Question 1

What is the express term in the insurance policy which serves as the conditions on which an insurer's liability is based?

Accepted Answer

A)  Guarantee
B)  Warranty
C)  Surety
D)  Representation B

Question 2

The insured is not entitled to recover under a property insurance policy if she had an insurable interest at the time the policy was purchased but did not have an insurable interest the time the loss occurred.

Accepted Answer

A) True 
 B)False  True

Question 3

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.

Accepted Answer

Disco is not entitled to collect under the terms of the property insurance policy because he did not have the necessary insurable interest.Disco had neither a legal interest nor an equitable interest in Aunt Polly's house.In no sense could he be seen as suffering a financial loss from the destruction of the house.

Question 4

When does an insurer's contractual obligations to the insured commence?

Accepted Answer

A)  When the insurance contract is drafted.
B)  When the insurance application is dispatched.
C)  When the insured receives the insurance application.
D)  When the insurer accepts the insurance contract.

Question 5

Bradley suffers a covered loss under his homeowner's policy but the insurer stonewalled for years before finally paying.Bradley can sue the insurer for ________.

Accepted Answer

A)  Bad faith breach
B)  Professional misconduct
C)  Failure to exercise the reservation of rights
D)  Compensatory damages for contractual breach

Question 6

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

Accepted Answer

A)  a quasi-contract.
B)  an indemnity.
C)  a wager.
D)  a binding contract.

Question 7

Mr.White is a doctor and purchases insurance on him professionally making a mistake.This form of insurance is called:

Accepted Answer

A)  real property insurance.
B)  professional insurance (malpractice) .
C)  personal property insurance.
D)  insurance rider.

Question 8

Kyle buys life insurance and specifies his wife Ann will receive the death benefit if Kyle passes away.Ann is the ________.

Accepted Answer

A)  policyholder
B)  insured
C)  co-insurer
D)  beneficiary

Question 9

Jake,a surgeon,kills a patient on the operating table.The insurer is not clear if Jake's actions were negligent or if Jake deliberately did something wrong.How can the insurer determine if it has a duty to defend Jake in the lawsuit brought by the patient's family?

Accepted Answer

A)  Review the terms of the insurance policy.
B)  Ask the court to issue a declaratory judgment.
C)  It must defend Jake and then ask for subrogation later if the patient's family prevails.
D)  The insurer does not need to defend Jake because malpractice policies do not cover instances where the policyholder causes death.

Question 10

Which of the following agreements provides temporary insurance coverage until the time the insurer decides to accept or reject the applicant's application?

Accepted Answer

A)  Co-insurance agreement
B)  Binder agreement
C)  Indemnity agreement
D)  Guaranty agreement

Question 11

The difference between a wagering contract and an insurance contract is that the insurance contract:

Accepted Answer

A)  is commercial in nature.
B)  transfers an existing risk.
C)  does not contain an insurable interest.
D)  is between two interested parties.

Question 12

Automobile insurance is what type of insurance?

Accepted Answer

A)  Insurance for personal property
B)  Corporate insurance protection
C)  Professional insurance
D)  Insurance rider

Question 13

Ace Insurance Company issues a legal malpractice insurance policy to Bob,an attorney.Bob decides to skip a court appearance to go relax at his beach house.His client,Gina,brings a legal malpractice claim against Bob based on his failure to appear.Ace is unsure whether its policy covers intentional acts such as Bob's decision.Is Ace obligated to provide Bob with an attorney to represent him in Gina's malpractice claim against him? Explain.

Accepted Answer

The answer of Ace Insurance Company issues a legal malpractice...

Question 14

When Petie and Geri Adams purchased a house in 1992,they insured it with Goodfriend Insurance Co.This property insurance policy has a policy limit (face amount)of $125,000.That figure matched the fair market value of the house as of the time the Adams procured the policy.Generally due to the declining property values in the small town where the house was located,the house now has a fair market value of $101,000 as of August 1,1997.On that date,the Adams' house was completely destroyed by fire,a covered peril.The Adams have filed a claim and proof of loss with Goodfriend.If the policy at issue is a valued policy,how much are the Adams entitled to collect from Good friend? Why that amount? If the policy at issue is an open policy,how much are the Adams entitled to collect? Why that amount?

Accepted Answer

The answer of When Petie and Geri Adams purchased a...

Question 15

When insurance policy provisions must be interpreted,a court will generally interpret them as they would be understood by an average person.

Accepted Answer

A) True 
 B)False

Question 16

Sarah entered into an auto insurance contract with ABC Insurance (ABC).On the application,Sarah stated that she had never been in an accident.In truth,Sarah had been in seven accidents in the last ten years.As a result,this contract is:

Accepted Answer

A)  illegal.
B)  voidable at ABC's option.
C)  voidable at either Sarah's or ABC's option.
D)  void.

Question 17

Caroline is buying homeowner's insurance.She knows it will take time between the submission of her application and the application's approval but she wants to get covered immediately.What does she need?

Accepted Answer

A)  A binder
B)  A short-term indemnity policy
C)  Interim home damage coverage
D)  Nothing,she is always covered as soon as her application is submitted.

Question 18

What does it mean when reformation occurs?

Accepted Answer

A)  An insurer and a policy holder renegotiate the terms of an insurance contract because the risk of providing insurance to the policyholder has changed.
B)  A court changes a written insurance policy when there was a mutual mistake or fraud on the part of the insurer so it conforms to the parties' supposed actual agreement
C)  An insurance policy holder changes the beneficiary on an insurance policy and the insurer revises the policy contract.
D)  An insurance contract is voluntarily reformed or modified by an insurer because of a unilateral mistake on the part of the insured.

Question 19

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:

Accepted Answer

A)  $300,000 (the policy limits) .
B)  $300,000 (the policy limits) and also $50,000 consequential damages.
C)  $300,000 (the policy limits) ,$50,000 consequential damages and also punitive damages.
D)  $300,000 (the policy limits) ,$50,000 consequential damages,statutory damages and also punitive damages.

Question 20

A means by which insurance law separates insurance contracts from wagering contracts is the typical requirement that the party who purchases a policy of property or life insurance must possess a(n)________ in the property or life being insured.

Accepted Answer

A)  warranty
B)  codicil
C)  reformation
D)  insurable interest

Exam 27: Insurance Law