Chapter 47 - Introduction to Property, Property Insurance, Bailments, and Documents of Title
In Year 1, King bought a building for $250,000. At that time, King took out a $200,000 fire insurance policy with Omni Insurance Co. and a $50,000 fire insurance policy with Safe Insurance Corp. Each policy contained a standard 80% coinsurance clause. In Year 5, when the building had a fair value of $300,000, a fire caused $200,000 in damage. What dollar amount would King recover from Omni? A. $100,000 B. $150,000 C. $160,000 D. $200,000
$160,000 A coinsurance clause requires the insured to maintain insurance equal to or greater than a specified percentage (usually 80%) of the full value of the insured property. If the insured has not carried the specified percentage and a partial loss occurs, the insurance company is liable for only a proportionate part of the loss. A pro rata clause generally provides that a person who is insured with multiple policies can collect from each insurance company only a proportionate amount of the loss based on the amount of insurance carried with each insurer. King was in compliance with the coinsurance clause (80% × $300,000 = $240,000). King's total coverage was $250,000 and therefore King would recover in full. The pro rata share King would recover from Omni Insurance Co. is $160,000 [($200,000 ÷ $250,000) × $200,000].
A building was purchased for $350,000 and insured under a $300,000 fire insurance policy containing an 80% coinsurance clause. Several years later, the building, having a fair market value of $500,000, sustained fire damage of $40,000. What is the amount recoverable from the insurance company? A. $28,000 B. $30,000 C. $32,000 D. $40,000
$30,000 Coinsurance is a provision under which the insured agrees to keep the property insured for a stated percentage (usually 80%) of its full value. The purpose of a coinsurance clause is to reduce the insurance company's liability and make the insured party proportionately liable for any partial losses to the insured property if the minimum coverage is not obtained. In this problem, the coinsurance requirement of $400,000 was not met. 80% × $500,000 (Full value at time of loss) = $400,000 Amount of insurance × Loss = Recovery amount Coinsurance requirement $300,000 × $40,000 = $30,000 $400,000 Thus, the insurance company is liable for $30,000 of the partial loss, and the insured's proportionate share of the partial loss is $10,000.
Which of the following statements concerning personal property is true? A. A government subsidy is a personal property right that may not be discontinued. B. Social Security benefits are not personal property rights and may be discontinued at any time. C. A CPA's license to practice is a personal property right that may not be taken away without due process of law. D. A license to operate a liquor store is a personal property right that is freely transferable.
A CPA's license to practice is a personal property right that may not be taken away without due process of law.
Which of the following is a true statement about a legal doctrine that assists the insured in pressing a claim against an insurer? A. A general equitable principle is that the law abhors a forfeiture. B. The insurer acts through agents but is not bound when they go beyond their actual authority. C. Insurance policies are strictly construed against insured persons. D. Contract concepts such as estoppel, waiver, or election may not be asserted by the insured who breaches a condition.
A general equitable principle is that the law abhors a forfeiture.
Which of the following is the best functional definition of insurance? A. A legal contract by which the insurer, in return for consideration, agrees to pay another person if a stated loss or injury occurs. B. A legal contract by which an insurance company, in return for premiums, agrees to pay the policyholder if a certain event occurs. C. A written promise by the insurer to pay the beneficiary if loss occurs from the occurrence of a contingent event. D. A writing issued by an insurance company, for a consideration, that promises to indemnify a beneficiary for a loss from an existing risk or one that arises later.
A legal contract by which the insurer, in return for consideration, agrees to pay another person if a stated loss or injury occurs.
Insurance may best be defined as A. A system for transferring risk through risk avoidance or loss control. B. Any contract that conveys an insurable interest. C. A form of pure risk called gambling. D. A means of combining many loss exposures so that losses are shared by all participants.
A means of combining many loss exposures so that losses are shared by all participants.
The employees of Company must wear special clothing in the work area. Accordingly, Company provides a locker room with an attendant for storing personal items. Which of the following statements is true? A. A gratuitous bailment has been formed because it is for the sole benefit of the bailee when a worker leaves his/her property in the storage room. B. A mutual benefit bailment has been formed. C. Company can avoid all liability for its workers' property by including an exculpatory clause in their contracts that states, "Not responsible for any property left in the locker room." D. When a worker leaves his or her property in the locker room, (s)he is a mere lessee or licensee.
A mutual benefit bailment has been formed.
Under federal patent law, A. An inventor granted a patent has unlimited monopoly power regarding the invention. B. Patentable items include any new and useful process, machine, manufacture, composition of matter, or scientific principle. C. A patent protects against an identical process developed independently. D. Any patent resulting from an invention made by an employee on company time belongs to the employer.
A patent protects against an identical process developed independently.
Booth applied to Ace Insurance Company for a life insurance policy on Abe's life. Because Abe already carried a policy on his own life with Ace, Ace had all the requisite medical and other information concerning Abe. Booth falsely represented that he had an insurable interest. If Booth kills Abe, A. Booth is entitled to recover on the insurance policy because Ace did collect the premiums and issue the policy. B. Ace may be liable to Abe's estate for wrongfully issuing the insurance policy to Booth. C. Ace is not liable on the policy. D. Booth has no liability to Abe's estate.
Ace may be liable to Abe's estate for wrongfully issuing the insurance policy to Booth.
Dave Doctor and a friend were nearby when Dana Donor told them she wanted to give her bank account to Dan Donee. Donor asked Doctor to give her savings bank book to Donee because it was locked in the cashier's office, which would not be open until the next morning. Doctor, an agent of the hospital, informed Donor and Donee that he would comply with her request. Donee said that would be fine. Donor did not live through the night. Doctor gave Donee the bank book the next morning. What is the legal effect of these events? A. If Donor died intestate, the money in the savings account will go to her heirs. B. The gift was incomplete because no delivery occurred. C. A gift causa mortis is irrevocable once it is made. D. All the elements of a valid gift were present, so the attempted gift is valid.
