Quiz 51: Insurance

Business

Substantial Hazard Increase: In the case of Estate of Luster v. Allstate Insurance Co., 598 F.3d 903 (2010) the district court granted summary judgment in favor of Allstate and dismissed Luster's suit. The United States Court of Appeals reversed and remanded. The Court determined that an occupied house did not necessarily create a substantial increase in hazard because houses are rarely occupied continuously. Further, the vacancy circumstances, usually found in insurance policies, must be considered in conjunction with the character or class of property to which it relates. In any case, a home that is unoccupied does not create a substantial increase in hazard for insurers or insureds.

Insurable Interest: In order to have an insurable interest in life insurance, a person must have a reasonable expectation of benefit from the continued life of another. Additionally, the insurable interest must be present when the policy is obtained. The relationship may be founded on money or blood/affinity. At the time that Adia purchased the life insurance policy for her elderly cousin it was not for the benefit of a continued life of her cousin, it was for the monetary coverage of her cousin's anticipated death. Also, because they were third cousins it may be difficult to prove that there was a strong affinity between Adia and her cousin. Therefore, the insurance company was correct in returning the premiums and cancelling the policy. In order to have an insurable interest in property insurance, a person must derive a pecuniary benefit from the preservation and continued existence of the property. At the time of the devastating fire, Adia and her cousin had sold the premises and vacated, thereby relinquishing her interest in the preservation of the premises. Therefore, the insurance company was correct in returning the premiums and cancelling the policy.

Retroactive Cancellation: In the case of Estate of Luster v. Allstate Insurance Co., 598 F.3d 903 (2010) the district court granted summary judgment in favor of Allstate and dismissed Luster's suit. The United States Court of Appeals reversed and remanded. The Court determined that continued acceptance of premiums after cancellation gives the impression that the insured is covered. Under these circumstances, a person would not seek substitute protection. If, this situation incurs a loss as a result, the company may not deny coverage. Allstate would have had to cancel the policy retroactively in order to prevail, not just to deny coverage for a specific loss. Allstate waived its right to cancel by accepting premiums for years after learning of the change of occupancy.

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