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Question 1

The ___ states that the insurer will agree to pay no more than the actual amount of the loss.

Answer 1

Principle of Indemnity

Question 2

What are the 2 reasons for the principle of indemnity?

Answer 2

• To prevent an insured from profiting from a loss
• To reduce moral hazard

Question 3

In property insurance, indemnification is based on the ___ of the property at the time of the loss.

Answer 3

Actual Cash Value

Question 4

Name the three main methods to determing actual cash value.

Answer 4

• Replacement cost less depreciation
• Fair Market Value is the price that a willing buyer would pay a willing seller in the free market
• The Broad Evidence Rule means that determination of actual cash value should include all relevant factors that an expert would use to determine the value of the property

Question 5

What are the four exceptions to the principle of indemnity?

Answer 5

• A Valued Policy pays the face amount to insurance if a total loss occurs
• Some states have a Valued Policy Law that requires payment of the face amount of insurance to the insured if a total loss to real property occurs from a peril specified in the law.
• Replacement Cost Insurance means that there is no deduction for depreciation in determining the amount paid for the loss
• A life insurance contract is a valued policy that pays a stated sum to a beneficiary upon the insured’s death

Question 6

The ___ states that the insured must be in a position to lose financially if the covered loss occurs.

Answer 6

Principle of Insurable Interest

Question 7

What are the 3 reasons for the principle of insurable interest?

Answer 7

• To prevent gambling
• To reduce moral hazard
• To measure the amount of the insured’s loss

Question 8

The principle of insurable interest can be supported by:

(4 points)

Answer 8

• Ownership of property
• Potential legal liability
• Serving as a secured creditor
• Contractual rights

Question 9

Regarding property insurance, when must an insurable interest exist?

Answer 9

At the time of the loss

Question 10

Regarding life insurace, when must an insurable interest exist?

Answer 10

Only at the inception of the policy

Question 11

Insurable interest in another person’s life can be shown by:

(3 points)

Answer 11

• Close family ties
• Marriage
• Pecuniary interest

Question 12

The ___ refers to the substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance.

Answer 12

Principle of Subrogation

Question 13

What are the 3 purposes of the principle of subrogation?

Answer 13

• To prevent the insured from collecting twice for the same loss
• To hold the negligent person responsible for the loss
• To hold down insurance rates

Question 14

The ___ means that a higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts.

Answer 14

Principle of Utmost Good Faith

Question 15

The principle of utmost good faith is supported by which 3 legal doctrines?

Answer 15

• Representations
• Concealments
• Warranty

Question 16

___ are statements made by an applicant for insurance.

Answer 16

Representations

Question 17

___ means that if the insurer knew the true facts, the policy would not have been issued, or would’ve been issued on different terms.

Answer 17

Material

Question 18

___ means that the insurer relies on the misrepresentation in issuing a policy at a specified premium.

Answer 18

Reliance

Question 19

A(n) ___ is intentional failure of an applicant for insurance to reveal a material fact to the insurer.

Answer 19

Concealment

Question 20

To deny a claim based on concealment, a nonmarine insurer must prove:

(2 points)

Answer 20

• The concealed fact was known by the insured to be material
• The insured intended to defraud the insurer

Question 21

A(n) ___ is a statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects.

Answer 21

Warranty

Question 22

Name the 4 requirements of an insurance contract.

Answer 22

• Offer and Acceptance of the terms of the contract
• Exchange and Consideration - the value that each party gives to the other
• Competent Parties with the legal capacity to enter into a binding contract
• The contract must exist for a Legal Purpose

Question 23

An insurance contract is ___, which means that the values exchanged aren’t equal.

Answer 23

Aleatory

Question 24

An insurance contract is ___, which means that only the insurer makes a legally enforceable promise.

Answer 24

Unilateral

Question 25

An insurance contract is ___, which means that the policyowner must comply with all policy provisions to collect for the covered loss.

Answer 25

Conditonal

Question 26

An insurance contract is ___, which means that the property insurance policy cannot be validly assigned to another party without the insurer’s consent.

Answer 26

Personal

Question 27

An insurance contract is a(n) ___, which means that the insured must accept the entire contract with all of its terms and conditions.

Answer 27

Contract of Adhesion

Question 28

The ___ states that an insured is entitled to coverage under a policy that he/she reasonably expects it to provide, regardless of policy provisions.

Answer 28

Principle of Reasonable Expectations

Question 29

Courts have ruled that any ambiguities or uncertainties in an insurance contract are construed against…

Answer 29

the insurer

Question 30

A(n) ___ is someone who has the authority to act on behalf of a principal (the insurer).

Answer 30

Agent

Question 31

Name the four laws that govern the actions of agents and their relationships to insurers.

Answer 31

• There is no presumption of an agency relationship
• An agent must be authorized to represent the principal
• A principal is responsible for the acts of agents acting within the scope of their authority
• Limitations can be placed on the powers of agents

Question 32

An agent’s authority comes from which 3 sources?

Answer 32

• Expressed authority
• Implited authority
• Apparent authority

Question 33

The doctrines of ___ and ___ may require an insurer to pay a claim that it ordinarily wouldn’t have to pay.

Answer 33

• Waiver
• Estoppel

Question 34

___ is defined as the voluntary relinquishment of a known legal right.

Answer 34

Waiver

Question 35

___ is the loss of a legal defense because of previous actions that are now inconsistent with that defense.

Answer 35

Estoppel