CPCU 530 Multiple Choice
Questions and Complete
Solutions Graded A+
Diego and Georgia meet in a bar and enjoy cocktails together. Diego has many more drinks than Georgia
and is stumbling and slurring his speech. Sensing an opportunity, Georgia proposes that Diego sell her
his expensive Swiss wristwatch for a mere $100 and Diego agrees. The next day, Georgia appears at
Diego's office with $100 asking for the wristwatch. Which one of the following arguments is best for
Diego to avoid the contract? - Answer: Diego lacked capacity to enter into a contract because he was
inebriated.
Fernanda runs a warehouse in New Jersey. The business is successful because it has major highway
access and is close to major consumer markets. Manufacturers from around the country store goods
bound for Northeastern customers at Fernanda's warehouse. Given the large amount of goods stored by
others in her warehouse, Fernanda is concerned about her exposure if something happens to the
warehouse or the goods, so she seeks advice from a lawyer about how to limit her exposure to loss.
Which one of the following best describes Fernanda's options in addressing this liability? - Answer: UCC
Article 7 permits Fernanda to limit her liability through terms in the warehouse receipt.
Maria owns a commercial building and places insurance with Bastion Insurance. Because the annual
premium is high, and cash is tight, Maria decides to enter into a premium finance agreement with
Finance Co. ("Finance"). Under the premium finance agreement, Finance pays Bastion the full annual
premium and Maria pays Finance a monthly amount for the premium, a fee and interest. At the
midpoint of the policy year, which one of the following best describes Maria's premium finance
agreement with Finance? - Answer: A bilateral contract
Erin has worked full-time for the last five years as a librarian for a law firm with 100 attorneys located in
a large downtown office building. Erin and her husband are happy to announce that Erin is expecting a
baby in six months. She inquires with the law firm's human resources department about her rights for
parental leave under the Family Medical Leave Act (FMLA). Which one of the following best describes
what the law firm must offer Erin under the FMLA? - Answer: The law firm must offer Erin up to 12
weeks of unpaid leave in a 12-month period, with no loss of accrued employment benefits.
In February, Ann contract with Mahdi to deliver clean garden top soil for $30 a cubic yard to Mahdi's
farm in Pennsylvania. No time for delivery is stated in their contract but the parties understand that
Mahdi wants to use the soil for this year's planting season. In March, Ann delivers garden soil that is
contaminated and Mahdi refuses to pay because he believes Ann breached their agreement. Which one
,of the following best describes how a court would rule on Mahdi's claim that Ann breached their
agreement? - Answer: The court would find for Mahdi because Ann's goods are non-conforming.
Daniel offers a ride to Lily, a ten-year-old, and takes her to his house where he locks her in his cellar and
demands money from Lily's parents to secure her return. The parents agree to pay and Lily is returned,
but Daniel never receives the money. He sues Lily's parents for breach of contract. Which one of the
following explains why Daniel's contract with Lily's parents is not legally binding? - Answer: It lacks a
legal purpose.
Vincente applied for business insurance with Hallbinger Insurance. Hallbinger's application asked if
Vincente had any prior "serious accidents or losses." Vincente had a small water loss five years ago, but
believing it wasn't serious, he answered "no." Hallbinger issued the policy. If Hallbinger subsequently
discovers Vincente's prior water loss, Hallbinger should - Answer: Do nothing because Vincente's
statement was not a material misrepresentation.
Mustafa met with his insurance agent Lucy to obtain a business owners 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, - Answer: Mustafa will win, if Delmond's delay on his application
was unreasonable.
Larissa has a property policy covering her auto repair shop. The shop is totally destroyed by a fire. The
process of determining whether and to what extent this specific loss is covered under Larissa's property
policy is known as - Answer: Policy analysis.
Georgia applied for a homeowner policy with Insurance Company (IC). IC's application asked if Georgia's
home had an alarm system and Georgia answered that it did. IC issued the policy to Georgia. Two
months later, burglars entered Georgia's house and stole several personal property items. At that time,
IC discovered that Georgia's home did not have an alarm system. If Georgia's application statement
about the alarm were determined to be a warranty - Answer: IC could avoid Georgia's policy, whether or
not the statement was material.
