Q&A Hero

Q: Foreclosure is the process by which any rights of the mortgagor or the current property owner are cut off.

Q: A surety is a person who is liable for the payment of another person's debt.

Q: In order for an artisan's lien to be valid, the lien holder normally must have possession of the debtor's property.

Q: The right of a lienholder to possess goods does not automatically give the lienholder the right to sell the goods or to claim ownership if his charges are not paid.

Q: Under the common law, artisans, innkeepers, and common carriers were not entitled to liens.

Q: The principal debtor's lack of capacity is a defense for both the principal debtor and the surety if they are sued by the creditor.

Q: A surety who pays a debtor's debt to the creditor gets all the rights the creditor had against the debtor. This is called surety's right of subrogation.

Q: A surety has a right of exoneration.

Q: Which of the following is true of insurance contracts? A. Some statutes require them to be in writing. B. Contracts for property insurance are usually within the statute of frauds. C. Once formed, insurance contracts cannot be amended or reformed. D. Insurance contracts are governed by federal laws.

Q: Chica, a women's fashion retailer, buys merchandise from Tammy, a fashion designer, promising to pay for the merchandise within 30 days after receipt. This is an example of an unsecured credit transaction.

Q: Article 9 of the Uniform Commercial Code deals with provisions regarding security interests involved in personal property.

Q: An unsecured credit transaction involves the greatest benefit to the creditor.

Q: A means by which insurance law separates insurance contracts from wagering contracts is the typical requirement that the party who purchases a policy of property or life insurance must possess a(n) _____ in the property or life being insured. A. warranty B. codicil C. reformation D. insurable interest

Q: The difference between a wagering contract and an insurance contract is that the insurance contract: A. is commercial in nature. B. transfers an existing risk. C. does not contain an insurable interest. D. is between two interested parties.

Q: What is the express term in the insurance policy which serves as the basis for the insurer's liability? A. Guarantee B. Warranty C. Surety D. Representation

Q: Which of the following terminates the insurer's duty to perform under the policy? A. The insured's breach of warranty B. An increase in the value of the insured property C. A decrease in the value of the insured property D. A case of innocent misrepresentation by the insured

Q: The person who receives the insurance proceeds in a life insurance is the: A. insurer. B. insured. C. trustee. D. beneficiary.

Q: When does an insurer's contractual obligations to the insured commence? A. When the insurance contract is drafted. B. When the insurance application is dispatched. C. When the insured receives the insurance application. D. When the insurer accepts the insurance contract.

Q: Which of the following agreements provides a temporary insurance cover until the time the insurer decides to accept or reject the applicant's application? A. Co-insurance agreement B. Binder agreement C. Indemnity agreement D. Guaranty agreement

Q: With an insurance contract who typically is the party that makes the offer? A. The insurance company B. The party seeking coverage C. Neither, there is no initial offer D. The government

Q: Sarah entered into an auto insurance contract with ABC Insurance (ABC). On the application, Sarah stated that she had never been in an accident. In truth, Sarah had been in seven accidents in the last ten years. As a result, this contract is: A. illegal. B. voidable at ABC's option. C. voidable at either Sarah's or ABC's option. D. void.

Q: Guy takes out a property insurance policy on his home, buying the policy from Ace Insurance. Guy's home was damaged when a contractor, building an addition to his neighbor's home, negligently swung a crane through Guy's dining room wall. Ace Insurance may force Guy to seek compensation from the contractor.

Q: As a general rule, liability insurance policies furnish the insured with coverage for his negligence and his intentional acts of a wrongful nature.

Q: Generally in business liability policies, if the insured is liable on respondeat superior grounds, then he will be covered by the policy.

Q: Professional insurance is also called malpractice insurance.

Q: Since the relationship between the insurer and the insured is contractual in nature, the parties must fulfill all elements of: A. a quasi-contract. B. an indemnity. C. a wager. D. a binding contract.

Q: Homeowners policy typically will cover damage to real property and to personal property by a peril.

Q: Property insurance policies are indemnity contracts.

Q: Most property insurance policies are open policies that allow the insured to recover the fair market value of the property, subject to the limits in the policy.