All the elements of a valid gift were present, so the attempted gift is valid.
Which of the following wrongful acts prevents recovery under a policy of property insurance? A. Arson by the insured's employees or agents. B. Arson by third persons unrelated to the insured. C. An act by the insured intended to cause the damage. D. Gross negligence but not amounting to recklessness and willful misconduct.
An act by the insured intended to cause the damage.
Roland applied to Berkley Bank for a $100,000 loan. As a condition to granting the loan, Berkley requested a document of title evidencing Roland's ownership of several paintings Roland had in storage. Under the Documents of Title Article of the UCC, which of the following documents is not a document of title evidencing Roland's current ownership of the paintings? A. A warehouse receipt. B. A bill of lading. C. An appraisal. D. An electronic document of title.
An appraisal. A document of title has three functions: (1) it is a receipt for goods, (2) it is a contract for the storage or transport of goods between a bailor (one who entrusts personal property to another) and a bailee (one who receives such property to hold in trust), and (3) it is evidence of title to the goods. An appraisal is an indication of value, not proof of ownership.
The procedure necessary to negotiate a document of title depends principally on whether the document is A. An order document or a bearer document. B. Issued by a bailee or a consignee. C. A receipt for goods stored or goods already shipped. D. A bill of lading or a warehouse receipt.
An order document or a bearer document.
Bunny Bailee was instructed by the bailor to return the bailed property by means of Quickie Express. A man dressed similarly to the usual Quickie Express employee came into Bailee's office and called out, "Quickie Express." Bailee delivered the bailed property to him and signed an official Quickie Express receipt. Despite her exercise of reasonable care and good faith belief that she was dealing with a Quickie Express agent, the person taking the bailed property was an impostor. Which of the following is true? A. Quickie Express is liable because Bailee acted in good faith in delivering to the impostor. B. Bailee is liable, good faith or not. C. The bailor must bear the loss because (s)he owns the property, and Bailee acted with reasonable care. D. Bailee would have less liability if this bailment were for the sole benefit of the bailor.
Bailee is liable, good faith or not.
Under Article 7 of the UCC, which of the following statements is (are) true regarding a common carrier's duty to deliver goods subject to a negotiable bearer bill of lading? I. The carrier may deliver the goods to any party designated by the holder of the bill of lading. II. A carrier who, without court order, delivers goods to a party claiming the goods under a missing negotiable bill of lading is liable to any person injured by the misdelivery. A. I only. B. II only. C. Both I and II. D. Neither I nor II.
Both I and II. A bill of lading is a document issued by a carrier evidencing the receipt of goods for shipment. It may be in negotiable or nonnegotiable form. If negotiable, the bill may be an order or a bearer instrument. UCC Article 7 requires the carrier under a negotiable bearer instrument to deliver the goods to the holder of the document or his/her agent or assignee. A negotiable bearer bill of lading may be negotiated by delivery without endorsement. To receive the goods, the consignee must tender the document. A carrier who delivers goods without surrender of the negotiable bill of lading is strictly liable to any person rightfully entitled to the goods.
Which of the following is not a document of title covered by Article 7 of the UCC? A. Destination bill. B. Warehouse receipt. C. Bill of lading. D. Chattel mortgage.
Chattel mortgage. A document of title is issued by or addressed to a bailee and covers goods in the bailee's possession that are identified or part of a fungible mass (a quantity of interchangeable things). It represents ownership of the goods and is ordinarily needed to obtain the goods from the bailee. The two major types of documents of title are bills of lading (issued by carriers) and warehouse receipts (issued by warehousers). A chattel mortgage is a document providing for a security interest in personal property. Chattel mortgages are governed by Article 9, Secured Transactions.
Which of the following is subject to copyright protection? A. Choreography. B. Corporate symbols. C. Trade secrets. D. A new hybrid form of plant life.
Choreography. A copyright is a form of legal protection for the tangible expression of ideas, but it does not protect the underlying ideas themselves. Thus, copyrights are used to protect literary works, music, recordings, art, films, software, and even choreography. The copyright covers the expression of the idea and gives the copyright holder exclusive rights to reproduce it, perform it, or display it.
Bob White trespassed and picked 10,000 pounds of Deer Tongue, worth $8,000 after being picked and sacked. The value of the leaves standing in the woods was about 10 mills per pound or $100 for the amount picked. White sold the leaves to Don Deiler who dried and cured them, increasing their worth to about $16,000. Deiler used the Deer Tongue to flavor an inventory of Dawgweed worth about $250,000. What is the legal implication of these events for the owner (Chukar)? A. Chukar can recover the Dawgweed only if Bob White was an innocent trespasser. B. The type of trespass is not material because Chukar, the owner, can always recover property wrongfully taken from him. C. Wildlife is ownerless, and title may be acquired by taking possession and control as Bob White did. Thus, Chukar cannot recover. D. Chukar can recover the Dawgweed if Bob White was a willful trespasser.
Chukar can recover the Dawgweed if Bob White was a willful trespasser.
Intellectual property is a type of intangible personal property interest that may take all of the following forms except a A. Patent. B. Trademark. C. Copyright. D. College degree.
College degree.
With respect to involuntary bailments, which of the following is true? A. An involuntary bailee has no liability to the bailor-owner because (s)he is only a custodian. B. The liability of an involuntary bailee will be the same as the liability of an ordinary bailee. C. Common examples of involuntary bailments include a person's discovery of a lost wallet, a horse's straying onto a neighbor's property, or a storm's depositing property on another's land. D. An involuntary bailee should not be entitled to recover for the value of his or her services in quantum meruit.
Common examples of involuntary bailments include a person's discovery of a lost wallet, a horse's straying onto a neighbor's property, or a storm's depositing property on another's land.
With respect to a carrier, which of the following is false? A. Common carriers are strictly liable. B. Common law provides that a common carrier is an insurer of the goods entrusted to it as a carrier without exception. C. The liability of a carrier frequently changes to that of a warehouser. D. A common carrier acquires a possessory lien on the goods to secure the shipping and storage charges.
Common law provides that a common carrier is an insurer of the goods entrusted to it as a carrier without exception.
Which of the following items generally will be considered personal property? A. Crops sold as part of the sale of land. B. Plumbing fixtures sold as part of the sale of a house. C. Copyrights. D. Air rights.
Copyrights.
Jack financed the purchase of a new truck with Acme Financing Co. The financing arrangement requires Jack to make 48 monthly payments of principal and interest. Acme wants to be sure that Jack's obligation will be paid in full if Jack dies before satisfying the obligation. Acme will most likely require Jack to purchase A. Ordinary life insurance. B. Whole life insurance. C. Credit life insurance. D. Universal life insurance.
Credit life insurance.
Which of the following statements is true? A. Don Bailor asked Neighbor to take care of his car while he was away on business. No compensation was involved. Neighbor is only required to exercise ordinary care under the traditional rule. B. E is a bailee of R's goods. Thief steals the bailed property. Both E and R have an action against Thief. C. Lessor leased a truck to Lessee who was injured due to mechanical failure of the truck. Lessee cannot recover on an implied warranty because no sale occurred. D. A customer checks her coat with an attendant at a restaurant. In the pocket of the coat is a ring. A bailment exists for both the coat and ring.
E is a bailee of R's goods. Thief steals the bailed property. Both E and R have an action against Thief.
The partnership of Cox & Hayes, CPAs, is a medium-sized accounting firm. The senior staff member, Jake Walton, is the office manager. The office building is owned by the partnership, and title is duly recorded in the partnership name. With regard to life and property insurance, which of the following is a true statement? A. A partner has no insurable interest in the lives of the other partners. B. The partnership does not have an insurable interest in the life of Walton because he is not a partner. C. Each individual partner has an insurable interest in the partnership property even though title to the property is in the partnership name. D. Only the partnership can insure the firm's building against property damage.
Each individual partner has an insurable interest in the partnership property even though title to the property is in the partnership name.
One of the primary purposes of including a coinsurance clause in a property insurance policy is to A. Encourage the policyholder to insure the property for an amount close to its full value. B. Make the policyholder responsible for the entire loss caused by some covered perils. C. Cause the policyholder to maintain a minimum amount of liability insurance that will increase with inflation. D. Require the policyholder to insure the property with only one insurance company.
Encourage the policyholder to insure the property for an amount close to its full value.
The loss of trademark rights does not follow from A. Failure to put the word "Trademark" or a similar term next to the mark itself. B. Consistent failure to take enforcement action against known infringers. C. The general usage of the mark as a generic term by the public. D. Abandonment of the mark.
Failure to put the word "Trademark" or a similar term next to the mark itself.
At his death, Millard Filmore owned a $100,000 life insurance policy on his life in which he designated his wife as the beneficiary. The insurer paid the proceeds of the policy directly to Mrs. Filmore after his death. Which of the following is true? A. Filmore could not by will designate a person other than his wife to receive the proceeds of the insurance policy. B. Upon receipt of the proceeds, Mrs. Filmore will have received $100,000 of taxable income, but income averaging is permitted. C. The insurance proceeds are not includible in Filmore's estate for federal estate tax purposes. D. Filmore's designation of his wife as the beneficiary of the policy was irrevocable unless she died or they were divorced.
Filmore could not by will designate a person other than his wife to receive the proceeds of the insurance policy.
Which of the following is not a type of insurance policy that provides liability insurance? A. Malpractice insurance. B. Homeowner's insurance. C. Automobile insurance. D. Fire insurance.
Fire insurance.
Alphonse, a sole CPA practitioner, obtained a malpractice insurance policy from the Friendly Casualty Company. In regard to this coverage, A. Expression of an unqualified opinion by Alphonse when he knows that financial statements are materially misstated does not give Friendly a defense. B. The policy would automatically cover the work of a new partnership formed by Alphonse and Borne. C. Friendly will not be subrogated to rights against Alphonse for his negligent conduct of an audit. D. Coverage includes injury to a client resulting from a slip on a rug negligently left loose in Alphonse's office.
Friendly will not be subrogated to rights against Alphonse for his negligent conduct of an audit.
In a bailment, the bailee A. Has a right to a possessory lien if just compensation is not paid. B. Has a right to a possessory lien but not to sell the goods at public auction. C. Retains a lien on the bailed property only if (s)he retains the property. D. Must bear the expenses of the bailment.
Has a right to a possessory lien if just compensation is not paid.
A property insurance policy ordinarily indemnifies for losses arising from A. Friendly but not hostile fires. B. Hostile but not friendly fires. C. Both hostile and friendly fires. D. Smoke produced by friendly or hostile fires.
Hostile but not friendly fires.
Which of the following would change if an asset were treated as personal property rather than as real property? I. Requirements for Transfer II. Creditors' Rights A. I only B. II only C. I and II D. Neither
I and II Classification of property as real or personal has significant legal effect. Generally, personal property is movable, and real property consists of land and things attached to it. Delivery of a deed is an example of a requirement to transfer real but not personal property. Creditors' rights might also vary depending on property classification. For example, perfection affects the priority of creditors' rights in personal property, but recording provides constructive notice of interests in real property.
Ann cut 1,000 logs belonging to Bob. Upon discovery that she had trespassed, Ann marked the logs as hers, mixed them with 100 of her own, and started them down river to market. The logs of Ann and Bob cannot be distinguished. Given these facts, A. If Bob seizes the logs and sells them to Carol, Ann will be unable to recover any logs if Carol is a bona fide purchaser. B. Ann and Bob are owners in common of the mass of logs. C. Accession of personal property has occurred. D. Ann should be entitled to half the logs because the trespass was not intended.
If Bob seizes the logs and sells them to Carol, Ann will be unable to recover any logs if Carol is a bona fide purchaser.
