APPLiCATion quESTionS 185
4. a. Explain the principle of subrogation. b. Why is subrogation used? 5. Explain the following legal
doctrines: a. Misrepresentation b. Concealment c. Warranty 6. List the four requirements that must be
met to form a valid insurance contract. 7. Insurance contracts have certain legal characteristics that
distinguish them from other contracts. Explain the following legal characteristics of insurance contracts.
a. Aleatory contract b. Unilateral contract c. Conditional contract d. Personal contract e. Contract of
adhesion 8. Explain the general rules of agency that govern the actions of agents and their relationship
to insureds. 9. Identify three sources of authority that enable an agent to bind the principal.
10. Explain the meaning of: a. Waiver b. Estoppel
APPliCATion quEsTions
1. Jake borrowed $800,000 from the Gateway Bank to purchase a fishing boat. He keeps the boat at a
dock owned by the Harbor Company. He uses the boat to earn income by fishing. Jake also has a
contract with the White Shark Fishing Company to transport tuna from one port to another. a. Do any of
the following parties have an insurable interest in Jake or his property? If an insurable interest exists,
explain the extent of the interest. 1. Gateway Bank 2. Harbor Company 3. White Shark Fishing Company
b. If Jake did not own the boat but operated it on behalf of the White Shark Fishing Company, would he
have an insurable interest in the boat? Explain. 2. Ashley purchased a dining room set for $5,000 and
insured the furniture on an actual cash value basis. Three years later, the set was destroyed in a fire. At
the time of loss, the property had depreciated in value by
– A principal is responsible for the actions of agents acting within the scope of their authority. –
Limitations can be placed on the powers of agents. ■■ An agent can bind the principal based on express
authority, implied authority, and apparent authority. ■■ Based on the legal doctrines of waiver and
estoppel, an insurer may be required to pay a claim that it ordinarily would not have to pay.
KEy ConCEPTs And TERms Actual cash value (172) Agency agreement (182) Aleatory contract (180)
Apparent authority (182) Binder (179) Broad evidence rule (172) Commutative contract (180)
Concealment (177) Conditional contract (181) Conditional premium receipt (179) Conditions (181)
Contract of adhesion (181) Estoppel (183) Exchange of consideration (179) Express authority (182) Fair
market value (172) Implied authority (182) Innocent misrepresentation (177) Legal purpose (180) Legally
competent (180) Material (fact) (177) Offer and acceptance (179) Pecuniary (financial) interest (175)
Personal contract (181) Principle of indemnity (171) Principle of insurable interest (174) Principle of
reasonable expectations (181) Principle of utmost good faith (176) Replacement cost insurance (173)
Representations (177) Subrogation (175) Unilateral contract (180) Valued policy (172) Valued policy law
(173) Waiver (183) Warranty (178)
REViEw quEsTions 1. a. Explain the principle of indemnity. b. How is actual cash value calculated? c. How
does the concept of actual cash value support the principle of indemnity? 2. a. What is a valued policy?
Why is it used? b. What is a valued policy law? c. What is a replacement cost policy? 3. a. Explain the
meaning of an insurable interest. b. Why is an insurable interest required in every insurance contract?
M09_REJD2578_13_SE_C09.indd 185 16/12/15 1:11 am
186 CHAPTER 9 / FunDAmEnTAL LEGAL PRinCiPLES
technology to enable people find the law more easily. Visit the site at law.cornell.edu
■■ Lawyers.com is an online source for identifying qualified legal counsel. The site contains consumer
information on numerous legal topics, including insurance. Visit the site at lawyers.com
sElECTEd REfEREnCEs Fire, Casualty & Surety Bulletins (FC&S) service by the National Underwriter
Company is the premier property and casualty insurance service. The complete print service is
comprised of eight volumes of property and casualty insurance topics: Fire & Marine, Personal Lines,
Casualty & Surety, Umbrella, Directors & Officers Liability, Guide to Policies I and II, and Companies &
Coverages. These bulletins contain interesting cases concerning the meaning of actual cash value,
insurable interest, and other legal concepts discussed in this chapter. Hopkins, Jamie P., Edward E.
