Question 1 (14 marks) a. What does indemnity mean in insurance? Why the principle of indemnity is not universally applicable to all insurance policies? 6 marks

b. Fire has occurred in Cheesy Spaghetti House and damaged an oven. The oven was so seriously damaged by fire that it could not be repaired economically.

Cheesy Spaghetti House purchased the oven 2 years ago, which has an estimated useful life for 8 years. The oven is specifically insured under a Property All-Risks insurance policy for $200,000 with a straight deductible of $10,000.

At the time of accident, the replacement cost of the oven with the similar specification is around $240,000.

i. Based on the actual cash value principle, how much will Cheesy Spaghetti House collect as claim payment from the insurance company? 5 marks

ii. How much will Cheesy Spaghetti House collect as claim payment from the insurance company if the insurance is arranged on a new for old basis?3 marks

Explain your answers and show your calculations.