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If an insurer discovers a question of coverage under an insured's policy but elects to defend the insured without issuing a reservation of rights letter or executing a nonwaiver agreement, a court would likely hold that Select one: A. The insurer has waived any coverage defenses. B. The insurer is liable for breach of contract. C. The insurer has preserved all coverage defenses. D. The insurer retains the right to deny coverage later. ---------CORRECT ANSWER-----------------A. The insurer has waived any coverage defenses. Alva had an auto insurance policy written by Guilford Insurance Co. Alva had an auto accident with Furkan. Furkan was injured in the accident and he filed suit against Guilford for his damages. Guilford filed a motion to dismiss the lawsuit, claiming that Furkan had no right to sue Guilford. Which one of the following correctly states how the court will rule on Guilford's motion? Select one: A. The motion will be denied, if a direct-action statute has been enacted. B. The motion will be denied because liability insurers generally owe a duty to third-party claimants. C. The motion will be denied, if Alva asks Guilford to permit Furkan to sue Guilford. D. The motion will be denied because third parties may sue insurers of negligent parties. ---------CORRECT ANSWER-----------------A. The motion will be denied, if a direct-action statute has been enacted. Sebastian applied for homeowner insurance with Blithe Insurance. Blithe's application asked if Sebastian had any damage to his house within the last three years. Sebastian had two losses four years ago but none in the last
three years so Sebastian answered "no" to this question. Blithe issued the homeowner policy. Which one of the following statements about Sebastian's response to the application question is true? Select one: A. It was a warranty B. It was a misrepresentation C. It was neither a warranty nor a misrepresentationCorrect. Sebastian gave an accurate answer to Blithe's question. He made no misrepresentation. Sebastian's statement would not be interpreted to be a warranty. It was not an opinion—it was a statement of fact. D. It was an opinion ---------CORRECT ANSWER-----------------C. It was neither a warranty nor a misrepresentation Sebastian gave an accurate answer to Blithe's question. He made no misrepresentation. Sebastian's statement would not be interpreted to be a warranty. It was not an opinion—it was a statement of fact. When the insurance policy wording is ambiguous, a court generally applies the interpretation that favors the insured. This is because the insurance policy is a Select one: A. Contract of material fact. B. Contract of indemnity. C. Contract of adhesion D. Contract of unequal amounts. ---------CORRECT ANSWER----------------- C. Contract of adhesion Which one of the following is generally the appropriate next step for an insurer that has identified a coverage question under the insured's policy and requested the insured to sign a nonwaiver agreement, but the insured has refused to sign the agreement? Select one: A. Pay the insured's claim B. Send a reservation of rights letter to the insured C. Inform the insured that the insured has breached the policy's cooperation clause
Estoppel arises in insurance law from the following sequence of events: false representation of a material fact, reasonable reliance on that representation, and the Select one: A. Representation is true and accurate. B. Resulting injury or detriment to the insured. C. Resulting injury or damage to the insured. D. Resulting damage is an unbroken chain of events. ---------CORRECT ANSWER-----------------B. Resulting injury or detriment to the insured. Which one of the following special characteristics of insurance contracts reflects the idea that insurance companies should be able to select persons who will be insured by them? Select one: A. Nontransferable contract B. Contract of indemnity C. Contract of adhesion D. Contract of utmost good faith ---------CORRECT ANSWER----------------- A. Nontransferable contract Noncompliance with a warranty concerning one type of covered property will not defeat coverage for another type of property to which the warranty does not relate, because courts generally interpret insurance policies as Select one: A. Valid. B. Severable. C. Contracts of adhesion. D. Incontestable. ---------CORRECT ANSWER-----------------B. Severable. For an insurer to waive the insured's breach of condition under the insurer's policy, the insurer Select one: A. Need not have any knowledge of the insured or any activity under the insured's policy.
