MULTIPLE-CHOICE QUESTIONS WITH ANSWERS RELATED TO PRINCIPLES AND LEGAL CONCEPTS IN RELATION TO INSURANCE OF PLANT AND MACHINERY
Which of the following legal principles states that an insured should not profit from an insurance claim but should only be indemnified for the actual loss suffered?
A) Principle of Subrogation
B) Principle of Utmost Good Faith
C) Principle of Indemnity
D) Principle of Insurable Interest
Answer: C) Principle of Indemnity
In insurance, the term “Insurable Interest” means:
A) The insured party’s legal right to make a claim.
B) The amount of premium paid by the insured.
C) The financial stake a policyholder has in the subject matter of insurance.
D) The responsibility of the insurer to pay out claims promptly.
Answer: C) The financial stake a policyholder has in the subject matter of insurance.
Which of the following legal concepts allows an insurer to take legal action against a third party responsible for causing a loss to the insured?
A) Principle of Contribution
B) Principle of Subrogation
C) Principle of Indemnity
D) Principle of Proximate Cause
Answer: B) Principle of Subrogation
When a policyholder takes actions to minimize the loss after an insured event has occurred, it is referred to as:
A) Negligence
B) Prudence
C) Mitigation of Loss
D) Subrogation
Answer: C) Mitigation of Loss
In insurance contracts, the duty to disclose all material facts accurately and completely is known as the:
A) Principle of Good Faith
B) Doctrine of Caveat Emptor
C) Principle of Indemnity
D) Principle of Subrogation
Answer: A) Principle of Good Faith
Which of the following statements best describes the “Doctrine of Uberrimae Fidei” in insurance contracts?
A) It requires the insured to disclose all material facts to the insurer.
B) It allows the insurer to deny claims based on the insured’s past behavior.
C) It mandates that insurance contracts must be in writing to be legally binding.
D) It provides the insured with the right to cancel the insurance policy at any time.
Answer: A) It requires the insured to disclose all material facts to the insurer.
The principle of “Contribution” in insurance means:
A) The insured must contribute a percentage of the total loss before the insurer pays out.
B) Multiple insurers covering the same risk share the cost of the claim in proportion to their respective policy limits.
C) The insured must contribute financially to the insurer’s operational costs.
D) The insured has the right to contribute additional premium to increase the coverage.
Answer: B) Multiple insurers covering the same risk share the cost of the claim in proportion to their respective policy limits.
Which of the following is NOT a type of insurance policy commonly used for insuring plant and machinery in India?
A) Fire Insurance Policy
B) Marine Insurance Policy
C) Machinery Breakdown Insurance Policy
D) Crop Insurance Policy
Answer: D) Crop Insurance Policy
The principle of “Proximate Cause” in insurance refers to:
A) The actual cause of the loss or damage.
B) The nearest insurance company responsible for processing a claim.
C) The geographical proximity of the insured property to the insurer’s office.
D) The ultimate outcome or result of an insured event.
Answer: A) The actual cause of the loss or damage.
In insurance terminology, the term “Peril” refers to:
A) The amount of coverage provided by the insurance policy.
B) The probability of an insured event occurring.
C) The cause of a potential loss or damage that triggers coverage under the policy.
D) The duration of the insurance contract.
Answer: C) The cause of a potential loss or damage that triggers coverage under the policy.
Which of the following principles states that an insurance policy should be upheld in court, even if certain terms are unclear or ambiguous?
A) Principle of Good Faith
B) Doctrine of Caveat Emptor
C) Principle of Uberrimae Fidei
D) Doctrine of Contra Proferentem
Answer: D) Doctrine of Contra Proferentem
The concept of “Insurable Interest” in insurance contracts implies that:
A) The insurer must have a financial stake in the insured property.
B) The insured must have a potential financial loss if the insured property is damaged or lost.
C) The insurer and the insured must share equal responsibility for the insured property.
D) The insured property must have a certain market value to be eligible for insurance coverage.
Answer: B) The insured must have a potential financial loss if the insured property is damaged or lost.
The term “Ex Gratia Payment” in insurance refers to:
A) Compensation paid by the insured to the insurer for processing a claim.
B) Voluntary payment made by the insurer out of goodwill, not based on legal obligation.
