Question

In: Operations Management

Bob, age 50, wrote to Acme Insurance Company and asked for them “to send information regarding...

Bob, age 50, wrote to Acme Insurance Company and asked for them “to send information regarding the types and prices of life insurance available to him.” The company wrote him back and asked that he go to their online web site and fill out a “Health Questionnaire.” Bob went to the web site and responded to the questionnaire. At the time, Bob had a cancerous tumor in his lung. He did not know this and responded “No” to the question “Do you have Cancer?” After reviewing the responses to the questionnaire, Acme mailed to Bob an offer of $250,000 life insurance for the price of $560 per year. Bob received the letter on July 1st and mailed the form, with his check on July 6th. The company received the form and the check on July 14th. On July 7th, Bob was hit by a bus and died. Bob’s wife has claimed the insurance. Acme has refused to pay claiming (1) that Bob died before the offer was accepted and (2) that Bob incorrect answer to the question about Cancer constituted a misrepresentation allowing them to void the contract. Is Acme correct? Explain your answer discussing all of the elements necessary to contract formation.

Solutions

Expert Solution

The elements necessary for the formation of the contract are the following:

1. Offer.

2. Consideration.

3. acceptance.

4. Legality.

5. Mutual obligation

6. In writing, if applicable.

In the given case, Acme Insurance company is wrong. The claim raised by Bob's wife will prevail in the given case. It is because of the mailbox rule. Mailbox rule or mailbox posting rule specifies that an offer is deemed accepted on the same date when the acceptance letter is posted to the offeror. In the given case, the acceptance letter was mailed on July 6th and Bob died on July 7th i.e. after acceptance. Therefore, Acme is liable to pay. Additionally, Bob took the insurance in good faith and had no information about himself having cancer. Also, he died in a car accident. Therefore, Acme is required to pay insurance benefits to Bob's wife.

All the elements of contract formation exist in the given case. An offer was made by Acme. The acceptance was made by Bob. The insurance benefits were in consideration. The insurance amount and benefits were mutual obligations. It was put forth in writing. It was a legal contract. The contract was made in good faith. Therefore, it was a valid contract.


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