Q: The insured is not entitled to recover under a property insurance policy if she had an insurable interest at the time the policy was purchased but did not have an insurable interest the time the loss occurred.

Q: When insurance policy provisions must be interpreted, a court will generally interpret them as they would be understood by an average person.

Q: Punitive damages are allowed when the insurer's breach of contract consisted of a good faith but erroneous denial of the insured's claim.

Q: The damages recoverable by an insured for the insurer's breach of the insurance contract cannot exceed the dollar limits set forth in the insurance contract.

Q: If the insured misrepresented material facts in the application for insurance, the insurance policy becomes void.

Q: An insurance contract, though transferring existing risk, is legally permissible and valid contract.

Q: In all states, the insured's breach of warranty automatically relieves the insurer of the duty to perform, regardless of whether the breached warranty was actually material to the insurer's risk.

Q: Courts generally will not grant reformation of a written insurance policy in order to make it conform to the coverage assumptions of a unilaterally mistaken insured.

Q: The insurance relationship is contractual.

Q: Under insurance policies (except life insurance), the insured and the beneficiary may be the same person.

Q: If an insurance applicant sustains losses after submission of the application but before acceptance by the insurer, the rule in most states is that the insurer must nevertheless cover the losses.

Q: The term for the person who receives insurance proceeds paid to them is the beneficiary.

Q: Consideration on an insurance contract is the premium paid by the individual being insured and the promise by the insurance for future coverage in the event of a peril.

Q: When Petie and Geri Adams purchased a house in 1992, they insured it with Goodfriend Insurance Co. This property insurance policy has a policy limit (face amount) of $125,000. That figure matched the fair market value of the house as of the time the Adams procured the policy. Generally due to the declining property values in the small town where the house was located, the house now has a fair market value of $101,000 as of August 1, 1997. On that date, the Adams' house was completely destroyed by fire, a covered peril. The Adams have filed a claim and proof of loss with Goodfriend. If the policy at issue is a valued policy, how much are the Adams entitled to collect from Good friend? Why that amount? If the policy at issue is an open policy, how much are the Adams entitled to collect? Why that amount?

Q: Acme, Inc. owned a warehouse that was insured under a property insurance policy issued by Feelsafe Insurance Co. The warehouse was heavily damaged when a fire that was negligently started by a hotdog stand worker (an employee of Funfoods Corp.) went out of control and engulfed portions of the building. Since fire was a covered peril, Feelsafe paid the claim submitted by Acme. What rights, if any, does Feelsafe acquire? Explain.

Q: Adams takes insurance from Prince insurance company for his office building. There is an increase of hazards clause in the contract. However, after some days Adams was forced to keep highly explosive material in the office building for official purpose. However, the building got damaged from inside due to an explosion caused by the hazardous substance. Adams now wishes to claim insurance coverage. Prince is refusing to give insurance. Will Adams succeed in getting his insurance claim?

Q: Ace Insurance Company issues a legal malpractice insurance policy to Bob, an attorney. Bob decides to skip a court appearance to go relax at his beach house. His client, Gina, brings a legal malpractice claim against Bob based on his failure to appear. Ace is unsure whether its policy covers intentional acts such as Bob's decision. Is Ace obligated to provide Bob with an attorney to represent him in Gina's malpractice claim against him? Explain.

Q: B.G. Disco purchased a property insurance policy and named himself as the beneficiary. Disco had no ownership interest in the house at the time he purchased the policy. The house was in fact owned by his aunt, Polly Espy. He procured the insurance, however, because he hoped to inherit the house at some future date and thus wanted to protect that potential interest. A month after Disco purchased the policy; Aunt Polly's house was destroyed by fire, a covered peril. Is Disco entitled to collect under the insurance policy? Explain your reasoning.

Q: Sometimes, an insurer may retain an attorney to defend the insured in a liability case but can conclude later on, based on additional information, that it does not have the obligation to pay any damages that may be assessed against the insured as a result of the third party's claim. It can do so through a(n): A. equity of redemption. B. advance directive. C. reservation of rights notice. D. declaratory judgment.

