Chapter 3

Question 1

When are facts material?

Answer 1

When a party would not have entered into the contract with those exact terms at the same price if he knew the truth.

Question 2

How does offer and acceptance work in an insurance contract?

Answer 2

Producer’s sales activities are solicitation of offers. The application is the offer and the issued policy is acceptance.

Question 3

If an insurance carrier delays in accepting or rejecting an offer, coverage could be bound. What does a court consider when evaluating if a delay was unreasonable?

Answer 3

1) distance from agent’s office to insurer’s office
2) difficulties underwriting the risk
3) Insurer’s workload
4) Type of coverage

Question 4

Does the law require delivery of a policy to complete it’s formation?

Answer 4

No. Due to widespread use of oral agreements and written binder to create effective dates of coverage.

Question 5

What is a direct action statute?

Answer 5

Allows injured parties to sue defendants’ insurers directly if the insurer denies payment after a court-ordered judgment against the insured

Question 6

What is the doctrine of equitable conversion?

Answer 6

The buyer owns the property subject to payment and must still make the payment if the property is destroyed.

Question 7

What is a false representation?

Answer 7

1) false or misleading statement
2) related to a material fact
3) upon which the insurer relied in issuing the policy

Question 8

When is a representation material?

Answer 8

When it influences a party’s:

1) Willingness to contract
2) Acceptance of any terms
3) Willingness to accept the amount of consideration

Question 9

What are the necessary terms in an agreement to insure?

Answer 9

1) type of coverage
2) object or premises insured
3) amount of insurance
4) the name of the insured
5) duration of coverage

Question 10

What are the 5 forms of insurance protection that cover the lessee’s liability for fire damage to an insured property?

Answer 10

1) Insurer waives subro rights against lessee by endorsement to lessor’s fire policy.
2) lessor’s policy has all-risk provision
3) lessee is listed as additional insured on lessor’s policy
4) lessee buys liability insurance for damage to the lessor’s property
5) Lessee buys separate fire policy for the leased premises

Question 11

What is an increase of risk statute?

Answer 11

Require misrepresentation to be of a fact that increased the risk.

Question 12

What is a contribute-to-loss statute?

Answer 12

Require misrep to be of fact that actually contributed to the loss.

Question 13

What are the 2 requirements for a statement to be a warranty?

Answer 13

1) parties clearly intended it as warranty

2) It becomes part of the contract

Question 14

What are affirmative warranties?

Answer 14

Statements of fact at or before contract inception

Question 15

What is an implied warranty?

Answer 15

Warrant implied by law to make transactions reasonable and fair.

Question 16

How do courts avoid harsh consequences of breach of warranty making a policy voidable even if breach wasn’t material?

Answer 16

1) Interpret statements as representations, if possible.
2) Interpret warranties as affirmative rather than continuing
3) Interpret policies as severable
4) Consider parties’ intentions rather than labels of warranty or representation
5) prevent insurers from specifying that representations have the same effect as warranties

Question 17

What is the difference between a warranty and a representation?

Answer 17

1) A warranty is part of the contract (representations are inducements to contract and don’t need to be incorporated in contract)
2) Warranties are presumed to be material (representations have to be proven to be material)
3) Warranties require strict compliance (representations require only substantial truth)

Question 18

What are the two requirements for an insurer to waive a breach of condition?

Answer 18

1) An insurance policy must exist

2) the insurer must know of the breach of condition

Question 19

What can insurer not waive?

Answer 19

factual information, policy exclusions, or rules that further public policy (insurable interest rule)

Question 20

Are waivers subject to the parole evidence rule?

Answer 20

Yes. Oral testimony only applies to prove waivers after the policy’s inception.

Question 21

What is a nonwaiver agreement?

Answer 21

A bilateral agreement not to waive any policy rights.

Question 22

What is a reservation of rights letter?

Answer 22

Unliateral notice reserving all policy rights.

Question 23

What are two possible difficulties with nonwaiver agreements and reservation of rights letters?

Answer 23

1) Refusal to sign

2) Insured challenging by claiming that the consequences of signing the nonwaiver agreement weren’t fully explained