1、Principles of Risk Management and Insurance, 11e (Rejda)Chapter 9 Fundamental Legal Principles1) Fundamental purposes of the principle of indemnity include which of the following?I.To reduce physical hazards.II.To prevent the insured from profiting from insurance.A) I onlyB) II onlyC) both I and IID

2、) neither I nor IIAnswer: BQuestion Status: Previous Edition2) Which of the following is a fundamental purpose of the principle of indemnity?A) to reduce moral hazardB) to minimize physical hazardsC) to settle property insurance losses on a replacement cost basisD) to require deductibles in all prop

3、erty insurance policiesAnswer: AQuestion Status: Previous Edition3) Sams furniture was destroyed by a fire. The furniture cost $1200 when it was purchased, but similar new furniture now costs $1800. Assuming the furniture was 50 percent depreciated, what is the actual cash value of Sams loss?A) $600

4、B) $900C) $1200D) $1800Answer: BQuestion Status: Revised4) All of the following are exceptions to the principle of indemnity EXCEPTA) life insurance.B) valued policies.C) replacement cost property insurance.D) actual cash value property insurance.Answer: DQuestion Status: Previous Edition5) Under wh

5、ich of the following rules is actual cash value determined by taking into consideration all relevant factors an expert would use to determine the value of the property?A) the circumstantial evidence ruleB) the broad evidence ruleC) the property indemnity ruleD) the objective value ruleAnswer: BQuest

6、ion Status: Previous Edition6) A total loss under a valued policy is settled on the basis of theA) market value of the loss.B) actual cash value of the loss.C) replacement value of the loss.D) amount of insurance covering the loss.Answer: DQuestion Status: Previous Edition7) Which of the following s

7、tatements describes how losses will be settled if a property insurance policy is written on a replacement cost basis?A) Losses are settled without the applicable deductible.B) Losses are settled without a deduction for depreciation.C) The insurer must replace the damaged or destroyed property in lie

8、u of a cash settlement.D) The policy is converted to a valued policy.Answer: BQuestion Status: Previous Edition8) Which of the following statements about the principle of insurable interest is (are) true?I.It makes it difficult to measure the amount of an insureds loss.II.It reduces moral hazard.A)

9、I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition9) All of the following will support an insurable interest for purposes of purchasing property and liability insurance EXCEPTA) close family relationship. B) potential legal liability.C) secured creditors.D)

10、 a contract right.Answer: AQuestion Status: Previous Edition10) Which of the following statements about an insurable interest in life insurance is (are) true?I.It is required of any person named as beneficiary.II.It may result from a pecuniary (financial) interest. A) I onlyB) II onlyC) both I and I

11、ID) neither I nor IIAnswer: BQuestion Status: Revised11) When must an insurable interest legally exist in life insurance?A) only at the time of the insureds deathB) only at the inception of the policyC) only at the time the beneficiary is paidD) both at the time of the insureds death and at the ince

12、ption of the policyAnswer: BQuestion Status: Previous Edition12) When must an insurable interest legally exist in property insurance for an insured to receive payment for a loss from the insurer?A) only at the time of the lossB) only at the inception of the policyC) only at the time the loss settlem

13、ent process takes placeD) both at the time of the loss and at the inception of the policyAnswer: AQuestion Status: Revised13) Sues office building was damaged by a fire caused by a careless tenant. After paying Sue for her loss, the insurance company sued the tenant to recover its loss. This suit is

14、 based on the principle ofA) warranty.B) insurable interest.C) utmost good faith.D) subrogation.Answer: DQuestion Status: Previous Edition14) All of the following are basic purposes of subrogation EXCEPTA) to eliminate adverse selection.B) to hold down the cost of insurance.C) to prevent an insured

15、from collecting twice for the same loss.D) to hold the negligent person responsible for a loss.Answer: AQuestion Status: Previous Edition15) Which of the following statements about subrogation is true?A) It is used primarily for losses paid under life insurance policies.B) It allows the insurer to s

16、ue its own insured who is negligent.C) The insureds right to collect benefits may be forfeited if the insured interferes with the insurers rights after a loss occurs.D) The insurer is required to exercise its subrogation rights.Answer: CQuestion Status: Previous Edition16) The principle of utmost go

17、od faith is supported by all of the following legal doctrines EXCEPTA) representations.B) warranty.C) subrogation.D) concealment.Answer: CQuestion Status: Previous Edition17) What is the legal significance of a material concealment by an insurance applicant?A) The contract is automatically voided fr

18、om its inception.B) The contract is voidable at the insurers option.C) Loss payments are reduced by the degree of the concealment.D) The insurer is immediately entitled to a higher premium.Answer: BQuestion Status: Previous Edition18) What is the legal significance of a material misrepresentation in

19、 an insurance application?A) The contract is automatically voided from its inception.B) The contract is voidable at the insurers option.C) Loss payments are reduced by the degree of the misrepresentation.D) The insurer is immediately entitled to a higher premium.Answer: BQuestion Status: Previous Ed

