INSURANCE

LAW

Presented by Rebecca.Wang

Civil&Commercial Law School

Contents of Discussion A. THE INSURANCE CONTRACT

1. The Parties

2. Insurable Interest

3. The Contract

4. Antilapse and Cancellation Statutes and Provisions

5. Modification of Contract

6. Interpretation of Contract7. Burden of Proof8. Insurer Bad Faith9. Time Limitation on Insured10. Subrogation of Insurer

B. KINDS OF INSURANCE 11. Business Liability Insurance 12. Life Insurance 13. Automobile Insurance 14. Fire and Homeowners Insurance 15. Marine Insurance

Targets of Discussion 1. Define insurable interest; 2. Compare contracts of insurance with

ordinary contracts; 3. Explain the purpose of business liability

insurance, marine insurance, fire and homeowners insurance, automobile insurance , and life insurance; and

4. Explain the effect of an incontestability clause

A. THE INSURANCE CONTRACT

Insurance is a contract by which one party for a stipulated consideration promises to pay another party a sum of money on the destruction of, loss of, or injury to something in which the other party has an interest or to indemnify that party for any loss or liability to which that party is subjected.

1. The Parties The promisor in an insurance contract

is called the insurer or underwriter. The person to whom the promise is made is the insured, the assured, or the policyholder. The promise of the insurer is generally set forth in a written contract called a policy.

Insurance contracts are ordinarily made through an agent or broker. The insurance agent is an agent of the insurance company, generally working exclusively for one company. For the most part, the ordinary rules of agency law govern the dealings between this agent and the applicant for insurance.

An insurance broker is generally an independent contractor who is not employed by any one insurance company. When a broker obtains a policy for a customer, the broker is the agent of the customer for the purpose of that transaction. Under some statutes, the broker is make an agent of the insurer with respect to transmitting the applicant’s payments to the insurer.

2. Insurable Interest A person obtaining insurance must have an

insurable interest in the subject matter insured. If not, the insurance contract cannot be enforced.

(a) Insurable Interest in Property A person has an insurable interest in

property whenever the destruction of the property will cause a direct pecuniary loss

to that person. It is immaterial whether the insured is the

owner of the legal or equitable title, a lien holder, or merely a person in possession of the property.

For example, Vin Harrington, a builder, maintained fire insurance on a building he was remodeling under a contract with its owner, Chestnut Hill Properties. The building was destroyed by fire before

Renovations were completed. Harrington had an insurable interest in the property to the extent of the amount owed him under the renovation contract.

To collect on property insurance, the insured must have an insurable interest at the time the loss occurs.

Case Summary FACTS: While Dorothy and James Morgan

were still married, Dorothy purchased insurance on their home from American Security Insurance Co. The policy was issued on November 3, 1981, listing the “insured” as Dorothy L. Morgan. Shortly thereafter the Morgans entered into a seperation agreement under which Dorothy deeded her interest in the house to James.

The Morgans were divorced on August 26, 1982. On Novermber 28, 1982, the house was destroyed by fire. American Security refused to pay on the policy, claiming that Dorothy had no insurable interest in the property at the time of the loss. The Morgans sued the insurer, contending that they were entitled to payment under the policy issued to Dorothy.

(b) Insurable Interest in Life A person who obtains life insurance can

name anyone as beneficiary regardless of whether that beneficiary has an insurable interest in the life of the insured. A beneficiary who obtains a policy, however, must have an insurable interest in the life of the insured. Such an interest exists if the beneficiary can reasonably expect to receive pecuniary gain from the continued

Life of the other person and, conversely, would suffer financial loss from the latter’s death. Thus, a creditor has an insurable interest in the life of the debtor because he or she may not be paid the amount owed upon the death of the debtor.

A partner or partnership has an insurable interest in the life of each of the partners because the death of any one of them will dissolve the firm and cause some degree f loss to the partnership. A business enterprise has an insurable interest in the

Life of an executive or a key employee because that person’s death would inflict a financial loss on the business to the extent that a replacement might not be readily available or could not be found.

In the case of life insurance, the insurable interest must exist at the time the policy is obtained. It is immaterial that the interest no longer exists when the loss is actually sustained. Thus, the fact that a husband (insured) and wife (beneficiary) are divorced after the life insurance policy was

Procured does not affect the validity of the policy is obtained by one partner on another does not invalidate the policy.