Graves, and Burke A. Christensen (Eds.). McGill’s Legal Aspects of Life Insurance, 9th ed. Bryn Mawr, PA:
The American College, 2014. Lorimer, James J., et al. The Legal Environment of Insurance, 4th ed., vols. 1
and 2. Malvern, PA: American Institute for Chartered Property and Liability Underwriters, 1993. “Two
Landmark Anti-Stoli Decisions by the Delaware Surpreme Court.” The Insurance Forum, Vol. 38, No. 12,
December 2011. Wiening, Eric A. Foundations of Risk Management and Insurance, Malvern, PA:
American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America, 2002,
chs. 11–19. Wiening, Eric A. and Donald S. Malecki. Insurance Contract Analysis. Malvern, PA: American
Institute for Chartered Property Casualty Underwriters, 1992.
noTEs 1. Jefferson Insurance Company of New York v. Superior Court of Alameda County, 475 P. 2d 880
(1970). 2. Valued policy states include Arkansas, California, Florida, Georgia, Kansas, Louisiana,
Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire,
50 percent. The replacement cost of a new dining room set at the time of loss was $6,000. Ignoring any
deductible, how much will Ashley collect from her insurer? Explain your answer. 3. Nicholas owns a
laptop computer that was stolen. The laptop cost $1,000 when it was purchased 5 years ago. A similar
laptop computer today can be purchased for $500. Assuming that the laptop was 50 percent
depreciated at the time the theft occurred, what is the actual cash value of the loss? 4. Megan owns an
antique table that has a current market value of $12,000. The table is specifically insured for $12,000
under a valued policy. The table is totally destroyed when a tornado touches down and damages
Megan’s home. At the time of loss, the table had an estimated market value of $10,000. How much will
Megan collect for the loss? Explain your answer. 5. A drunk driver ran a red light and smashed into
Kristen’s car. The cost to repair the car is $8,000. She has collision insurance on her car with a $500
deductible. a. Explain how the principle of subrogation would be relevant in the above case. b. Explain
how subrogation supports the principle of indemnity. 6. One requirement for the formation of a valid
insurance contract is that the contract must be for a legal purpose. a. Identify three factors, other than
the legal purpose requirement, that are essential to the formation of a binding insurance contract. b.
Explain how each of the three requirements in part (a) is fulfilled when the applicant applies for an auto
insurance policy.
inTERnET REsouRCEs ■■ FreeAdvice.com has a section on insurance law that provides considerable
consumer information on topics dealing with insurance law. These topics include auto insurance, health
insurance, disability insurance, life insurance law, and numerous other topics. Visit the site at
freeadvice.com
■■ Legal Information Institute at Cornell University Law School publishes free legal materials online,
creates materials that help people understand the law, and explores new
M09_REJD2578_13_SE_C09.indd 18
APPLiCATion quESTionS 185
4. a. Explain the principle of subrogation. b. Why is subrogation used? 5. Explain the following legal
doctrines: a. Misrepresentation b. Concealment c. Warranty 6. List the four requirements that must be
met to form a valid insurance contract. 7. Insurance contracts have certain legal characteristics that
distinguish them from other contracts. Explain the following legal characteristics of insurance contracts.
a. Aleatory contract b. Unilateral contract c. Conditional contract d. Personal contract e. Contract of
adhesion 8. Explain the general rules of agency that govern the actions of agents and their relationship
to insureds. 9. Identify three sources of authority that enable an agent to bind the principal.
10. Explain the meaning of: a. Waiver b. Estoppel
APPliCATion quEsTions
1. Jake borrowed $800,000 from the Gateway Bank to purchase a fishing boat. He keeps the boat at a
dock owned by the Harbor Company. He uses the boat to earn income by fishing. Jake also has a
contract with the White Shark Fishing Company to transport tuna from one port to another. a. Do any of
the following parties have an insurable interest in Jake or his property? If an insurable interest exists,
explain the extent of the interest. 1. Gateway Bank 2. Harbor Company 3. White Shark Fishing Company
b. If Jake did not own the boat but operated it on behalf of the White Shark Fishing Company, would he
have an insurable interest in the boat? Explain. 2. Ashley purchased a dining room set for $5,000 and
insured the furniture on an actual cash value basis. Three years later, the set was destroyed in a fire. At
the time of loss, the property had depreciated in value by
– A principal is responsible for the actions of agents acting within the scope of their authority. –
Limitations can be placed on the powers of agents. ■■ An agent can bind the principal based on express
authority, implied authority, and apparent authority. ■■ Based on the legal doctrines of waiver and
estoppel, an insurer may be required to pay a claim that it ordinarily would not have to pay.
