Policy Provisions and Contract Law Chapter 2
What is a material misrepresentation?
A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company
The declarations page of the homeowners policy provides all of the following information EXCEPT?
A statement that earthquake damage is not covered.
In insurance, an offer is usually made when?
An applicant submits an application to the insurer
A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured and the principal do not agree on the value of a property loss is known as?
Appraisal
Which of the following clauses establishes the procedure for determining the amount of a loss when the insurer and the insured cannot agree on the value of property or amount of loss?
Appraisal clause
Which of the following is a method of claim settlement used in casualty insurance when the insured and insurer cannot agree on how to settle a claim?
Arbitration
When a disagreement occurs as to how to settle a loss in a "fender bender" between two cars, what procedure is followed?
Arbitration through the court
Which of the following describes the transfer of a legal right or interest in an insurance policy?
Assignment
In return for premium, an insurance company must?
Be fair in underwriting and pay covered loss
An insurance contract must contain all of the following to be considered legally binding EXCEPT?
Beneficiary's consent
An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon as she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until. Which of the following makes that possible?
Binder
Termination of an in-force insurance policy prior to the expiration date shown in the policy is known as?
Cancellation
The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?
Company A will pay $16,000; Company B will pay $8,000
An applicant knowingly fails to communicate information that would help an underwriter make a sound decision regarding coverage. This is an example of?
Concealment
What term best describes the act of withholding material information that would be crucial to an underwriting decision?
Concealment
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT?
Conditions
The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called the
Conditions
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?
Consideration
Representation are written or oral statements made by the applicant that?
Considered true to the best of the applicant's knowledge
Representations are written or oral statements made by the applicant that are?
Considered true to the best of the applicant's knowledge
Which of the following is NOT an essential element of an insurance contract?
Counteroffer
Which of the following is a mandatory part of an insurance policy that varies with each individual policy?
Declaration
The part of a policy that clarifies terms in the policy is the?
Definitions
Which of the following provisions requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof of loss within a specified period of time?
Duties after loss
An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay?
Each policy will pay $25,000 of the loss.
Which of the following would modify the original insurance contract by either adding or removing coverage?
Endorsements
All of the following are found in the declaration section of a policy EXCEPT the
Exclusions
The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the?
Exclusions
Which of the following would be named on the declarations page of property or liability policy?
First named insured
Under the professional liability loss settlement provision, what must an insurer do before offering to pay a claimant to settle a claim?
Get the insured's consent
The policy conditions define?
How parties to the contract must act following a loss.
When would a misrepresentation on an insurance application be considered fraud?
If it is intentional and material
The proof of loss statement must be?
In writing
The pro rata liability clause is designed to protect the principle of?
Indemnity
Who is responsible for filling out a notice of claim form?
Insured
Persons covered under an insurance policy, whether named or not, are known as the
Insureds
All of the following are conditions commonly found in the insurance policy EXCEPT?
Insuring agreement
For a contract to be enforceable by law, the purpose of the contract must be?
Legal and not against public policy
An insured's home is mortgaged by the local bank. The insured is required to carry insurance on the home, showing the bank as the mortgagee. If the home is damaged by a covered peril, which of the following is true?
Losses will be paid to the mortgagee and mortgagor as their interest appears
Untrue statements on the application unintentionally made by insureds that, if discovered, would alter the underwriting decision of the insurance company, are called?
Material misrepresentations
According to the standard mortgage clause, who has the right to bring a suit in their own name to recover damages, pay policy premiums, and submit a proof of loss?
Mortgagee
Duties of the insurer found in property conditions include all of the following EXCEPT?
Notify the insured in the event of financial difficulty
What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?
Other insurance
The other insurance provision that limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all insurance covering the property is called?
Pro rata liability
A sworn written statement that must be furnished by the insured to the insured to the insurer before any loss under a policy can be paid is called?
Proof of loss
Before an insurer will pay any loss under a policy , what is usually required from the insured?
Proof of loss
The Gramm-Leach_Billey Act was passed to?
Protect private customer information filled with a financial institution
All of the following are considered parts of the policy structure EXCEPT?
Provisions
The Federal Fair Credit Reporting Act?
Regulates consumer reports
What type of information would be found in a policy's insuring agreement?
Renewal dates
Which of the following acts created a federal program that would share the risk of loss from potential terrorist attacks with the insurance industry?
TRIA
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information?
The Fair Credit Reporting Act
Which of the following would qualify as a competent party in an insurance contract?
The applicant has a prior felony conviction.
Which of the following would NOT be considered a source of insurability information by an insurer?
The applicant's martial status
Which of the following is NOT the consideration in a policy?
The application given to a prospective insured
A homeowner sells his house to a friend. The friend wants to keep the homeowner's current policy in effect. Under the assignment provision, which of the following is most likely?
The homeowner will need to get written consent from the insurer before the policy can be reassigned
What will happen if a house covered by a standard mortgage clause is a total loss?
The insurer pays the mortgagee according to the mortgagee's interest in the property
A mortgage company is named as a loss payee on the insured's homeowners policy, under the standard mortgage clause. If the insured suffers a loss due to fire, which of the following is true?
The loss is payable to the insured and the mortgagee
In terms of parties to a contract, which of the following does NOT describe a competent party?
The person must have at least completed secondary education
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract?
Warranty
In forming an insurance contract, when does acceptance usually occur?
When an insurer's underwriter approves coverage