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National University of Modern Languages Lahore: Assignment# 3 Subject

1. Jeff purchased a building from Richard and obtained a loan from Gateway Bank secured by a mortgage on the building. Jeff planned to store books in the building and open a fast food restaurant, but did not disclose the restaurant to his insurer. 2. A fire started in the restaurant, causing substantial damage. Jeff's insurer may deny the claim based on his material concealment of the restaurant. 3. The fire investigation revealed an electrician improperly wired an outlet, causing the fire. The insurer could seek to recover the loss payment from the negligent electrician through subrogation.

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0% found this document useful (0 votes)
89 views4 pages

National University of Modern Languages Lahore: Assignment# 3 Subject

1. Jeff purchased a building from Richard and obtained a loan from Gateway Bank secured by a mortgage on the building. Jeff planned to store books in the building and open a fast food restaurant, but did not disclose the restaurant to his insurer. 2. A fire started in the restaurant, causing substantial damage. Jeff's insurer may deny the claim based on his material concealment of the restaurant. 3. The fire investigation revealed an electrician improperly wired an outlet, causing the fire. The insurer could seek to recover the loss payment from the negligent electrician through subrogation.

Uploaded by

Ameer Hamza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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National University of Modern Languages

Lahore

Assignment# 3
Subject
Insurance and Risk Management
Topic
Jeff Case Application
Submitted to
Ma’am Hania
Submitted by
Momna Amjad
Roll No#
L-1217
M.com (4)-M
Date:23/12/2020
Case Application
Jeff is a book dealer who purchased a building from Richard. Jeff obtained a loan from the
Gateway Bank to purchase the building, which held a mortgage on the building. Jeff planned to
store his inventory of books in the building. He also planned to use part of the building for a fast-
food restaurant. When Jeff applied for property insurance on the building, he did not tell the
agent about the fast-food restaurant because premiums would be substantially higher. Eight
months after the policy was issued, a fire occurred in the restaurant that caused substantial
damage to the building.

a. Do any of the following parties have an insurable interest in the building


at the time of loss? Explain your answer.

1. Jeff
Jeff has an insurable interest in the building at the time of loss because during the losses
events, Jeff has the ownership of property and in a position to suffer financial loss. In other
words, Jeff would lose financially if a loss occurs.

2. Richard
Richard doesn’t have any insurable interest of the building because at the time of losses, the
property is owned by Jeff. It can be insurable interest if Richard is the owner of the building
at the time of losses and suffer financial loss because of the substantial damage to the
property.

3. Gateway Bank
Gateway Bank has an insurable interest of the property because of the mortgaged building
serves as a collateral for the loan. The insurable interest has the exact amount like the unpaid
balance of the loan.
b. Richard told Jeff he could save money by taking over Richard’s insurance
instead of purchasing a new policy. Can Richard validly assign his
existing property insurance policy to Jeff without notifying the insurer?
Explain your answer.
Richard does not have an insurable interest in the building at the time of loss because he is
no longer owner of the building. He also has no legal liability or contractual rights
connected to the loss of the building.

c. Could Jeff’s insurer deny coverage for the fire loss based on a material
concealment? Explain your answer.
Yes, Jeff’s insurer can deny the coverage for the fire loss. Concealment is the act of hiding
or not putting forward any relevant fact in front of the insurer that needs to be revealed. An
insurance contract is backed with good faith between the insurer and the insured and all
materials facts create base for a strong insurance contract. Hence, concealment may lead to
risk for the insurer. Material concealment means deliberate hiding, non-disclosure or
suppression of a material fact or circumstance which one is legally bound to reveal with
intent to deceive or defraud in a contractual arrangement. The legal effect of material
concealment is the contract is voidable at the insurer’s option.

d. Investigation of the fire revealed that an electrician improperly wired an


electrical outlet in the restaurant, which caused the fire. Explain how
subrogation might apply in this case.
Subrogation applies when the insurer makes a loss payment to the insured because of a loss
caused by the negligence of a third party. Subrogation means substitution of the insurer in
place of the insured for the purpose of claiming indemnity from a third party for a loss
covered by insurance. In this case, an electrician improperly wired an electrical outlet in the
restaurant had cause the fire. The insurer could collect the amount of the loss from the
negligent electricians or from the firms that use electricity.

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