140
PART EIGHT
RISK-BEARING DEVICES
Teaching Suggestions
1. Have each student contact a life insurance agent and find out what types of insurance can be
obtained and the various costs of the insurance for that student.
2. Ask the students to list the various insurable interests they have for life insurance and property
Group Projects
1. Have groups report to the class how various types of security interests are perfected—inventory and
equipment, fixtures or consumer goods. The groups should be instructed to point out the
circumstances that are unique o their particular type of property.
CHAPTER 37
PRINCIPLES OF INSURANCE
Answers to Learning Objectives
(Page 444)
1. Important terms used in insurance include: insurer or underwriter⎯the company agreeing to pay for
a loss; insured or policyholder⎯the person protected against the loss; beneficiary⎯the person who
receives the proceeds of the insurance; policy⎯the insurance contract; premium⎯the consideration
Lesson Outline
1. Insurance is a contract whereby the insured transfers the risk of financial loss to the risk bearer for a
fee.
Chapter 37 Principles of Insurance
141
2. Some of the most important terms of insurance:
a. Insurer or underwriter⎯the company writing the insurance
b. Insured or policyholder⎯the person covered
3. There are two types of insurance companies:
a. Stock companies⎯those formed as a regular corporation by the sale of stock
b. Mutual companies⎯those that are owned by the policyholders
4. To become an insured, one must have an insurable interest. To take out a policy of insurance, a
person must be competent to contract.
5. Five principles that have special significance for insurance contracts are as follows:
a. Willful concealment of material facts renders the contract voidable.
not true.
Comments on Cases
(p. 445) The court looked to the plain terms of the policy to find that under its definitions Grant was an
insured. As such, the intentional loss exclusion clearly applied to Grant, Auto-Owners Ins. Co.
v. Hamin, 629 S.E.2d 683 (S.C. App.)
(p. 450) The misrepresentation in this case according to the court was material because if Rutgers had
known the fact that Kiss engaged in heavy construction work, it would not have issued the
policy of insurance. Kiss Const. NY, Inc. v. Rutgers Cas. Ins. Co., 877 N.Y.S.2d 253
(N.Y.A.D.)
(p. 451) The court found that Unum’s assertion of a condition precedent was inconsistent with numerous
statements in the materials received by Matheny before his death. Matheny v. Unumprovident
Corp., 594 F.Supp.2d 1212 (E.D.Wash.)
Answers to Questions
(Page 451)
1. When a loss occurs, the insurance company assumes the risks caused by normal hazards including
negligence by the insured. An insurance company does not assume the risks caused by gross
negligence.
interest to protect, there would be no assumption of risk and hence no insurance.
5. a. A person must have an insurable interest in the life of the insured at the time the policy is taken
out for life insurance.
b. [Answers will vary.] Relationships giving rise to an insurable interest for life insurance include:
parents and children, husband and wife, partner and co-partner, and a creditor on the life of the
debtor to the extent of the debt.
6. The rule of concealment does not apply with equal force to all types of property insurance since
where an agent has an opportunity to inspect the property, the insurance company waives the
right to void the contract.
7. If the insurance application only requires the applicant to answer questions “to the best of the
applicant’s knowledge and belief,” and the applicant has answered truthfully, the fact that the
applicant is unaware of the truth will not invalidate the contract.
Answers to Case Problems
(Page 452)
1. Yes. The application represented that the only commodities hauled were produce, food goods and
canned foods, beer/wine, textiles and paper products. That was a false representation. Because a
Chapter 37 Principles of Insurance
143
truck was so valuable hauling one would have affected Inscorp’s decision whether to issue a policy.
Superior Dispatch, Inc. v. Insurance Corp. of New York, 104 Cal. Rptr.3d 508 (Cal. Ct. App.)
5. Yes. The court said that since Mortgage Guarantee paid the prior mortgages to satisfy its
contractual obligation to preserve the priority of CUCF’s liens on the properties, it became entitled
to the rights of its insured (CUCF) against Goff as if the policy not been issued. The court also said
that Riendeau and Mortgage Guarantee would have an opportunity to establish their respective
entitlement to the funds Goff had had left in further legal proceedings. Credit Union Cent. Falls v.
Groff, 966 A.2d 1262 (R.I.)
6. No. Since the deed Cassadei executed was void, the court said he never had any ownership interest
or right to possession of the property. Without that he had no insurable interest and could not
recover. Cassadei v. Nationwide Mut. Fire Ins. Co., 799 N.Y.S.2d 687 (N.Y. A.D.)