B. Must not know of the breach of the condition. C. Must know of the breach of the condition. D. Need not know about the breach of the condition. ---------CORRECT ANSWER-----------------C. Must know of the breach of the condition. After a windstorm which opened a hole in the roof, an insured was required to place a tarp over the hole. This requirement is an example of an insurance policy being a Select one: A. Requirement contract. B. Contract of utmost good faith. C. Contract of indemnity. D. Conditional contract. ---------CORRECT ANSWER-----------------D. Conditional contract. A conditional contract requires the insured to fulfill the condition of protecting the property from further damage. Mustafa met with his insurance agent Lucy to obtain a businessowners policy. Lucy helped Mustafa complete an application and sent the signed application along with Mustafa's premium check to Delmond Insurance Co. Delmond never responded to Mustafa. Ninety days later, Mustafa had a loss to his business that would have been covered by the Delmond policy. If Mustafa files suit against Delmond to receive compensation for his loss, Select one: A. Mustafa will win, because Delmond's silence constituted acceptance of his application. B. Mustafa will lose, because silence cannot result in acceptance of an insurance application. C. Mustafa will lose, because Delmond never issued a policy. D. Mustafa will win, if Delmond's s delay on his application was unreasonable. ---------CORRECT ANSWER-----------------D. Mustafa will win, if Delmond's s delay on his application was unreasonable. Silence does not constitute acceptance in these situations. Insurers can, however, become liable under contract if they delay action on an application beyond a reasonable time.
Silence generally does not constitute acceptance. But if the parties have a prior course of dealing indicating that silence will be treated by them as acceptance, those prior dealings would set a precedent for acceptance. Which one of the following reinforces the principle of indemnity? Select one: A. Replacement cost policy B. Special limits C. Subrogation D. Valued policy ---------CORRECT ANSWER-----------------C. Subrogation Martin visited his insurance agent Laura to discuss his insurance needs. Laura recommended that Martin purchase a businessowners policy and Martin agreed with Laura's recommendation. Laura helped Martin complete an insurance application and she sent the completed and signed application to Blythe Insurance Co., along with Martin's premium payment check. Blithe cashed Martin's check, issued the policy, and mailed the policy to Martin. Blythe's actions were Select one: A. A solicitation of an offer. B. An offer. C. A counteroffer. D. An acceptance. ---------CORRECT ANSWER-----------------D. An acceptance. Which one of the following best explains why nonwaiver agreements and reservation of rights letters must typically be in writing? Select one: A. Oral insurance contracts are not permitted in some states. B. Most insurance policies require such agreements to be in writing. C. Oral notice is too difficult to prove. D. Written documents are easier to create and transmit in a timely fashion. ---------CORRECT ANSWER-----------------C. Oral notice is too difficult to prove.
Which one of the following is the best explanation for why an insurer would ask an insured to sign a nonwaiver agreement? Select one: A. To inform the insured that the insurer will deny coverage of any improper claims B. To prevent subsequent claims of waiver, estoppel, and election C. To establish grounds for a reservation of rights letter D. To alert the insured to a potential coverage problem ---------CORRECT ANSWER-----------------B. To prevent subsequent claims of waiver, estoppel, and election Julio had a commercial insurance policy with Barnley Insurance. In Julio's application for this policy, Julio said that his building had a sprinkler system. Julio's insurance policy had a provision stating that the application is part of the insurance policy. Which one of the following factors would most likely result in a court finding that Julio's statement about the sprinkler system constituted a warranty? Select one: A. The statement was clearly and unmistakably intended by the parties to be a warranty B. The statement was made with knowledge of its falsity C. The statement pertained to a matter that was material D. The statement was false ---------CORRECT ANSWER-----------------A. The statement was clearly and unmistakably intended by the parties to be a warranty For a promise to be a warranty: (1) the parties must have clearly and unmistakably intended it to be one and (2) the statement must form a part of the contract itself. The policy said that the application—and thus statements in it—was a part of the policy. So the most important additional factor would be an unmistakable intention that the statement was intended to be a warranty.
