Question 1

Which of the following is true of insurance contracts?

Accepted Answer

State law governs whether insurance contracts are within the statute of frauds and must be evidenced by a writing.Some states require specific types of insurance contracts to be in writing.

Question 2

Sarah entered into an auto insurance contract with ABC Insurance (ABC).On the application,Sarah stated that she had never been in an accident.In truth,Sarah had been in seven accidents in the last ten years.As a result,this contract is:

Accepted Answer

When an application for property,liability,or health insurance includes an insured's false statement regarding a material matter,the insured's misrepresentation,if relied on by the insurer,renders the contract voidable at the election of the insurer.

Question 3

Since the relationship between the insurer and the insured is contractual in nature,the parties must fulfill all elements of:

Accepted Answer

Regardless of the type of insurance involved,the insurance relationship is contractual involving at least two interested parties.In view of the contractual nature of the insurance relationship,insurance policies must satisfy all of the elements required for a binding contract.

Question 4

With an insurance contract who typically is the party that makes the offer?

Accepted Answer

The party seeking an insurance contract fills out an application that creates an offer,which an insurance company may reject or accept.

Question 5

What is the express term in the insurance policy which serves as the conditions on which an insurer's liability is based?

Accepted Answer

Warranties are express terms in the insurance policy.They are intended to operate as conditions on which the insurer's liability is based.

Question 6

When a party with the power to terminate an insurance policy exercises that power,a(n)________ has occurred.

Accepted Answer

When a party with the power to terminate an insurance policy (extinguish all rights under the policy)exercises that power,cancellation has occurred.

Question 7

Mary submitted an application for life insurance and named her husband Bob as the beneficiary of the $250,000 death benefit that would pay out after her death.Before the application was approved,Mary passed away.Does Bob receive the $250,000?

Accepted Answer

If the insured sustains losses after the submission of the application (the making of the offer)but prior to acceptance by the insurer,those losses normally must be borne by the insured rather than the insurer.

Question 8

What does it mean when reformation occurs?

Accepted Answer

Reformation is available in appropriate cases,such as mutual mistake or when there is proof an insurer committed fraud.Reformation involves judicial reform so the insurance policy contract conforms to the parties' supposed actual agreement.

Question 9

How does an insurance company fully perform on an insurance contract?

Accepted Answer

An insurance company fully performs on its contract by paying out the amount specified in the contract when an event occurs.

Question 10

A means by which insurance law separates insurance contracts from wagering contracts is the typical requirement that the party who purchases a policy of property or life insurance must possess a(n)________ in the property or life being insured.

Accepted Answer

A major means by which insurance law separates insurance contracts from wagering contracts is the typical requirement that the party who purchases a policy of property or life insurance must possess an insurable interest in the property or life being insured.

Question 11

Fred's homeowner's insurance policy requires Fred to have a working sprinkler system.Fred's sprinkler system breaks.Before he can get it fixed,there is a fire.Who is responsible for Fred's losses?

Accepted Answer

An insured's breach of warranty-the failure to have a working sprinkler system-terminates the insurer's duty to perform under the policy.

Question 12

Which of the following agreements provides temporary insurance coverage until the time the insurer decides to accept or reject the applicant's application?

Accepted Answer

A binder is an agreement for temporary insurance pending the insurer's decision to accept or reject the risk.

Question 13

Generally courts interpret ambiguities in the insurance clauses against the:

Accepted Answer

This rule of construction means that if a word or phrase used in an insurance policy is equally subject to two possible interpretations,one of which favors the insurer and the other of which favors the insured,the court will adopt the interpretation that favors the insured.

Question 14

When does an insurer's contractual obligations to the insured commence?

Accepted Answer

As a general rule,acceptance occurs when the insurer (or agent,if authorized to do so)indicates to the insured an intent to accept the application.The insurer's contractual obligations to the insured do not commence until acceptance has taken place.

Question 15

Caroline is buying homeowner's insurance.She knows it will take time between the submission of her application and the application's approval but she wants to get covered immediately.What does she need?

Accepted Answer

A binder is an agreement for temporary insurance pending the insurer's decision to accept or reject the risk.

Question 16

Kyle buys life insurance and specifies his wife Ann will receive the death benefit if Kyle passes away.Ann is the ________.

Accepted Answer

The person to whom the insurance proceeds are payable is the beneficiary.

Question 17

Which of the following terminates the insurer's duty to perform under the policy?

Accepted Answer

Warranties are express terms in the insurance policy intended to operate as conditions on which the insurer's liability is based.The insured's breach of warranty terminates the insurer's duty to perform under the policy.

Question 18

The difference between a wagering contract and an insurance contract is that the insurance contract:

Accepted Answer

A wagering contract creates a new risk that did not previously exist.An insurance contract,however,transfers existing risks,which is a permissible,even desirable economic activity.

Question 19

The person who receives the insurance proceeds in a life insurance is the:

Accepted Answer

The person to whom the insurance proceeds are payable is the beneficiary.Except in the case of life insurance,the insured and the beneficiary will often be the same person.

Question 20

Which of the following is a sufficient condition for courts to allow reformation in a written insurance policy?

Accepted Answer

A reformation,considered to be an extreme remedy,is allowed by courts when either there is a mutual mistake about a contract term or it can be proved that the insurer committed a fraud.

Quiz 27: Insurance Law