Case Summary Facts: Jewell Norred’s husband James Norr

ed was the business partner of Clyde Craves for ten years. On May 7, 1979, Graves and Norred took out life insurance policies, with Graves being the beneficiary of Norred’s policy and Norred being the beneficiary of Graves’s policy. Premiums were paid out of partnership funds. On February 28, 1983, Graves and Norred

Divided the partnership assets, but they did not perform the customary steps of dissolving and winding up the partnership. Graves became the sole owner of the business and continued to pay the premiums on both insurance policies until James Norred died on December 5, 1983. Jewell Norred sued Graves, seeking the proceeds of the insurance policy for herself, alleging that Graves had no insurable interest in the life of James Norred at the time of his death. From a judgment on

Behalf of the estate, Graves appealed.

3. The Contract The formation of a contract of insurance is

governed by the general principles applicable to contracts. By statute, it is now commonly provided that an insurance policy must be written. To avoid deception, many statutes also specify the content of certain policies, in whole or in part. Some statutes specify the size and style of type to be used in printing the policies. Provisions

In a policy that conflict with statutory requirements are generally void. Frequently, a question arises as to whether advertising material, estimates, and statistical projections constitute a part of the contract.

(a) The Application as Part of the Contract. The application for insurance is generally

attached to the policy when issued and is made part of the contract of insurance by express stipulation of the policy.

The insured is bound by all statements in the attached application if the policy and the attached application are retained without objection to such statement.

(b) Statutory Provisions as Part of the Contract.

When a statute requires that insurance contracts contain certain provisions or cover certain specified losses, a contract of insurance that does not comply with the statute will be interpreted as though it contained all the provisions required by

the statute. When a statute requires that all terms of the insurance contract be included in the written contract, the insurer cannot claim that a provision not stated in the written contract was binding on the insured.

CASE SUMMRY FACTS: In 1975, Edwin Domke submitted a

n application for mortgage disability insurance, under an employer group insurance plan, to cover his house. On his application, he set forth his medical history and indicated that he had a hearing impairment. Domke was issued a four-page

Certificate of insurance, but he was not given a copy of the group master policy, which excluded from coverage “preexisting conditions.” A state law required that each certificate of insurance set forth “ any exceptions, limitations and restrictions.” In 1977, Domke resigned his employment because of his hearing problem and applied for benefits under the mortgage disability policy. The insurance company denied benefits because the master policy excluded coverage for preexisting

Conditions and his hearing impairment was a preexisting condition.

Antilapse and Cancellation Statutes and Provisions If the premiums are not paid on time, the

policy under ordinary contract law would lapse because of nonpayment. However, with life insurance policies, by either policy provision or statute, in insured is allowed a grace period of 30 or 31 days in which to make payment of the premium due. When there is a default in the payment of a premium by the insured, the insurer may be

Required by statute to (1) issue a paid-up policy in a smaller amount, (2) provide extended insurance for a period of time, or (3) pay the cash surrender value of the policy.

The contract of insurance may expressly declare that it may or may not be canceled by the insurer’s unilateral act. By statute or policy provision, the insurer is commonly required to give a specific number of days’ written notice of cancellation.

5. Modification of Contract As is the case with most contract, a

contract of insurance can be modified if both insurer and insured agree to the change. The insurer cannot modify the contract without the consent of the insured when the right to do so is not reserved in the insurance contract.

To make changes or corrections to the policy, it is not necessary to issue a new policy. An endorsement on the policy or the execution of a separate rider is effective for the purpose of changing the policy. When a provision of an endorsement conflicts with a provision of the policy, the endorsement controls because it is the later document.

Interpretation of Contract A contract of insurance is interpreted by the

same rules that govern the interpretation of ordinary contract. Words are to be given their ordinary meaning and interpreted in light of the nature of the coverage intended. Thus, an employee who has been killed is not regarded as disabled within the meaning of a group policy covering employees.

The courts are increasingly recognizing the fact that most persons obtaining insurance are not specially trained. Therefore, the contract of insurance is to be read as it would be understood by the average person or by the average person in business rather than by one with technical knowledge of the law or of insurance.

If there is an ambiguity in the policy, the provision is interpreted against the insurer.

CASE SUMMARY R.F. Baurer purchased a White Freightliner

tractor and agreed to haul Baurer’s hay and cattle, thus saving Baurer approximately $30,000 per year. Baurer insured the vehicle with Mountain West Farm Bureau Insurance Co. The policy contained an exclusionary clause that provided:” We don’t insure your [truck] while it is rented or leased to others…..This does not apply to

The use the truck on a share expense basis. “ When the vehicle was destroyed, Mountain West refused to pay on the policy. Mountain West contended that the arrangement between Baurer and Britton was a lease of the vehicle, which was excluded under the policy. Baurer sued, contending that it was a “ share expense basis” allowed under the policy.

