Question 1

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

Accepted Answer

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. 
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.

Question 2

The person who receives the insurance proceeds in a life insurance is the:

Accepted Answer

A) insurer. 
B) insured. 
C) trustee. 
D) beneficiary. 
A) insurer. 
B) insured. 
C) trustee. 
D) beneficiary.

Question 3

An insurance contract,though transferring existing risk,is a legally permissible and valid contract.

Accepted Answer

A) True 
 B)False

Question 4

What is a key difference between bad faith and breach of an insurance contract?

Accepted Answer

A) Only a policyholder can sue for bad faith and only an insurer can sue for breach of an insurance contract 
B) Breach of an insurance contract is always unintentional but bad faith is always intentional. 
C) Punitive damages are appropriate because of bad faith,but not when there is a breach of an insurance contract. 
D) There is no difference.All breaches of an insurance contract are in bad faith. 
A) Only a policyholder can sue for bad faith and only an insurer can sue for breach of an insurance contract 
B) Breach of an insurance contract is always unintentional but bad faith is always intentional. 
C) Punitive damages are appropriate because of bad faith,but not when there is a breach of an insurance contract. 
D) There is no difference.All breaches of an insurance contract are in bad faith.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

A clause that apportions losses among insurance companies when a policyholder purchases insurance from more than one insurer is called a ________.

Accepted Answer

A) co-insurance clause 
B) subrogation clause 
C) indemnity clause 
D) pro rata clause 
A) co-insurance clause 
B) subrogation clause 
C) indemnity clause 
D) pro rata clause

Question 7

Property insurance policies are in the nature of:

Accepted Answer

A) partnership contracts. 
B) negotiation contracts. 
C) indemnity contracts. 
D) lease contracts. 
A) partnership contracts. 
B) negotiation contracts. 
C) indemnity contracts. 
D) lease contracts.

Question 8

What is the liability faced by an insurer if it breaches its policy obligations by means of a good faith but erroneous denial of coverage?

Accepted Answer

A) Compensatory damages 
B) Punitive damages 
C) Special damages 
D) Liquidated damages 
A) Compensatory damages 
B) Punitive damages 
C) Special damages 
D) Liquidated damages

Question 9

Sometimes,an insurer may retain an attorney to defend the insured in a liability case but can conclude later on,based on additional information,that it does not have the obligation to pay any damages that may be assessed against the insured as a result of the third party's claim.It can do so through a(n):

Accepted Answer

A) equity of redemption. 
B) advance directive. 
C) reservation of rights notice. 
D) declaratory judgment. 
A) equity of redemption. 
B) advance directive. 
C) reservation of rights notice. 
D) declaratory judgment.

Question 10

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?

Accepted Answer

A) An increase of hazard clause provides that the insurer's liability will be terminated if the insured takes any action materially increasing the insurer's risk. 
B) The insurer acquires the right of subrogation. 
C) The insurer cannot avoid having to pay the insured for a loss unless the loss resulted from the condition that constituted a violation of the increase of hazard clause. 
D) The insured becomes obligated to pay punitive damages to the insurer. 
A) An increase of hazard clause provides that the insurer's liability will be terminated if the insured takes any action materially increasing the insurer's risk. 
B) The insurer acquires the right of subrogation. 
C) The insurer cannot avoid having to pay the insured for a loss unless the loss resulted from the condition that constituted a violation of the increase of hazard clause. 
D) The insured becomes obligated to pay punitive damages to the insurer.

Question 11

Tim has a property insurance policy.He gets a job in a lab and brings his work materials home to do experiments,which require highly-explosive chemicals to be kept on the premises.Does the insurer have to cover an explosion?

Accepted Answer

A) Yes,unless the policy excluded damages caused by an explosion. 
B) Yes,as long as Tim's behavior was not illegal. 
C) Yes,under all circumstances. 
D) No,if the policy had an increase of hazard provision. 
A) Yes,unless the policy excluded damages caused by an explosion. 
B) Yes,as long as Tim's behavior was not illegal. 
C) Yes,under all circumstances. 
D) No,if the policy had an increase of hazard provision.