Gal lends Guy her car so that he may run errands for her. Subsequently, Gal lends Guy her lawn mower so that he may mow his own yard. Which is the correct statement concerning the traditional duties of care owed by the parties? A. Guy is required to exercise ordinary care with respect to his use of the lawn mower. B. If Guy had rented the lawn mower from Gal, she would have owed a duty to him to inform regarding defects that would have been discovered by the exercise of reasonable care. C. Guy must exercise great care in the use of the car. D. If Guy had been compensated by Gal for running the errands, he would have been required to exercise great care in the use of the automobile.
If Guy had rented the lawn mower from Gal, she would have owed a duty to him to inform regarding defects that would have been discovered by the exercise of reasonable care.
Thief steals goods from Owner. Thief then stores the goods with Bailee, who is unaware of the theft. Owner learns of the location of the goods and gives notice to Bailee. Which of the following is true? A. If Owner demands the goods from Bailee and Bailee refuses to surrender them, Owner may seek the remedy of replevin. B. If Bailee had no notice of the theft and returned the goods to Thief, Owner could bring an action for conversion against Bailee. C. Owner should bring an action for trespass to chattels against Thief rather than an action for conversion. D. If the goods are destroyed while in the possession of Bailee after (s)he has received notice from Owner, Bailee will be liable for conversion.
If Owner demands the goods from Bailee and Bailee refuses to surrender them, Owner may seek the remedy of replevin.
Ted and Alice are seeking to check in at the Zestful Night Hotel. Which is the true statement with respect to the Hotel's legal rights and obligations? A. If Zestful Night has vacancies, the hotel still may turn away Ted, Alice, and any other unwanted guests by stating that all of its accommodations have been filled or reserved. B. The hotel is not an insurer of the safety of guests on the hotel's premises and would not be liable for an injury to Alice caused by another guest. C. If Ted and Alice run up a bill of $650 during their stay at Zestful Night, the hotel may take possession of their luggage and contents until they pay. D. If the hotel sprinkler system malfunctions and damages Ted and Alice's property, they can recover but only by proving negligence by the hotel or its employees.
If Ted and Alice run up a bill of $650 during their stay at Zestful Night, the hotel may take possession of their luggage and contents until they pay.
The incontestable clause in a life insurance policy usually provides that A. The insured is covered on delivery of the policy regardless of any misstatement in the application. B. If death occurs after a specified period, a misstatement in the application will not constitute a defense by the insurer. C. Suicide of the named insured will not constitute a defense by the insurer. D. Only the estate of the insured may contest the named beneficiary's rights to proceeds of the policy.
If death occurs after a specified period, a misstatement in the application will not constitute a defense by the insurer.
A life insurance policy A. Is a contract of indemnity. B. Is usually short-term. C. Covers only the mortality risk. D. Generally has no cash value.
Is a contract of indemnity.
A typical term life insurance policy A. Builds up a cash value during its duration against which the policyholder can borrow. B. Is assignable. C. Grants a vested interest in the named beneficiary. D. Does not require an insurable interest in the person taking out the policy as do other types of life insurance policies.
Is assignable. A life insurance policy, including a term policy, is generally assignable. Consent of the insurance company is frequently not required; the effect is to give the assignee the first claim against the proceeds of the policy.
Under the UCC, a warehouse receipt A. Will not be negotiable if it contains a contractual limitation on the warehouser's liability. B. May qualify as both a negotiable warehouse receipt and a negotiable instrument if the instrument is payable either in cash or by the delivery of goods. C. May be issued only by a bonded and licensed warehouser. D. Is negotiable if by its terms the goods are to be delivered to bearer or the order of a named person.
Is negotiable if by its terms the goods are to be delivered to bearer or the order of a named person.
The exercise of the power of eminent domain A. Must be by a governmental unit but the actual user of the condemned property may be private. B. Is constitutionally limited to the taking of real property. C. Must be by a governmental unit for its own direct use. D. Is subject to a rational basis test of what constitutes a public use.
Is subject to a rational basis test of what constitutes a public use.
Jewelry, Inc., took out an insurance policy with Insurance Company covering its stock of jewelry. The application contained the following provision: "It is hereby warranted that the maximum value of the jewelry displayed shall not exceed $10,000." The insurance policy's coverage was for $8,000. Subsequently, thieves smashed the store window and stole $4,000 worth of jewels when the total value of the display was $12,000. Which of the following is true? A. Jewelry, Inc., will recover nothing. B. Jewelry, Inc., will recover $2,000, the loss minus the amount in excess of the $10,000 display limitation. C. Jewelry, Inc., will recover the full $4,000 because the warranty will be construed as a mere representation. D. Jewelry, Inc., will recover the full $4,000 because attaching the application to the policy is insufficient to make it a part thereof.
Jewelry, Inc., will recover nothing.
Field Corp. issued a negotiable warehouse receipt to Hall for goods stored in Field's warehouse. Hall's goods were lost due to Field's failure to exercise such care as a reasonably careful person would under like circumstances. The state in which this transaction occurred follows the UCC rule with respect to a warehouser's liability for lost goods. The warehouse receipt is silent on this point. Under the circumstances, Field is A. Liable because it is strictly liable for any loss. B. Liable because it was negligent. C. Not liable because the warehouse receipt was negotiable. D. Not liable unless Hall can establish that Field was grossly negligent.
Liable because it was negligent.
Lincoln lent Carly Osgood $20,000 and obtained an unsecured negotiable promissory note for that amount. Lincoln wishes to obtain a life insurance policy on Osgood's life as added protection of the loan. With respect to this policy, which of the following is true? A. Lincoln has an insurable interest in Osgood's life and may legally assign the insurance policy to a transferee of the note. B. If Osgood consented to Lincoln's insuring her for an amount in excess of the loan, Lincoln would be able to recover the face amount of the policy. C. Lincoln does not have an insurable interest because the note is negotiable. D. The only policy that Lincoln may legally obtain is a term policy.
Lincoln has an insurable interest in Osgood's life and may legally assign the insurance policy to a transferee of the note.
Marcross Corporation owns a fleet of taxicabs it has insured with the Countrywide Insurance Company against loss from liability and collision. Nabor, one of its drivers, deliberately backed one of the cabs into two other parked cabs in the corporation's garage after a heated dispute with the garage manager. While waiting for a traffic signal, another Marcross cab was hit in the rear by a negligently driven truck. Each cab involved had damages in excess of the minimum deductible. A. Marcross can recover against Countrywide for damages to all the cabs minus the minimum deductible. B. Countrywide has no rights against Nabor. C. General creditors of Marcross could insure Marcross's cabs against collision and other types of loss because in the event of bankruptcy the creditors would have to resort to the corporation's property to satisfy their claims.
Marcross can recover against Countrywide for damages to all the cabs minus the minimum deductible.
The insurable interest requirement with regard to property insurance A. May be waived by a writing signed by the insured and insurer. B. May be satisfied by a person other than the legal owner of the property. C. Must be satisfied at the time the policy is issued. D. Must be satisfied by the insured's legal title to the property at the time of loss.
May be satisfied by a person other than the legal owner of the property.
Woody Pyle, a public warehouser, issued Merlin a negotiable warehouse receipt for fungible goods stored. Pyle A. May not limit the amount of his liability for his own negligence. B. Will be absolutely liable for any damages in the absence of a statute or a provision on the warehouse receipt to the contrary. C. May commingle Merlin's goods with similar fungible goods of other bailors. D. Is obligated to deliver the goods to Merlin despite Merlin's improper refusal to pay storage charges due.
May commingle Merlin's goods with similar fungible goods of other bailors.
That an individual who takes out a large insurance policy on a building has less motivation to protect the building from potential fire than a person without insurance is an example of A. Moral hazard. B. Fraud. C. Innocent misrepresentation. D. Defamation.
Moral hazard.
An insurance contract is not enforceable if the person insuring lacks an insurable interest in the subject matter of the policy. The insurable interest requirement A. Is inconsistent with the indemnity principle. B. Provides no safeguard against moral hazards. C. Reflects a public policy that permits wagering agreements. D. Need not be met when a person insures his or her own life.
Need not be met when a person insures his or her own life.
To recover when bailed property is damaged or lost while in the possession of the bailee, the plaintiff-bailor A. Must prove fault. B. Need not prove fault because the bailee is presumed to have been negligent. C. Need not prove fault because the bailee is presumed to have been an insurer. D. Must prove fault if the bailee explains the exact cause of the damage or loss.
Need not prove fault because the bailee is presumed to have been negligent.
Alicia Andrews was home on Saturday mowing the lawn and doing general yard work. She was hot and tired from the exertion. A particularly obnoxious salesman stopped by. Andrews punched the salesman in the face and broke his nose. The salesman has sued Andrews. What insurance coverage, if any, does Andrews have? A. Andrews should notify her homeowner's insurance company because such accidents are covered by the liability section. B. Neither liability nor any other insurance will cover an intentional tort. C. If Andrews has an umbrella policy, her liability will be covered up to the maximum amount. D. Andrews will be covered only if she has a specific liability insurance policy.
Neither liability nor any other insurance will cover an intentional tort.
Barry Mason wrote to author Ella Street to convey an idea for Street's next novel. Mason suggested that it concern a lawyer who leaves her practice and moves to Australia. Street told Mason that the idea was ridiculous. Two years later, however, Street's novel, Outback Lawyer, was a best-seller. Does Mason have a legal claim against Street? A. Yes, because the idea was so original that it was protected. B. No, because Mason has no evidence that Street ever read his suggestion. C. Yes, because the letter to Street is sufficient to show ownership of the idea. D. No, because after voluntary communication to others, ideas become available for common use.
No, because after voluntary communication to others, ideas become available for common use.
Documents of title do not perform which of the following functions? A. Obligation of repayment. B. Receipt for a bailment. C. Contract for storage or shipment. D. Symbol evidencing ownership of goods.
Obligation of repayment.
Under a buy-sell agreement to be funded by life insurance, each of three partners took out a $50,000 policy on the life of each of the other two partners. The agreement provided that each of the survivors of the first to die would collect the proceeds of the policy (s)he owned on the life of the decedent. Each would then purchase one-half of the decedent's estate for that amount. Each partner paid premiums from nonpartnership funds. In this situation, C. Continued ownership and payment of premiums by the estate of a deceased partner on a policy the decedent had owned covering a former partner would probably give rise to a defense of lack of insurable interest if the insured partner later died. D. On the death of a partner, the estate of the decedent could transfer the policy it held on the life of one surviving partner to the other.
On the death of a partner, the estate of the decedent could transfer the policy it held on the life of one surviving partner to the other.
Under the Documents of Title Article of the UCC, which of the following correctly describes the standard of liability that must be established to hold a warehouser liable for loss or damage to stored property? A. Strict liability. B. Ordinary negligence. C. Gross negligence. D. Deliberate destruction or theft.
Ordinary negligence.
The usual homeowner's insurance policy does not A. Have to meet the insurable interest test if this requirement is waived by the parties. B. Provide for subrogation of the insurer to the insured's rights upon payment of the amount of the loss covered by the policy. C. Cover losses caused by the negligence of the insured's agent. D. Permit assignment of the policy prior to loss without the consent of the insurer.
Permit assignment of the policy prior to loss without the consent of the insurer.
Under Article 7 of the UCC, which of the following acts may excuse or limit a common carrier's liability for damage to goods in transit? A. Vandalism. B. Power outage. C. Willful acts of third parties. D. Providing for a contractual dollar liability limitation.
Providing for a contractual dollar liability limitation.
Property may be classified very generally as tangible or intangible or as real or personal. Which of the following is true? A. Personal property is tangible but real estate may be either tangible or intangible. B. The bundle of rights may not be held by more than one person at a time. C. Personal property cannot exist independently of the evidence of its ownership. D. Real property includes rights in the space above the surface.
