Gary owns a one acre parcel of property with a four bedroom house on it. He contracts to Sell it to Jean for $400,000. They value the lot at about $100,000 and the structure at $300,000. According to the terms of the contract, "The owner of the property shall have the risk of loss during the executory contract period." During the executory period, while Gary is in possession, the house burns to the ground as a result of a fire that was not caused by either party.

(a) If Gary has a $300,000 policy of insurance on the property (to cover the value of the improvements to the land) and Jean does not have any insurance, does Jean have to proceed under the contract? Is she entitled to the insurance proceeds if she pays the contract price? Does Gary have any obligation to rebuild the structure? If Gary sought to rebuild the structure would it have to be an exact duplicate of the prior home, or could he use lower-cost or different materials? Who, if anyone, would supervise and approve the work?

(b) If Jean has $300,000 of insurance to cover the improvements but Gary does not (he previously cancelled his policy), should Jean be able to pocket the money and walk away from the transaction?

(c) What if both parties have insurance, but neither one has an adequate policy of coverage? Assume Gary has kept his policy in force, but has not updated it for several years, so his coverage is only $225,000 for the improvements. Jean has also insured the property, but took a deal on a low cost policy that covers less than 100% of a loss by fire, so she can only get a maximum of $275,000. In this case, what should each party's obligation be, and why? Should the insurance companies have to pay out a total of $500,000 under their policies even though the property loss is $300,000?

In the above situations, who is meant to be benefited by the insurance? Should the presence of insurance coverage be relevant to the questions of contract interpretation and the allocation of risk? Does the contract term drafted by the parties clarify the problem in any of the foregoing situations? Would it make a difference in the above situation if the jurisdiction had enacted the Uniform Vendor and Purchaser Risk Act?