Risk Management & Insurance: Fundamental Legal Principles Application Questions

1. Jake borrowed $800,000 from the Gateway Bank to purchase a fishing boat. He keeps the boat at a dock owned by the Harbor Company. He uses the boat to earn income by fishing. Jake also has a contract with the White Shark Fishing Company to transport tuna from one port to another.

a. Do any of the following parties have an insurable interest in Jake or his property? If an insurable interest exists, explain the extent of the interest.

- Gateway Bank – Gateway bank does not have any insurable interest in the property because it was sold specifically to Jake.

- Harbor Company – Harbor Company has definite insurance interest because they are responsible for the boat while it’s stored. In the scenario that the boat is damaged due to fire or physical damages, they would be liable.

- White Shark Fishing Company –

b. If Jake doesn't own the boat, then he has no insurable interest

2. Ashley purchased a dining room set for $5000 and insured the furniture on an actual cash value basis. Three years later, the set was destroyed in a fire. At the time of loss, the property had depreciated in value by 50 percent. The replacement cost of a new dining room set at the time of loss was $6000. Ignoring any deductible, how much will Ashley collect from her insurer? Explain your answer.

- Actual cash value (ACV) is replacement cost less depreciation. Replacement cost is $6000. Depreciation is $3000 because the dining room set is 50 percent depreciated. Ashley would collect $3000 as shown by the following:

- ACV Replacement cost depreciation

= $6000- $300

= $3000