Question 1

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

Accepted Answer

A) close family relationship. 
B) potential legal liability. 
C) secured creditors. 
D) a contract right. 
A) close family relationship. 
B) potential legal liability. 
C) secured creditors. 
D) a contract right.

Question 2

Which of the following statements about offer and acceptance for insurance contracts is true?

Accepted Answer

A) In property and liability insurance,agents typically do not have the authority to bind coverage. 
B) In life insurance,the agent can usually accept an offer by immediately binding coverage. 
C) In property insurance,the offer and acceptance are usually in writing but may be oral. 
D) In life insurance,the offer is merely the promise to pay the first premium. 
A) In property and liability insurance,agents typically do not have the authority to bind coverage. 
B) In life insurance,the agent can usually accept an offer by immediately binding coverage. 
C) In property insurance,the offer and acceptance are usually in writing but may be oral. 
D) In life insurance,the offer is merely the promise to pay the first premium.

Question 3

Melody's car was damaged when another driver ran a stop sign and hit her car.Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her.What fundamental legal principle is illustrated in this scenario?

Accepted Answer

A) the principle of utmost good faith 
B) the principle of insurable interest 
C) the principle of subrogation 
D) the principle of reasonable expectations 
A) the principle of utmost good faith 
B) the principle of insurable interest 
C) the principle of subrogation 
D) the principle of reasonable expectations

Question 4

A false statement made by an applicant for insurance is an example of a

Accepted Answer

A) concealment. 
B) breach of warranty. 
C) lack of offer and acceptance. 
D) misrepresentation. 
A) concealment. 
B) breach of warranty. 
C) lack of offer and acceptance. 
D) misrepresentation.

Question 5

All of the following are exceptions to the principle of indemnity EXCEPT

Accepted Answer

A) life insurance. 
B) valued policies. 
C) replacement cost property insurance. 
D) actual cash value property insurance. 
A) life insurance. 
B) valued policies. 
C) replacement cost property insurance. 
D) actual cash value property insurance.

Question 6

All of the following are basic purposes of subrogation EXCEPT

Accepted Answer

A) to eliminate adverse selection. 
B) to hold down the cost of insurance. 
C) to prevent an insured from collecting twice for the same loss. 
D) to hold the negligent person responsible for a loss. 
A) to eliminate adverse selection. 
B) to hold down the cost of insurance. 
C) to prevent an insured from collecting twice for the same loss. 
D) to hold the negligent person responsible for a loss.

Question 7

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

Accepted Answer

A) because insurance contracts are aleatory 
B) because insurance contracts are unilateral 
C) because insurance contracts are conditional 
D) because insurance contracts are contracts of adhesion 
A) because insurance contracts are aleatory 
B) because insurance contracts are unilateral 
C) because insurance contracts are conditional 
D) because insurance contracts are contracts of adhesion

Question 8

Which of the following statements about a warranty in an insurance contract is (are)true?
I.It is part of the insurance contract.
II.Statements made by an insurance applicant are considered warranties rather than representations.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 9

Which of the following types of insurance policies can usually be assigned without the insurer's consent?
I.Life insurance
II.Property insurance

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 10

Sue's office building was damaged by a fire caused by a careless tenant.After paying Sue for her loss,the insurance company sued the tenant to recover its loss.This suit is based on the principle of

Accepted Answer

A) warranty. 
B) insurable interest. 
C) utmost good faith. 
D) subrogation. 
A) warranty. 
B) insurable interest. 
C) utmost good faith. 
D) subrogation.

Question 11

Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

Accepted Answer

A) Losses are settled without the applicable deductible. 
B) Losses are settled without a deduction for depreciation. 
C) The insurer must replace the damaged or destroyed property in lieu of a cash settlement. 
D) The policy is converted to a valued policy. 
A) Losses are settled without the applicable deductible. 
B) Losses are settled without a deduction for depreciation. 
C) The insurer must replace the damaged or destroyed property in lieu of a cash settlement. 
D) The policy is converted to a valued policy.

Question 12

What is the practical effect of an insurance policy being a contract of adhesion?

Accepted Answer

A) The insurer can refuse to pay claims unless the insured has complied with all policy provisions. 
B) The insured can assign the policy only with the insurer's consent. 
C) The insurer can sue the insured for failure to pay any premiums. 
D) The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties. 
A) The insurer can refuse to pay claims unless the insured has complied with all policy provisions. 
B) The insured can assign the policy only with the insurer's consent. 
C) The insurer can sue the insured for failure to pay any premiums. 
D) The policy is interpreted in the insured's favor if the policy contains any ambiguities or uncertainties.

