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

Quizplus · Accepted Answer

The concept of misrepresentation involves providing false information about a material fact that would affect the insurance company's decision to issue a policy or set its terms. In this scenario, Henderson's failure to insure the building for its full value does not constitute misrepresentation regarding the property's value. The 80% co-insurance clause is designed to encourage policyholders to insure their property to a certain percentage of its value to receive full compensation for partial losses. Henderson's decision to insure the building for $10,000, even though it is valued at $20,000, does not involve misrepresenting the property's value to the insurer but rather results in a co-insurance penalty where Henderson would bear a larger portion of the loss.

Henderson Owned a Concrete Block Building Valued at $20,000