1. Mohamad owns an antique table that has a current market value of RM112,000.

The table is
specifically insured for RM112,000 under a valued policy. The table is totally destroyed in a fire
that damages Mohamad’s home. At the time of loss, the table had an estimated market value of
RM20,000. How much will Mohamad collect for the loss? Explain your answer.

a/d.e
ASW: RM112,000.
D:A valued policy is a policy that pays the face amount of insurance if a total loss occurs.
E:Valued policies typically are used to insure antiques, fine arts, rare paintings & family
heirlooms.
E Because of difficulty in determining the actual value of the property at the time of loss, the
insured & insurer both agree on the value of the property when the policy is first issued.

2. Jake borrowed RM800,000 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, discuss the extent of the interest.
i) Gateway Bank
ii) Harbor Company
iii) White Shark Fishing Company

ASW:

a) i) The Gateway Bank has an insurable interest in the boat because it serves as collateral for
the loan. Thus, the Gateway Bank has an insurable interest in the amount of RM800,000.

ii) The Harbor Company also has an insurable interest in the property. The Harbor Company is
a bailee, and there may be a possible legal liability if Jake is negligent while docking the boat
and using the facilities. Also, the Harbor Company would lose rental income if the boat is
damaged. The loss of rental income will support an insurable interest.

iii) The White Shark Fishing Company also has an insurable interest in the property. Jake is
acting as the company’s agent, and his negligence can be imputed to the White Shark Fishing
Company. Thus, potential legal liability for a negligent act by Jake would support an insurable
interest
b) If Jake did not own the boat but operated it on behalf of the White Shark Fishing Company,
would he have an insurable interest in the boat? Explain.
(Rejda, 12 Ed, C9, Q1)

Yes. Jake is using the boat and has a potential legal liability as a bailee if he should damage the
boat. In addition, if the boat is damaged there may be a business income loss and the loss of
earnings, which would also support an insurable interest

3. Alan was involved in an accident. He was judged to be 20% at fault in the accident and the
other party was judged to be 80% at fault. Alan’s actual injury and the medical cost was
RM100,000. Under the principle of contributory negligence, explain and calculate the
compensation that Alan will receive for his injury and his medical cost.

ASW:
Ref: Under the principle of contributory negligence, This arises where both the defendant and
plaintiff are negligent. In circumstances where negligence is alleged against another party.
There is always the possibility that the person who has suffered a loss may have acted in a
manner which had partly contributed to the loss or damage..

Ex:Alan can collect damages for his injury and medical cost even if he is negligent, however,
the damage award is reduced proportionately.
Con: Since Alan is 20% at fault, his damage award is reduced by 20%.
Cal: Therefore, Alan can only receive damages of Total amount medical cost x 80% TP fault =
RM100,000 x 80% = RM80,000 for his injury
4. Michael went deer hunting with John. After seeing bushes move, Michael quickly fired his rifle
at what he thought was a deer. However, John caused the movement in the bushes and was
seriously injured by the bullet. John survived and later sued Michael on the grounds that
“Michael’s negligence was the proximate cause of the injury”.

a) Based on the above facts, is Michael guilty of negligence? Your answer must include a
definition of negligence and the essential elements of negligence.

Ref: def
Eg:
Con:

ASW:
a) There are four elements of negligence:

1.
Ref: Existence of a legal duty to use reasonable care.
Eg: Michael has a legal duty to protect others from harm. This also includes a legal duty toward
John. Michael should have been aware of John’s presence and should not have fired into the
bush without first determining John’s location.
Con: The first requirement is met.

2.
Ref: Failure to perform that duty.
Eg. Michael quickly fired the rifle into the bush without first determining if John or a deer caused
the movement. It appears that Michael did not take the necessary precautions to protect John
from harm.
Con: The second requirement is met.

3.
Ref: Damages or injury to the claimant.
Eg: Since John was injured,
Con: this requirement is met.

4.
Ref: Proximate cause relationship. There must be an unbroken chain of events between the
negligent act and infliction of damages.
Eg: In this case, Michael’s actions were the proximate cause of loss.
Con: The four requirements of a negligent act are satisfied, and Michael is guilty of negligence.
b) Michael’s attorney believes that if contributory negligence could be established, it would
greatly influence the outcome of the case. Do you agree with Michael’s attorney? Your answer
must include a definition of contributory negligence.

