Carmine purchased an automobile service station from Ben. The purchase price included the building, equipment, and other assets. The business was financed by a loan from National Bank, which held a mortgage on the building. Carmine also converted a one-car repair bay into a short-order restaurant. When Carmine applied for property insurance on the business, he did not tell the insurance company about the restaurant because his premiums would have been substantially increased. Six months after the business opened, a car caught fire and damaged the roof over a bay in the service station area.

1) Explain what is insurable interest. Do any of the following parties have an insurable interest in the business at the time of the fire?

Ben

Carmine

National Bank

2) Ben told Carmine he could save money by taking over Bens insurance instead of buying a new policy. Would it be appropriate for Carmine to take over Bens insurance without notifying Bens insurer? Explain.

3) Investigation of the fire revealed that the car owner knew the gas tank had a leak, but this information was not disclosed to Carmine when the car was brought in for service. Explain how subrogation might apply in this case.

4) Did Carmine show utmost good faith when he applied for property insurance on the business? Explain.

5) Could Carmines insurer deny coverage for the fire on the basis of a material concealment? Explain.