20、ition19) A false statement made by an applicant for insurance is an example of aA) concealment.B) breach of warranty.C) lack of offer and acceptance.D) misrepresentation.Answer: DQuestion Status: Previous Edition20) Which of the following statements about a warranty in an insurance contract is (are)

21、 true?I.It is part of the insurance contract.II.Statements made by an insurance applicant are considered warranties rather than representations.A) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: AQuestion Status: Previous Edition21) David owns a liquor store in a high-crime area. In order

22、 to obtain a reduced insurance premium, David promised to have a burglar alarm operating at the store when the store was closed. This agreement, which was incorporated into the insurance contract, is an example of aA) representation.B) unilateral contract.C) contract of adhesion.D) warranty.Answer:

23、DQuestion Status: Previous Edition22) Which of the following statements about offer and acceptance for insurance contracts is true?A) In property and liability insurance, agents typically do not have the authority to bind coverage. B) In life insurance, the agent can usually accept an offer by immed

24、iately binding coverage.C) In property insurance, the offer and acceptance are usually in writing but may be oral.D) In life insurance, the offer is merely the promise to pay the first premium.Answer: CQuestion Status: Previous Edition23) Chris applied for life insurance and paid the first premium o

25、n Monday. She was given an insurability premium receipt which specified that coverage was effective on the date of the application or the date of the medical exam, whichever is later. She took the medical exam the following Thursday. She was found to be in perfect health. On which day was her covera

26、ge effective?A) on Monday, when she completed the application and paid the first premiumB) on Wednesday, two days after completing the application and paying the first premiumC) on Thursday when she passed the medical examD) on Saturday, two days after passing the medical examAnswer: CQuestion Statu

27、s: Previous Edition24) Which of the following statements about consideration in an insurance contract is (are) true?I.The insureds total consideration is submission of a completed application.II.The insurers consideration is the promise to do those things specified in the policy.A) I onlyB) II onlyC

28、) both I and IID) neither I nor IIAnswer: BQuestion Status: Previous Edition25) A contract in which the values exchanged are not equal because chance is involved is called a(n)A) contract of adhesion.B) unilateral contract.C) conditional contract.D) aleatory contract.Answer: DQuestion Status: Previo

29、us Edition26) Why are insurance contracts said to be contracts of adhesion?A) The values exchanged by the parties to the contract are not equal.B) One party writes the contract, and the other party must accept the entire contract as written.C) Only one party makes a legally enforceable promise.D) Co

30、nditions are placed on the insurers promise to perform.Answer: BQuestion Status: Revised27) Why does the insured get the benefit of the doubt if an insurance policy contains any ambiguities or uncertainties?A) because insurance contracts are aleatoryB) because insurance contracts are unilateralC) be

31、cause insurance contracts are conditionalD) because insurance contracts are contracts of adhesionAnswer: DQuestion Status: Previous Edition28) Why can an insurer refuse to pay a claim if an insured fails to abide by the policy provisions?A) because insurance contracts are aleatoryB) because insuranc

32、e contracts are unilateralC) because insurance contracts are conditionalD) because insurance contracts are contracts of adhesionAnswer: CQuestion Status: Previous Edition29) Which of the following types of insurance policies can usually be assigned without the insurers consent?I.Life insuranceII.Pro

33、perty insuranceA) I onlyB) II onlyC) both I and IID) neither I nor IIAnswer: AQuestion Status: Previous Edition30) What is the practical effect of an insurance policy being a conditional contract?A) The insurer can refuse to a pay claim unless the insured has complied with all policy provisions.B) T

34、he insured can assign the policy only with the insurers consent.C) The insurer can sue the insured for failure to pay any premiums.D) The insured gets the benefit of the doubt if a policy contains any ambiguities or uncertainties.Answer: AQuestion Status: Revised31) What is the practical effect of a

35、n insurance policy being a contract of adhesion?A) The insurer can refuse to pay claims unless the insured has complied with all policy provisions.B) The insured can assign the policy only with the insurers consent.C) The insurer can sue the insured for failure to pay any premiums.D) The policy is i

36、nterpreted in the insureds favor if the policy contains any ambiguities or uncertainties.Answer: DQuestion Status: Previous Edition32) All of the following statements about the rules governing agency relationships are true EXCEPTA) An agent must be authorized to act on behalf of a principal.B) An ag

37、ency agreement may grant certain powers to the agent as well as denying the agent other powers.C) The principal is responsible for the acts of agents only if the acts are criminal.D) Knowledge of the agent is presumed to be knowledge of the principal with respect to matters within the scope of the a

38、gency relationship.Answer: CQuestion Status: Previous Edition33) The voluntary relinquishment of a legal right is calledA) subrogation.B) adhesion.C) estoppel.D) waiver.Answer: DQuestion Status: Previous Edition34) Frank asked his companys employee benefits director if his group health coverage coul

