Exam 6: Insurance As a Risk Management Technique: Principles

Match the descriptions with their terms: -The doctrine of _________________ states that policy language should be interpreted as a layperson would comprehend it and not according to the interpretation of a trained underwriter.

Insurance and gambling differ in that, in contrast to insurance,

Usually, legal mistakes in insurance contracts still bind both parties to the written terms.

Match the descriptions with their terms: -The principle that one who has indemnified another's loss is entitled to recovery from liable parties is called _______________.

To be properly classed as "insurance," an arrangement must have all but one of the following elements:

In life insurance there must be insurable interest at the time of loss, while in property and liability insurance, insurable interest must exist at the inception of the contract.

Insurance cannot be written against arson because arson produces a loss that is not accidental in its origin.

A misrepresentation

When Ralph replaced his old eight track stereo for a new, more expensive CD player with insurance proceeds, the principle of indemnity was broken.

Insurable interest is required in all types of insurance.

Match the descriptions with their terms: -One of the _________________ is that a loss must be determinable and measurable.

Insurable interest in property-liability insurance must exist

Match the descriptions with their terms: -A/An _________________ is a statement saying that before the insurer is liable, a certain fact, condition, or circumstance affecting the risk must exist. A) aleatory contract B) Concealment C) contract D) Estoppel E) express F) insurable interest G) insurance H) large-loss principle I) reasonable expectations J) representation K) requisites of insurable risk L) subrogation M) utmost good faith N) waiver O) warranty

The insurer is entitled to its subrogation rights after the insured has been fully indemnified.

An applicant for life insurance informs the agent that he has had rheumatic fever, but the agent fails to record this information for fear the application will be denied and he will lose a commission. The applicant signs the application, and in so doing, indicates that he has read the application and certifies its accuracy. Under which of the following doctrines, if any, might the insurer be denied the opportunity to void the policy if the facts are discovered?

The Smallville Mall has assumed the responsibility for payment of liability losses caused by Chuck's Famous Pizza to attract the pizza chain to the mall. One of Chuck's employees is found guilty of sexual harassment in the mall. Smallville Mall's insurer pays the liability judgment. Who does Smallville Mall's insurer collect from under its subrogation rights?

Match the descriptions with their terms: -An economic institution that reduces risk is _________________.

Pooling is the sharing of total losses among a group of insureds.

One social cost of insurance is attributed to the fact that if it were not for insurance, certain losses would not occur.

Without the insurance mechanism, the reserves needed for the economy to pay for losses would be much greater.