Burden of Proof When an insurance claim is disputed by the

insurer, the person bringing suit has the burden of proving that there was a loss, that it occurred while the policy was in force, and that the loss was a kind that was within the coverage or scope of the policy.

A policy will contain exceptions to the coverage. This means that the policy is not

Applicable when an exception applies to the situation. Exceptions to coverage are generally strictly interpreted against the insurer. The insurer has the burden of proving that the facts were such that there was no coverage because an exception applied. Although an exception is literally applicable, it will be ignored by some courts and coverage sustained if there is no cause-and effect relationship between the loss and the conduct that was the violation of the exception.

Insurer Bad Faith As is required in the case of all contracts,

an insurer must act in good faith in processing and paying claims under its policy. In some states, laws have been enacted making an insurer liable for a statutory penalty and attorney fees in case of a bad faith failure or delay in paying a valid claim within a specified period of time.

A bad-faith refusal is generally considered to be any frivolous or unfounded refusal to comply with the demand of a policyholder to pay according to the policy.

When it is a liability insurer’s duty to defend the insured and the insurer wrongfully refuses to do so, the insurer is guilty of breach of contract and is liable for all consequential damages resulting from the breach. In some jurisdictions, an insured can recover for an excess judgment rendered against the insured when it is

Proven that the insurer was guilty of negligence or bad faith in failing to defend the action or settle the matter within policy limits.

If there is a reasonable basis for the insurer’s belief that a claim is not covered by its policy, its refusal to pay the claim does not subject it to liability for a breach of good faith or for a statutory penalty. This is so even though the court holds that the insurer is liable for the claim.

For example, the following illustrates an insurer’s bad-faith failure to pay a claim, as opposed to an insurer’s reasonable basis for failure to pay. Carmela Garza’s home and possessions were destroyed in a fire set by an arsonist on August 19, 1990. Carmela’s husband, Raul, who was no longer living at the home, had a criminal record. An investigator for the insurer stated that while he had no specific information to implicate the Garzas in the arson, Carmela may have wanted

the proceeds to finance relocation to another city. By October of 1990, however, Aetna’s investigators ruled out the possibility that Garza had the motive or the opportunity to set the fire. The insurer thus no longer had a reasonable basis to refuse to pay the claim after this date. Yet it took over a year and a half and court intervention for Anetna to allow Carmela to see a copy of her policy, which had been destroyed in the fire. Two years after the

Fire, Aetna paid only $28,624.55 for structural damage to the fire-gutted home, which was insured for $111,000. The court held that Aetna’s actions constituted a bad-faith failure to pay by the insurer.

Time Limitations on Insured The insured must comply with a number of

time limitations in making a claim. For example, the insured must promptly notify the insurer of any claim that may arise, submit a proof-of-loss statement within the time set forth in the policy, and bring any court action based on the policy within a specified time period.

B. Kinds of Insurance Businesses today have specialized risk

managers who identify the risks to which individual businesses are exposed, measure those risks, and purchase insurance to cover those risks (or decide to self-insure in whole or in part).

Insurance policies can be grouped into certain categories. Five major categories of insurance are considered below:

(1)business liability insurance (2)marine and inland marine insurance (3)fire and home owners insurance (4)automobile insurance (5) life insurance

11. Business Liability Insurance Business may purchase “ comprehensive

General Liability” (CGL) policies. This insurance is a broad, “ all risk” form of insurance providing coverage for all sums that the insured may become legally obligated to pay as damages because of “bodily injury” or “ property damage” caused by an “occurrence.”

The insurer is obligated to defend the insured business and pay damages under CGL policies for product liability cases, actions for wrongful termination of employees, sexual harassment cases, damages caused by the business advertising, and trademark infringement suits. The insurer may also be obligated to pay for damages in the form of cleanup costs imposed for contamination of land, water, and air under environmental statutes.

Business may purchase policies providing liability insurance for their directors and officers. Manufacturers and sellers may purchase product liability insurance. Professional persons, such as accountants, physicians, lawyers, architects, and engineers, may obtain liability insurance protection against malpractice suits.