C) Additional premium charged by the insurer for high-risk policies.
D) Payment made by the insured to extend the policy term.
Answer: B) Voluntary payment made by the insurer out of goodwill, not based on legal obligation.
Which legal doctrine allows an insured to recover the full amount of the loss from any one insurer, even if multiple insurers cover the same risk?
A) Doctrine of Subrogation
B) Principle of Contribution
C) Principle of Indemnity
D) Doctrine of Proximate Cause
Answer: B) Principle of Contribution
The term “Reinstatement” in insurance refers to:
A) Replacing damaged property with new property of the same kind and quality.
B) Cancelling an insurance policy and issuing a new one.
C) Extending the coverage period of an existing insurance policy.
D) Increasing the sum insured under the policy.
Answer: A) Replacing damaged property with new property of the same kind and quality.
In insurance contracts, the “Excess” or “Deductible” is:
A) The maximum amount the insurer will pay out for a claim.
B) The minimum amount the insured must pay before the insurer covers the remaining loss.
C) The additional coverage provided by the insurer for high-risk events.
D) The premium discount offered by the insurer for a claim-free period.
Answer: B) The minimum amount the insured must pay before the insurer covers the remaining loss.
The principle of “Warranty” in insurance contracts implies that:
A) The insurance policy guarantees the safety and security of the insured property.
B) The insured must comply with certain specified conditions to ensure coverage under the policy.
C) The insurer must provide a warranty for the insured property against all possible risks.
D) The insurance policy is valid only if purchased from a reputable insurer.
Answer: B) The insured must comply with certain specified conditions to ensure coverage under the policy.
Which of the following is NOT typically covered under a Machinery Breakdown Insurance Policy?
A) Accidental Damage
B) Fire Damage
C) Electrical or Mechanical Breakdown
D) Natural Disasters
Answer: D) Natural Disasters
The principle of “Concealment” in insurance refers to:
A) Intentionally withholding information about the insured property from the insurer.
B) Concealing the insurance policy from third parties.
C) Concealing the actual cause of loss or damage from the insurer.
D) Concealing the insurance premium amount from the insured.
Answer: A) Intentionally withholding information about the insured property from the insurer.
The term “Salvage” in insurance refers to:
A) The process of salvaging damaged property for reuse or resale.
B) Additional coverage provided by the insurer for salvage operations.
C) Compensation paid by the insurer for total loss of the insured property.
D) The salvage value of the insured property.
Answer: A) The process of salvaging damaged property for reuse or resale.
Which legal doctrine allows an insurer to deny a claim if the insured fails to meet certain conditions specified in the insurance policy?
A) Doctrine of Caveat Emptor
B) Principle of Good Faith
C) Doctrine of Warranty
D) Principle of Uberrimae Fidei
Answer: C) Doctrine of Warranty
The term “Adjuster” in insurance refers to:
A) A person appointed by the insured to negotiate claim settlements with the insurer.
B) An insurance agent responsible for selling insurance policies to potential clients.
C) A person appointed by the insurer to assess the extent of loss or damage and determine claim settlements.
D) An independent consultant hired by the insured to review insurance policies for potential coverage gaps.
Answer: C) A person appointed by the insurer to assess the extent of loss or damage and determine claim settlements.
The principle of “Subrogation” allows the insurer to:
A) Recover the insured amount from a third party responsible for causing the loss or damage.
B) Subrogate the insurance policy to another insurer for better coverage.
C) Share the insured amount with the insured party.
D) Waive the right to recover the insured amount from the insured party.
Answer: A) Recover the insured amount from a third party responsible for causing the loss or damage.
In insurance contracts, the term “Peril” refers to:
A) The probability of an insured event occurring.
B) The duration of the insurance policy.
C) The cause of a potential loss or damage that triggers coverage under the policy.
D) The amount of premium paid by the insured.
Answer: C) The cause of a potential loss or damage that triggers coverage under the policy.
Which legal doctrine states that ambiguous terms in an insurance contract should be interpreted against the party that drafted the contract?
A) Doctrine of Caveat Emptor
B) Principle of Good Faith
C) Doctrine of Contra Proferentem
D) Principle of Utmost Good Faith
Answer: C) Doctrine of Contra Proferentem
The term “Aggregate Limit” in insurance refers to:
A) The maximum amount an insurer will pay for all claims during the policy period.