Q: Settlements in liability cases occur only when: A. the insurer issues a declaratory judgment. B. the third party gives up the legal right to litigate. C. the third party demands prelitigation payment. D. the third party institutes litigation.

Q: A reservation of rights is issued by an insurance company when? A. When it needs to defend the insured but wants to have an opportunity later to decide if the accident is beyond coverage of insurance policy B. When the amount of injury exceed the policy limit C. When there is a third party involved from a different state D. When an insured misses payment on a premium

Q: What is the liability faced by an insurer if it breaches its policy obligations by means of a good faith but erroneous denial of coverage? A. Compensatory damages B. Punitive damages C. Special damages D. Liquidated damages

Q: Why are insurers liable for both compensatory and punitive damages for a breach which is in bad faith? A. The insured needs to be compensated for the amount spent on the case. B. Bad faith is considered an independent tort by itself. C. Courts have traditionally favored punitive damages. D. Such breaches in bad faith are a very rare phenomenon.

Q: Hans purchased an auto insurance policy from ABC Insurance (ABC) which had a liability provision. Hans was involved in a collision with Beth, caused by negligence of both Beth and Hans. Both were injured. Who would be entitled to collect money under the liability provision of Hans' policy? A. Beth only B. Hans only C. Both Beth and Hans D. Neither Beth nor Hans

Q: Mr. White is a doctor and purchases insurance on him professionally making a mistake. This form of insurance is called? A. Real property insurance B. Professional insurance (malpractice) C. Personal property insurance D. Insurance rider

Q: An insurer's "duty to defend" the insured requires: A. paying the insured any compensatory damages incurred. B. ensuring that there is no breach in bad faith. C. furnishing the insured with an attorney for a liability case. D. accepting any punitive damages on behalf of the insured.

Q: When the insurer asks the court to determine whether the insurer owes obligations to the insured under the policy in connection with the particular liability claim made against the insured by the injured third party, it is filing a(n): A. equity of redemption. B. advance directive. C. reservation of rights notice. D. declaratory judgment.

Q: Gridco, Inc. owns the building in which its offices are located. On April 1, Gridco insured the building with Olden Days Insurance Co., which issued a $200,000 face amount policy. The Olden Days policy contained a pro rata clause. Keeping that policy in force, Gridco procured an additional policy on the building on June 15. This policy, had a $600,000 face amount and contained a pro rata clause, was issued by Big City Insurance Corp. On August 10, while both policies were in force, lightning (a covered peril under each policy) struck the Gridco building. This sparked a fire that resulted in $72,000 of damage to the warehouse. Gridco has filed claims and proofs of loss with Olden Days and Big City. Which of the following correctly sets forth the amounts the respective insurers must pay Gridco? A. Olden Days: $72,000; Big City: 0. B. Olden Days: $18,000; Big City: $54,000. C. Olden Days: 0; Big City: $72,000. D. Olden Days: $24,000; Big City: $48,000.

Q: On April 2, 1987, Ritz Corp. purchased a warehouse that it insured for $500,000. The policy contained a 75% coinsurance clause. On April 25, 1988, a fire caused $900,000 damage to the warehouse. The fair market value of the warehouse was $800,000 on April 2, 1987, and $1 million on April 25, 1988. Ritz is entitled to receive insurance proceeds of, at most, A. $375,000 B. $500,000 C. $600,000 D. $750,000

Q: Which of the following accurately states the legal effect of the insured's violation of an increase of hazard clause in a property insurance policy? A. An increase of hazard clause provides that the insurer's liability will be terminated if the insured takes any action materially increasing the insurer's risk. B. The insurer acquires the right of subrogation. C. The insurer cannot avoid having to pay the insured for a loss unless the loss resulted from the condition that constituted a violation of the increase of hazard clause. D. The insured becomes obligated to pay punitive damages to the insurer.

Q: Which of the following is an accurate statement about liability insurance policies? A. They cover bodily injury or property damage that result from the insured's business or professional pursuits. B. They typically provide the insured with coverage for punitive damages liability he may face. C. They typically do not provide the insured with coverage for the consequences stemming from his negligent acts. D. They may be used by the insured as a way of transferring risks associated with certain tort liability he may face.

