ALTERNATE CASE PROBLEM ANSWERS
CHAPTER 50
INSURANCE
50-1A. Brokers versus agents
No, because an application for insurance is only an offer; it does not become a contract until the
50-2A. Interpretation of insurance contract terms
The trial court construed Frances’s death as an “injury” (rather than a “loss from an injury”) un-
der the Nationwide insurance policy. The court noted that for payment, the policy required that
50-3A. Insurance cancellation
Yes, Federal was entitled to rescind the life insurance policy because Gurrentz had made a ma-
50-4A. Insurable interest
Claude and Mildred have an insurable interest in their home, despite the fact that they had con-
veyed its ownership to Benjamin, because they had a contractual liability to “trade in” the house
B-2 APPENDIX B: ALTERNATE CASE PROBLEM ANSWERS—CHAPTER 50
50-5A. Interpretation of insurance contract terms
The insured’s recovery was limited to $50,000. Although the court found that the provisions of
50-6A. Effective date of coverage
No. The court held that the interim policy never became operative because Gladney had failed
to satisfy the conditions precedent for coverage. In short, no insurance contract had come into
50-7A. Insurer’s defenses
The court ordered the entry of a judgment declaring that the policy in question was void from the
beginning. Generally, an insurance policy is void for misrepresentation if the insurer establishes
50-8A. Insurer’s defenses
The court found that there was no misrepresentation. “Even if there was misrepresentation,”
stated the court, “it was not material. Plaintiff [New England Mutual] mistakenly likens the de-
scription of a beneficiary to a warranty and argues that a mischaracterization of a beneficiary is
grounds for rescission, similar to the misrepresentation of a pre–existing health condition.” The
50-9A. A QUESTION OF ETHICS
1. The majority opinion of the appellate court was based on the following reasoning:
First, the phrase “on authorized business” was ambiguous because it was reasonably suscepti-
ble to more than one interpretation; therefore, it should be construed against the insurer and in
2. The court, at least, had no difficulty in concluding that the meaning of this phrase was
sufficiently ambiguous to construe it against the insurer. First, the term business is capable of
numerous interpretations. Indeed, as the court stated, “it is hard to imagine a word with more
varied uses in our society.” Second, the term authorized also presents problems. Should au-
thorized business include that five minutes of time in which an employee tends to a personal
task at his or her desk? Should it encompass employees who run an errand for their supervisor