B) The maximum amount the insured is liable to pay as excess for each claim.
C) The total sum insured under the policy for all covered perils.
D) The additional coverage provided by the insurer for high-value assets.
Answer: A) The maximum amount an insurer will pay for all claims during the policy period.
The principle of “Insurable Interest” ensures that:
A) The insurance premium remains affordable for the insured.
B) The insured party has a financial stake in the continued existence of the insured property.
C) The insurer is financially responsible for any loss or damage to the insured property.
D) The insured property is adequately protected against all possible risks.
Answer: B) The insured party has a financial stake in the continued existence of the insured property.
Which of the following statements regarding the “Principle of Utmost Good Faith” is correct?
A) It requires the insurer to disclose all material facts to the insured.
B) It mandates that both parties to the insurance contract act honestly and fairly towards each other.
C) It allows the insured to conceal relevant information from the insurer.
D) It obligates the insurer to provide coverage even if the insured violates the terms of the policy.
Answer: B) It mandates that both parties to the insurance contract act honestly and fairly towards each other.
The term “Underinsurance” in insurance refers to:
A) Insuring the same property with multiple insurers to maximize coverage.
B) Insuring the property for a value higher than its actual market worth.
C) Insufficient coverage to fully compensate for the loss or damage to the insured property.
D) Including unnecessary coverage in the insurance policy.
Answer: C) Insufficient coverage to fully compensate for the loss or damage to the insured property.
Which of the following principles allows an insured to transfer their rights and interests in an insurance policy to another party?
A) Principle of Subrogation
B) Principle of Insurable Interest
C) Doctrine of Assignment
D) Doctrine of Warranty
Answer: C) Doctrine of Assignment
The term “Reinsurance” in insurance refers to:
A) Insuring the same property with multiple insurers.
B) The process of transferring risk from one insurer to another.
C) Insuring high-value assets with specialized insurers.
D) Providing additional coverage for high-risk events.
Answer: B) The process of transferring risk from one insurer to another.
Which of the following legal concepts allows an insurer to cancel an insurance policy before its expiration date?
A) Doctrine of Subrogation
B) Principle of Good Faith
C) Doctrine of Cancellation
D) Principle of Indemnity
Answer: C) Doctrine of Cancellation
The term “Act of God” in insurance refers to:
A) Any event caused by human intervention.
B) An unforeseen and uncontrollable event caused by natural forces.
C) An intentional act resulting in loss or damage to the insured property.
D) Any event causing loss or damage that is excluded from coverage under the policy.
Answer: B) An unforeseen and uncontrollable event caused by natural forces.
The term “Material Fact” in insurance refers to:
A) Any information relevant to the insured property that could influence the insurer’s decision.
B) The market value of the insured property.
C) The premium amount paid by the insured.
D) Any fact that the insurer considers significant for assessing the risk.
Answer: A) Any information relevant to the insured property that could influence the insurer’s decision.
Which legal doctrine allows an insurer to deny coverage for losses resulting from the insured’s intentional acts?
A) Principle of Subrogation
B) Doctrine of Good Faith
C) Doctrine of Fortuity
D) Principle of Warranty
Answer: C) Doctrine of Fortuity
The term “Underwriting” in insurance refers to:
A) The process of assessing and evaluating risks before issuing insurance policies.
B) The process of negotiating claim settlements with policyholders.
C) The legal document that outlines the terms and conditions of the insurance contract.
D) The process of selling insurance policies to potential clients.
Answer: A) The process of assessing and evaluating risks before issuing insurance policies.
Which of the following principles allows an insurer to avoid paying a claim if the insured breaches the terms of the insurance contract?
A) Principle of Subrogation
B) Principle of Warranty
C) Principle of Utmost Good Faith
D) Principle of Indemnity
Answer: B) Principle of Warranty
The term “Rider” or “Endorsement” in insurance refers to:
A) An insurance agent who sells policies on behalf of the insurer.
B) A provision added to the insurance policy to modify or expand coverage.
C) The maximum amount an insurer will pay for all claims during the policy period.
D) The process of transferring risk from one insurer to another.