EPA’s PRP Suits the Court Just Fine FACTS: Anderson Development Co. (ADC) manuf

actures and sells specialty organic materials in Adrian, Michigan. It built a lagoon to handle the occasional accidental discharge of Curene 442 process water, believing it to be insoluble in water. Curene 442, which is manufactured between 1970 and 1979, was a known animal carcinogen, and it turned out to be soluble. The lagoon’s discharge piping was connected to the sewer system and curene 442 found its was to the city’s sewage treatment plant.

In 1985, the Environmental Protection Agency (PRP) for the release of hazardous substances into the soil and ground water. This notice was called a PRP letter. ADC notified Travelers Indemnity Co., its insurer, of the letter, and Travelers contended that it was not prepared to defend or cover ADC in the matter. ADC did a study that revealed contamination on its property.

The EPA and ADC entered a consent decree wherein ADC agreed to the cleanup activities required by the EPA, spending over $6 million on the cleanup. ADC brought an action against its insurer, seeking coverage under its general liability insurance policies for the cost of its defense and the cost of the cleanup. Travelers alleged that it was not liable under the policies.

Marine Insurance Marine Insurance policies cover perils

relating to the transportation of goods in vessels in international and coastal trade. Inland marine insurance principally covers domestic shipments of goods over land and inland waterways.

(a) Ocean Marine Ocean marine insurance is a form of

insurance that covers ships and their cargoes against “perils of the sea.” Four classes of ocean marine insurance are generally available: (1) hull, (2) cargo, (3)liability, and (4) freight.

Hull covers physical damage to the vessel. Cargo insurance protects the cargo owner

against financial loss if the goods being shipped are lost or damaged at sea.

CASE SUMMARY

This Coverage Is Worth a Hill of Beans

FACTS: Commodities Reserve Co. (CRC) contracted to sell 1,008 tons of beans and 50 tones of seed to purchasers in Venezuela. CRC purchased the beans and seeds in Turkey and chartered space on the ship MV West Lion. The cargo was insured under and ocean marine policy issued by St. Paul Fire&Marine Insurance Co. The Sue&Labor Clause in CRC’s ocean marine policy with

St. Paul provided: “ In case of any loss or misfortune, it shall be lawful and necessary to and the Assured… to sue, labor and travel for, in and about the defense, safeguard and recovery of the said goods and merchandise… to the charges whereof, the insurer will contribute according to the rate and quantity of the sum hereby insured.” While the ship was sailing through Greek waters, Greek authorities seized the vessel for carrying munitions.

CRC had to go to the expense of obtaining and order from a court in Crete to release the cargo. When St. Paul refused to pay the costs of the Cretan litigation to release the cargo, CRC brought suit against St.Paul.

Cargo insurance does not cover risks prior to the loading of the insured cargo on board the vessel. An additional warehouse coverage endorsement is needed to insure merchandise held in a warehouse prior to import or export voyages.

Liability insurance covers the shipowner’s liability if the ship causes damage to another ship or its cargo. Freight insurance insures that the shipowner will receive payment for the transportation charges.

(b) Inland Marine Inland marine insurance evolved from mari

ne insurance. It protects goods in transit over land, by air, or on rivers, lakes, and coastal waters. Inland marine insurance can be used to insure property held by a bailee. Moreover, it is common for institutions financing automobile

dealers’ new car inventories to purchase inland marine insurance policies to insure against damage to the automobiles while in inventory.

Fire and Homeowners Insurance

A fire insurance policy is a contract to indemnify the insured for property destruction or damage caused by fire. In almost every state, the New York standard fire insurance form is the standard policy. A homeowners insurance policy is a combination of the standard fire insurance policy and comprehensive personal liability

Insurance. It thus provides fire, theft, and certain liability protection in a single insurance contract.

(a) Fire insurance. In order for fire loss to be covered by fire

insurance, there must be an actual, hostile fire that is the immediate cause of the loss. A hostile fire is one that becomes uncontrollable, burns with excessive heat, or escapes from the place where it is intended to be. To illustrate, when soot is

ignited and causes a fire in the chimney, the fire is hostile. On the other hand, if a loss is caused by the smoke or heat of a fire that has not broken out of its ordinary container or become uncontrollable, the loss results from a friendly fire. Damage from a friendly fire is not covered by the policy.

By policy endorsement, the coverage may be extended to include loss by a friendly fire.

CASE SUMMARY FACTS: Youse owned ring that was insure

d with the Employers Fire Insurance Co. against loss, including “ all direct loss or damage by fire”. The ring was accidentally thrown by Youse into a trash burner and was damaged when the trash was burned. He sued the insurer.

