Business Law Chapter 50 Homework Because There Evidence Either Kind Consent This

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CHAPTER 50

INSURANCE

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 50.1—CRITICAL THINKING

ECONOMIC

Why is an insurable interest required for the enforcement of an insurance contract? The

CASE 50.2—LEGAL REASONING QUESTIONS

1A. Why did the court conclude that an unoccupied house did not necessarily create a

substantial increase in hazard? The court stated that in a previous case, the court had

2 UNIT TEN: PROPERTY AND ITS PROTECTION

2A. Why did the court hold that Allstate’s cancellation of the policy, retroactive to

November 2001 (when Luster moved to an extended-care facility), was ineffective? The

court noted that the policy expressly authorized the insurer to cancel the policy if any of its terms

were violated. Certainly, leaving the house unoccupied for years violated the occupancy clause.

3A. Was Luster’s intent to return to her home when her health permitted sufficient to

constitute occupancy? Why or why not? Yes, Luster’s intent to return to her home when her

health permitted was sufficient to constitute occupancy because she could not have known that

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Misrepresentation

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

2A. Ambiguity

CHAPTER 50: INSURANCE 3

3A. Terms

4A. Bad faith

Insurance is a contract; the courts interpret the contract. However, if an insurer acts in bad faith

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

Whenever an insurance company can prove fraud during the application process,

it should never have to pay on the policy. Whenever an applicant lies on an application for

any type of insurance, especially life insurance, that applicant is attempting to hide some fact

ANSWERS TO ISSUE SPOTTERS

AT THE END OF THE CHAPTER

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

4 UNIT TEN: PROPERTY AND ITS PROTECTION

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

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

fire insurance policy on the house, then sells the house. Ten years later, Bea dies and the

house is destroyed by fire. Can Al obtain payment for these events? Explain your

ANSWERS TO BUSINESS SCENARIOS

AT THE END OF THE CHAPTER

50-1A. Insurable interest

An insurance policy is not binding on the insurer unless the person claiming under the policy of

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

50-2A. Insurer’s defenses

Ajax will probably not be able to void the policy. Most life insurance policies contain what is

called an incontestability clause. Such a clause provides that a policy cannot be contested for

CHAPTER 50: INSURANCE 5

50-3A. Assignment

A fire insurance policy is considered to be a personal contract between the insured and insurer.

ANSWERS TO BUSINESS CASE PROBLEMS

AT THE END OF THE CHAPTER

50-4A. Interpreting provisions

A court’s decision in the Katrina case would most likely turn on an assessment of the ambiguity

of the flood-exclusion clauses in the insurance policies at issue. This evaluation could depend in

50–5A. Duty to cooperate

No. The trial and appeals court agreed that Bubenik had breached the insurance policy and that

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

50–6A. Bad faith actions

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

50–7A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Insurance provisions and

clauses

Farrington should not be included as an insured within the meaning of the property insurance

policy between Darling’s and Philadelphia. The existence of an insurable interest is a primary

50–8A. Types of insurance

Under the circumstances described in the problem, John and Judy Sykes will suffer the loss.

This loss could have been avoided if the Sykeses had obtained the consent of American

National Property and Casualty Co. to assume Robert Houston’s insurance policy, or if the

Sykeses had obtained a new policy.

50–9A. A QUESTION OF ETHICS—Insurance coverage

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

clause as ambiguous and unenforceable: “[I]n a situation such as this, where the insured

8 UNIT TEN: PROPERTY AND ITS PROTECTION

(b) An insurance agent’s oral statements can modify the terms of an insurance policy

if the policy is ambiguous or if the agent has the authority to change the terms. But a party’s

ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS

AT THE END OF THE CHAPTER

50–10A. Insurance coverage

(a) Under the terms of the commercial general liability policy between PAJ, Inc., and

Hanover Insurance Co., Hanover had an obligation to provide PAJ with legal assistance. Of

(b) The court should hold that PAJ’s failure to notify Hanover of a claim in a timely

manner was an immaterial breach of the insurance contract. It did not relieve the insurer of the

defense.