Deck 36: Types of Insurance

Question 1

Fatima Costello purchased a life insurance policy that included an incontestability provision so long as the policy "has been in force during the lifetime of the Insured for two years from the date of issue." Costello did not disclose the fact that she was taking medication for hypertension and elevated lipids and had a history of chronic obstructive pulmonary disease. Costello died twenty-one months after the policy was issued, and her husband made a claim on the policy within two weeks. United of Omaha Life Insurance Company (United) denied the claim four months later, twenty-five months after the policy was issued, on the basis of the contestability clause and the undisclosed medical information. The husband sued, claiming that the contestability clause meant that United had to contest the policy within the two-year period. Did United wait too long to contest the policy?

Answer 1

Incontestability Clause: It is a clause in mainly life insurance policies that avert the provider from invalid reporting owing to a misstatement by the insured after a definite amount of point has approved. In certain cases insurance companies will not have the authority to contest a case and not to honor a claim except in the case of not making payments.
In this case, U, the insurance company had waited for too long to lodge a protest and thus the claim will not be treated as a valid one. The incontestability clause forces the insurance company to complain regarding any material misrepresentations within 24 months of the formation of the contract and in this case it waited for 25 months.
Thus, the company had failed to represent its case in time.

Question 2

Why is it desirable for the insured to have a grace period in a life insurance policy?

Answer 2

Grace Period:
A grace period in a life insurance premium paying policy provides the insured time to pay the premium without the policy lapsing. Otherwise, a day after the due date the insurance company could cancel the policy and forfeit any investment made by the insured.

Question 3

Coast Converters, Inc. (Coast) manufactured plastic bags. It carried a commercial all-risk insurance policy from Federal Insurance Company (Federal), including both property damage and business interruption. As a result of electrical modifications made to Coast's manufacturing facility, certain voltage fluctuations occurred causing the production of a larger-than-normal number of defective bags. In many cases, that stock actually was sold, and Coast only learned of the defects through returns of defective bags. Coast filed a claim with Federal to recover costs of damaged machinery and the increased number of scrap bags. Federal claimed that a significant portion of the losses were not covered under "property damage" because Coast was not in the business of producing defective bags. Was Coast covered for its costs in producing the defective bags?

Answer 3

Property damage insurance: Property damage insurance will be taken to cover any damages to the property and covers the property from risks such as fire and other natural disasters.
Business Interruption insurance: Business Interruption insurance is taken to provide a cover for the losses arising from loss of production due to delays or breaking down of the machinery etc.
In this case Cst is not covered for the damages in the production of bags because the damaged bags cannot be considered to fall under business interruption insurance. The damaged bags are a result of electrical short circuit and not because of any delay in the production or machinery breakdowns causing interruption to their business.
Thus, Cst's claim is not a valid one.

Question 4

What is the maximum amount an insured can recover for total loss of property?

Question 5

Thomas Hasselle injured his wife, Shirley, when he accidentally hit her with their car. They were both named insureds under their Alfa Insurance Corporation (Alfa) automobile policy. The policy excluded liability coverage for "any bodily injury to any covered person." "Covered person" included any named insured. Alfa denied liability coverage for Shirley's injuries. Should Alfa be allowed to deny liability coverage?

Question 6

What risk does a fire insurance policy normally cover?

Question 7

Chase Insurance Life Annuity Company issued a one-million-dollar life insurance policy to Theresa Officer effective on February 11. Her husband, Dean Officer, was the beneficiary. Two years of premiums were paid, but one year, ten months, and twenty-four days after the policy became effective, Theresa committed suicide. Dean made a claim under the insurance policy, and Chase sent him $540, the amount of the premiums that had been paid. The policy stated that Chase would limit the "proceeds" paid under the policy if the insured committed suicide "within 2 years from the Date of Issue; and after 2 years from the Date of Issue, but within 2 years from the effective date of the last reinstatement of this policy." The "limited amount" was the premiums paid. Should the court limit Dean's recovery to $540?

Question 8

Why must property and its location be described accurately?

Question 9

As Jonathan Adrabi drove out of a parking lot, he stopped behind another car at a stop sign. The people from the car ahead of him got out and assaulted him. They hit him with the barrel of a shotgun, forced him into his car trunk, and drove at high rates of speed, occasionally slamming on the brakes, which banged him against the trunk interior. Adrabi made a claim for his injuries under his Allstate Insurance Co. (Allstate) uninsured motorist (UM) coverage. The UM provision provided payment for bodily injuries the insured was entitled to recover "from the owner or operator of an uninsured auto. Injury must be caused by accident and arise out of the ownership, maintenance or use of an uninsured... auto." An uninsured auto under the policy was one that had "no bodily injury insurance policy in effect at the time of the accident." Allstate denied coverage and Adrabi sued, alleging that once under the control of the assailants, his car was uninsured. Should he recover?

Question 10

What does an 80 percent coinsurance clause in an insurance policy mean?

Question 11

What kinds of losses does an auto theft policy cover?

Question 12

What does automobile bodily injury insurance cover?

Question 13

Smarr purchased a family automobile insurance policy on his pickup truck from American National Property and Casualty Company (ANPAC). The policy excluded coverage for liability sustained "while any vehicle is used to carry persons or property for a charge." The truck was primarily used for farm work, but Smarr also ran a tree cutting and trimming business. One day the truck was used to transport logs from the tree cutting business to a local sawmill, when it was struck from behind, and the driver of the other vehicle was killed. ANPAC denied coverage on the basis of its exclusion clause. Was Smarr entitled to coverage?

Question 14

What is a no-fault insurance plan?

Question 15

What is the difference between level-term and decreasing-term life insurance?

Question 16

Advocate Networks, LLC, received a copy of a lawsuit against it by Marketing on Hold Inc. on March 23. Networks retained counsel to represent it in connection with the lawsuit on March 26 but failed to provide Hartford Fire Insurance Company, which had issued two liability insurance policies to Networks, with any notice of the event that prompted the lawsuit, the underlying claim, or the lawsuit itself until July 25. The policies required Networks to notify Hartford of any claim or lawsuit "as soon as practicable" and to "immediately" send it copies of any legal papers in connection with any claim or lawsuit. Hartford asked the court to declare that Networks was not covered under the policies with respect to the lawsuit or the underlying claim. Networks said it had thought the dispute was a misunderstanding it could resolve by e-mail. It argued that no potential liability was indicated, so it did not have a duty to provide Hartford prompt notice. Is Networks covered?

Question 17

What are two common limitations on risks covered by life insurance?