Which one of the following statements correctly states the effect of consideration on whether waivers
are binding underinsurance law? - Answer: Some waivers are binding without consideration
,Oliver contacted his insurance agent Maria about homeowners insurance. Oliver said: "I want
homeowners insurance." Maria responded: "You got it." Which one of the following is the best
statement of why no agreement to provide insurance was likely reached by the parties? - Answer: The
agreement was not sufficiently specific on key terms.
Cian purchased a house with money loaned to him by Keithly Mortgage Co. (KMC). Cian obtained a
homeowner policy from Melfor Insurance--containing a standard mortgage clause--which covered the
house for damage due to windstorm. A windstorm destroyed Cian's house three years later. Which one
of the following correctly states who is entitled to the proceeds payable under Cian's homeowners
policy? - Answer: KMC, as its interests appear.
An insurance contract is often said to be a contract of adhesion. Which one of the following is the basis
of this characteristic of insurance contracts? - Answer: The insurer writes the insurance policy so the
insured must "take or leave" the policy.
Ida desperately needed to purchase homeowners insurance on her newly purchased dwelling. When she
talked with Grace, an agent with Jancy's Insurance Company, Ida lied on the application when she
denied having previous total fire losses. She also told Grace she had not had any previous total fire
losses. Ida had recently been declined by three other companies for having previous total fire losses that
were caused by physical hazards under Ida's control. The type of behavior that Ida has exhibited is called
- Answer: Concealment.
Which one of the following is an element that must be present for a reservation of rights notice to be
effective? - Answer: The notice must inform the insured fairly of the insurer's position.
Donative intent is one of the elements of a gift. Which one of the following describes donative intent? -
Answer: An intent to make a gift in the present
Hadley, Gary and Ike have a joint tenancy on a $200,000 property. If Gary dies, Hadley and Ike - Answer:
Will receive and equally share Gary's portion of the property.
Carlton opted to use a trust deed to purchase a 100-unit apartment building. This allowed up to 100
bondholders to be involved in the process. When Carlton pays off his trust deed on the apartment
building, the trustee - Answer: Must be certain that all bondholders are paid.
, After buying a 30-acre tract of land, Jerry registered the property deed in a local government office. The
purpose of recording or registering his deed was to - Answer: Give notice to the world that the transfer
of real property had occurred.
Act that constitute invasion of the right of privacy include - Answer: Torts that involve use or disclosure
of information.
Lucy rented an apartment to Daniel. The wiring in Daniel's apartment was faulty, and certain light
switches, if operated with wet hands, could give off nasty electric shocks. Lucy knew about this
condition, but did not tell Daniel about the light switches. Daniel suffered minor burns from a light
switch. Which one of the following correctly identifies whether Lucy is liable for Daniel's injuries, at
common law and under today's law? - Answer: Not liable at common law, liable under today's law
Generally, how do courts determine that a defendant is liable under negligence per se? - Answer: Courts
determine that a defendant is negligent per se when the defendant has violated a statutory standard.
What distinguishes toxic torts from other types of torts? - Answer: Liability for toxic torts is generally
established by statute rather than by common law.
Manufacturer Tyler was in the welding business. Tyler tried to save money by "enhancing" the solder
with a inferior product as well as thinning the welds. These practices led to defective welds which
resulted in a collapse of the welds inflicting bodily injury on an individual. In a negligence case against
Tyler, a plaintiff must prove that Tyler - Answer: Failed to use reasonable care.
Joey purchased a "two-and-a-half ton capacity" trailer for the purpose of hauling junk metal for a fee.
When a two-ton load of metal caused the trailer frame to twist under the load, Joey sued the
manufacturer. The theory on which to base his lawsuit with the most likelihood of success is - Answer:
Misrepresentation
Oscar owned an upscale hotel located near a busy highway. During a hailstorm, Patrick asked Oscar for a
room, but Oscar turned him away because Patrick could not afford Oscar's prices. Patrick slept in his car
on the side of the road. The hail did approximately $3,000 in damages to his car, and Patrick was robbed
of about $4,500 in cash and other belongings. Which one of the following statements is true? - Answer:
Patrick does not have a viable negligence claim against Oscar because Oscar had no legal duty to protect
Patrick, who was not a guest at his hotel, either from the weather or from theft.
