a daily newspaper has decided to run a legal column in which local lawyers respond to questions mailed in by readers. One reader submitted the following question:
"I'm thinking of buying a resort on Dog Island. There is no bridge to the island but regular ferry service is provided. Ninety percent of the resort customers get to the island by ferry. If that ferry ever sank I would be sunk! Can I insure the ferry? If I can, how much would I be able to insure it for? Would I be able to collect enough to set up my own ferry? If not, what should I do?"
If you were the lawyer responding to this question what issues would you raise?

Question 43

The particulars of the insurable interest in a contract of insurance are very important to the insurer in determining how to evaluate the risk of an application. How does an insurer assess the risk it is undertaking and what are the consequences of an incorrect assessment however caused?

Question 44

C. Hook purchased a six-metre houseboat. He insured the boat against all risks in the amount of $50,000 under his home ownership policy. A special condition was attached to the policy respecting the boat:
SPECIAL CONDITION: Navigation limits: warranted that the named houseboat will be used only in the navigable waters of the provinces of Ontario and Quebec including the Great Lakes.
During summer holidays, Hook takes his family on a boat excursion through the river and lock system to the St. Lawrence River and the Thousand Islands. Their trip took them to a few ports of call in upstate New York. When the summer is over Hook prepares the boat for winter storage. In the process of removing the boat from the water a cable breaks and the boat is dropped six metres to the ground. The boat is severely damaged. The adjuster's report notes the earlier summer excursion into U.S. waters.
a. What arguments would be made by the insurance company regarding this claim and how may they be substantiated?
b. The insurance company derives liability on the policy citing the above condition. You are retained by Mr. Hook to outline his arguments to the court.
c. What right(s) does the insurance company have should it pay the claim?

Question 45

Enumerate the various types of insurance available and describe how the general principles of insurance law apply in each case.

Question 46

Malcolm obtained a mortgage from the Big Bank on a building that he owned. The loan agreement with the Bank required him to obtain insurance to protect the Bank's interest in the event of fire. Malcolm then obtained a policy of insurance, which named him as the owner and the Bank as mortgagee. Loss was payable to the Bank first to the extent of its loan and the remainder of the insured value to Malcolm. A standard clause in the policy stated that the policy would remain in force even in the event of misrepresentation of the insured.
After the building was destroyed by fire the insurance company refused to pay the Bank or Malcolm. The refusal was based on what the insurance company believed was a false appraisal of the building's worth at the time the policy was taken out. It felt that the overstated value of the property resulted in the insured value having been set too high, which would result in a financial gain for Malcolm from the fire. Because it held that the amount of the insurance coverage was obtained by false statements, the insurance company maintained that the contract of insurance was void ab initio and it was not required to indemnify any of the loss payees. The Bank decided to take legal action against the insurance company. Discuss the legal issues that will be raised by the parties and indicate how the situation is likely to be resolved.

Question 47

Discuss the role of the insurance agent in light of the unique contractual aspects of the insurance relationship and the principles of agency in general.

Question 48

Alphonse owns property worth $250,000 and carries $150,000 of insurance subject to an 80% co-insurance clause. Given a $20,000 loss to the property, calculate the indemnity to be paid by the insurer, and explain the significance of the co-insurance clause as it affects Alphonse.