Exam 11: Insurance Contracts

Jerry has a property insurance policy on a building that would cost $200,000 to replace. His insurance policy is written on an actual cash value basis. His building suffers fire damage that has a replacement cost of $50,000. The building is 2 years old, with an estimate useful life of 20 years. How much will he collect for the fire damage?

All the following features are unique to insurance contracts (versus other business contracts) except:

Since the homeowners' insurance policy is written by the insurer, ambiguities are interpreted in favor of the insured.

Luis arrives home from work one day to discover that his apartment building is on fire. He drives directly to an insurance agency to buy renters insurance, since he realized he didn't have coverage for this loss. Luis does not tell his agent that the building is on fire. There is also not a question on the application for coverage that asks if Luis' apartment is currently on fire. Luis pays the first premium, and the agent issues a coverage binder. Which of the following statements is/are true? I. Luis committed a misrepresentation, so coverage may be voided at the option of the insurer. II. Luis breached a warranty, but the insurer will have to prove he did so fraudulently in order to deny coverage. III. Luis committed a concealment that was material to the risk, thus his coverage can be voided by the insurer as long as the insurer can prove that he concealed the fact with fraudulent intentions.

There is no subrogation in life insurance.