Q: Which of the following is true of the coinsurance feature of property insurance? A. It prevents the insured from insuring for a minimal amount and recovering in full for such losses. B. It precludes the insured from insuring for less than the coinsurance percentage. C. It is an additional refinement of the insurable interest requirement. D. It helps the insured to recover full damages for any loss.

Q: Elvisco, Inc. owns the building that houses its business. Elvisco obtained a property insurance policy on the building from Graceland Mutual Insurance Co. The policy, whose face amount was $200,000, contained a 75 percent coinsurance clause. The building had a fair market value of $400,000. While the policy was in effect, the covered peril of fire caused $90,000 of damage to the building. Elvisco has filed a claim and proof of loss with Graceland Mutual. How much is Graceland Mutual obligated to pay Elvisco? A. $90,000 B. $60,000 C. $30,000 D. Nothing

Q: Ruth purchased a property insurance policy from ABC Insurance (ABC). This policy covered Ruth's airplane and the policy limits were $300,000. A fire broke out on January 1, 2006, when the airplane was stored in its hangar, completely destroying the airplane. There was suspicious evidence that the fire had been deliberately set, and ABC honestly believed that Ruth had set the fire. ABC refused to pay on this policy. However, Ruth was completely innocent, and she sued to enforce the policy. The lawsuit, which ended on January 1, 2007, determined that Ruth had nothing to do with the fire. Because Ruth needed to use a private airplane to visit clients in remote areas, she rented an airplane during the calendar year 2006. This cost her $50,000. ABC was aware that Ruth needed an airplane to reach her clients when it issued the policy. Ruth would have used the policy limits of $300,000 to purchase another airplane in 2006, but for ABC's refusal to pay on its policy. Under these circumstances, Ruth is entitled to a judgment in the amount of: A. $300,000 (the policy limits). B. $300,000 (the policy limits) and also $50,000 consequential damages. C. $300,000 (the policy limits), $50,000 consequential damages and also punitive damages. D. $300,000 (the policy limits), $50,000 consequential damages, statutory damages and also punitive damages.

Q: Which of the following characterizes a coinsurance clause with regard to property insurance? A. It prohibits the insured from obtaining an amount of insurance which would be less than the coinsurance percentage multiplied by the fair market value of the property. B. It encourages the insured to be more careful in preventing losses since the insured is always at least partially at risk when a loss occurs. C. It permits the insured to receive an amount in excess of the policy amount when there has been a total loss and the insured carried the required coverage under the coinsurance clause. D. It will result in the insured sharing in partial losses when the insured has failed to carry the required coverage under the coinsurance clause.

Q: Homeowners Les and Linda Wheiler live in Missouri. Working with Magnanimous Insurance Co. agent Dell, the Wheilers submitted an application for property insurance on their home. At the time they submitted their application, the Wheilers assumed that when Magnanimous issued them a policy, the policy would furnish coverage for losses stemming from floods. Magnanimous approved the Wheilers' application and issued them a written policy covering their house. The written policy's terms excluded coverage for flood-related losses. Three months after they received their policy from Magnanimous, the Wheilers' house sustained damage as a result of a flood. When the Wheilers submitted a claim to Magnanimous, the insurance company denied the claim because flood coverage was not provided by the policy. The Wheilers have sued Magnanimous in an effort to obtain reformation of the written policy (so that it would provide flood coverage). Under which of the following alternative scenarios would the Wheilers stand the best chance of obtaining a court order of reformation? A. If Dell informed the Wheilers, after the loss but before submission of their formal claim to Magnanimous, that the policy did not furnish flood coverage, but urged the Wheilers to submit their claim anyway. B. If the Wheilers' assumption that the policy would furnish flood coverage stemmed from the fact that floods have occurred every few years in the Missouri area. C. If Dell told the Wheilers at the time of the application that the policy would furnish flood coverage. D. If the Wheilers did not read their policy after receiving it from Magnanimous and therefore first learned that their policy did not provide flood coverage when their claim was denied by Magnanimous.

Q: Where covered and noncovered peril join to cause a loss, and the covered peril plays the dominant role in such loss, then the policy: A. will provide coverage, because of the dominant role played by the covered peril. B. will not provide coverage, because of the presence of the excluded peril. C. will provide coverage, because loss is sustained by the insured. D. will not provide coverage, because the insurance is voidable.

Q: In 2001, Tom purchased a home with a fair market value of $100,000. At the same time, he also purchased a valued policy with a face amount of $100,000 to insure the house against various risks, including fire. In 2002, the house was destroyed by fire. The fair market value of the house at the time of the fire was $150,000. What is Tom entitled to under the policy? A. $100,000 B. $150,000 C. $250,000 D. Nothing

Q: Property insurance policies are in the nature of: A. partnership contracts. B. negotiation contracts. C. indemnity contracts. D. lease contracts.

Q: Which types of losses are least likely to be covered by fire insurance policies? A. Losses from friendly fires B. Losses from hostile fires C. Losses from fires that started outside the property D. Losses from smoke and heat that cause indirect damage

Q: With respect to property insurance, the insurable interest requirement: A. need only be satisfied at the time the policy is issued. B. must be satisfied both at the time the policy is issued and at the time of the loss. C. will be satisfied only if the insured owns the property in fee simple absolute. D. will be satisfied by an insured who possesses a leasehold interest in the property.

Q: Which of the following is an accurate statement about property insurance policies? A. They are less likely to provide coverage for flood-related losses than for lightning-related losses. B. They are more likely to provide coverage for losses resulting from friendly fires than for losses resulting from hostile fires. C. They do not provide coverage for losses resulting from fires that were intentionally caused by persons having no connection with the insured. D. Requisite insurable interest must generally exist at the time of the entering into the policy.

Q: Automobile insurance is what type of insurance? A. Insurance for personal property B. Corporate insurance protection C. Professional insurance D. Insurance rider

Q: The insurable interest requirement with regard to property insurance: A. may be waived by a writing signed by the insured and insurer. B. may be satisfied by a person other than the legal owner of the property. C. must be satisfied at the time the policy is issued. D. must be satisfied by the insured's legal title to the property at the time of loss.

Q: Which of the following is an inaccurate statement about the insurable interest requirement? A. The beneficiary named in a life insurance policy may recover under the policy if she possessed an insurable interest in the relevant person's life at the time she (the named beneficiary) procured the policy but no longer possessed the insurable interest at the time the relevant person died. B. When an equitable interest in a property translates into a legal interest, it is considered to be an insurable interest. C. Persons who are business partners are generally held to possess insurable interests in each others' lives. D. A policy owner may recover under a property insurance policy if he possessed an insurable interest in the relevant property at the time he procured the policy but no longer possessed the property.

Q: To recover under a property insurance policy, an insurable interest must exist: A. When the policy is purchased: Yes; At the time of loss: Yes B. When the policy is purchased: Yes; At the time of loss: No C. When the policy is purchased: No; At the time of loss: Yes D. When the policy is purchased: No; At the time of loss: No

Q: West is seeking to collect on a property insurance policy covering certain described property which was destroyed. The insurer has denied recovery based upon West's alleged lack of an insurable interest in the property. In which of the situations described below will the insurance company prevail? A. West is not the owner of the insured property but a long-term lessee. B. The insured property belongs to someone else, but West holds the mortgage on it. C. The insured property does not belong to West, but instead to a corporation which he controls. D. The property has been willed to West's father for life, and upon his father's death, to West as the remainderman.

Q: The extent of a person's insurable interest in property is limited: A. to the value of that interest. B. to the market value of the property. C. to the maximum value of the property. D. the reasonable value of the property.

Q: How does an insurance company fully perform on an insurance contract? A. Pay out the amount specified in the contract with an event occurs B. Accept the insured premium payment C. Notify the State of the contract D. File the insurance contract with the court

Q: Which of the following is sufficient condition for courts to allow reformation in a written insurance policy? A. The insurer's misunderstanding about a contract term B. The insured's misunderstanding about a contract term C. A fraud committed by the insurer D. An increase in the market value of the insured property

Q: Generally courts interpret ambiguities in the insurance clauses against the: A. insurer. B. insured. C. owner. D. lesser.