Question 1

Alexandra insures her car,worth $10,000,for $8,000 with Company Ace and for $7,000 with Company Bee.If the car is written off and Company Ace pays her $8,000,how much is she entitled to receive from Company Bee?

Accepted Answer

The total insurance coverage is $15,000 ($8,000 from Company Ace + $7,000 from Company Bee), but the car's value is only $10,000. Since Company Ace paid $8,000, the remaining value to cover is $2,000, which is what Company Bee should pay to make the total compensation equal to the car's value.

Question 2

To whom may an insured apply in relation to a dispute with a general insurer?

Accepted Answer

The General Insurance Division Ombudsman is an independent body that is empowered to mediate and investigate complaints made by insured individuals against general insurance providers. They provide a free service to the insured and have the authority to make binding decisions. Therefore, they are the best option for resolving disputes with a general insurer.

The other options mentioned in the question are not suitable for this purpose. The Life Insurance Complaints Service Ltd. is a dispute resolution service for life insurance policies, and the Insurance Broker's Dispute Facility only deals with disputes between brokers and their clients. Insurance Enquiries and Complaints Ltd. is a fictional organization, and there is no such entity in the insurance industry.

Question 3

Which of the following is NOT a material fact requiring disclosure by an applicant to an insurer?

Accepted Answer

Material facts in insurance are those that would influence the judgment of a prudent insurer in determining whether to accept the risk and on what terms. A fact that reduces the risk is generally not considered a material fact requiring disclosure because it does not increase the risk or the likelihood of a claim being made.

Question 4

Insurance aims to protect parties by spreading risk.

Accepted Answer

Insurance works by pooling premiums from many people or businesses to pay for claims that arise from unexpected events, such as accidents, illnesses, or natural disasters. By spreading the risk among many policyholders, insurance companies can help protect individuals and businesses from financial losses caused by these events.

Question 5

Which of the following is an example of an insurable interest?

Accepted Answer

All of the options listed demonstrate an insurable interest.

A) Mortgagees have an interest in insuring the property that secures their loan, while mortgagors have an interest in protecting their investment in the property. Both parties benefit from the property being insured.

B) Landlords have an insurable interest in the property they own, while tenants have an insurable interest in their personal property and liability.

C) A creditor has an insurable interest in the debtor's ability to repay the debt, ensuring that they will be able to recover their losses in the event of default.

Question 6

At common law,the insured in every contract of general insurance had to have something called:

Accepted Answer

The insured in every contract of general insurance had to have an insurable interest. Insurable interest means that the insured must have a financial or other interest in the subject matter of insurance such that the insured would suffer a loss in the event of damage or loss to that subject matter. This ensures that the insurance contract is not used for gambling or speculative purposes. Pecuniary interest, equitable interest, and valuable interest are not the correct terms used in relation to insurable interest.

Question 7

Insurance contracts by their very nature are indemnity contracts.

Accepted Answer

Not all insurance contracts are indemnity contracts; life insurance, for example, is a valued contract, not an indemnity contract.

Question 8

Which of the following statements about subrogation is NOT correct?

Accepted Answer

Subrogation is a legal principle that does not require explicit agreement between the parties as a term of the contract. It automatically applies in insurance contracts of indemnity, allowing the insurer to "step into the shoes" of the insured to recover costs from the third party responsible for the loss, after the insurer has compensated the insured.

Question 9

Does an innocent misrepresentation in an application for general insurance entitle the insurer to refuse to pay a claim?

Accepted Answer

An innocent misrepresentation in an application for general insurance allows the insurer to adjust their liability, potentially to nil, if they can demonstrate that they would not have entered into the contract had the misrepresentation not occurred. This does not automatically entitle them to refuse a claim outright but does allow for adjustments based on the misrepresented information.

Question 10

Sophie over-insures her car,worth $10,000,for $12,000.If the car is written off,how much would she receive under an indemnity policy?

Accepted Answer

If Sophie over-insures her car for $12,000 and the car is written off, she will only receive the amount equal to the actual value of the car, which is $10,000. This is because an indemnity policy only pays out the amount that is needed to cover the loss and not the amount that the asset is insured for. Therefore, Sophie would receive $10,000 under an indemnity policy.

Question 11

The aim of a contract of indemnity insurance is:

Accepted Answer

A contract of indemnity insurance aims to put the insured back to the position they occupied before the occurrence of the loss. It helps the insured to recover the actual financial loss suffered due to the insured peril, not to make a profit or gain out of the loss. It is not aimed at assisting the insured to rebuild their business or home or against unforeseen business or economic losses.

Question 12

Before an insured party can place a claim on their policy,they must prove:

Accepted Answer

The insured party must prove they have suffered a loss because of the damage to or destruction of the property insured before they can place a claim on their policy.

Question 13

Where an insured party intentionally understates their age on a life insurance policy,the insurer has the option to:

Accepted Answer

When an insured party intentionally understates their age on a life insurance policy, the insurer typically has the option to reduce the sum insured proportionately to what the premiums paid would have actually purchased at the correct age. This adjustment is made to align the benefits with what the premiums would have realistically bought if the insured's age had been accurately reported.

Question 14

Explain the dynamics that exist between insurance and tort law.

Accepted Answer

The answer of Explain the dynamics that exist between insurance...

Question 15

How does an insurance contract differ from an ordinary business contract?

Accepted Answer

The answer of How does an insurance contract differ from...

Question 16

Which of the following statements about insurance is NOT correct?

Accepted Answer

Insurance typically covers pure risks, which involve the chance of loss or no loss, but not speculative risks, which involve the chance of loss, no loss, or gain.

Question 17

Which of the following statements about the duty of disclosure is NOT correct?

Accepted Answer

The duty of disclosure requires the insured to disclose facts that a reasonable person would consider relevant to the insurer's decision to accept the risk and on what terms, not everything they know, suspect, or believe to be relevant. This is a more specific and reasonable standard than the one described in option C.

Question 18

A party insured under a general insurance contract is obligated to disclose to the insurer:

Accepted Answer

The insured must disclose all facts that could influence the insurer's decision to accept the risk, as these are considered material to the contract.

Question 19

What governmental organisation regulates insurance companies' business practices?

Accepted Answer

The Australian Prudential Regulation Authority (APRA) is the government organisation that regulates insurance companies' business practices in Australia. They are responsible for ensuring that insurance companies are financially sound and well-managed, and that they are operating in accordance with the law and industry standards. The APRA also provides oversight and supervision of the insurance industry to help protect consumers and maintain stability in the financial system.

Question 20

The doctrine of subrogation:

Accepted Answer

The Insurance Contracts Act 1984 (Cth) limited the application of the doctrine of subrogation by requiring insurers to obtain the insured's consent before exercising subrogation rights against third parties. Therefore, option A is the correct answer.

Quiz 23: Insurance