39、d be converted to individual coverage. The benefits director said, Yes, you can convert to an individual policy, and the coverage is identical to your group coverage. Frank quit his job and converted to an individual policy. Six months later he filed a claim. He was dismayed to learn the conversion

40、policy was limited compared to the group coverage, and his claim was denied. What legal doctrine will allow Frank to bring a successful legal action against his former employer because he was financially harmed due to his reasonable reliance upon a representation of fact?A) adhesionB) concealmentC)

41、estoppelD) subrogationAnswer: CQuestion Status: Revised35) Janice purchased a living room set for $1,000 and insured this furniture on an actual cash value basis. Two years later the living room set was destroyed by a covered peril. At the time of loss, the property had depreciated in value by 25 pe

42、rcent. The replacement cost of the furniture at the time of loss was $1,200. Assuming no deductible, how much will Janice receive from her insurer?A) $900B) $950C) $1,000D) $1,200Answer: AQuestion Status: Previous Edition36) Jacob sold his house to Shelia for $140,000 in cash. Jacob threw in insuran

43、ce on the house as part of the deal and did not bother telling the insurer that there was a new owner. Four months after Shelia purchased the home, a windstorm damaged the roof. Which of the following legal characteristics of insurance contracts could the insurer use to legally deny payment for the

44、damage to the roof?A) Insurance contracts are unilateral contracts.B) Insurance contacts are contracts of adhesion.C) Insurance contracts are aleatory contracts.D) Insurance contracts are personal contracts.Answer: DQuestion Status: Previous Edition37) Melodys car was damaged when another driver ran

45、 a stop sign and hit her car. Melody decided to collect from her own insurer and to let her insurer recoup the loss payment from the negligent driver who hit her. What fundamental legal principle is illustrated in this scenario?A) the principle of utmost good faithB) the principle of insurable inter

46、estC) the principle of subrogationD) the principle of reasonable expectationsAnswer: CQuestion Status: Previous Edition38) When Ben applied for life insurance, he was asked on the application if he smoked or used tobacco products. Ben answered No. In reality, Ben smokes two packs of cigarettes a day

47、. The policy was issued at the preferred, nonsmoker rate. If Ben dies 6 months after the policy is issued, upon what grounds will the insurer be able to legally deny the claim?A) warrantyB) misrepresentationC) waiverD) concealmentAnswer: BQuestion Status: Previous Edition39) Robin plans to open a ba

48、r in a high-crime area. She had difficulty obtaining insurance for the business. She found an insurer willing to write the coverage, but only if Robin agreed to have a security alarm system in operation at all times when the business is closed. Robins promise to have a security alarm system operatio

49、nal as a condition of having the insurance coverage in force is aA) binder.B) warranty.C) waiver.D) deductible.Answer: BQuestion Status: Previous Edition40) Dave is an agent for Easy Pay Insurance. Easy Pay insures only the highest-quality applicants. Dave wanted to earn more commissions, so he sold

50、 some policies to applicants he knew were below-average risks. When these policyowners started filing claims, Easy Pay tried to deny the claims stating that Dave had not acted appropriately. Which general rule of agency makes Easy Pay responsible for the claims of the higher-than-average risk policy

51、owners?A) There is no presumption of an agency relationship.B) Agents should be compensated based on the quality of the business they generate.C) A principal is responsible for the acts of its agents who are acting within the scope of their authority. D) An agent must have authority to represent the

52、 principal.Answer: CQuestion Status: Previous Edition41) Teds insurance claim was denied by XYZ Insurance Company. When Ted inquired why the claim was denied, he was told to, Read the exclusion on page 5 of the policy. Ted read the exclusion. In his opinion, the exclusion was poorly worded and vague

53、. If a court of law agrees with Teds assessment of the exclusion, Ted may still be able to have his claim paid by the insurer because insurance contracts areA) personal contracts.B) unilateral contracts.C) aleatory contracts.D) contracts of adhesion.Answer: DQuestion Status: Previous Edition42) Mark

54、 owns a bar. The bar has a back room where Mark has some slot machines. Mark lets some of his patrons play the machines, and Mark keeps any profits. This type of gambling is illegal where Mark lives. Mark wanted to purchase insurance in case his slot machines were confiscated by the police. Such an

55、insurance contract would not be enforceable. Which requirement needed to form a valid insurance contract is missing?A) considerationB) offer and acceptanceC) legal purposeD) competent partiesAnswer: CQuestion Status: Previous Edition43) Which distinct legal characteristic of insurance contracts stat

56、es that only the insurers promise to perform is legally enforceable?A) contracts of adhesionB) unilateral contractsC) aleatory contractsD) personal contractsAnswer: BQuestion Status: Previous Edition44) Some courts have ruled that an alternative to replacement cost less depreciation should be used to determine the actual cash value of a property loss. Under this alternative, the value of property lost is determined by the price a willing buyer would pay a willing seller for the propert