978-1285770178 Solution Manual BL ComLaw 1e SM-Ch30

in whole or in part.

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 30.1—QUESTIONS (PAGE 590)

WHAT IF THE FACTS WERE DIFFERENT?

THE ECONOMIC DIMENSION

Why did Valero and the Milas appeal the lower court’s judgment in the insurer’s favor?

The plaintiffs pursued an appeal in this case most likely for the same reason that a claim was

filed in the first place—to avoid personal liability for the costs. Insurers spread the risk for certain

events across their policyholders in exchange for the payment of premiums. These amounts

Are the acts of the principal parties—Woo, Alberts, and Fireman’s—ethically justifiable in

the circumstances of this case? Discuss. Woo’s boar-tusk joke was not ethically justifiable if

he knew that Alberts did not find his comments about her pigs to be “friendly.” This would

conceivably be a transgression of the Golden Rule. Alberts’s legal action in response to the joke

is arguably excessive, considering that Woo did not appear to act with malicious intent and tried

CHAPTER 30: INSURANCE 3

in whole or in part.

continuously,” and that when they are unoccupied, they may be secured by alarms or other

measures.

4A. What fact, if it was different, might have persuaded the court in this case to rule in

Allstate’s favor? Discuss. Among the facts that might have convinced the court to rule in the

risk. A homeowner might invest in more security when a house will be left vacant. If the

homeowner is an elderly person, as in the Luster case, his or her presence might cause a

greater risk of fire—the person might inadvertently leave appliances on, fail to remove

flammable materials, or not fix defective wiring. Had Luster, or someone on her behalf, occupied

the house after her fall and injury, the subsequent events in this case might not have occurred.

convincing circumstance might have been notice of the insurer’s intent to cancel its policy.

Cancellation of an insurance policy can occur for various reasons, depending on the type of

insurance. When an insurance company can cancel its insurance contract, the policy or a state

statute usually requires that the insurer give advance written notice of the cancellation to the

insured. The lack of notice in this case was the fact on which the U.S. Court of Appeals for the

If there is a clear record of physician treatment for anxiety that resulted in drugs being

prescribed, most people would understand that to fall under emotional, mental, or nervous

disorder. The application was broad in the questions asked, so the misrepresentation was clear.

4 UNIT SEVEN: PROPERTY AND ITS PROTECTION

in whole or in part.

2A. Ambiguity

When the terms in a policy are unclear courts generally interpret them against the insurance

company. Since policies are often difficult to understand, courts do not want insurers hiding

behind fancy language that a policy holder would be unlikely to comprehend.

3A. Terms

Disorders such as panic are recognized as real medical problems that can create disability. So

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

Whenever an insurance company can prove that the applicant committed fraud

have to rise for all those covered by insurance.

Granted, it is unethical to lie on an insurance application, but after enough years have

transpired since the beginning of coverage, the insured will statistically become just like the

average policyholder. Insurance companies should not be able to avoid their duty to pay claims

just because, many years before, applicants lied on their applications. Taken to the extreme,

1A. Neal applies to Farm Insurance Company for a life insurance policy. On the

application, Neal understates his age. Neal obtains the policy, bur for a lower premium

than he would have had to pay had he disclosed his actual age. The policy includes an

incontestability clause. Six years later, Neal dies. Can the insurer refuse payment? Why

CHAPTER 30: INSURANCE 5

in whole or in part.

or why not? No. An incorrect statement as to the age of an insured is a misrepresentation.

(usually two or three years), the insurer cannot cancel the policy or avoid a claim on the basis of

statements made in the application.

2A. Al is divorced and owns a house. Al has no reasonable expectation of benefit from

the life of Bea, his former spouse, but applies for insurance on her life anyway. Al obtains

To obtain insurance on another’s life, one must have a reasonable expectation of benefit

from the continued life of the other. The benefit may be founded on a relationship, but “ex–

spouse” alone is not such a relationship. An interest in someone’s life must exist when the

policy is obtained.

the insured has an insurable interest. A person has an insurable interest in property if damage

to or destruction of the property would cause that person direct pecuniary loss. It is immaterial

whether the person has a legal or equitable interest in the property insured. Moreover, the

insurable interest in the property must exist at the time the loss occurs, not at the time the

contract for insurance is entered into. Here is the point at which Adia loses in her claim against

reasonable expectation of suffering a loss by the insured’s death is sufficient to show an

insurable interest. This relationship must exist at the time of entering the insurance contact, not

at the time of the insured’s death. Although many courts would hold that third cousins are not

sufficiently close by blood relationship to create an insurable interest, the third cousin was living

with Adia, and Adia apparently had assumed responsibility for her well-being. Therefore, a court

in whole or in part.

percent of its value, the insured can recover the full amount as provided by the face amount of

restore or rebuild the property. Because of this reduced liability of the insurer, the insurer will

probably pay Fritz the $7,500 and not exercise its option to restore or replace.

30-5A. Interpreting provisions

(Chapter 30— Pages 588–589)

this ambiguity, the policies could be construed in favor of the insureds. The defendants could

assert that the flood exclusions in the policies unambiguously precluded coverage for losses

caused by flooding due to breached levees, regardless of whether the levees were breached

because they were negligently designed, constructed, or maintained. Although the term “flood”

was not defined in the policies, the event ensuing from the breach of the levees fit squarely

MPC had no duty to defend Bubenik. Under Missouri law, to deny liability coverage under an

insurance contract’s cooperation provision, an insurer must prove (1) a material breach of the

cooperation clause; (2) the existence of substantial prejudice as a result of the breach; and (3)

the exercise of reasonable diligence to secure the insured’s cooperation. Bubenik’s

uncooperative behavior in the malpractice suit filed against him, in violation of the malpractice

Amendment did not waive MPC’s right to deny coverage due to no cooperation.

8 UNIT SEVEN: PROPERTY AND ITS PROTECTION

in whole or in part.

30–7A. Bad faith actions

(Chapter 30—Page 592)

Liability insurance protects against liability imposed on the insured resulting from injuries to the

person or property of another. Once an insurer has accepted a risk and issued a policy, and an

event occurs that gives rise to a claim, the insurer has a duty to investigate to determine the

facts. When a policy provides insurance against a third party claim, the insurer is obligated to

make a reasonable effort to settle the claim. If a settlement is not reached, the insurer has a

duty to defend any consequent suit against the insured. The insurer also has a duty to pay any

the employees’ families—even if the payment exceeds the policy’s coverage limits—and might

also be entitled to recover punitive damages.

In the actual case on which this problem is based, on reasoning similar to that set out

above, the court held that the insurer had no basis for denying benefits and awarded the amount

of those benefits, plus punitive damages.

an insurable interest exists when the insured derives a pecuniary benefit from the preservation

and continued existence of the property. One has an insurable interest in property when one

would sustain a financial loss from its destruction. As for an insurance policy’s language, courts

interpret the words according to their ordinary meanings and in light of the nature of the

coverage involved.

In the actual case on which this problem is based, in Philadelphia’s suit against

Farrington, the court entered a judgment in the insurer’s favor.

30–9A. A QUESTION OF ETHICS—Insurance coverage

(a) The court enforced the water-damages exclusion clause, but struck the ACC