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RMIN4000 Brown Test 3 Questions and
Correct Answers
What are the 4 legal principles of insurance? Ans: -Principle of
indemnity
-Principle of Insurable Interest
-Principle of Subrogation
-Principle of Utmost Good Faith
Principle of indemnity Ans: The insurer agrees to pay no more
than the actual amount of the loss
- Purpose is to prevent the insured from profiting from the loss
Principle of indemnity : Replacement Cost Ans: The cost to
replace property with an item of like kind and quality
Principle of indemnity: Actual Cash Value Ans: Replacement Cost
less Depreciation
Property Insurance is typically based on this
Principle of Insurable Interest Ans: The insured must be in a
position to lose financially if a covered loss occurs
-Prevents gambling on losses, Reduces moral hazard
Principle of Subrogation Ans: Substitution of the insurer in place
of the insured for the purpose of claiming indemnity from a third
party loss covered by the insurance
- AKA Insurance company pays the insured for damages, then
seeks reimbursement from guilty party in court
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Principle of Utmost Good Faith Ans: A higher degree of honesty is
imposed on both parties to insurance contracts than is imposed
on parties in other contracts
Principle of Utmost good faith is supported by what 3 legal
doctrines Ans: Representations
Concealment
Warrant
Representations Ans: Statements made by the applicant for
insurance
Contract is voidable IF misrepresentation is Material, False, AND
relied on by the insurer
Concealment Ans: Intentional failure of the applicant for
insurance to reveal material fact to the insurer
-Contract can be voidable if concealed fact was known by the
insured to be material, or if concealed fact intended to defraud the
insurer
Warranty Ans: A statement that becomes part of the insurance
contract and is guaranteed by the maker to be true in all respects.
Something that is agreed upon by the insured in order to receive
coverage
What is Bad faith? Ans: law that allows lawsuits against insurance
companies for: improper denial of claims and improper delay of
claims
Requirements of an insurance contract Ans: 1) Offer and
acceptance
2) Exchange and Consideration
3) Competent Parties
© 2025 All rights reserved
RMIN4000 Brown Test 3 Questions and
Correct Answers
What are the 4 legal principles of insurance? Ans: -Principle of
indemnity
-Principle of Insurable Interest
-Principle of Subrogation
-Principle of Utmost Good Faith
Principle of indemnity Ans: The insurer agrees to pay no more
than the actual amount of the loss
- Purpose is to prevent the insured from profiting from the loss
Principle of indemnity : Replacement Cost Ans: The cost to
replace property with an item of like kind and quality
Principle of indemnity: Actual Cash Value Ans: Replacement Cost
less Depreciation
Property Insurance is typically based on this
Principle of Insurable Interest Ans: The insured must be in a
position to lose financially if a covered loss occurs
-Prevents gambling on losses, Reduces moral hazard
Principle of Subrogation Ans: Substitution of the insurer in place
of the insured for the purpose of claiming indemnity from a third
party loss covered by the insurance
- AKA Insurance company pays the insured for damages, then
seeks reimbursement from guilty party in court
© 2025 All rights reserved
, 2 | Page
Principle of Utmost Good Faith Ans: A higher degree of honesty is
imposed on both parties to insurance contracts than is imposed
on parties in other contracts
Principle of Utmost good faith is supported by what 3 legal
doctrines Ans: Representations
Concealment
Warrant
Representations Ans: Statements made by the applicant for
insurance
Contract is voidable IF misrepresentation is Material, False, AND
relied on by the insurer
Concealment Ans: Intentional failure of the applicant for
insurance to reveal material fact to the insurer
-Contract can be voidable if concealed fact was known by the
insured to be material, or if concealed fact intended to defraud the
insurer
Warranty Ans: A statement that becomes part of the insurance
contract and is guaranteed by the maker to be true in all respects.
Something that is agreed upon by the insured in order to receive
coverage
What is Bad faith? Ans: law that allows lawsuits against insurance
companies for: improper denial of claims and improper delay of
claims
Requirements of an insurance contract Ans: 1) Offer and
acceptance
2) Exchange and Consideration
3) Competent Parties
© 2025 All rights reserved
