Q&A Hero

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

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: 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: 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.

Q: When a party with the power to terminate an insurance policy exercises that power, a(n) _____ has occurred. A. lapse B. cancellation C. reformation D. rescission

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: Donald is the trustee of a trust set up by Simpson, with Adams as beneficiary. The trust property consists almost entirely of income-producing real propertyoffice buildings, apartment complexes, etc. By putting a "P" or an "I" in the appropriate space, indicate whether the following fund transactions should be allocated to principal (P) or to interest (I).

Q: Joe Smith has just died. Three months ago, when he knew that his death was impending, Joe established a spendthrift trust for the protection of his 16-year old son Bobby. The trust property consists mainly of $500,000 in investment securities. The trustee is Jack Purdy, a CPA. The trust agreement does not discuss the trust's termination. Answer the following questions regarding the trust. Can Jack invest trust assets differently than Joe invested them? For example, can he sell trust securities and buy others? Why or why not? Must Jack hire an investment professional to make trust investments?

Q: Lyle and Susie had three children: Seed, Sierra, and Shasta. All three children are adults. Although Sierra and Shasta each attend college, Seed hasn't quite found himself. Seed tours with various music bands. He plays guitar, spends most of the year hiking the Cascade Mountains, and plans to live on a commune in Big Sur, California. Lyle and Susie visited their attorney to plan their estates. They wish to leave equal shares of their estates to their children, but they are concerned that Seed will not be able to handle an inheritance. What should they do with respect to Seed's share?

Q: Steve and Bob own real property as joint tenants with right of survivorship. Steve decided that he wanted to own the entire property himself, so he killed Bob. Due to a technicality, Steve was acquitted of any criminal charges. Nevertheless, Bob's heirs brought a civil suit against Steve. What would be the result, if the court accepts that Steve obtained the property illegally? Explain.

Q: Which of the following arises when there has been an incomplete disposition of trust property and the creation of a trust is necessary to effectuate a settlor's intent or avoid unjust enrichment? A. Express trust B. Spendthrift trust C. Totten trust D. Resulting trust

Q: When a person procures the transfer of property by means of fraud or duress, he becomes a(n) _____ and is under an obligation to return the property to its original owner. A. constructive trustee B. implied trustee C. executor D. administrator

Q: Before he died, Aaron created a charitable trust for the plantation of Analytica Beni trees, nominating David as his trustee. Some years later, planting Analytica Beni trees is declared illegal by the state. What remedies does David have available to him?

Q: Which of the following is true of a spendthrift trust? A. The settlor can make himself the beneficiary. B. It restricts the voluntary transfer of a beneficiary's interest. C. Assignees can claim rights to it. D. Creditors can claim rights to it.

Q: A distinguishing feature between the making of an inter vivos gift and the creation of a trust is that: A. a gift may be made orally whereas a trust must be in a signed writing. B. a gift is irrevocable whereas a trust may be revoked in certain cases. C. in order to create a valid trust, the creator must receive some form of consideration. D. the beneficiary of a trust must be notified of the trust's creation.

Q: Under exceptional circumstances in which the creation of a trust is necessary to effectuate a settlor's intent or avoid unjust enrichment, the law imposes a trust even though no express trust exists. This is known as a(n) _____ trust. A. implied B. spendthrift C. Totten D. blind

Q: Which of the following is not an essential element in the formation of a trust? A. Conveyance of specific property B. Proper purpose C. Legal capacity D. Appointment of trustee

Q: A particular trust has income-producing real property as its sole asset. Which of the following trust proceeds or expenditures should be allocated to principal? A. Annual payments on a fire insurance policy to protect trust property. B. The cost of a long-term permanent improvement to trust property. C. Rental income from the trust property. D. Real estate taxes paid on trust property.

Q: A Totten trust is created when a person: A. deposits money in a bank for the benefit of another. B. directs in his will that a trust be created upon that person's death. C. executes the creation using a holographic will. D. opens a trust only for the benefit of poor people.

Q: Which of the following is most likely to breach one of the trustee's fiduciary duties? A. Selling stock owned by the trust to realize capital gains. B. Selling stock owned by the trust because it has declined in value over the last three years. C. Delegating the selection of trust investments to an investment advisor. D. Delegating the preparation of statements of account to an accountant.

Q: A personal representative of an estate would breach fiduciary duties if the personal representative: A. combined personal funds with funds of the estate so that both could purchase treasury bills. B. represented the estate in a lawsuit brought against it by a disgruntled relative of the decedent. C. distributed property in satisfaction of the decedent's debts. D. engaged a non-CPA to prepare the records for the estate's final accounting.

Q: The rule against perpetuities does not apply to a: A. testamentary trust. B. spendthrift trust. C. charitable trust. D. Totten trust.

Q: A trust that is established in a person's will and that takes effect only upon that person's death is called a(n): A. inter vivos trust. B. spendthrift trust. C. Totten trust. D. testamentary trust.

Q: A trust that is established and effective during the settlor's lifetime is known as a(n) _____ trust. A. causa mortis B. per capita C. per stirpes D. inter vivos

Q: Krieg's will created a trust to take effect upon Krieg's death. The will named Krieg's spouse as both the trustee and personal representative (executor) of the estate. The will provided that all of Krieg's securities were to be transferred to the trust and named Krieg's child as the beneficiary of the trust. Which of the following is true under the circumstances? A. Krieg has created a testamentary trust. B. Krieg's spouse may not serve as both the trustee and personal representative. C. Krieg has created a spendthrift trust. D. The trust is invalid because securities cannot be transferred to a trust.

Q: Thomas wants to create an inter vivos trust for the benefit of his adult children. In order to create a valid inter vivos trust, he must have a level of mental capacity that is the same as that required to: A. make a valid contract. B. make a valid will. C. stand trial in a criminal case. D. testify under oath in a criminal case.

Q: A person who is appointed under a will to look after the property of the deceased person is known as a(n): A. obligee. B. estate agent. C. legal heir. D. executor.

Q: In the case of an intestate estate, the personal representative to it is called a(n) _____. A. trustee B. executor C. administrator D. beneficiary

Q: A(n) _____ is a legal relationship in which a person who has legal title to property has the duty to hold it for the use or benefit of another person. A. accession B. lien C. trust D. codicil

Q: The property held in trust is called the _____. A. attachment B. lien C. corpus D. accession

Q: If a person dies intestate, his real property will be distributed: A. to the state in which the property is located. B. to the state of the person's domicile. C. according to the law of the state in which the property is located. D. according to the law of the state of the person's domicile.

Q: John died without leaving a will. He left a wife and two children. He lived in Boise, Idaho, and he owned a ski condo in Aspen, Colorado. How will John's ski condo be distributed upon his death? A. The law of intestate succession of Idaho will be followed, because Idaho is the state where John was domiciled at the time of his death. B. The law of intestate succession of Colorado will be followed, because Colorado is where John's condo is located. C. The federal law of intestate succession will be followed, because John's property is located in more than one state. D. The property will escheat to the State of Idaho.

Q: If the deceased had no surviving relatives, the property goes to _____. A. the executor B. a charity picked by an assigned trustee C. his friends D. the state

Q: In intestate succession what is the term for the individuals that stand to inherit the decedent's assets? A. Probate B. Heirs C. Incorporation D. Executors

Q: Sarah is 75 years old. She has a serious illness, but she does not want to be kept alive by extraordinary medical technology. Specifically, she does not want to be kept alive by a respirator. Which of the following should Sarah use in order to make sure that her wishes are followed? A. A living will B. A codicil C. A joint will D. A nuncupative will

Q: A document that gives person A the right to act for person B, in the event, person A becomes incapacitated is known as a: A. durable power of attorney. B. living trust. C. right of succession. D. codicil.