(1) Co-insurance. The insurer is liable for the actual amount

of the loss sustained up the maximum amount stated in the policy. An exception exists when the policy contains a co-insurance clause. A co-insurance clause requires the insured to maintain insurance on the covered property up to a certain amount or a certain percentage of the value

(generally 80 percent). Under such a provision, if the policyholder insures the property for less than the required amount, the insurer is liable only for the proportionate share of the amount of insurance required to be carried. Suppose the owner of a building with a value of $200,000, for example, insures it against loss to the extent of $120,000. The policy contains a co-insurance clause requiring that insurance of 80 percent of the value of

The property be carried( in this case, $160,000). Assume that an $80,000 loss is then sustained. The insured would receive not $80,000 from the insurer but only three-fourths of that amount, which is $60,000, because the amount of the insurance carried is only three-fourths of the amount required.

(2) Assignment. Fire insurance is a personal contract, and in

the absence of statute or contractual authorization, it cannot be assigned without the consent of the insurer.

(3) Occupancy. Provisions in a policy of fire insurance

relating to the use and occupancy of the property are generally strictly construed because they relate to the hazards involved.

(b) Homeowners Insurance In addition to providing protection against

losses resulting from fire, the homeowners policy provides liability coverage for accidents or injuries that occur on the premises of the insured. Moreover, the liability provisions provide coverage for unintentional injuries to others away from home for which the insured or any member of the resident family is held responsible,

Such as injuries caused others by golfing, hunting, or fishing accidents. Generally, motor vehicles, including mopeds and recreational vehicles, are excluded from such personal liability coverage.

A homeowners policy also provides protection from losses caused by the theft. In addition, it provides protection for all permanent residents of the household, including all family members living with the

insured. Thus, a child of the insured who lives at home is protected under the homeowner’s policy for the value of personal property lost when the home is destroyed by fire.

Automobile Insurance Associations of insurers, such as the

National Bureau of Casualty Underwriters and the National Automobile Underwriters Association, have proposed standard forms of automobile insurance policies. These forms have been approved by the association members in virtually all states. The form used today by most insurers is

the Personal Auto Policy (PAP). (a) Perils Covered. Part A of the policy provides liability

coverage that protects the insured driver or owner from the claims of others for bodily injuries or damage to their property.

Part B of the policy provides coverage for medical expenses sustained by a covered person or persons in an accident.

Part C of the PAP provides coverage for damages the insured is entitled to recover

from an uninsured motorist.

Part D provides coverage for loss or damage to the covered automobile. Coverage under Part D includes collision coverage and coverage of “ other than collision” losses, such as fire and theft.

(b) Covered Persons.

Covered persons include the named insured or any family member (a person related by blood, marriage, or adoption or

Or a ward or foster child who is a resident of the house hold). If an individual is driving with the permission of the insured, that individual is also covered.

(c) Use and Operation. The coverage of the PAR policy is limited

to claims arising from the “ use and operation” of an automobile. The term use and operation does not require that the automobile be in motion. Thus, the term embraces loading and unloading as well as actual travel.

Case Summary FACTS: Gerhard Schillers was assisting his

friend J.L Loethen in removing transmission from the bed of the Loethens’ truck on the Loethens’ property. While Schillers was carrying the transmission down a driveway, he fell and was seriously injured. J.L was insured under his parents’ automobile insurance policy with Shelter Mutual

Insurance Co., which insured for liability, including “the loading and unloading” of the vehicle.

(d) Notice and Cooperation The insured is under a duty to give notice of

claims, to inform, and to cooperate with the insurer. Notice and cooperation are conditions precedent to the liability of the insurer.

(e) No-Fault Insurance Traditional tort law (negligence law) placed

the economic losses resulting from an automobile accident on the one at fault. The purpose of automobile liability insurance is to relieve the wrongdoer from the consequences of a negligent act by paying defense costs and the damages assessed. Under no-fault laws, injured persons are barred from suing the party at

Fault for ordinary claims. When the insured is injured while using the insured automobile, the insurer will make a payment without regard to whose fault caused the harm. However, if the automobile collision results in a permanent serious disablement or disfigurement, or death, or if the medical bills and lost wages of the plaintiff exceed a specified amount, suit may be brought against the party who was at fault.

Life Insurance There are three basic types of life

insurance: term insurance, whole insurance, and endorsement insurance.

Term insurance is written for a specified number of years and terminates at the end of that period. If the insured dies within the time period covered by the policy, the face amount is paid to the beneficiary. If the insured is still alive at the end of the time

Period, the contract expires, and the insurer has no further obligation. Term policies have little or no cash surrender value.

