Risk insurance and management (13 edition)

Chapter 9

1. A contract is voidable if a representation made by the insurance appli- cant is material, false, and relied on by the insurer. Explain material misrepresentation as it relates to the topic of the insurance contract. 2. Some policies are considered exceptions to the principle of indemnity because they do not require the application of depreciation in the settle- ment of losses. There are two major types of policies that fall into this category, one is valued policies and the other is referred to as what? 3. Jeff is a book dealer who purchased a building from Richard. Jeff ob- tained a loan from the Gateway Bank to purchase the building. Gateway Bank therefore held the mortgage on the building. Jeff planned to store his inventory of books in the building. He also planned to use part of the building for a fast food restaurant. When Jeff applied for property insur- ance on the building he did not tell the agent about the fast food restau- rant because premiums would be substantially higher. Eight months af ter the policy was issued a fire occurred in the restaurant that caused substantial damage to the building. It was determined that the fire was caused by faulty electrical work recently done on the building by a con- tractor hired by Jeff Answer the following questions: Which parties have insurable interest in the building? Can Jeff take over Richard's insurance policy as a part of the sales transaction? Could Jeff's insurer deny coverage for the fire loss based on mater- ial concealment? Why or why not? How might subrogation apply in this case