Real property includes rights in the space above the surface.
Insurance companies are usually either stock or mutual companies. Which of the following is a true statement? A. Mutual companies are for-profit corporations. B. Mutual companies are strongest in the property insurance field. C. Stock and mutual companies have similar operational characteristics. D. Stock and mutual companies write all the insurance issued in the U.S.
Stock and mutual companies have similar operational characteristics.
Klep stole several negotiable warehouse receipts, which were deliverable to the order of Apple from the premises of Store Co. Klep endorsed Store's name on the instruments and transferred them to Margo Wholesalers, a bona fide purchaser for value. As between Store and Margo, A. Store will prevail because the warehouser must be notified before negotiation is effective. B. Store will prevail because Klep's endorsement prevents negotiation. C. Margo will prevail because it has taken a negotiable warehouse receipt as a bona fide purchaser for value. D. Margo will prevail because the warehouse receipt was converted to a bearer instrument by Klep's endorsement.
Store will prevail because Klep's endorsement prevents negotiation. A holder to whom a negotiable document of title has been duly negotiated acquires title to the document. However, negotiation requires an endorsement as well as delivery if the goods are to be delivered to the order of a named person. In addition, the holder must have purchased in good faith, for value, and in the ordinary course of business. Klep's forgery of Store's endorsement does not constitute negotiation and provides Store a real defense against Margo even though Margo was a bona fide purchaser for value.
Which of the following standards of liability best characterizes the obligation of a common carrier in a bailment relationship? A. Reasonable care. B. Gross negligence. C. Shared liability. D. Strict liability.
Strict liability. Although most bailors must exercise reasonable care under the circumstances, a common carrier owes a higher standard of care. Thus, the common carrier is strictly liable without fault for damage to, or loss of, the goods being transported. However, the common law recognizes five exceptions that may reduce or eliminate liability: (1) an act of God, (2) an act of a public enemy, (3) an act of a public authority, (4) an act of the shipper, and (5) the inherent nature of the goods.
Dilbert Dobbins insured his life for $100,000, naming his wife as beneficiary. After the policy had been in effect for 10 years and had a cash surrender value in excess of $15,000, Dobbins assigned the policy to Suburban National Bank to secure a $20,000 loan. A copy of the assignment was filed with Suburban at its home office. Dobbins has died, and his widow and Suburban are seeking to recover on the $100,000 life insurance policy. Which of the following is true? A. Suburban's recovery is limited to the loan outstanding plus interest. B. The assignment to Suburban was void without the beneficiary's consent. C. Suburban will be denied recovery due to a lack of an insurable interest. D. The widow had a vested interest in the insurance policy.
Suburban's recovery is limited to the loan outstanding plus interest.
Ralph and Ted live in one of approximately 25 states that have some form of no-fault automobile insurance. Ralph drove his car into the rear of Ted's car. Ralph and Ted each received minor injuries, as did Ted's passenger, John. Sue, a pedestrian, was also injured when the impact drove Ted's car into the crosswalk, knocking Sue to the ground. Sue was treated at the emergency room for minor scrapes and bruises and released. Which of the following is most likely true concerning recovery for personal injuries? A. Sue cannot recover from either Ralph or Ted because no-fault systems require pedestrians to provide coverage for minor injuries they suffer. B. Ted can recover from Ralph's insurer because Ted is clearly without fault. C. John can recover from Ralph's insurer because Ralph is clearly at fault. D. Ted can recover from his own insurer regardless of who is at fault.
Ted can recover from his own insurer regardless of who is at fault.
The Devon Insurance Company issued a $50,000 whole life insurance policy to Erin Finn. Finn's age was incorrectly stated in the application. As a result, she paid a smaller premium than that applicable to her age. How much will Finn's beneficiary collect? A. The entire amount of the policy if the incontestable clause applies. B. Nothing, unless the beneficiary can establish that Finn was unaware of her correct age. C. The amount of insurance that the premium would have purchased if the correct age had been stated. D. The amount of premium Finn paid during her lifetime with interest at the legal rate.
The amount of insurance that the premium would have purchased if the correct age had been stated.
Fargo Corp. provides its employees with free group life insurance. Marsha Maxwell is an executive vice-president of Fargo. Consistent with state laws, Maxwell has assigned the group policy to her spouse, John. Which of the following is true? A. The assignee of a group policy must have an insurable interest in the life of the insured. B. The assignment of the policy to John transferred all the legal incidents of ownership to him. C. Maxwell cannot have income for income tax purposes as a result of Fargo's payment of the insurance premiums. D. The proceeds from the group policy will be an asset of Maxwell's estate.
The assignment of the policy to John transferred all the legal incidents of ownership to him.
Which of the following statements is true concerning a bill of lading in the possession of Major Corp. that was issued by a common carrier and provides that the goods are to be delivered "to bearer"? A. The carrier's lien for any unpaid shipping charges does not entitle it to sell the goods to enforce the lien. B. The carrier will not be liable for delivering the goods to a person other than Major. C. The carrier may require Major to endorse the bill of lading prior to delivering the goods. D. The bill of lading can be negotiated by Major by delivery alone and without endorsement.
The bill of lading can be negotiated by Major by delivery alone and without endorsement.
Ada was hospitalized in critical condition. Just before going into surgery, she gave Bea, her sister, a check for $20,000, remarking that her chances of survival were not good and she wanted Bea to have the money in the event of her death. Ada survived the operation but died a month later from a cause unrelated to her original injury. She did not specifically revoke the gift. Which of the following is true? A. Ada made a valid inter vivos gift. B. The donee has no right to the money because the donor did not die from the contemplated cause. C. A valid gift causa mortis was made because the gift was not revoked. D. A valid gift causa mortis was not made because the gift was not properly delivered.
The donee has no right to the money because the donor did not die from the contemplated cause.
