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Exam 27: Insurance Law

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Question 1

Multiple Choice

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Which of the following is true of the coinsurance feature of property insurance?

A) It prevents the insured from insuring for a minimal amount and recovering in full for such losses.
B) It precludes the insured from insuring for less than the coinsurance percentage.
C) It is an additional refinement of the insurable interest requirement.
D) It helps the insured to recover full damages for any loss.

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Question 2

Multiple Choice

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Sarah entered into an auto insurance contract with ABC Insurance (ABC) .On the application,Sarah stated that she had never been in an accident.In truth,Sarah had been in seven accidents in the last ten years.As a result,this contract is:

A) illegal.
B) voidable at ABC's option.
C) voidable at either Sarah's or ABC's option.
D) void.

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B

Question 3

Multiple Choice

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A means by which insurance law separates insurance contracts from wagering contracts is the typical requirement that the party who purchases a policy of property or life insurance must possess a(n) _____ in the property or life being insured.

Homeowners Les and Linda Wheiler live in Missouri.Working with Magnanimous Insurance Co.agent Dell,the Wheilers submitted an application for property insurance on their home.At the time they submitted their application,the Wheilers assumed that when Magnanimous issued them a policy,the policy would furnish coverage for losses stemming from floods.Magnanimous approved the Wheilers' application and issued them a written policy covering their house.The written policy's terms excluded coverage for flood-related losses.Three months after they received their policy from Magnanimous,the Wheilers' house sustained damage as a result of a flood.When the Wheilers submitted a claim to Magnanimous,the insurance company denied the claim because flood coverage was not provided by the policy.The Wheilers have sued Magnanimous in an effort to obtain reformation of the written policy (so that it would provide flood coverage) .Under which of the following alternative scenarios would the Wheilers stand the best chance of obtaining a court order of reformation?

Punitive damages are allowed when the insurer's breach of contract consisted of a good faith but erroneous denial of the insured's claim.

The insurance relationship is contractual.

The damages recoverable by an insured for the insurer's breach of the insurance contract cannot exceed the dollar limits set forth in the insurance contract.

Elvisco,Inc.owns the building that houses its business.Elvisco obtained a property insurance policy on the building from Graceland Mutual Insurance Co.The policy,whose face amount was $200,000,contained a 75 percent coinsurance clause.The building had a fair market value of $400,000.While the policy was in effect,the covered peril of fire caused $90,000 of damage to the building.Elvisco has filed a claim and proof of loss with Graceland Mutual.How much is Graceland Mutual obligated to pay Elvisco?

Where covered and noncovered peril join to cause a loss,and the covered peril plays the dominant role in such loss,then the policy:

Gridco,Inc.owns the building in which its offices are located.On April 1,Gridco insured the building with Olden Days Insurance Co. ,which issued a $200,000 face amount policy.The Olden Days policy contained a pro rata clause.Keeping that policy in force,Gridco procured an additional policy on the building on June 15.This policy,had a $600,000 face amount and contained a pro rata clause,was issued by Big City Insurance Corp.On August 10,while both policies were in force,lightning (a covered peril under each policy) struck the Gridco building.This sparked a fire that resulted in $72,000 of damage to the warehouse.Gridco has filed claims and proofs of loss with Olden Days and Big City.Which of the following correctly sets forth the amounts the respective insurers must pay Gridco?

If the insured misrepresented material facts in the application for insurance,the insurance policy becomes void.

Courts generally will not grant reformation of a written insurance policy in order to make it conform to the coverage assumptions of a unilaterally mistaken insured.

In all states,the insured's breach of warranty automatically relieves the insurer of the duty to perform,regardless of whether the breached warranty was actually material to the insurer's risk.

With an insurance contract who typically is the party that makes the offer?

Property insurance policies are in the nature of:

When the insurer asks the court to determine whether the insurer owes obligations to the insured under the policy in connection with the particular liability claim made against the insured by the injured third party,it is filing a(n) :

What is the express term in the insurance policy which serves as the basis for the insurer's liability?

In 2001,Tom purchased a home with a fair market value of $100,000.At the same time,he also purchased a valued policy with a face amount of $100,000 to insure the house against various risks,including fire.In 2002,the house was destroyed by fire.The fair market value of the house at the time of the fire was $150,000.What is Tom entitled to under the policy?

An insurer's "duty to defend" the insured requires:

With respect to property insurance,the insurable interest requirement: