Business Law and the Legal Environment Study Set 1

Business

Quiz 36 :

Insurance

Quiz 36 :

Insurance

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Marshall Produce Co. had insured its milk- and egg-processing plant against fire. When smoke from a fire near its plant permeated the environment and was absorbed into the company's egg powder products, cans of powder delivered to the U.S. government were rejected as contaminated. Marshall Produce sued the insurance company for a total loss, but the insurer contended there had been no fire involving the insured property and no total loss. Decide. [Marshall Produce Co. v St. Paul Fire Marine Ins. Co., 98 NW2d 280 (Minn)]
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Answer:

Refer to the case Marshall Produce v St Paul Fire Marine Insurance
Case Issue
The facts to this case are:
• M insured his products against damage from fire.
• Smoke from a fire contaminated his products which were all rejected.
• Insurance company refused reimbursements for those products because it wasn't directly damaged by fire and there was no total loss.
The issue is whether M can recover for damage of his products.
Opinion
The court held for M. They argued that:
• M damages were covered since they were a direct result of a fire. His policy isn't excluded just because fire didn't physically burn his products.
• Furthermore, total loss doesn't mean everything is destroyed, but rather
• The products lost a substantial amount of value making it valueless.
• The products were rejected and contaminated representing a total loss.
Hence, M is entitled to recover the insurance on his products.

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Linda Filasky held policies issued by Preferred Risk Mutual Insurance Co. Following an injury in an automobile accident and storm damage to the roof of her home, Filasky sustained loss of income, theft of property, and water damage to her home. These three kinds of losses were covered by the policies with Preferred, but the insurer delayed unreasonably in processing her claims and raised numerous groundless objections to them. Finally, the insurer paid the claims in full. Filasky then sued the insurer for the emotional distress caused by the bad-faith delay and obstructive tactics of the insurer. The insurer defended that it had paid the claims in full and that nothing was owed Filasky. Decide. [Filasky v Preferred Risk Mut. Ins. Co., 734 P2d 76 (Ariz)]
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Answer:

Refer to the case Filasky v Preferred Risk Mutual Insurance
Case Issue
The facts to this case are:
• F had an insurance policy with P.
• While filing a claim for the damage sustained by F on her covered policies, P made many delays to reimburse F.
• After a while P paid F in full.
The issue is whether P as an insurer had acted in bad faith in paying F.
Relevant Terms, Laws, and Cases
Insurance bad faith - insurance company are expected to act in good faith when dealing with customers and claims disbursements. An insurer found to act in bad faith may have to pay a penalty to their insured customers.
Opinion
The court held for F , the insured. They found that:
• Insurer must act in good faith.
• Delaying disbursement of insurance claim is an act in bad faith.
• However, insurers can investigate dubious claims.
• P's denial of disbursement to F was groundless giving no reasons for their delays or doubts of claims to F.
Hence, P is liable for F as they acted in bad faith.

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From the United Insurance Co., Rebecca Foster obtained a policy insuring the life of Lucille McClurkin and naming herself as beneficiary. McClurkin did not live with Foster, and Foster did not inform McClurkin of the existence of the policy. Foster paid the premiums on the policy and upon the death of McClurkin sued the United Insurance Co. for the amount of the insurance. At the trial, Foster testified vaguely that her father had told her that McClurkin was her second cousin on his side of the family. Was Foster entitled to recover on the policy? [Foster v United Ins. Co., 158 SE2d 201 (SC)]
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Answer:

Answer:

Refer to the case Foster v United Insurance
Case Issue
The facts to this case are:
• F obtained a life insurance policy on her second cousin benefiting herself.
• F did not live with the cousin.
• The cousin later died.
The issue is whether F can receive the distributions from the life insurance.
Relevant Terms, Laws, and Cases
Insurable interest - is required for an insured to have an enforceable insurance contract.
• The insurable interest exists when the thing insured gives benefit to a person.
• Such benefit will be a cost to the person if the thing is damage.
• Examples include owners of a house, employer of an employee, personal health, etc.
Opinion
The court held that F may not receive the insurance money.
They argued that:
• F had no insurable interest in her second cousin.
• They met on occasions, but F did not nurse her cousin who was sick, and F didn't even pay the funeral bill.

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When Jorge de Guerrero applied for a $200,000 life insurance policy with John Hancock Mutual Life Insurance Co., he stated on the insurance application that he had not seen a physician within the past five years. In fact, he had had several consultations with his physician, who three weeks prior to the application had diagnosed him as overweight and suffering from goiter. His response to the question on drug and alcohol use was that he was not an alcoholic or user of drugs. In fact, he had been an active alcoholic since age 16 and was a marijuana user. De Guerrero died within the two-year contestability period included in the policy, and John Hancock refused to pay. The beneficiary contended that all premiums were fully paid on the policy and that any misstatements in the application were unintentional. John Hancock contended that if the deceased had given the facts, the policy would not have been issued. Decide. [de Guerrero v John Hancock Mutual Life Ins. Co., 522 So2d 1032 (Fla App)]
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Amador Pena, who had three insurance policies on his life, wrote a will in which he specified that the proceeds from the insurance policies should go to his children instead of to Leticia Pena Salinas and other beneficiaries named in the policies. He died the day after writing the will. The insurance companies paid the proceeds of the policies to the named beneficiaries. The executor of Pena's estate sued Salinas and the other beneficiaries for the insurance money. Decide. [Pena v Salinas, 536 SW2d 671 (Tex App)]
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Baurer purchased a White Freightliner tractor and agreed that his son-in-law, Britton, could use it in the trucking business. In return, Britton agreed to haul Baurer's hay and cattle, thus saving Baurer approximately $30,000 per year. Baurer insured the vehicle with Mountain West Farm Bureau Insurance Company. The policy contained an exclusionary clause that provided: "We don't insure your [truck] while it is rented or leased to others....This does not apply to the use of your [truck] on a share expense basis." When the vehicle was destroyed, Mountain West refused to pay on the policy, contending that the arrangement between Baurer and Britton was a lease of the vehicle, which was excluded under the policy. Baurer sued, contending that it was a "share expense basis" allowed under the policy. Is the insurance policy ambiguous? What rule of contract construction applies in this case? Decide. [Baurer v Mountain West Farm Bureau Ins., 695 P2d 1307 (Mont)]
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Cecil Usher owned Belize NY, Inc. (Belize), a small construction company doing business in New York City. Belize purchased a commercial general liability insurance policy from Mount Vernon Fire Insurance Co. The policy's first page, entitled "Policy Declarations," describes the insured as "Belize N.Y., Inc."; it classifies the "Form of Business" as "Corporation," the "Business Description" as "Carpentry," and indicates that Belize was afforded commercial liability insurance in the amount of $1,000,000 per occurrence and $2,000,000 in the aggregate for the period June 1, 1995, to June 1, 1996. Two classifications are listed under "Premium Computation" on the Declarations page: "Carpentry- Interior-001" and "Carpentry-001." The policy makes no further mention of these two terms. Belize performed some $60,000 of demolition work on the United House of Prayer's renovation project on 272 West 125th Street in New York City. Belize was thereafter hired to supervise subcontractors working on the job. During that period of time, a person entered the building, shot several people with a firearm, and started a fire. Seven people died and several others were injured. The estates of the victims sued Belize, Inc., for "negligence, carelessness and recklessness" regarding the fire, and Belize notified Mount Vernon of the lawsuit. Mount Vernon refused to defend or indemnify Belize because Belize was not engaging in its carpentry operations in the building at the time of the incident. It asserted that its risk is limited to carpentry operations in accordance with the classifications set forth in the policy. Belize contended that the language of the policy did not provide that the classification "Carpentry" defined covered risks, and exclusions should have been stated in the contract. Decide. [Mount Vernon Fire Insurance Co. v Belize NY, Inc., 227 F3d 232 (2d Cir)]
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Vallot was driving his farm tractor on the highway. It was struck from the rear by a truck, overturned, exploded, and burned. Vallot was killed, and a death claim was made against All American Insurance Co. The death of Vallot was covered by the company's policy if Vallot had died from "being struck or run over by" the truck. The insurance company claimed that the policy was not applicable because Vallot had not been struck; the farm tractor had been struck, and Vallot's death occurred when the overturned tractor exploded and burned. The insurance company also claimed that it was necessary that the insured be both struck and run over by another vehicle. Decide. [Vallot v All American Ins. Co., 302 So2d 625 (La App)]
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Arthur Katz testified for the U.S. government in a stock manipulation case. He also pled guilty and testified against three of his law partners in an insurance fraud case. He received a six-month sentence in a halfway house and a $5,000 fine. Katz was placed in the Federal Witness Protection Program. He and his wife changed their names to Kane and moved to Florida under the program. Both he and his wife obtained new driver's licenses and Social Security numbers. Using his new identity, "Kane" obtained two life insurance policies totaling $1.5 million. He named his wife beneficiary. A routine criminal background check on Kane found no criminal history. From 1984 to 1987, Kane invested heavily in the stock market. On October 17, 1987, the day the stock market crashed, Kane shot and wounded his stockbroker, shot and killed the office manager, and then committed suicide. The insurers refused to pay on the policies, claiming that they never insure persons with criminal records. Mrs. Kane contended that the policies were incontestable after they had been in effect for two years. Decide. [Bankers Security Life Ins. Society v Kane, 885 F2d 820 (11th Cir)]
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Spector owned a small automobile repair garage in rural Kansas that was valued at $80,000. He purchased fire insurance coverage against loss to the extent of $48,000. The policy contained an 80 percent coinsurance clause. A fire destroyed a portion of his parts room, causing a loss of $32,000. Spector believes he is entitled to be fully compensated for this loss, as it is less than the $48,000 of fire protection that he purchased and paid for. Is Spector correct?
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Dr. George Allard and his brother-in-law, Tom Rowland, did not get along after family land that was once used solely by Rowland was partitioned among family members after the death of Rowland's father. Rowland had a reputation in the community as a bully and a violent person. On December 17, Allard was moving cattle down a dirt road by "trolling" (leading the cattle with a bucket of feed, causing them to follow him). When he saw a forestry truck coming along the road, he led the cattle off the road onto Rowland's land to prevent frightening the cattle. When Rowland saw Allard, Rowland ran toward him screaming at him for being on his land. Allard, a small older man, retreated to his truck and obtained a 12-gauge shotgun. He pointed the gun toward the ground about an inch in front of Rowland's left foot and fired it. He stated that he fired the shot in this fashion to bring Rowland to his senses and that Rowland stepped forward into the line of fire. Allard claimed that if Rowland had not stepped forward, he would not have been hit and injured. Allard was insured by Farm Bureau homeowners and general liability policies, which did not cover liability resulting from intentional acts by the insured. Applying the policy exclusion to the facts of this case, was Farm Bureau obligated to pay the $100,000 judgment against Allard? [Southern Farm Bureau Casualty Co. v Allard, 611 So2d 966 (Miss)]
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Mr. Keyes was injured on April 30, 2010, when he fell off Ms. Thibodeaux's roof. Mr. Keyes was cleaning and measuring the roof in preparation for painting when, unbeknownst to him, Ms. Thibodeaux sprayed a section of the metal roof with water. Mr. Keyes slipped on the wet roof and fell, seriously injuring himself. He filed the lawsuit under Ms. Thibodeaux's homeowner's policy against Lighthouse Property Insurance. Mr. Keyes and Ms. Thibodeaux married in August of 2008 but physically separated four months into the marriage. Mr. Keyes and Ms. Thibodeaux have not divorced. Mr. Keyes testified that he lives in a home he owns with his grandmother and aunt. He stated that he lived in that house prior to marrying Ms. Thibodeaux and returned there after he was kicked out of her home 15 months prior to the accident. The homeowners policy precluded coverage for bodily injury to the named insured and relatives "who are residents of the insured's household." The definitions section of the policy states that the spouse of the name insured is treated as the named insured, if a resident of the same household. Lighthouse has refused coverage for Keyes under its reading of the policy. Keyes disagrees. Decide. [ Keyes v. Thibodeaux , 85 So.3d 1284 (La. App.)]
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Collins obtained from South Carolina Insurance Co. a liability policy covering a Piper Colt airplane he owned. The policy provided that it did not cover loss sustained while the plane was being piloted by a person who did not have a valid pilot's certificate and a valid medical examination certificate. Collins held a valid pilot's certificate, but his medical examination certificate had expired three months before. Collins was piloting the plane when it crashed, and he was killed. The insurer denied liability because Collins did not have a valid medical certificate. It was stipulated by both parties that the crash was in no way caused by the absence of the medical certificate. Decide. [South Carolina Ins. Co. v Collins, 237 SE2d 358 (SC)]
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Carman Tool Abrasives, Inc., purchased two milling machines, FOB Taiwan, from the Dah Lih Machinery Co. Carman obtained ocean marine cargo insurance on the machines from St. Paul Fire and Marine Insurance Co. and authorized Dah Lih to arrange for the shipment of the two machines to Los Angeles, using the services of Evergreen Lines. Dah Lih booked the machinery for shipment on board Evergreen's container ship, the M/V Ever Giant; arranged for the delivery of the cargo to the ship; provided all of the shipping information for the bill of lading; and was the party to whom the bill was issued. Dah Lih then delivered the bill of lading to its bank, which in turn negotiated it to Carman's bank to authorize payment to Dah Lih. After the cargo was removed from the vessel in Los Angeles but before it was delivered to Carman, the milling machines were damaged to the extent of $115,000. Is the insurer liable to Carman? Can the insurer recover from Evergreen? [Carman Tool Abrasives, Inc. v Evergreen Lines, 871 F2d 897 (9th Cir)]
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On April 6, 1988, Luis Serrano purchased for $75,000 a 26´8´´-long Carrera speedboat named Hot Shot. First Federal Savings Bank provided $65,000 financing for this purchase. Serrano obtained a marine yacht policy for hull insurance on the boat for $75,000 from El Fenix, with First Federal being named as payee under the policy. On May 2, 1988, Serrano sold the boat to Reinaldo Polito, and Serrano furnished First Federal with documents evidencing the sale. Polito assumed the obligation to pay off the balance due First Federal. On October 6, 1989, Serrano again applied to El Fenix for a new yacht policy, covering the period from October 6, 1989, through October 6, 1990, and the coverage extended to peril of confiscation by a governmental agency. Serrano did not have ownership or possession of the boat on October 6, 1989. First Federal, the named payee, had not perfected or recorded a mortgage on Hot Shot until July 5, 1990. On November 13, 1989, in the waters off Cooper Island in the British Virgin Islands (BVI), Hot Shot was found abandoned after a chase by governmental officials. A large shipment of cocaine was recovered, although no one was arrested. When Serrano and First Federal were informed that Hot Shot was subject to mandatory forfeiture under BVI law, they both filed claims under the October 6, 1989, insurance policy. What defenses would you raise on behalf of the insurer in this case? Decide. [El Fenix v Serrano Gutierrez, 786 F Supp 1065 (DPR)]
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