Questions and Complete
Solutions Graded A+
Diego and Georgia meet in a bar and enjoy cocktails together. Diego has many more drinks than Georgia
and is stumbling and slurring his speech. Sensing an opportunity, Georgia proposes that Diego sell her
his expensive Swiss wristwatch for a mere $100 and Diego agrees. The next day, Georgia appears at
Diego's office with $100 asking for the wristwatch. Which one of the following arguments is best for
Diego to avoid the contract? - Answer: Diego lacked capacity to enter into a contract because he was
inebriated.
Fernanda runs a warehouse in New Jersey. The business is successful because it has major highway
access and is close to major consumer markets. Manufacturers from around the country store goods
bound for Northeastern customers at Fernanda's warehouse. Given the large amount of goods stored by
others in her warehouse, Fernanda is concerned about her exposure if something happens to the
warehouse or the goods, so she seeks advice from a lawyer about how to limit her exposure to loss.
Which one of the following best describes Fernanda's options in addressing this liability? - Answer: UCC
Article 7 permits Fernanda to limit her liability through terms in the warehouse receipt.
Maria owns a commercial building and places insurance with Bastion Insurance. Because the annual
premium is high, and cash is tight, Maria decides to enter into a premium finance agreement with
Finance Co. ("Finance"). Under the premium finance agreement, Finance pays Bastion the full annual
premium and Maria pays Finance a monthly amount for the premium, a fee and interest. At the
midpoint of the policy year, which one of the following best describes Maria's premium finance
agreement with Finance? - Answer: A bilateral contract
Erin has worked full-time for the last five years as a librarian for a law firm with 100 attorneys located in
a large downtown office building. Erin and her husband are happy to announce that Erin is expecting a
baby in six months. She inquires with the law firm's human resources department about her rights for
parental leave under the Family Medical Leave Act (FMLA). Which one of the following best describes
what the law firm must offer Erin under the FMLA? - Answer: The law firm must offer Erin up to 12
weeks of unpaid leave in a 12-month period, with no loss of accrued employment benefits.
In February, Ann contract with Mahdi to deliver clean garden top soil for $30 a cubic yard to Mahdi's
farm in Pennsylvania. No time for delivery is stated in their contract but the parties understand that
Mahdi wants to use the soil for this year's planting season. In March, Ann delivers garden soil that is
contaminated and Mahdi refuses to pay because he believes Ann breached their agreement. Which one
,of the following best describes how a court would rule on Mahdi's claim that Ann breached their
agreement? - Answer: The court would find for Mahdi because Ann's goods are non-conforming.
Daniel offers a ride to Lily, a ten-year-old, and takes her to his house where he locks her in his cellar and
demands money from Lily's parents to secure her return. The parents agree to pay and Lily is returned,
but Daniel never receives the money. He sues Lily's parents for breach of contract. Which one of the
following explains why Daniel's contract with Lily's parents is not legally binding? - Answer: It lacks a
legal purpose.
Vincente applied for business insurance with Hallbinger Insurance. Hallbinger's application asked if
Vincente had any prior "serious accidents or losses." Vincente had a small water loss five years ago, but
believing it wasn't serious, he answered "no." Hallbinger issued the policy. If Hallbinger subsequently
discovers Vincente's prior water loss, Hallbinger should - Answer: Do nothing because Vincente's
statement was not a material misrepresentation.
Mustafa met with his insurance agent Lucy to obtain a business owners 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, - Answer: Mustafa will win, if Delmond's delay on his application
was unreasonable.
Larissa has a property policy covering her auto repair shop. The shop is totally destroyed by a fire. The
process of determining whether and to what extent this specific loss is covered under Larissa's property
policy is known as - Answer: Policy analysis.
Georgia applied for a homeowner policy with Insurance Company (IC). IC's application asked if Georgia's
home had an alarm system and Georgia answered that it did. IC issued the policy to Georgia. Two
months later, burglars entered Georgia's house and stole several personal property items. At that time,
IC discovered that Georgia's home did not have an alarm system. If Georgia's application statement
about the alarm were determined to be a warranty - Answer: IC could avoid Georgia's policy, whether or
not the statement was material.
