Chapter 9 risk management

What are the four basic requirements for a contract to be legally enforceable?

• Offer and acceptance, exchange of consideration, competent parties, and legal purpose

• Offer and acceptance, exchange of goods, competent parties, and legal purpose

• Offer and acceptance, exchange of money, competent parties, and legal purpose

• Offer and acceptance, exchange of services, competent parties, and legal purpose

What is the principle of indemnity in insurance?

• The insurer agrees to pay no more than the actual amount of the loss

• The insurer agrees to pay more than the actual amount of the loss

• The insured agrees to pay no more than the actual amount of the loss

• The insured agrees to pay more than the actual amount of the loss

What is the basic method for indemnifying the insured in auto insurance?

• Actual cash value (ACV)

• Replacement cost

• Valued policy

• Uninsured motorist coverage

What is the purpose of insurable interest in insurance?

• To prevent gambling, measure the amount of an insured loss and reduce moral hazard

• To determine the value of the insured's loss

• To ensure fair market value for damaged property

• To establish the replacement cost of the insured property

What is the principle of subrogation in insurance?

• The insurer can recover the amount of loss from the negligent third party

• The insured can recover the amount of loss from the insurer

• The insurer can recover the amount of loss from the insured

• The insured can recover the amount of loss from the negligent third party

What is the principle of utmost good faith in insurance?

• A higher degree of honesty imposed on both parties to an insurance contract

• A lower degree of honesty imposed on both parties to an insurance contract

• No requirement of honesty in an insurance contract

• A requirement of honesty only for the insured in an insurance contract

What is the legal significance of a misrepresentation in an insurance contract?

• The insurance contract can be voidable at the insurer's option

• The insurance contract becomes valid and enforceable

• The insured is entitled to additional compensation

• The insurer is obligated to pay double the amount of the loss

What is a characteristic of insurance contracts that makes them different from other legal documents?

• They are conditional contracts

• They are unilateral contracts

• They are personal contracts

• They are contracts of adhesion

What is the role of an insurance agent/broker in the insurance contract?

• They act as intermediaries between the applicant/insured and the insurer

• They are responsible for indemnifying the insured

• They have the authority to void the insurance contract

• They determine the premium amount for the insurance policy

What is the legal term for the voluntary relinquishment of a known right in insurance?

• Waiver

• Estoppel

• Misrepresentation

• Indemnity