Question 12

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?

Accepted Answer

A) Olden Days: $72,000;Big City: 0. 
B) Olden Days: $18,000;Big City: $54,000. 
C) Olden Days: 0;Big City: $72,000. 
D) Olden Days: $24,000;Big City: $48,000. 
A) Olden Days: $72,000;Big City: 0. 
B) Olden Days: $18,000;Big City: $54,000. 
C) Olden Days: 0;Big City: $72,000. 
D) Olden Days: $24,000;Big City: $48,000.

Question 13

Which of the following is an accurate statement about liability insurance policies?

Accepted Answer

A) They cover bodily injury or property damage that result from the insured's business or professional pursuits. 
B) They typically provide the insured with coverage for punitive damages liability he may face. 
C) They typically do not provide the insured with coverage for the consequences stemming from his negligent acts. 
D) They may be used by the insured as a way of transferring risks associated with certain tort liability he may face. 
A) They cover bodily injury or property damage that result from the insured's business or professional pursuits. 
B) They typically provide the insured with coverage for punitive damages liability he may face. 
C) They typically do not provide the insured with coverage for the consequences stemming from his negligent acts. 
D) They may be used by the insured as a way of transferring risks associated with certain tort liability he may face.

Question 14

Which of the following is an accurate statement about property insurance policies?

Accepted Answer

A) They are less likely to provide coverage for flood-related losses than for lightning-related losses. 
B) They are more likely to provide coverage for losses resulting from friendly fires than for losses resulting from hostile fires. 
C) They do not provide coverage for losses resulting from fires that were intentionally caused by persons having no connection with the insured. 
D) Requisite insurable interest must generally exist at the time of the entering into the policy. 
A) They are less likely to provide coverage for flood-related losses than for lightning-related losses. 
B) They are more likely to provide coverage for losses resulting from friendly fires than for losses resulting from hostile fires. 
C) They do not provide coverage for losses resulting from fires that were intentionally caused by persons having no connection with the insured. 
D) Requisite insurable interest must generally exist at the time of the entering into the policy.

Question 15

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?

Accepted Answer

A) West is not the owner of the insured property but a long-term lessee. 
B) The insured property belongs to someone else,but West holds the mortgage on it. 
C) The insured property does not belong to West,but instead to a corporation which he controls. 
D) The property has been willed to West's father for life,and upon his father's death,to West as the remainderman. 
A) West is not the owner of the insured property but a long-term lessee. 
B) The insured property belongs to someone else,but West holds the mortgage on it. 
C) The insured property does not belong to West,but instead to a corporation which he controls. 
D) The property has been willed to West's father for life,and upon his father's death,to West as the remainderman.

Question 16

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?

Accepted Answer

A) If Dell informed the Wheilers,after the loss but before submission of their formal claim to Magnanimous,that the policy did not furnish flood coverage,but urged the Wheilers to submit their claim anyway. 
B) If the Wheilers' assumption that the policy would furnish flood coverage stemmed from the fact that floods have occurred every few years in the Missouri area. 
C) If Dell told the Wheilers at the time of the application that the policy would furnish flood coverage. 
D) If the Wheilers did not read their policy after receiving it from Magnanimous and therefore first learned that their policy did not provide flood coverage when their claim was denied by Magnanimous. 
A) If Dell informed the Wheilers,after the loss but before submission of their formal claim to Magnanimous,that the policy did not furnish flood coverage,but urged the Wheilers to submit their claim anyway. 
B) If the Wheilers' assumption that the policy would furnish flood coverage stemmed from the fact that floods have occurred every few years in the Missouri area. 
C) If Dell told the Wheilers at the time of the application that the policy would furnish flood coverage. 
D) If the Wheilers did not read their policy after receiving it from Magnanimous and therefore first learned that their policy did not provide flood coverage when their claim was denied by Magnanimous.