Which one of the following statements correctly states the effect of consideration on whether waivers
are binding underinsurance law? - Answer: Some waivers are binding without consideration
,Oliver contacted his insurance agent Maria about homeowners insurance. Oliver said: "I want
homeowners insurance." Maria responded: "You got it." Which one of the following is the best
statement of why no agreement to provide insurance was likely reached by the parties? - Answer: The
agreement was not sufficiently specific on key terms.
Cian purchased a house with money loaned to him by Keithly Mortgage Co. (KMC). Cian obtained a
homeowner policy from Melfor Insurance--containing a standard mortgage clause--which covered the
house for damage due to windstorm. A windstorm destroyed Cian's house three years later. Which one
of the following correctly states who is entitled to the proceeds payable under Cian's homeowners
policy? - Answer: KMC, as its interests appear.
An insurance contract is often said to be a contract of adhesion. Which one of the following is the basis
of this characteristic of insurance contracts? - Answer: The insurer writes the insurance policy so the
insured must "take or leave" the policy.
Ida desperately needed to purchase homeowners insurance on her newly purchased dwelling. When she
talked with Grace, an agent with Jancy's Insurance Company, Ida lied on the application when she
denied having previous total fire losses. She also told Grace she had not had any previous total fire
losses. Ida had recently been declined by three other companies for having previous total fire losses that
were caused by physical hazards under Ida's control. The type of behavior that Ida has exhibited is called
- Answer: Concealment.
Which one of the following is an element that must be present for a reservation of rights notice to be
effective? - Answer: The notice must inform the insured fairly of the insurer's position.
Donative intent is one of the elements of a gift. Which one of the following describes donative intent? -
Answer: An intent to make a gift in the present
Hadley, Gary and Ike have a joint tenancy on a $200,000 property. If Gary dies, Hadley and Ike - Answer:
Will receive and equally share Gary's portion of the property.
Carlton opted to use a trust deed to purchase a 100-unit apartment building. This allowed up to 100
bondholders to be involved in the process. When Carlton pays off his trust deed on the apartment
building, the trustee - Answer: Must be certain that all bondholders are paid.
, After buying a 30-acre tract of land, Jerry registered the property deed in a local government office. The
purpose of recording or registering his deed was to - Answer: Give notice to the world that the transfer
of real property had occurred.
Act that constitute invasion of the right of privacy include - Answer: Torts that involve use or disclosure
of information.
Lucy rented an apartment to Daniel. The wiring in Daniel's apartment was faulty, and certain light
switches, if operated with wet hands, could give off nasty electric shocks. Lucy knew about this
condition, but did not tell Daniel about the light switches. Daniel suffered minor burns from a light
switch. Which one of the following correctly identifies whether Lucy is liable for Daniel's injuries, at
common law and under today's law? - Answer: Not liable at common law, liable under today's law
Generally, how do courts determine that a defendant is liable under negligence per se? - Answer: Courts
determine that a defendant is negligent per se when the defendant has violated a statutory standard.
What distinguishes toxic torts from other types of torts? - Answer: Liability for toxic torts is generally
established by statute rather than by common law.
Manufacturer Tyler was in the welding business. Tyler tried to save money by "enhancing" the solder
with a inferior product as well as thinning the welds. These practices led to defective welds which
resulted in a collapse of the welds inflicting bodily injury on an individual. In a negligence case against
Tyler, a plaintiff must prove that Tyler - Answer: Failed to use reasonable care.
Joey purchased a "two-and-a-half ton capacity" trailer for the purpose of hauling junk metal for a fee.
When a two-ton load of metal caused the trailer frame to twist under the load, Joey sued the
manufacturer. The theory on which to base his lawsuit with the most likelihood of success is - Answer:
Misrepresentation
Oscar owned an upscale hotel located near a busy highway. During a hailstorm, Patrick asked Oscar for a
room, but Oscar turned him away because Patrick could not afford Oscar's prices. Patrick slept in his car
on the side of the road. The hail did approximately $3,000 in damages to his car, and Patrick was robbed
of about $4,500 in cash and other belongings. Which one of the following statements is true? - Answer:
Patrick does not have a viable negligence claim against Oscar because Oscar had no legal duty to protect
Patrick, who was not a guest at his hotel, either from the weather or from theft.