KEy ConCEPTs And TERms Actual cash value (172) Agency agreement (182) Aleatory contract (180)
Apparent authority (182) Binder (179) Broad evidence rule (172) Commutative contract (180)
Concealment (177) Conditional contract (181) Conditional premium receipt (179) Conditions (181)
Contract of adhesion (181) Estoppel (183) Exchange of consideration (179) Express authority (182) Fair
market value (172) Implied authority (182) Innocent misrepresentation (177) Legal purpose (180) Legally
competent (180) Material (fact) (177) Offer and acceptance (179) Pecuniary (financial) interest (175)
Personal contract (181) Principle of indemnity (171) Principle of insurable interest (174) Principle of
reasonable expectations (181) Principle of utmost good faith (176) Replacement cost insurance (173)
Representations (177) Subrogation (175) Unilateral contract (180) Valued policy (172) Valued policy law
(173) Waiver (183) Warranty (178)
REViEw quEsTions 1. a. Explain the principle of indemnity. b. How is actual cash value calculated? c. How
does the concept of actual cash value support the principle of indemnity? 2. a. What is a valued policy?
Why is it used? b. What is a valued policy law? c. What is a replacement cost policy? 3. a. Explain the
meaning of an insurable interest. b. Why is an insurable interest required in every insurance contract?
M09_REJD2578_13_SE_C09.indd 185 16/12/15 1:11 am
186 CHAPTER 9 / FunDAmEnTAL LEGAL PRinCiPLES
technology to enable people find the law more easily. Visit the site at law.cornell.edu
■■ Lawyers.com is an online source for identifying qualified legal counsel. The site contains consumer
information on numerous legal topics, including insurance. Visit the site at lawyers.com
sElECTEd REfEREnCEs Fire, Casualty & Surety Bulletins (FC&S) service by the National Underwriter
Company is the premier property and casualty insurance service. The complete print service is
comprised of eight volumes of property and casualty insurance topics: Fire & Marine, Personal Lines,
Casualty & Surety, Umbrella, Directors & Officers Liability, Guide to Policies I and II, and Companies &
Coverages. These bulletins contain interesting cases concerning the meaning of actual cash value,
insurable interest, and other legal concepts discussed in this chapter. Hopkins, Jamie P., Edward E.
Graves, and Burke A. Christensen (Eds.). McGill’s Legal Aspects of Life Insurance, 9th ed. Bryn Mawr, PA:
The American College, 2014. Lorimer, James J., et al. The Legal Environment of Insurance, 4th ed., vols. 1
and 2. Malvern, PA: American Institute for Chartered Property and Liability Underwriters, 1993. “Two
Landmark Anti-Stoli Decisions by the Delaware Surpreme Court.” The Insurance Forum, Vol. 38, No. 12,
December 2011. Wiening, Eric A. Foundations of Risk Management and Insurance, Malvern, PA:
American Institute for Chartered Property Casualty Underwriters/Insurance Institute of America, 2002,
chs. 11–19. Wiening, Eric A. and Donald S. Malecki. Insurance Contract Analysis. Malvern, PA: American
Institute for Chartered Property Casualty Underwriters, 1992.
noTEs 1. Jefferson Insurance Company of New York v. Superior Court of Alameda County, 475 P. 2d 880
(1970). 2. Valued policy states include Arkansas, California, Florida, Georgia, Kansas, Louisiana,
Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire,
50 percent. The replacement cost of a new dining room set at the time of loss was $6,000. Ignoring any
deductible, how much will Ashley collect from her insurer? Explain your answer. 3. Nicholas owns a
laptop computer that was stolen. The laptop cost $1,000 when it was purchased 5 years ago. A similar
laptop computer today can be purchased for $500. Assuming that the laptop was 50 percent
depreciated at the time the theft occurred, what is the actual cash value of the loss? 4. Megan owns an
antique table that has a current market value of $12,000. The table is specifically insured for $12,000
under a valued policy. The table is totally destroyed when a tornado touches down and damages
Megan’s home. At the time of loss, the table had an estimated market value of $10,000. How much will
Megan collect for the loss? Explain your answer. 5. A drunk driver ran a red light and smashed into
Kristen’s car. The cost to repair the car is $8,000. She has collision insurance on her car with a $500
deductible. a. Explain how the principle of subrogation would be relevant in the above case. b. Explain
how subrogation supports the principle of indemnity. 6. One requirement for the formation of a valid
insurance contract is that the contract must be for a legal purpose. a. Identify three factors, other than
the legal purpose requirement, that are essential to the formation of a binding insurance contract. b.