D. A creditor beneficiary. ---------CORRECT ANSWER-----------------B. A donee beneficiary. Bill tells his mother that when he dies she can reside in his house so long as she lives and then it will pass to his son, in return for Bill's mother's promise to buy Bill a new car. This arrangement creates a life estate agreement that is an interest in land that is Select one: A. Not valid unless Bill adds a codicil to his will. B. Valid only if all three parties to the life estate agree to the arrangement either orally or in writing. C. Unenforceable unless it is in writing. D. Valid only if his son signs a written release. ---------CORRECT ANSWER-----------------C. Unenforceable unless it is in writing. Oral contracts for life estates are unenforceable under the statute of frauds. Contracts related to the sale of real property or legal interests in real property must be in writing. As a general rule of contract law, the assignee's rights Select one: A. Cannot be delegated to the assignee by the assignor. B. May not be restricted by contract or policy provisions. C. Are non-negotiable. D. Do not exceed the assignor's rights. ---------CORRECT ANSWER---------- -------D. Do not exceed the assignor's rights. Sandee owed Patty $200, but knowing Sandee was low on funds, Patty asked Sandee to wallpaper her living room instead of paying the $200. Sandee agreed that she would do the wallpapering to satisfy her $ debt. This contractual arrangement is known as Select one: A. Contract reformation. B. An accord and satisfaction.Correct. An accord is an agreement between contracting parties that one of them is to substitute a different performance
for the performance required in the contract and completion of that performance (wallpapering) is the satisfaction. This was not substantial performance nor was it a novation or reformation of the original contract. C. A novation. D. Substantial performance. ---------CORRECT ANSWER-----------------B. An accord and satisfaction An accord is an agreement between contracting parties that one of them is to substitute a different performance for the performance required in the contract and completion of that performance (wallpapering) is the satisfaction. This was not substantial performance nor was it a novation or reformation of the original contract. ABC Corporation, which purchased insurance from XYZ Insurance Company, materially breached the insurance contract. Which one of the following is a right the insurer has against the insured? Select one: A. Substantial performance B. Tender of performance C. Repudiation D. Nonperformance ---------CORRECT ANSWER-----------------D. Nonperformance Nonperformance is a right the insurer has against the insured when a material breach occurs. A party's material breach excuses the other party's performance and immediately gives rise to remedies for breach of contract. Mason sold a ring to Carol. Mason told Carol that the ring was made of solid gold, but both Mason and Carol actually believed the ring was merely gold-plated. In fact, the ring was made out of a copper alloy. This situation is best described as Select one: A. A bilateral mistake, which created a voidable contract. B. A fraud, which created a void contract. C. A unilateral mistake, which created a binding contract. D. A bilateral mistake, which created a binding contract. ---------CORRECT ANSWER-----------------A. A bilateral mistake, which created a voidable contract.
Some contracts are voidable, and some agreements are void because they are not contracts. When a contract is voidable, the right of avoidance is available only to Select one: A. Parties in privity of the contract. B. The offeror of the contract. C. The offeree of the contract.I D. An innocent or injured party. ---------CORRECT ANSWER-----------------D. An innocent or injured party. Physician Betty administered medical services to stroke victim Karl who was unconscious. She provided medication and direction and followed all procedures. When Karl woke up, he refused other medical services and he also indicated that he could not be held liable for any expenses that he did not personally authorize or to which he did not consent. It is likely that Karl might be required to pay the reasonable value of the services received based on Select one: A. An implied-in-fact contract. B. An implied-in-law contract. C. A unilateral contract. D. An executory contract. ---------CORRECT ANSWER-----------------B. An implied-in-law contract. A contract is made between two parties for delivery of goods. The goods are delivered and the receiving party pays for them. Which one of the following terms describes the contract? Select one: A. ExecutedCorrect. B. Exacted C. Executory D. Completed ---------CORRECT ANSWER-----------------A. Executed
A homeowners policy is an example of Select one: A. An executory contract B. A personal contract. C. An implied-in-fact contract. D. An implied-in-law contract. ---------CORRECT ANSWER-----------------A. An executory contract for the extra two bushels and Hank refused to give her the apples unless she paid for all six bushels. Which one of the following statements is true? Select one: A. Hank breached the contract. B. There was no valid offer made and therefore no contract between Hilda and Hank. C. Hank and Hilda did not mutually assent to the terms of the contract when it was formed. D. There was no communication of intent to contract from Hank to Hilda. --- ------CORRECT ANSWER-----------------A. Hank breached the contract. Which one of the following most accurately describes the ability of an offeror to revoke an offer made to an individual offeree? Select one: A. An offeror can revoke an offer any time before acceptance, but the revocation is effective only when communicated to the offeree and the offeree actually receives the communication. B. An offeror can revoke an offer any time before acceptance, but must do so through the same means of communication used in making the original offer. C. An offeror can revoke an offer either by expressly refusing to abide by it or by making a new offer to the offeree. D. An offeror can revoke an offer by any reasonable means, at any time before the offeree completes performance of the contract. --------- CORRECT ANSWER-----------------A. An offeror can revoke an offer any time before acceptance, but the revocation is effective only when
Select one: A. I will buy the collars on Sunday when I come over to your house. B. I hope to have the money this weekend to buy the dog collars you are selling if I am able to get to the bank. C. I accept. I will buy 15 dog collars at $8.00 each on Saturday. D. I accept. I will buy the collars on or before Saturday with the color of the collars to be worked out. ---------CORRECT ANSWER-----------------D. I accept. I will buy the collars on or before Saturday with the color of the collars to be worked out. Ruth told Eric that she will sell her inventory to him for $30,000. Eric responded to her offer saying, "Your price is ridiculous, but I must have the inventory. Enclosed is a check for $30,000, but I really think this is unfair." Which one of the following statements it true regarding whether there has been a legally enforceable acceptance of an offer to contract? Select one: A. There has been valid acceptance, but a court will have to determine Eric's intent. B. There has been valid acceptance, because complaining has no effect. C. There has been no acceptance, because an acceptance must be unequivocal. D. Acceptance cannot be determined, because Eric's protest created a conditional acceptance. ---------CORRECT ANSWER-----------------B. There has been valid acceptance, because complaining has no effect. Brenda offered to sell her collection of gemstones to Jolene for $25,000, and Jolene told her brother Kevin about Brenda's offer. When Jolene died in an auto accident, Kevin, as executor of Jolene's estate, tried to accept Brenda's offer to sell the collection. Kevin's acceptance on behalf of the estate is Select one: A. Not enforceable because the acceptance must be unconditional and unequivocal. B. Not enforceable because the offeror has the right to choose with whom to contract. C. Enforceable because of Brenda's intent to contract with Jolene.
