Question 1

If this requirement in a contract is absent, enforcing the contract would be contrary to public policy.Identify this requirement.
A)Offer and acceptance
B)Consideration
C)Competent parties
D)Legal purpose
E)Legal form

Accepted Answer

A contract must have a legal purpose to be enforceable; if its purpose is illegal or against public policy, the contract is void.

Question 2

Which of the following occurs when the insurer or its agent has led the insured into believing that coverage exists and, as a consequence, the insurer cannot later claim that no coverage existed?
A)Escrow
B)Duress
C)Estoppel
D)Waiver
E)Escheat

Accepted Answer

Estoppel occurs when the insurer or its agent has led the insured into believing that coverage exists, and therefore, the insurer is prevented from claiming that no coverage existed. This principle protects the insured from the insurer's inconsistent claims contrary to the insured's reasonable expectations.

Question 3

Since an insurable interest must exist at the inception of a life insurance contract to make it enforceable, the amount of payment is usually limited by the extent of such insurable interest.

Accepted Answer

In life insurance, the insurable interest must exist at the inception of the contract, but the amount of payment is not limited by the extent of the insurable interest. The policyholder can choose the coverage amount, which is typically based on their financial needs and goals.

Question 4

If you call a GEICO agent in the middle of the night to obtain insurance for your new automobile, you are covered as of the time of your conversation with the agent.Identify this authority of the agent.
A)Duress authority
B)Facultative authority
C)Binding authority
D)Waiver authority
E)Estoppel authority

Accepted Answer

The correct term is "binding authority," which refers to the agent's power to act on behalf of the insurance company, making decisions that the company must adhere to, such as providing insurance coverage during the call.

Question 5

An insurance company suspends an agent, but the agent retains possession of blank policies.Which of the following is likely to happen if the former agent issues those policies?
A)The company provides the suspension order of the agent in front of a judge and cancels those policies.
B)The company waives the agent's authority and the existence of an agency relationship and cancels the policies.
C)The premiums of these policyholders are paid back, and the policy cancelled by their consent.
D)The court holds the authority to decide whether the policy stands or is cancelled.
E)The company is estopped from denying the existence of an agency relationship and will be bound by the policy.

Accepted Answer

The principle of estoppel prevents the company from denying the existence of an agency relationship if the agent was in possession of blank policies and issued them, making the company bound by those policies.

Question 6

In an agency, the principle creates an agency relationship with a second party by authorizing him or her to make contracts with third parties on the principal's behalf.The second party to this relationship is authorized to make contracts with a third party and is known as the:
A)insurer.
B)policyholder.
C)reinsurer.
D)insured.
E)agent.

Accepted Answer

The second party in an agency relationship, authorized to make contracts with third parties on behalf of the principal, is known as the agent. This is a fundamental concept in agency law, where the agent acts on behalf of the principal in dealings with third parties.

Question 7

Identify the policies in which the policyholders were led to believe that they would be paid in full after a certain period of time, and they would no longer have to make premium payments.
A)Supplementary policies
B)Vanishing premium policies
C)Waiver policies
D)Estoppel policies
E)Conditional policies

Accepted Answer

Vanishing premium policies were marketed with the promise that after a certain period of time, the dividends from the policy would be sufficient to cover the premium payments, leading policyholders to believe they would not have to make further payments out of pocket.

Question 8

Identify the law that deals basically with the legal consequences of people acting on behalf of other people or organizations.
A)Law of numbers
B)Law of adverse selection
C)Law of moral hazard
D)Law of agency
E)Law of torts

Accepted Answer

The Law of Agency is specifically concerned with the legal implications of actions taken by individuals (agents) on behalf of others (principals), including organizations. It outlines the rights and obligations arising from such relationships.

Question 9

A contract of insurance to cover losses caused by the insured's own arson would be illegal and contrary to public policy, and thus unenforceable.Identify the contract requirement that is most like absent.
A)Legal form
B)Legal purpose
C)Offer and acceptance
D)Consideration
E)Competent parties

Accepted Answer

Legal purpose is absent because a contract that involves committing an illegal act, such as arson, does not have a lawful objective and is therefore unenforceable.

Question 10

In many situations, an agent is able to exercise this authority, which secures coverage for an insured without any additional input from the insurer.Identify this authority.
A)Waiver authority
B)Estoppel authority
C)Duress authority
D)Binding authority
E)Facultative authority

Accepted Answer

Binding authority allows an agent to secure coverage for an insured without further input from the insurer, effectively binding the insurer to the coverage terms the agent sets forth.

Question 11

The vexing problem of vanishing premiums has proven to be an expensive lesson for insurance companies on the doctrine of _____-a Latin phrase referring to the doctrine that the master is responsible for the actions taken by his or her servant during the course of duty.
A)respondeat superior
B)reformatio in peius
C)res ipsa loquitur
D)restitutio in integrum
E)res judicata

Accepted Answer

The correct Latin phrase is "respondeat superior," which translates to "let the master answer." This legal doctrine holds an employer or principal legally responsible for the wrongful acts of an employee or agent, if such acts occur within the scope of the employment or agency.

Question 12

When you call an insurance agent for insurance on your new automobile and the agent provides coverage, there is an offer to buy and the agent has accepted the offer on behalf of his or her company.This acceptance is called:
A)an estoppel.
B)a duress.
C)an escrow.
D)a binder.
E)a waiver.

Accepted Answer

A binder is a temporary insurance contract that provides proof of coverage until a permanent policy is issued. It signifies that the insurance agent has accepted the offer on behalf of the insurance company to provide coverage for the new automobile.

Question 13

When an insured specifically requests a certain kind of coverage when applying for insurance and is not told it is not available, that coverage likely exists, even if the policy wording states otherwise, because the agent implied such coverage at the time of sale, and the insurer cannot deny it.Which of the following best explains this situation?
A)Escrow
B)Waiver
C)Escheat
D)Duress
E)Estoppel

Accepted Answer

The answer of When an insured specifically requests a certain...

Question 14

What do we mean when we say that a contract must have a legal purpose?
A)It must not be for the performance of an activity prohibited by law.
B)It must not be signed when one or both the parties are intoxicated.
C)It must be in written format so that it is easier to understand and so that it stands as proof.
D)It must not be done for minor or petty agreements.
E)It must only be for situations where monetary incentives are concerned.

Accepted Answer

A contract having a legal purpose means that the contract's subject matter must be lawful and not for any activity that is illegal or prohibited by law.

Question 15

Identify the contracts whose provisions are dynamic with respect to the environment in which they are executed.
A)Facultative contracts
B)Relational contracts
C)Volatile contacts
D)Transient contracts
E)Mutable contracts

Accepted Answer

Relational contracts are dynamic because they are based on the relationship between the parties and adapt to changing circumstances rather than being strictly defined by detailed, static terms.

Question 16

This type of binder implies that coverage exists only if the underwriter ultimately accepts the application for insurance.Thus, if the applicant dies prior to the final policy issuance, payment is made if the applicant would have been acceptable to the insurer as an insured.Identify this type of binder.
A)Facultative binder
B)Conditional binder
C)General binder
D)Estoppel
E)Waiver

Accepted Answer

A conditional binder provides temporary insurance coverage, contingent upon the underwriter's final acceptance of the insurance application. If the underwriter would have accepted the application, the coverage is considered to have been in effect, even if the applicant dies before the policy is formally issued.

Question 17

The law of agency is significant to insurance in large part because:
A)the only direct interaction most buyers of insurance have with the insurance company is through an agent or a broker.
B)it allows the insurance companies to interact directly with the buyers without the help of agents or brokers.
C)it gives the insurance company the clarity it requires while passing it's authority as principle to the agent.
D)it makes investigation of claims easier.
E)it provides clarity on the types of risks and makes risk classification easier.

Accepted Answer

The law of agency is significant to insurance in large part because the only direct interaction most buyers of insurance have with the insurance company is through an agent or a broker.

Question 18

Russell, an auto insurance agent, knew that Gyle's seventeen-year-old son, Phelix, was allowed to drive the covered automobile, and also knew the company did not accept such risks.If Russell issues the policy, the company looses the right to refuse coverage on this basis later in the policy period.This is an example of:
A)an estoppel.
B)a conditional binder.
C)a contract of adhesion.
D)a waiver.
E)a supplementary binder.

Accepted Answer

The answer of Russell, an auto insurance agent, knew that...

Question 19

Consideration is the:
A)process of two parties entering into a contract.
B)process of confirming the lack performance of an activity prohibited by law.
C)the price each party demands for agreeing to carry out his or her part of the contract.
D)change in the contract agreement when the party to whom the offer was made requests for change in terms.
E)process where a contract is converted to an written document to be enforceable by law.

Accepted Answer

Consideration in contract law refers to the value (such as money, service, or goods) that each party agrees to exchange as part of a contract. It is what each party demands and receives as the price for agreeing to the contract terms.

Question 20

This is the process of two parties entering into a contract; an agreement is reached only after this process between the contracting parties.Identify this process.
A)Consideration
B)Underwriting
C)Acturial
D)Waiver
E)Estoppel

Accepted Answer

Consideration is the process where something of value is exchanged between the contracting parties, leading to an agreement. It is a fundamental aspect of forming a contract.

Quiz 9: Fundamental Doctrines Affecting Insurance Contracts

If this requirement in a contract is absent, enforcing the contract would be contrary to public policy.Identify this requirement.

Which of the following occurs when the insurer or its agent has led the insured into believing that coverage exists and, as a consequence, the insurer cannot later claim that no coverage existed?

Since an insurable interest must exist at the inception of a life insurance contract to make it enforceable, the amount of payment is usually limited by the extent of such insurable interest.

If you call a GEICO agent in the middle of the night to obtain insurance for your new automobile, you are covered as of the time of your conversation with the agent.Identify this authority of the agent.

An insurance company suspends an agent, but the agent retains possession of blank policies.Which of the following is likely to happen if the former agent issues those policies?

In an agency, the principle creates an agency relationship with a second party by authorizing him or her to make contracts with third parties on the principal's behalf.The second party to this relationship is authorized to make contracts with a third party and is known as the:

Identify the policies in which the policyholders were led to believe that they would be paid in full after a certain period of time, and they would no longer have to make premium payments.

Identify the law that deals basically with the legal consequences of people acting on behalf of other people or organizations.

A contract of insurance to cover losses caused by the insured's own arson would be illegal and contrary to public policy, and thus unenforceable.Identify the contract requirement that is most like absent.

In many situations, an agent is able to exercise this authority, which secures coverage for an insured without any additional input from the insurer.Identify this authority.

The vexing problem of vanishing premiums has proven to be an expensive lesson for insurance companies on the doctrine of _____-a Latin phrase referring to the doctrine that the master is responsible for the actions taken by his or her servant during the course of duty.

When you call an insurance agent for insurance on your new automobile and the agent provides coverage, there is an offer to buy and the agent has accepted the offer on behalf of his or her company.This acceptance is called:

What do we mean when we say that a contract must have a legal purpose?

Identify the contracts whose provisions are dynamic with respect to the environment in which they are executed.

The law of agency is significant to insurance in large part because:

Consideration is the:

This is the process of two parties entering into a contract; an agreement is reached only after this process between the contracting parties.Identify this process.