Whole life insurance (or ordinary life insurance) provides lifetime insurance protection. It also has an investment element.

Part of every premium covers the cost of insurance, and the remainder of the premium builds up a cash surrender value

Of the policy. An endowment insurance policy is one that

pays the face amount of the policy if the insured dies within the policy period. If the insured lives to the end of the policy period, the face amount is paid to the insured at the end of the period.

Many life insurance companies pay double the amount of the policy, called double indemnity, if death is caused by an accident and death occurs within 90 days after the

accident. A comparatively small additional premium is charged for this special protection.

In consideration of an additional premium, many life insurance companies also provide insurance against total permanent disability of the insured. Disability is usually defined in a life insurance policy as any “ incapacity resulting from bodily injury or disease to engage in any occupation for remuneration or profit.”

(a) Exclusions Life insurance policies frequently provide

that death is not within the protection of the policy and that a double indemnity provision is not applicable when death is caused by (1)suicide, (2)narcotics, (3)the intentional act of another, (4)execution for a crime, (5) war activities, or (6) operation of aircraft.

(b) The Beneficiary The recipient of life insurance policy

proceeds that are payable upon the death of the insured is called the beneficiary. The beneficiary may be a third person or the estate of the insured, and there may be more than one beneficiary.

The beneficiary named in a policy may be barred from claiming the proceeds of the policy. It is generally provided by statute or

Stated by court decision that a beneficiary who has feloniously killed the insured is not entitled to receive the proceeds of the policy.

The customary policy provides that the insured reserves the right to change the beneficiary without the latter’s consent. When the policy contains such a provision, the beneficiary cannot object to a change that destroys all of that beneficiary’s rights under the policy and that names

another person as beneficiary.

An insurance policy will ordinarily state that to change the beneficiary, the insurer must be so instructed in writing by the insured and the policy must then be endorsed by the company with the change of the beneficiary. These provisions are construed liberally. If the insured has notified the insurer but dies before the endorsement of the change by the company, the change of

Beneficiary is effective. However, if the insured has not taken any steps to comply with the policy requirements, a change of beneficiary is not effective even though a change was intended.

(c) Incontestability clause Statutes commonly require the inclusion of

an incontestability clause in life insurance policies. Ordinarily this clause states that after the lapse of two years the policy cannot be contested by the insurance company. The insurer is free to contest the validity of the policy at any time during the contestability period. Once the period has expired, the insurer must pay the stipulated

Sum upon the death of the insured and cannot claim that in obtaining the policy, the insured had been guilty of misrepresentation, fraud, or any other conduct that would entitle it to avoid the contract of insurance.

Case Summary Facts: Jose Morales applied for a life

insurance policy from Amex in January 1991. Although he was HIV positive, he lied on the application form and denied having the AIDS virus. As part of the application process, Amex required him to have a medical examination. In March 1991, a paramedic working for Amex met a man claiming to be

Morales and took blood and urine samples.On his application, Morales listed his height

as 5’6’’ and weight as 142 pounds. The examiner stated that the man he examined was 5’10’’ and weighed 172 pounds. The man produced no identification and appeared to be older than the stated age. His blood sample was HIV negative. Amex issued Morales a policy in May 1991, and all premiums were paid. Just over two years later on June 11, 1993, Morales died of AIDS- related causes.

Thereafter Amex investigated and found gross differences between the signature of the person examined and tested and that of the person who applied for and signed the insurance policy. It is conceded that Morales substituted another person to take the medical examination so that Morales would be issued a life insurance policy. The beneficiary sued, and Amex raised the “imposter” defense.

Final Test 1. Beal occupies an office building as a tenant un

der a 25-year lease. Beal also has a mortgagee’s interest in an office building owned by Hill Corp. In which capacity does Veal have an insurable interest?

Tenant Mortgagee A. Yes Yes B. Yes No C. No Yes D. No No

2. Lawfo Corp. maintains a $200,000 standard fire insurance policy on one of its warehouses. The policy includes an 80% coinsurance clause. At the time the warehouse was originally insured, its value was $250,000. The warehouse now has a value of $300,000. If the warehouse sustains $300,000 of fire damage, Lawfo’s insurance recovery will be a maximum of

a. $20,000 b. $24,000 c. $25,000 d. $30,000

3. Compare (a) a contract of insurance and (b) an ordinary contract.

4. What social forces are affected by requiring an insurable interest?