D. Enforceable since Kevin did not deviate from the original terms of the offer. ---------CORRECT ANSWER-----------------B. Not enforceable because the offeror has the right to choose with whom to contract. Tony got married at age 15, and then divorced only six months later. While still a minor, Tony was providing child support to his ex-wife. If Tony ceases to provide child support and his ex-wife sues him, it is likely that Tony Select one: A. Will not be required to pay child support until he reaches the age of majority. B. Will only be required to provide child support based on his age and his income. C. Will be required to continue to provide child support D. Will not be obligated to pay because he is still a minor. --------- CORRECT ANSWER-----------------C. Will be required to continue to provide child support Which one of the following is true regarding the capacity of a minor to contract? Select one: A. A minor cannot avoid a contract when he or she misrepresents his or her age. B. A parent is always liable for a minor child's contract. C. A minor can challenge a contract and retain the benefits of the contract. D. A minor must fulfill his or her obligation under a contract for necessaries. ---------CORRECT ANSWER-----------------D. A minor must fulfill his or her obligation under a contract for necessaries. Persons claiming insanity may avoid a contract when Select one: A. They were experiencing a delusion. B. The contract is for necessaries.
Public policy requires that the insured have an insurable interest in any property or life to be covered by the policy. A person has an insurable interest in property if its destruction would cause direct monetary loss. In order to be covered, this insurable interest must exist Select one: A. Prior to the loss. B. When the loss is reported. C. At the time of loss. D. When the property is acquired. ---------CORRECT ANSWER----------------
- C. At the time of loss Any contract allowing a lender more than the maximum legal interest is a usury contract and is therefore illegal. Which one of the following is true in most states if a lender is charging an illegally high rate of interest on a loan? Select one: A. The lender may collect the principal but is fined for usury action equal to the exorbitant rate of interest previously charged. B. The lender may collect the principal but is barred from collecting the interest. C. The lender may not collect either the principal or the lost interest. D. The lender may collect the principal and the lowest market interest rate. ---------CORRECT ANSWER-----------------B. The lender may collect the principal but is barred from collecting the interest. Contracts may be illegal because they are against public policy or because they are contrary to constitutional, statutory, or Select one: A. Interstate law. B. Tort law. C. Case law. D. Criminal law. ---------CORRECT ANSWER-----------------C. Case law.
Which one of the following is true regarding a void contract? Select one: A. A void contract is a contract in which the parties can execute it completely unless an innocent party chooses to avoid it. B. A void contract is not legally enforceable or binding. C. A contract with a minor is always a void contract. D. A void contract is entered into under fraud or duress. ---------CORRECT ANSWER-----------------B. A void contract is not legally enforceable or binding. Which one of the following contract types requires each party to perform? Select one: A. Unilateral B. Mutual C. Implied D. Bilateral ---------CORRECT ANSWER-----------------D. Bilateral The type of contract that is an obligation imposed by law because of the parties' conduct or some special relationship between them or because one of them would otherwise be unjustly enriched is a quasi-contract also known as Select one: A. An implied-in-fact contract. B. An implied-in-law contract. C. A voidable contract. D. An executory contract. ---------CORRECT ANSWER-----------------B. An implied-in-law contract. The type of contract that has not been completely performed by one or both of the parties is Select one: A. An implied-in-fact contract. B. A voidable contract. C. An implied-in-law contract.