Explain how each of the three requirements in part (a) is fulfilled when the applicant applies for an auto
insurance policy.
inTERnET REsouRCEs ■■ FreeAdvice.com has a section on insurance law that provides considerable
consumer information on topics dealing with insurance law. These topics include auto insurance, health
insurance, disability insurance, life insurance law, and numerous other topics. Visit the site at
freeadvice.com
■■ Legal Information Institute at Cornell University Law School publishes free legal materials online,
creates materials that help people understand the law, and explores new
M09_REJD2578_13_SE_C09.indd 18
and920insurance%20132007
APPLICATION QUESTIONS
185
- A principal is responaible for the actions of
agents acting within the scope of their authority,
-Limitations can be placed on the powers of agents.
- An agent can bind the principal based on express author-
ity, implied authority, and apparent authority.
- Based on the legal doctrines of waiver and estoppel, an
insurer may be required to pay a claim that it ordinarily
would not have to pay.
KEY CONCEPTS AND TERMS
Actual cash value (172) Legally competent (180)
Agency agreement (182) Material (fact) (177)
Aleatory contract (180) Offer and acceptance (179)
Apparent authority (182) Pecuniary (financial)
Binder (179)
interest (175)
Broad evidence rule (172) Personal contract (181)
Commutative
Principle of
contract (180)
indemnity (171)
Concealment (177)
Principle of insurable
Conditional contract (181) interest (174)
Conditional premium Principle of reasonable
receipt (179)
expectations (181)
Conditions (181)
Principle of utmost good
Contract of adhesion (181) faith (176)
Estoppel (183)
Replacement cost
Exchange of
insurance (173)
consideration (179) Representations (177)
Express authority (182) Subrogation (175)
Fair market value (172) Unilateral contract (180)
Implied authority (182) Valued policy (172)
Valued policy law (173)
misrepresentation (177) Waiver (183)
Legal purpose (180) Warranty (178)
4. a. Explain the principle of subrogation,
b. Why is subrogation wed?
5. Explain the following legal doctrines:
a. Misreprezntation
b. Concealment
c. Warranty
6. List the four requirements that must be met to form a
valid insurance contract.
7. Insurance contracts have certain legal characteristics
that distinguish them from other contracts. Ezplain
the following legal characteristics of insurance con-
tracts.
a. Aleatory contract
b. Unilateral contract
c. Conditional contract
d. Personal contract
e. Contract of adhesion
8. Explain the general rules of agency that govern the
actions of agents and their relationship to insureds.
9. Identify three sources of authority that enable an agent
to bind the principal.
10. Explain the meaning of:
a. Wajver
b. Estoppel
APPLICATION QUESTIONS
REVIEW QUESTIONS
1. a. Explain the principle of indemnity.
b. How is actual cash value calculated?
c. How does the concept of actual cash value support
the principle of indemnity?
2. a. What is a valued policy? Why is it used?
b. What is a valued policy law?
c. What is a replacement cost policy?
3. a. Explain the meaning of an insurable interest.
b. Why is an insurable interest required in every insur-
ance contract :
1. Jake borrowed $800,000 from the Gateway Bank to
purchase a fishing boat. He keeps the boat at a dock
owned by the Harbor Company. He uses the boat to
carn income by fishing. Jake also has a contract with
the White Shark Fishing Company to transport tuna
from one port to another.
a. Do any of the following parties have an insurable
interest in Jake or his property? If an insurable inter-
est exists, explain the extent of the interest.
1. Gateway Bank
2. Harbor Company
3. White Shark Fishing Company
b. If Jake did not own the boat but operated it on
behalf of the White Shark Fishing Company, would
he have an insurable interest in the boat? Explain.
2. Ashley purchased a dining room set for $5,000 and
insured the furniture on an actual cash value basis
Three years later, the set was destroyed in a fire. At the
time of loss, the property had depreciated in value by
Sipil
786 CHAPTER / FUNDANINTAL LEGAL PRINCIPLES
technogy to enable people find the law more easily.
Visit the site at
kaw.cammelletu
Lawyers.com is an online source for identifying qualified
legal counsel. The site contains consumer information on
numerous kyal copies, including insurance. Visit the site at
Lawyers.com
50 perawat. The replacement cont of a new dining room
star the time of low was $6,000. Ignoring any deler
ine, how much will Ashley colley from her insurer)
Explain your answer
3. Nicholas owns a laptop computer that was stolen. The
laptop ext $1,000 when it was purchased 5 years ago
A similar laptop computer today can be purchased for
$500. Assuming that the laptop was 50 percent depre
cited ar the time the theft orxurred, what is the actual
cash value of the low)
* Meppan owns an antique table that has a current marker
value of $12,000. The table is specifically insured for
$12,000 under a valued policy. The table is totally
destroyed when a tomado touches down and damages
Megan home. At the time of loss, the cable had an
estimated market value of $10,000. How much will
Megan collect for the loss? Explain your answer.
5. A drunk driver ran a red light and smashed into
Kristen car. The cost to repair the car is $8,000. She
has collision insurance on her car with a $500
deductible
a. Explain how the principle of subrogation would be
relevant in the above case.
b. Explain how subrogation supports the principle of
indemnity.
6. One requirement for the formation of a valid insurance
contract is that the contract must be for a legal
purpose ),
a. Identify three factors, other than the legal purpose
requirement, that are essential to the formation of a
binding insurance contract.
h. Explain how each of the three requirements in part
(a) is fulfilled when the applicant applies for an
auto msurance policy.
SELECTED REFERENCES
Fire. Coswlty & Surety Bulletins (FC&S) service by the
National Underwriter Company is the premier prop-
erty and casualty insurance service. The complete
print service is comprised of eight volumes of prop-
erty and casualty insurance topics: Fire & Marine,
Personal Lines, Casualty & Surety, Umbrella, Direc-
tors & Officers Liability, Guide to Policies I and II,
and Companies & Coverages. These bulletins contain
interesting cases concerning the meaning of actual
cash value, insurable interest, and other legal concepts
discussed in this chapter.
Hopkins, Jamie P., Edward E. Graves, and Burke A.
Christensen (Eds.). McGill's Legal Aspects of Life
Insurance, 9th ed. Bryn Mawr, PA: The American
Colleges
, 2014
Lorimer, James J. et al. The Legal Environment of Insur-
unce, th ed., vols. 1 and 2. Malvern, PA: American
Institute for Chartered Property and Liability Under-
writers, 1993,
*Two Landmark Anti Stoli Decisions by the Delaware Sur-
preme Court." The Insurance Fornern, Vol. 38, No. 12,
December 2011.
Wiening. Eric A. Foundations of Risk Management and
Insurance, Malvern, PA: American Institute for Char
tered Property Casualty Underwriters/Insurance Insti-
tute of America, 2002. chs. 11-19
Wiening, Eric A. and Donald S. Malecki. Insurance
Contract Analysis. Malvern, PA: American Institute
for Chartered Property Casualty Underwriters, 1992.
INTERNET RESOURCES
FreeAdvice.com has a section on insurance law that pro-
vides considerable consumer information on topics deal-
ing with insurance law. These topics include auto
insurance, health insurance, disability insurance, life insur-
anco law, and numerous other topics. Visit the site at
tre advice.com
NOTES
• Legal Information Institute at Comell University Law School
publishes free legal materials online, creates materials
that help people understand the law, and explores new
1. Jefferson las ruce Company of New York v. Superior
Court of Alameda County, 475 P. 2d 88011970).
2. Valul policy states include Arkansas Califomia, Florida,
Georgia, Kansas, Louisiana, Minnesota, Mississippi,
Missouri Montana Nebraska, New Hampshire,
Purchase answer to see full
attachment