Business Law 402
February 2008 Midterm Exam
Generally each point mentioned in the answer key roughly corresponds to one point in
your mark. This is however, very general and not automatic. I will give marks for overall
quality of answer as well and for some things that may not have specifically been in the
key but are valid points.
For Question One, roughly half the marks were given for the agency portion and roughly
half for the insurance portion. I generally would not go over giving you six marks for
each portion of the question. Question Two was a little more heavily weighted towards
the employment aspect, with a little more than half the marks going for the employment
In going through this exam key, please note several things. It is rare for any student to
actually answer the questions in exactly the way that I have phrased the answer.
Therefore I give points when I think you are close enough. There are many more points
listed here than are actually available for the question. In all cases, the maximum number
of marks available is the mark total for the question. Checkmarks on the test paper do not
necessarily indicate the marks given. They are more for my purposes to keep myself on
1. An agent is a person who acts on behalf of another to produce the same legal
effect as if that person had acted himself.
2. Insurance brokers are agents acting on behalf of two principals, the insured and
the insurance company, and brings them together.
3. An agent owes a duty of good faith to both parties to be acting at all times in their
best interests and to put their interests ahead of his own.
4. Vladimir is in breach of his duty to George and Martha by recommending
insurance that is far in excess of their needs and by encouraging George to
commit an act of misrepresentation.
5. Vladimir is in breach of his duty to Great Big Sea by allowing the applicant to
submit an application form with a misrepresentation on it, and by exceeding the
limits on the policies he is permitted to write.
6. When writing the policy for $1,000,000.00 Vladimir was acting under his
apparent authority, which is the authority that he would appear to have to act on
behalf of Great Big Sea, to an outside party.
7. A principal will be bound by the acts of his agent when the agent is acting within
the scope of apparent authority.
8. George and Martha could not reasonably know that he was restricted in the face
value of policies he could write and thus relied on his apparent authority in good
9. Great Big Sea could also be bound to the policy because they accepted the
premiums and this could be seen as a ratification or adoption of Vladimir’s
unauthorized act. 10. When filling out an application form, the agent is not considered to be the agent
of the insured, so the insured is 100% liable for any statements appearing in the
11. Failing to provide material information in an application for insurance is
12. Information is material if it would have affected the insurer’s decision to issue the
insurance at all or affected the premiums charged.
13. Material misrepresentation in a life insurance contract would render the contract
void if discovered within two years of the issuance of the policy.
14. Information about a previous heart attack is obviously material as it affects the
risk the insurer is agreeing to undertake regardless of whether or not a medical is
15. Georges’ contract can be voided for misrepresentation as it has been less than two
years but Martha’s policy would probably still be in effect.
16. The beneficiaries could sue Vladimir for breach of his duty to George and recover
damages from him to compensate them for the effect of this breach of duty.
17. Great Big Sea can sue Vladimir for breach of his duty to them for making them