Exam 9: Fundamental Legal Principles

Ted's insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, "Read the exclusion on page 5 of the policy." Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague. If a court of law agrees with Ted's assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts are

All of the following statements about the rules governing agency relationships are true EXCEPT

Mark owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing?

Which of the following statements about an insurable interest in life insurance is (are) true? I.It is required of any person named as beneficiary. II.It may result from a pecuniary (financial) interest.

Jacob sold his house to Shelia for $140,000 in cash. Jacob "threw in" insurance on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof. Which of the following legal characteristics of insurance contracts could the insurer use to legally deny payment for the damage to the roof?

What is the legal significance of a material concealment by an insurance applicant?

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

Powers specifically conferred on an agent to act on behalf of a principal are

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

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.

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

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 statements about subrogation is true?

The authority of an agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement is called

Fundamental purposes of the principle of indemnity include which of the following? I.To reduce physical hazards II.To prevent the insured from profiting from insurance

The general rule that ambiguity in insurance contracts is construed against the insurer is reinforced by an important legal principle. This principle states the insured is entitled to coverage under a policy that he or she would assume the policy would provide, and exclusions must be conspicuous, plain, and clear. This principle is known as

A pharmaceutical company employs a young chemist who is responsible for three new patents last year and for the development of the company's two best-selling drugs. The company purchased a large life insurance policy on the chemist. In this case, the insurable interest requirement was met because of a(n)

Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 percent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer?

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

Chris applied for life insurance and paid the first premium on Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took the medical exam the following Thursday. She was found to be in perfect health. On which day was her coverage effective?