Pat contracts with an Ajax Insurance Company agent for a $50,000 ordinary life insurance policy. The application form is filled in to show Pat's age as 32. In addition, the application form asks whether Pat has ever had any heart ailments or problems. Pat answers no, forgetting that as a young child he was diagnosed as having a slight heart murmur. A policy is issued. Three years later, Pat becomes seriously ill and dies. A review of the policy discloses that Pat was actually 33 at the time of the application and the issuance of the policy and that he incorrectly answered the question about the history of heart ailments.

Fact Pattern #2:

Best Insurance Company provides Eve Erickson with property insurance that contains an 80% coinsurance clause. The coinsurance clause states that if Eve insures the property up to 80% of its value, she will recover any loss up to the face amount of the policy. Eve purchases an $80,000 property insurance policy for property valued at $200,000. Due to a fire, Eve suffers a loss of $10,000.

Questions

1. In Fact Pattern #1, can Ajax void the policy and escape liability on Pat's death? Why or why not? Explain.
2. In Fact Pattern #1, if there was any ambiguity on the application, should it be resolved in favor of the insured or the insurer? Explain.
3. In Fact Pattern #2, what dollar amount will Eve recover from the insurance company? Explain and show your calculation of Eve's insurance recovery.
4. What are the advantages and disadvantages of an incontestability clause? Explain.