Question 1

An insurer's liability is limited by

Accepted Answer

The doctrine of utmost good faith, contribution, and subrogation all limit an insurer's liability.

Question 2

An insurable interest

Accepted Answer

All of the responses are correct. An insurable interest must exist both at the time the contract of insurance is made and when the event resulting in a loss occurs. It may be shown by a creditor, anything that benefits the insured by its continued existence which, if changed, would represent a loss, or a security interest in property.

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?

Accepted Answer

At the time the policy was purchased, Franco had an insurable interest in Rocco's life as he loaned him $1 million. Therefore, he can collect on the life insurance policy.

Question 4

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

Accepted Answer

When two or more insurers properly pay out funds against a loss to an insured, it is known as contribution. Each insurer contributes its share of the loss, based on the policy coverage that it provided. This is typically governed by state law and the terms of the insurance policies involved.

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.

Accepted Answer

The insurer would not only be obliged to pay one half of the loss. Instead, the insurer would pay for the loss according to the co-insurance clause formula, which is:
[Amount of Insurance Carried / Amount of Insurance Required] x Loss = Amount Paid by Insurer
In this case, the amount of insurance required is 80% of the building's value, which is $16,000 ($20,000 x 80%). Henderson only insured it for $10,000, which is less than the required amount. Therefore, the formula would be:
[$10,000 / $16,000] x $8,000 = $5,000
The insurer would pay $5,000 for the loss, and Henderson would be responsible for the remaining $3,000.

Question 6

The contract of insurance is

Accepted Answer

The contract of insurance is treated as a contract of utmost good faith, which means both parties should disclose all relevant information to each other. This distinguishes it from a wagering agreement, which is based on chance, and it is subject to the general laws of contract and the Common Law. Therefore, options A, B, and D are incorrect.

Question 7

The doctrine of subrogation

Accepted Answer

The answer of The doctrine of subrogation
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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.

Accepted Answer

The insurer would only be required to pay for the actual loss in proportion to the policy limit and the value of the property. Therefore, if the building was only partially damaged by fire, the insurer would only be required to pay for a portion of the loss up to the policy limit.

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.

Accepted Answer

The co-insurance clause requires the insured to carry insurance equal to at least 80% of the value of the property. In this case, the insured only carried insurance for 50% of the value. Therefore, the insurer would only be obligated to pay a proportionate amount of the claim, which in this case is $5,000.

Question 10

Is a disability insurance policy a contract?

Accepted Answer

A disability insurance policy is a contract between the insured and the insurance company, and it outlines the terms and conditions of the coverage.

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.

Accepted Answer

A) Giant has an insurable interest in maintaining inventory supply because disruptions can lead to significant financial losses. B) Insurance against a strike at a parts supplier's plant is feasible because it directly affects Giant's operations. C) Obtaining life insurance for key employees, such as the inventory scheduler, is a common practice to mitigate the risk associated with the potential loss of crucial personnel.

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.

Accepted Answer

If Henderson failed to maintain the required amount of insurance (which would be at least $16,000 or 80% of the building's value), he would become a partial insurer and would only be entitled to a partial recovery of the amount of loss.

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.

Accepted Answer

Adam can claim under his policy for the amounts he will have to pay to Martin to compensate for his injuries. This is because Adam's negligence led to the injury and his liability coverage will cover him for such situations.

Question 14

The insurance agent

Accepted Answer

The answer of The insurance agent
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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.

Accepted Answer

The answer of Henderson owned a concrete block building valued...

Question 16

In every insurance contract

Accepted Answer

An insurable interest must be present in every insurance contract to ensure that the insured has a legitimate stake in the risk being insured against. This is a fundamental principle of insurance law.

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?

Accepted Answer

When an insurance company compensates a policyholder for damages to a totalled car, they often acquire the salvage rights to the car. This means that they can sell the car or its parts to recoup some of the costs of the payout.

Question 18

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

Accepted Answer

The answer of What is the legal test for determining...

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?

Accepted Answer

Subrogation allows Eugene's insurance company to step into his shoes and sue Larissa for the damages caused by her negligence. This allows the insurance company to recover the amount it paid to Eugene for the damages suffered.

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.

Accepted Answer

The answer of Monique, a sculptor, insured one of her...

Quiz 31: Security for Debt