Question

In: Operations Management

Respond to the following scenario: Security Insurance, Inc., issued an insurance policy to a company providing...

Respond to the following scenario:

Security Insurance, Inc., issued an insurance policy to a company providing an employee, Jessica
Garcia, with disability insurance. Soon thereafter, she was diagnosed with “panic disorder and
phobia of returning to work.” Garcia lost her job and sought disability coverage. Security denied
coverage, doubting the diagnosis of disability. Garcia and her employer sued Security. During
pretrial discovery, the insurer learned that Garcia had stated on the policy application that she had
never been treated for any “emotional, mental, nervous, urinary, or digestive disorder” or any kind
of heart disease. In fact, before she filed out the application, Garcia had visited a physician for
chest pains and general anxiety, and the physician had prescribed an antidepressant and
recommended that she stop smoking.

1. Did Garcia commit a misrepresentation on her policy application? Explain.
2. If there was any ambiguity on the application, should it be resolved in favor of the
insured or the insurer? Why?
3. Assuming that the policy is valid, does Garcia’s situation fall within the terms of the
disability policy?
4. If Garcia is covered by the policy but is also disqualified by her misrepresentation on the
application for coverage, might the insurer still e liable for bad faith denial of coverage?
Explain.

Solutions

Expert Solution

1. Did Garcia commit a misrepresentation on her policy application? Explain.

Yes, Garcia has not informed regarding her visit to physician for chest pains and general anxiety, and the physician had prescribed an antidepressant and recommended that she stop smoking. This was before she filled the insurance application form and had not mentioned this in the form. In fact she had stated on the policy application that she had never been treated for any “emotional, mental, nervous, urinary, or digestive disorder” or any kind of heart disease.


2. If there was any ambiguity on the application, should it be resolved in favor of the insured or the insurer? Why?

If the default is committed by the insured, then the matter will have to be resolved in favor of the insurer , same as described in the above mentioned case. Garcia withheld vital information from the insurance company.

3. Assuming that the policy is valid, does Garcia’s situation fall within the terms of the disability policy?

No, she is covered against disability but her situation is related to emotional ill-health, i.e.  “panic disorder and
phobia of returning to work.”


4. If Garcia is covered by the policy but is also disqualified by her misrepresentation on the application for coverage, might the insurer still e liable for bad faith denial of coverage? Explain.

No, because Garcia is at fault and not the insurer.

keosha answered 1 year ago
Next > < Previous

Related Solutions

Security Insurance, Inc., issued an insurance policy to a company providing an employee, Jessica Garcia, with...
Security Insurance, Inc., issued an insurance policy to a company providing an employee, Jessica Garcia, with disability insurance. Soon thereafter, she was diagnosed with “panic disorder and phobia of returning to work.” Garcia lost her job and sought disability coverage. Security denied coverage, doubting the diagnosis of disability. Garcia and her employer sued Security. During pretrial discovery, the insurer learned that Garcia had stated on the policy application that she had never been treated for any “emotional, mental, nervous, urinary,...
Ricky obtains an insurance policy from Security Insurance, Inc. The policy provides that on Ricky’s death...
Ricky obtains an insurance policy from Security Insurance, Inc. The policy provides that on Ricky’s death Security will pay $500,000 to Tori, Ricky’s spouse and beneficiary. This is a. ?disability insurance. b. ?life insurance. c. ?health insurance. d. ?key-person insurance.
"Audit Risk and Fraud" Please respond to the following: Create a scenario in which a company...
"Audit Risk and Fraud" Please respond to the following: Create a scenario in which a company conceals financial fraud from the auditing firm through the use of information technology. Next, suggest at least one (1) way in which an auditing firm can minimize its exposure to this risk. planning an audit involves establishing the overall audit strategy for the engagement and developing an audit plan in an attempt to reduce audit risk to an acceptable level. Select a balance sheet...
"Audit Risk and Fraud" Please respond to the following: Create a scenario in which a company...
"Audit Risk and Fraud" Please respond to the following: Create a scenario in which a company conceals financial fraud from the auditing firm through the use of information technology. Next, suggest at least one (1) way in which an auditing firm can minimize its exposure to this risk. According to your textbook, planning an audit involves establishing the overall audit strategy for the engagement and developing an audit plan in an attempt to reduce audit risk to an acceptable level....
Mandren Inc. has a fire insurance policy from the Blundi Insurance Company with a 90% coinsurance...
Mandren Inc. has a fire insurance policy from the Blundi Insurance Company with a 90% coinsurance clause based on replacement cost. The replacement cost of the building is $600,000. The face amount of the policy Mandren purchases is $400,000. If a covered loss in the amount of $550,000 occurs, how much will Mandren collect from their insurer? (round to the nearest dollar) $422,232 $352,708 $400,000 $411,111
An insurance company reports the following distribution of the claim sizes for an auto insurance policy...
An insurance company reports the following distribution of the claim sizes for an auto insurance policy from a sample of 87 cases. Claim Size (in $) Number of claims 2000 to 3000    15 3000 to 4000 10 4000 to 5000    20 5000 to 6000 15 6000 to 7000 10 7000 to 8000    10 8000 to 9000    7 ( a ) Construct a histogram for the data. ( b ) a frequency polygon for the data. (...
For a company, the cost of providing security on its buildings is an example of which...
For a company, the cost of providing security on its buildings is an example of which type of cost behaviour? Fixed costs Stepped costs Semi-variable costs Variable costs
The following returns have been estimated for Security T and Security S: Scenario Security T Security...
The following returns have been estimated for Security T and Security S: Scenario Security T Security S 1 20% 10% 2 13% -6% 3 15% 20% Each scenario is equally likely to occur, and you plan to invest 70% in Security T and 30% in Security S. What is the standard deviation of the rate of return of the portfolio? Round your answer to the nearest tenth of a percent. A) 0.0% B) 4.5% C) 19.9% D) 59.7%
The following returns have been estimated for Security T and Security S: Scenario Security T Security...
The following returns have been estimated for Security T and Security S: Scenario Security T Security S 1 20% 10% 2 13% -6% 3 15% 20% Each scenario is equally likely to occur, and you plan to invest 70% in Security T and 30% in Security S. What is the standard deviation of the rate of return of the portfolio? Round your answer to the nearest tenth of a percent. A) 0.0% B) 4.5% C) 19.9% D) 59.7%
The following returns have been estimated for Security T and Security S: Scenario Security T Security...
The following returns have been estimated for Security T and Security S: Scenario Security T Security S 1 20% 10% 2 13% -6% 3 15% 20% Each scenario is equally likely to occur, and you plan to invest 70% in Security T and 30% in Security S. What is the standard deviation of the rate of return of the portfolio? Round your answer to the nearest tenth of a percent. A) 0.0% B) 4.5% C) 19.9% D) 59.7%
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT