Part III: Case Application and Written Answers (9 marks) (ILOs: A1, B1, C1, C2, D4)

1. The following is an extract from a Home Insurance Policy.

We the insurer will provide cover for loss or damage to your the insureds home structure and content caused by fire or storms. But not loss or damage occurring whilst the home has been left unoccupied for over one year or losses resulting from war. We will also cover acts of violent theft or attempted violent theft but not loss or damage caused by your guests, residents or domestic helpers. The sum insured must at all times represent the full cost of replacing the property insured without deduction for wear and tear and depreciation. You and any other person to whom this insurance applies shall take all reasonable precautions to prevent accidents, loss or damage and shall maintain the home in good condition. You shall on the happening of any event likely to lead to a claim under this Policy notify us within 24 hours if any property is stolen or damaged. You must provide a police report or fire department report in the case of theft or fire.

1. Identify two perils covered in the policy (0.5 marks)

2. Identify two exclusions in the policy (0.5 marks)

3. Identify two conditions in the policy (0.5 marks)

2. Explain the principle of subrogation and provide an example of how it would be applied (1 mark)

3. Karim is a financial advisor for a large private equity firm. From his years of work, he accumulated some savings and wants to start his own business by building a hotel. He approached Ahli United Bank in order to secure a loan for his upcoming venture. With his equity and loan, he was able to purchase a land from Purple Bricks Realty and finance the construction of his project through signing an agreement with TKO Contractors to build the Hotel in Muharraq.
   1. Determine the insurable interest in the project for the following parties; (1 mark)
      1. Karim:
      2. Ahli United Bank:
      3. Purple Bricks Realty:
      4. TKO Contractors:

2. After completing the project, and worried about potential losses, Karim wanted to acquire a property insurance coverage plan. While completing the application for the policy, Karims insurance agent informed him that there are circumstances that will lead to the insurer denying payment of losses. Explain any three reasons that will render the contract void and the compensation denied to Karim if they occur. (1.5 marks)

3. Two years after the policy was issued an electrical fire destroyed five guest rooms. The fire damage amounted to a loss of $85,000. The agent had placed the insurance coverage with three property insurers. Insurer A provided $1,850,000 of coverage; insurer B covered $2,100,000 while insurer C had $1,050,000 of coverage. The policy contained a pro rata liability provision. How much will Karim collect from each insurer? (1 mark)

4. Reem owns a storage warehouse that is insured for $312,000 under a commercial property insurance policy. The policy contains an 80% coinsurance clause. The warehouse sustained a $42,000 loss due to a fire. The replacement cost of the warehouse at the time of loss was $400,000. How much will the insurer pay? (1 mark)

5. Ahmed had a medical health insurance policy with a $300 calendar year deductible and a 25% coinsurance clause. He needed medical treatment that cost $14,000. How much will he pay? (1 mark)

6. A $70,000 medical malpractice claim was covered under three liability insurance contracts. Policy A contained a $400,000 limit of liability, Policy B contained a $110,000 limit of liability while Policy C contained a $20,000 limit of liability. The contracts provided for contribution by equal shares. How much will the hospital collect from each insurer? (1 mark)