Yes. The damage award would be reduced.

Under the contributory negligence doctrine, if an injured person contributed to the injury, he or
she can still collect damages, but the damage award will be reduced.

c) Assume that Michael and John are hunting on farmland without obtaining permission from the
owner. If Michael fell into a marshy pond covered by weeds and injured his back, would the
property owner be liable for damages? Discuss.

Michael would be considered a trespasser since he did not obtain permission to hunt on the
farmer’s land. In general, a trespasser takes the property as he or she finds it. The farmer has
no legal obligation to warn Michael of the marshy pond and is not liable for damages
 BBMF2083 INSURANCE MANAGEMENT

CHAPTER 6 HOUSEOWNER INSURANCE (ANSWERS)

1. Michael owns a sports car that he drives on weekends. His agent informs him that his
sports car is excluded as personal property under the homeowner’s policy. As an insured, he feels
that his car should be covered just like any other personal property he owns.

a) Explain to Michael the rationale for excluding certain types of property, such as sports cars,
under the homeowner’s policy.
ASW:
a)
● The homeowner’s policy excludes certain types of property such as motor vehicles because the
protection is not needed by the normal insured in the standard pool.
● To cover motor vehicles under the homeowner’s policy as personal property would be grossly
unfair to other insureds who would then be required to pay substantially higher premiums for
coverage they do not need.

b) Explain some additional reasons why exclusions are present in insurance contracts.

Other reasons for exclusions include the following:

(1) the peril may be considered uninsurable by commercial insurers;
(2) extraordinary hazards are present;
(3) coverage is provided by other contracts,
(4) moral hazard is present; and
(5) the loss may be difficult to determine and measure

2. Sharifah has purchased a homeowners insurance policy. On one unfortunate day, her
house was damaged by a fire that started in her kitchen.

Required:

(a) Explain the purpose of purchasing a homeowners insurance policy and the common perils
covered by this policy.

(b) In the Malaysian insurance industry, homeowners’ insurance policies are tariffed. Discuss
what tariff means in the context of homeowners insurance policies.

(c) The following items are covered under Latifah’s homeowner’s insurance policy. Determine
the amount that she can collect for the loss of each item and justify your answers.

(i) A leather sofa set, which is insured on an indemnity basis, was purchased 5 years
ago. It has an estimated useful life of 8 years, and the replacement cost is RM18,000.

(ii) An antique vase that is insured on a valued basis for RM25,000. At the time of
loss, the vase has an estimated market value of RM20,000.
 (d) Discuss how “all-risk insurance” differs from a homeowners insurance policy.

(BBMF2083, Examination, Question 5, JAN 2016)

3. Reiza owns a double-storey townhouse that was purchased 10 years ago. The townhouse
was insured for RM900,000 under a homeowner insurance policy. An 80% coinsurance clause was
included in the policy contract. The townhouse was partially destroyed by fire recently and the loss
was estimated to be RM400,000. At the time of loss, the total rebuilding cost for the townhouse
was RM1,300,000.

Required:

(a) Determine the amount payable by Reiza’s insurer, if any, for the loss due to fire. Show
your calculations.

(b) Assume that the townhouse was insured for RM2,000,000 at the time of loss. Determine
the amount that Reiza can claim from his insurer if the loss amounted to RM800,000. Show
your calculations.

(BBMF2083, Examination, Question 4(a)&(b), Apr 2019)

4. a) Explain FIVE (5) reasons why exclusions are presented in homeowners insurance
contracts.

b) Determine the amount that Eddy can collect for the loss of each of the below items with proper
justifications.

(i) An antique watch that is insured on a valued basis for RM50,000. At the time of loss,
the watch has an estimated market value of RM20,000.

(ii) A dining room set for RM5,000, which is insured on an actual cash value basis. Three
years later, the set was destroyed in a fire. At the time of loss, the dining set had depreciated in
value by 50%. Assume the cost of a replacement set at the time of loss was RM6,000. Ignoring
any deductible, determine the claimable amount.