Question 17

A reservation of rights is issued by an insurance company when?

Accepted Answer

A) When it needs to defend the insured but wants to have an opportunity later to decide if the accident is beyond coverage of insurance policy 
B) When the amount of injury exceed the policy limit 
C) When there is a third party involved from a different state 
D) When an insured misses payment on a premium 
A) When it needs to defend the insured but wants to have an opportunity later to decide if the accident is beyond coverage of insurance policy 
B) When the amount of injury exceed the policy limit 
C) When there is a third party involved from a different state 
D) When an insured misses payment on a premium

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A) The insurance company 
B) The party seeking coverage 
C) Neither,there is no initial offer 
D) The government 
A) The insurance company 
B) The party seeking coverage 
C) Neither,there is no initial offer 
D) The government

Question 20

Which of the following costs does an insurer agree to pay in a liability policy?

Accepted Answer

A) Sums an insured becomes legally obligated to pay to another party. 
B) Sums an insured loses because he experiences damages to his personal property. 
C) Sums an insured loses because he experiences damage to his personal property. 
D) Sums an insured loses because of coinsurance costs after an accident. 
A) Sums an insured becomes legally obligated to pay to another party. 
B) Sums an insured loses because he experiences damages to his personal property. 
C) Sums an insured loses because he experiences damage to his personal property. 
D) Sums an insured loses because of coinsurance costs after an accident.

Exam 27: Insurance Law

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

The person who receives the insurance proceeds in a life insurance is the:

An insurance contract,though transferring existing risk,is a legally permissible and valid contract.

What is a key difference between bad faith and breach of an insurance contract?

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

A clause that apportions losses among insurance companies when a policyholder purchases insurance from more than one insurer is called a ________.

Property insurance policies are in the nature of:

What is the liability faced by an insurer if it breaches its policy obligations by means of a good faith but erroneous denial of coverage?

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?

Tim has a property insurance policy.He gets a job in a lab and brings his work materials home to do experiments,which require highly-explosive chemicals to be kept on the premises.Does the insurer have to cover an explosion?

Which of the following is an accurate statement about liability insurance policies?

Which of the following is an accurate statement about property insurance policies?

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?

A reservation of rights is issued by an insurance company when?

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

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

Which of the following costs does an insurer agree to pay in a liability policy?

The Nature of Law

The Resolution of Private Disputes

Business and the Constitution

Business Ethics, Corporate Social Responsibility, Corporate Governance, and Critical Thinking

Criminal Law and Procedure

Intentional Torts

Negligence and Strict Liability

Intellectual Property and Unfair Competition

Introduction to Contracts

The Agreement: Offer

The Agreement: Acceptance

Consideration

Reality of Consent

Capacity to Contract

Illegality

Writing

Rights of Third Parties

Performance and Remedies

Formation and Terms of Sales Contracts

Product Liability

Performance of Sales Contracts

Remedies for Breach of Sales Contracts

Personal Property and Bailments

Real Property

Landlord and Tenant

Estates and Trusts

Introduction to Credit and Secured Transactions

Security Interests in Personal Property

Bankruptcy

Negotiable Instruments

Negotiation and Holder in Due Course

Liability of Parties

Checks and Electronic Transfers

The Agency Relationship

Third-Party Relations of the Principal and the Agent

Introduction to Forms of Business and Formation of Partnerships

Operation of Partnerships and Related Forms

Partners Dissociation and Partnerships Dissolution and Winding up

Limited Liability Companies, limited Partnerships, and Limited Liability Limited Partnerships

History and Nature of Corporations

Organization and Financial Structure of Corporations

Management of Corporations

Shareholders Rights and Liabilities

Securities Regulation

Legal and Professional Responsibilities of Auditors, Consultants, and Securities Professionals

Administrative Law

The Federal Trade Commission Act and Consumer Protection Laws

Antitrust: the Sherman Act

The Clayton Act, the Robinsonpatman Act, and Antitrust Exemptions and Immunities

Employment Law

Environmental Regulation

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