Question 13

Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home.The home serves as collateral for the loan.Fifth National has an insurable interest in the home based on

Accepted Answer

A) potential responsibility for legal liability. 
B) being a secured creditor. 
C) expectation of ownership. 
D) having a contractual right. 
A) potential responsibility for legal liability. 
B) being a secured creditor. 
C) expectation of ownership. 
D) having a contractual right.

Question 14

Why are insurance contracts said to be contracts of adhesion?

Accepted Answer

A) The values exchanged by the parties to the contract are not equal. 
B) One party writes the contract,and the other party must accept the entire contract as written. 
C) Only one party makes a legally enforceable promise. 
D) Conditions are placed on the insurer's promise to perform. 
A) The values exchanged by the parties to the contract are not equal. 
B) One party writes the contract,and the other party must accept the entire contract as written. 
C) Only one party makes a legally enforceable promise. 
D) Conditions are placed on the insurer's promise to perform.

Question 15

Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?

Accepted Answer

A) the circumstantial evidence rule 
B) the broad evidence rule 
C) the property indemnity rule 
D) the objective value rule 
A) the circumstantial evidence rule 
B) the broad evidence rule 
C) the property indemnity rule 
D) the objective value rule

Question 16

Which of the following statements about the principle of insurable interest is (are)true?
I.It makes it difficult to measure the amount of an insured's loss.
II.It reduces moral hazard.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 17

Frank asked his company's employee benefits director if his group health coverage could be converted to individual coverage.The benefits director said,"Yes,you can convert to an individual policy,and the coverage is identical to your group coverage." Frank quit his job and converted to an individual policy.Six months later he filed a claim.He was dismayed to learn the conversion policy was limited compared to the group coverage,and his claim was denied.What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact?

Accepted Answer

A) adhesion 
B) concealment 
C) estoppel 
D) subrogation 
A) adhesion 
B) concealment 
C) estoppel 
D) subrogation

Question 18

Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?

Accepted Answer

A) because insurance contracts are aleatory 
B) because insurance contracts are unilateral 
C) because insurance contracts are conditional 
D) because insurance contracts are contracts of adhesion 
A) because insurance contracts are aleatory 
B) because insurance contracts are unilateral 
C) because insurance contracts are conditional 
D) because insurance contracts are contracts of adhesion

Question 19

A contract in which the values exchanged are not equal because chance is involved is called a(n)

Accepted Answer

A) contract of adhesion. 
B) unilateral contract. 
C) conditional contract. 
D) aleatory contract. 
A) contract of adhesion. 
B) unilateral contract. 
C) conditional contract. 
D) aleatory contract.

Question 20

A total loss under a valued policy is settled on the basis of the

Accepted Answer

A) market value of the loss. 
B) actual cash value of the loss. 
C) replacement value of the loss. 
D) amount of insurance covering the loss. 
A) market value of the loss. 
B) actual cash value of the loss. 
C) replacement value of the loss. 
D) amount of insurance covering the loss.

Exam 9: Fundamental Legal Principles

All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPT

Which of the following statements about offer and acceptance for insurance contracts is true?

Melody's car was damaged when another driver ran a stop sign and hit her car.Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her.What fundamental legal principle is illustrated in this scenario?

A false statement made by an applicant for insurance is an example of a

All of the following are exceptions to the principle of indemnity EXCEPT

All of the following are basic purposes of subrogation EXCEPT

Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?

Which of the following statements about a warranty in an insurance contract is (are)true? I.It is part of the insurance contract. II.Statements made by an insurance applicant are considered warranties rather than representations.

Which of the following types of insurance policies can usually be assigned without the insurer's consent? I.Life insurance II.Property insurance

Sue's office building was damaged by a fire caused by a careless tenant.After paying Sue for her loss,the insurance company sued the tenant to recover its loss.This suit is based on the principle of

Which of the following statements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?

What is the practical effect of an insurance policy being a contract of adhesion?

Dave and Meagan Philips borrowed $150,000 from Fifth National Bank to help fund the purchase of a new home.The home serves as collateral for the loan.Fifth National has an insurable interest in the home based on

Why are insurance contracts said to be contracts of adhesion?

Under which of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?

Which of the following statements about the principle of insurable interest is (are)true? I.It makes it difficult to measure the amount of an insured's loss. II.It reduces moral hazard.

Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?

A contract in which the values exchanged are not equal because chance is involved is called a(n)

A total loss under a valued policy is settled on the basis of the

Risk in Our Society

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