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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 insurance contracts?

A) Some statutes require them to be in writing.
B) Contracts for property insurance are usually within the statute of frauds.
C) Once formed, insurance contracts cannot be amended or reformed.
D) Insurance contracts are governed by federal laws.

E) None of the above
F) B) and C)

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A

Question 2

True/False

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As a general rule, liability insurance policies furnish the insured with coverage for his negligence and his intentional acts of a wrongful nature.

A) True
B) False

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Question 3

True/False

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

Guy takes out a property insurance policy on his home, buying the policy from Ace Insurance. Guy's home was damaged when a contractor, building an addition to his neighbor's home, negligently swung a crane through Guy's dining room wall. Ace Insurance may force Guy to seek compensation from the contractor.

The insurable interest requirement with regard to property insurance:

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

B.G. Disco purchased a property insurance policy and named himself as the beneficiary. Disco had no ownership interest in the house at the time he purchased the policy. The house was in fact owned by his aunt, Polly Espy. He procured the insurance, however, because he hoped to inherit the house at some future date and thus wanted to protect that potential interest. A month after Disco purchased the policy; Aunt Polly's house was destroyed by fire, a covered peril. Is Disco entitled to collect under the insurance policy? Explain your reasoning.

Settlements in liability cases occur only when:

To recover under a property insurance policy, an insurable interest must exist:

Which of the following accurately states the legal effect of the insured's violation of an increase of hazard clause in a property insurance policy?

Ruth purchased a property insurance policy from ABC Insurance (ABC) . This policy covered Ruth's airplane and the policy limits were $300,000. A fire broke out on January 1, 2006, when the airplane was stored in its hangar, completely destroying the airplane. There was suspicious evidence that the fire had been deliberately set, and ABC honestly believed that Ruth had set the fire. ABC refused to pay on this policy. However, Ruth was completely innocent, and she sued to enforce the policy. The lawsuit, which ended on January 1, 2007, determined that Ruth had nothing to do with the fire. Because Ruth needed to use a private airplane to visit clients in remote areas, she rented an airplane during the calendar year 2006. This cost her $50,000. ABC was aware that Ruth needed an airplane to reach her clients when it issued the policy. Ruth would have used the policy limits of $300,000 to purchase another airplane in 2006, but for ABC's refusal to pay on its policy. Under these circumstances, Ruth is entitled to a judgment in the amount 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) :

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 an insurance applicant sustains losses after submission of the application but before acceptance by the insurer, the rule in most states is that the insurer must nevertheless cover the losses.

West is seeking to collect on a property insurance policy covering certain described property which was destroyed. The insurer has denied recovery based upon West's alleged lack of an insurable interest in the property. In which of the situations described below will the insurance company prevail?

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?

Since the relationship between the insurer and the insured is contractual in nature, the parties must fulfill all elements of:

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.

Which of the following terminates the insurer's duty to perform under the policy?

Generally courts interpret ambiguities in the insurance clauses against the: