Solution manual

Part 5 iNSURANCE, SECURED TRANSACTIONS, AND BANKRUPTCY

ANSWER KEY

Chapter 19 Insurance

The Opening Case Questions

1. The text explains dwelling insurance in the following way: “Dwelling insurance will protect the

actual structure (a single family dwelling, an apartment building, and so on) from damage

caused by fire, wind, snow, ice, lightning and so on. However, it is also possible to add coverage

for damage to the contents of the rental property. This coverage will be needed if the rental

property is fully or partially furnished by the landlord or if the property contains appliances

umbrella policy that will grant coverage beyond the limits of the standard policy provided by

the insurer in exchange for higher premium payments. Umbrella policies rarely stand alone.

Most insurance companies will not even think about issuing an umbrella except as a back-up for

3. The question of whether it is fair to permit AOMIC to explain its own terms is subjective in

A Question of Ethics

Special Directions to the Instructor: Many, perhaps most, teachers have a difficult time forecasting

the wide answers learners develop for the ethical questions like the one asked in the Question of

Questions for Review and Discussion

1. Risk management is the process by which businesses try to identify, analyze, control, and

pays the beneficiary the face value of the policy upon the insured’s death. Limited-payment life

insurance is a kind of insurance that provides that the payment of premiums will stop after a stated

length of time—usually ten, twenty, or thirty years. The amount of the policy will be paid to the

7. Under most fire insurance policies, claims may also be made for losses from water used to fight

the fire; scorching; smoke damage to goods; deliberate destruction of property as a means of

controlling a spreading fire; lightning, even if there is no resultant fire; riot or explosion, if a fire does

result; and losses through theft or exposure of goods removed from a burning building. A homeowner’s

policy gives protection for losses from fire, windstorm, burglary, vandalism, and injuries suffered by

other persons while on the property. An ocean marine insurance policy covers ships at sea. Inland

8. Seven types of automobile insurance are bodily injury liability, property damage liability,

collision, comprehensive coverage, medical payments, uninsured motorist, and no-fault. Bodily injury

liability insurance covers the liability of the insured for bodily injury to pedestrians and other motorists.

Property damage liability insurance covers damage to the property of others. Collision insurance

9. Health insurance policies often include the following benefits: physician care, prescription drugs,

inpatient and outpatient hospital care, surgery, dental and vision care, and long-term care for the

10. The first step in obtaining an insurance policy is filling in an application. A binder provides

temporary insurance coverage between the time of the application and the time the policy goes into

effect. When the policy goes into effect in order to keep it active, the insured must continue to pay the

Cases for Analysis

1. The Ramos’s have no recourse against the insurance company. Most homeowner’s policies do not

2. Yes. A corporation has an insurable interest in the lives of its officers, key employees, and

principal stockholders. In addition, if the insurable interest requirement is satisfied at the time the

5. Yes. To establish the existence of an insurable interest, the insurer must demonstrate that he or she

has a monetary interest in the property. This monetary interest means that the insured may suffer a loss

any issue as to the mental facilities of the deceased. In a minority of states, Alice Searle would prevail.

The minority rule holds that the mental state remains an issue despite the sanity clause. Moreover, if the

deceased was so mentally incapacitated at the time of the suicide that he or she did not realize the

7. No. Whitaker’s insurance covered his vehicles only. Uninsured-motorist coverage is meant to

8. Yes. Binders are deemed to include all the usual terms of the policy that will eventually be issued.

The key word here is usual. The issue was whether the exclusion of liquor from an all-risk policy was a

usual term. The court found that it was not a usual term. While the insurance company and Riggins had

different interpretations of the phrase all-risk, the court found it reasonable to believe that the term

END CHAPTER NINETEEN