Core Principles & Fundamentals Flashcards

An insured made a material misrepresentation on the application that, if known, would have led the insurer to decline the risk. What remedy is generally available to the insurer?

Answer: Rescission of the policy

A material misrepresentation can make the policy voidable, allowing the insurer to rescind it.

What is the main purpose of setting a claim reserve?

Answer: To estimate the amount the insurer expects to pay on the claim

Reserves estimate the ultimate cost of a claim so the insurer can keep adequate funds and report its liabilities accurately.

A nonwaiver agreement differs from a reservation of rights letter mainly because the nonwaiver agreement:

Answer: Is a bilateral agreement signed by both the insurer and the insured

A nonwaiver agreement is signed by both parties, while a reservation of rights letter is a one-sided notice from the insurer.

Which party must generally have an insurable interest at the time of loss under a property insurance policy?

Answer: The insured

In property insurance, the insured must have an insurable interest when the loss occurs to suffer a financial loss.

When an insurer is unsure whether coverage applies, it may ask a court to rule on its obligations under the policy. This action is a:

Answer: Declaratory judgment action

A declaratory judgment action asks a court to determine the parties' rights and duties under the policy.

Under the doctrine of comparative negligence (pure form), a claimant found 30% at fault for $100,000 in damages may recover:

Answer: $70,000

Pure comparative negligence reduces recovery by the claimant's own percentage of fault, so 70% of $100,000 is $70,000.

Which activity is typically the first step in the claim handling process after a loss is reported?

Answer: Acknowledging the claim and assigning it

The process begins with acknowledging and assigning the claim, followed by contact, investigation, coverage determination, and conclusion.