Answer: B) A provision added to the insurance policy to modify or expand coverage.
In insurance contracts, the term “Subsidence” refers to:
A) The gradual sinking or settling of the insured property.
B) The process of transferring insurance coverage to another party.
C) The additional coverage provided by the insurer for high-risk events.
D) Compensation paid by the insurer for the loss of business income.
Answer: A) The gradual sinking or settling of the insured property.
The term “Moratorium” in insurance refers to:
A) The suspension of insurance coverage during periods of financial distress.
B) A temporary increase in insurance premium rates.
C) The maximum duration of an insurance policy.
D) The process of transferring insurance coverage to another insurer.
Answer: A) The suspension of insurance coverage during periods of financial distress.
The principle of “Causa Proxima” in insurance refers to:
A) The direct cause of loss or damage.
B) The maximum amount an insurer will pay for all claims during the policy period.
C) The process of assessing and evaluating risks before issuing insurance policies.
D) The ultimate outcome or result of an insured event.
Answer: A) The direct cause of loss or damage.
The term “Loss Adjuster” in insurance refers to:
A) A person appointed by the insured to negotiate claim settlements with the insurer.
B) An insurance agent responsible for selling insurance policies to potential clients.
C) A person appointed by the insurer to assess the extent of loss or damage and determine claim settlements.
D) An independent consultant hired by the insured to review insurance policies for potential coverage gaps.
Answer: C) A person appointed by the insurer to assess the extent of loss or damage and determine claim settlements.
Which of the following legal concepts allows an insurer to deny coverage if the insured makes false statements or misrepresentations during the application process?
A) Principle of Utmost Good Faith
B) Doctrine of Concealment
C) Principle of Subrogation
D) Doctrine of Estoppel
Answer: B) Doctrine of Concealment
The term “Premium” in insurance refers to:
A) The financial stake a policyholder has in the subject matter of insurance.
B) The maximum amount an insurer will pay for all claims during the policy period.
C) The amount of money paid by the insured to the insurer in exchange for coverage.
D) The process of assessing and evaluating risks before issuing insurance policies.
Answer: C) The amount of money paid by the insured to the insurer in exchange for coverage.
The principle of “Representation” in insurance contracts implies that:
A) The insurance policy guarantees the safety and security of the insured property.
B) The insured must comply with certain specified conditions to ensure coverage under the policy.
C) The insurer must provide a warranty for the insured property against all possible risks.
D) The insured must accurately disclose all material facts to the insurer.
Answer: D) The insured must accurately disclose all material facts to the insurer.
In insurance contracts, the term “Fortuitous Event” refers to:
A) An intentional act resulting in loss or damage to the insured property.
B) Any event caused by human intervention.
C) An unforeseen and unexpected event beyond the control of the insured.
D) Any event causing loss or damage that is excluded from coverage under the policy.
Answer: C) An unforeseen and unexpected event beyond the control of the insured.
The principle of “Exclusion” in insurance contracts implies that:
A) Certain risks are specifically excluded from coverage under the policy.
B) The insurance policy covers all possible risks associated with the insured property.
C) The insurer must provide coverage for all losses or damages, regardless of the cause.
D) The insured must purchase additional coverage for specific risks not covered by the policy.
Answer: A) Certain risks are specifically excluded from coverage under the policy.
Which legal doctrine states that once a claim is settled, neither party can dispute the terms of the settlement?
A) Principle of Subrogation
B) Doctrine of Estoppel
C) Doctrine of Warranty
D) Principle of Contribution
Answer: B) Doctrine of Estoppel
The term “Underwriter” in insurance refers to:
A) A person who assesses and evaluates risks before issuing insurance policies.
B) An insurance agent responsible for selling insurance policies to potential clients.
C) A person appointed by the insured to negotiate claim settlements with the insurer.
D) A person appointed by the insurer to assess the extent of loss or damage and determine claim settlements.
Answer: A) A person who assesses and evaluates risks before issuing insurance policies.
Which legal doctrine states that an insured cannot recover more than the actual loss suffered, regardless of the sum insured under the policy?
A) Doctrine of Subrogation
B) Principle of Indemnity
C) Principle of Utmost Good Faith
D) Doctrine of Estoppel
Answer: B) Principle of Indemnity