Juan Solo enrolled as a student in Flight School. The plane Solo was flying went out of control and crashed, severely injuring him. A screwdriver apparently left by a mechanic had jammed some of the controls and caused the crash. The basis of School's liability will rest primarily on A. The standard of care expressed by the parties in the contract. B. Negligence in furnishing the plane with a screwdriver in the control panel that the court will presume was placed there by School's employees. C. The legal doctrine of assumption of risk, since it is a known fact that small planes frequently crash without negligence on the part of anyone concerned. D. The duty of Flight School to furnish its student with a plane reasonably fit for the use or purpose intended or one free of defects.
The duty of Flight School to furnish its student with a plane reasonably fit for the use or purpose intended or one free of defects.
Mimi came into Palace Beauty Shop wearing an expensive fur coat. The shop had a waiting room in front. On a prior occasion, the proprietor had assured Mimi that "nothing has been stolen in our entire 20 years here." The coat was stolen from the waiting room while Mimi was in the beauty shop. With respect to the elements needed to establish a bailment, which of the following is true? A. All elements of a valid bailment are present. B. The element of consideration by the bailor, Mimi, is missing. C. The element of delivery of possession and control to the shop is missing. D. The shop could successfully defend Mimi's claim of bailment by showing that Mimi did not own the coat.
The element of delivery of possession and control to the shop is missing.
The earliest time a purchaser of existing goods will acquire an insurable interest in those goods is when A. The purchaser obtains possession. B. Title passes to the purchaser. C. Performance of the contract has been completed or substantially completed. D. The goods are identified to the contract.
The goods are identified to the contract.
In which way does an insurance contract differ from any other contract? A. The insurance contract requires that the insured have an insurable interest. B. The insurance contract is not valid unless written. C. Consideration is not needed for the formation of an insurance contract. D. Only the insured can breach an insurance contract.
The insurance contract requires that the insured have an insurable interest.
Rebecca West is seeking to collect on a property insurance policy covering certain described property that was destroyed. The insurer has denied recovery based upon West's alleged lack of an insurable interest in the property. In which of the situations described below will the insurance company prevail? A. West is not the owner of the insured property but a mere long-term lessee. B. The insured property belongs to a general trade debtor of West, and the debt is unsecured. C. The insured property belongs not to West but to a corporation that she controls. D. The property has been willed to West's father for life and, upon her father's death, to West as the remainderman.
The insured property belongs to a general trade debtor of West, and the debt is unsecured.
Marrieo and Dreddy built a custom roadster. They drove it through an automatic gate into a parking lot, received a ticket from a machine, parked, and took their keys with them. To leave, they are required to drive to the exit and present the ticket to an attendant who collects the parking fee. Which of the following statements is false? A. If this arrangement were a bailment, the parking lot would be responsible for a spare tire, jack, and tools locked in the trunk. B. Marrieo and Dreddy have rented a parking space because they retained control of their car. C. The most important factor in deciding whether this arrangement is a bailment is that Marrieo and Dreddy received the ticket from a machine and not an attendant. D. If a third person wrongfully damages personal property in the possession and control of a bailee, the bailee may bring suit for him/herself and for the bailor.
The most important factor in deciding whether this arrangement is a bailment is that Marrieo and Dreddy received the ticket from a machine and not an attendant. Whether a parking lot transaction is a bailment or lease of space usually is determined by whether the keys are retained by the owner. Giving the keys to a parking attendant or leaving them in the car at the parking attendant's direction is a constructive delivery of possession and acceptance. However, a bailment of a parked vehicle can occur other than through delivery of keys (e.g., if the premises are locked up).
A bailment arises when possession of personal property is transferred and the transferee must return it or dispose of it at the owner's direction. Which of the following is false? A. The property bailed might be returned in altered form to the owner. B. The owner of the property is the bailee, and the party in possession is the bailor. C. Strict liability is sometimes imposed in bailments. D. A bailee who returns the bailed property damaged is presumed negligent.
The owner of the property is the bailee, and the party in possession is the bailor.
A person is treated as having an insurable interest in his or her own life. The obvious desire of most human beings to continue their existence provides protection for the insurer that is otherwise afforded by the pecuniary insurable interest requirement. The standard life insurance contract furnishes an additional safeguard by incorporating a suicide clause. If the insured dies by suicide, A. Payment consists only of a refund of premiums paid up to the date of death. B. The beneficiary will receive nothing. C. The policy will be fully enforceable if death occurs more than two years after its effective date. D. The incontestable clause will override the suicide clause.
The policy will be fully enforceable if death occurs more than two years after its effective date.
Molly Tiff visited Happy Landing Riding Stables and rented a horse. The stable was busy and Tiff was mistakenly given a spirited horse suitable only for excellent riders. However, Tiff was an inexperienced rider. Hondo, an employee of Riding Stables, in saddling the horse failed to tighten the saddle. Tiff fell when the saddle slipped. Based on these events, A. Tiff cannot recover unless she clearly told the riding stable of her limited riding skills. B. Tiff assumed those risks that are the natural dangers inherent in a particular activity and, because falling off a horse was the obvious danger, Tiff cannot collect. C. The riding stable impliedly warranted the horse's suitability and the condition of its tack. D. If Tiff ever returns to Happy Landing Stables, Happy Landing could avoid all liability by requiring Tiff to sign a disclaimer of liability.
The riding stable impliedly warranted the horse's suitability and the condition of its tack.
Tom had a dairy products factory. He contracted with many dairymen to accept their surplus milk, which he agreed to manufacture into dairy products, such as butter, cottage cheese, and sour cream; market the products; deduct his commissions; and divide the remaining proceeds among the dairymen in proportion to the amount of milk each contributed. Tom's factory and its contents were completely destroyed in a fire. Which of the following is true? A. The transaction is not a sale but a bailment with a power of sale granted to the bailee. B. The transaction is a sale because the same item of property is not to be returned. C. Until Tom sold the dairy products, title and risk of loss was on Tom. D. Tom, as the party in possession of goods owned by another, is an insurer of the safety of the goods.
The transaction is not a sale but a bailment with a power of sale granted to the bailee.
Trees were cut down and made into lumber. The lumber was used to build a house. Which of the following statements best describes the property aspect of these events? A. The trees were and remained tangible personal property. B. The trees were and remained real property. C. The trees were real property, then became and remained personal property. D. The trees were real property, became personal property, then reverted to being real property.
The trees were real property, became personal property, then reverted to being real property.
Brenda McOwns took her property to Security Storage and Warehouse to be kept at 1220 South Main Street for storage. She paid a fee and was given a warehouse receipt in usual form. Later, the warehouser moved the goods from the original storage place to a different but equally safe building. The goods were destroyed by a fire set by an unknown arsonist. With respect to liability, A. The warehouse has no liability to McOwns because title and risk of loss remained with the bailor. B. The standard of care imposed on the warehouse is ordinary care under the circumstances. C. A bailee cannot move goods from the agreed place of storage for any reason. D. The warehouse is strictly liable for any harm to McOwns's goods.
The warehouse is strictly liable for any harm to McOwns's goods.
Which of the following is not a warranty made by the seller of a negotiable warehouse receipt to the purchaser of the document? A. The document transfer is fully effective with respect to the goods it represents. B. The warehouser will honor the document. C. The seller has no knowledge of any facts that would impair the document's validity. D. The document is genuine.
The warehouser will honor the document.
Hurts Corporation leases a car to Benny for 30 days. The lease can be terminated except by A. Performance or the expiration of 30 days. B. Mutual rescission of the parties. C. The will of either party who gives notice of termination and agrees to pay damages to the other party. D. Notification by Hurts to Benny that the lease is canceled because Benny has engaged in an unauthorized use (and abuse) of the vehicle.
The will of either party who gives notice of termination and agrees to pay damages to the other party.
William knew he was fatally wounded, so he gave his valuable ring to a young man who had administered first aid, stating, "I am going fast. I'd like for you to have this." William died a few minutes later in the emergency room of the hospital. As the young man was leaving the hospital, the ring slipped through a hole in his pocket and a nurse found the ring in the hallway just inside the hospital entrance. The young man has never been located. The hospital administrator, the executor of William's estate, and the nurse all claim the ring. Who has the best claim? A. The hospital, because the property was lost and found on its premises. B. The nurse, because the property was lost in a public place. C. William's estate, because William lacked donative intent. D. The young man, because he was the owner.
The young man, because he was the owner.
Which of the following is not a reason generally given to justify insurance regulation by the government? A. To protect the purchaser of insurance because most insurance contracts are not subject to bargaining and negotiation. B. To protect the purchaser of insurance in view of the technical and complicated nature of the insurance contract. C. To prevent the use of insurance for gambling and illegal purposes. D. To provide protection for the insurer against competition from other unregulated companies.
To prevent the use of insurance for gambling and illegal purposes.
Tom wants to purchase insurance that includes both ordinary life insurance protection and an investment feature. Tom should probably purchase A. Universal life insurance. B. An endowment contract. C. Term insurance. D. Whole life insurance.
Universal life insurance.
Thieves broke into the warehouse of Monogram Airways and stole a shipment of parts belonging to Valley Instruments. Valley had in its possession a negotiable bill of lading covering the shipment. The thieves transported the stolen parts to another state and placed the parts in a bonded warehouse. The thieves received a negotiable warehouse receipt that they used to secure a loan of $30,000 from Reliable Finance. These facts were revealed upon apprehension of the thieves. Regarding the rights of the parties, A. Reliable is entitled to a $30,000 payment before relinquishment of the parts. B. Monogram will be the ultimate loser of the $30,000. C. Valley is entitled to recover the parts free of Reliable's $30,000 claim. D. Valley is not entitled to the parts but may obtain damages from Monogram.
Valley is entitled to recover the parts free of Reliable's $30,000 claim.
The Uniform Transfers to Minors Act (UTMA) A. Provides that a gift is revocable if the donor fully complies. B. Concerns only gifts of securities. C. Requires that an account be established in a name other than that of the donor if an irrevocable gift is to be made. D. Vests the custodial property in the custodian.
Vests the custodial property in the custodian.
Orr is an employee of Vick Corp. Vick relies heavily on Orr's ability to market Vick's products and, for that reason, has acquired a $50,000 insurance policy on Orr's life. Half of the face value of the policy is payable to Vick, and the other half is payable to Orr's spouse. Orr dies shortly after the policy is taken out but after leaving Vick's employ. Which of the following statements is true? A. Orr's spouse does not have an insurable interest because the policy is owned by Vick. B. Orr's spouse will be entitled to all of the proceeds of the policy. C. Vick will not be entitled to any of the proceeds of the policy because Vick is not a creditor or relative of Orr. D. Vick will be entitled to its share of the proceeds of the policy regardless of whether Orr is employed by Vick at the time of death.
Vick will be entitled to its share of the proceeds of the policy regardless of whether Orr is employed by Vick at the time of death.
The typical property insurance policy A. Covers all damages caused by fire, whatever the source. B. Does not cover water damage resulting from the fire department's extinguishing a fire. C. Will not permit recovery for business interruption unless a special endorsement is attached. D. Prohibits the assignment of the policy both before and after a loss.
Will not permit recovery for business interruption unless a special endorsement is attached.
Hugh Long purchased a life insurance policy with Tempo Life Insurance Co. The policy named Long's daughter as beneficiary. Six months after the policy was issued, Long died of a heart attack. Long had failed to disclose in response to a question on the insurance application a known preexisting heart condition that caused the heart attack. Tempo refused to pay the death benefit to Long's daughter. If Long's daughter sues, Tempo will A. Win, because Long's daughter is an incidental beneficiary. B. Win, because of Long's failure to disclose the preexisting heart condition. C. Lose, because Long's death was from natural causes. D. Lose, because Long's daughter is a third-party donee beneficiary.
Win, because of Long's failure to disclose the preexisting heart condition.
