Contract Law Assignment
Part 1 (10 points)
Fraud is a major problem for the insurance industry. Yet what constitutes fraud is not always obvious. Your task is to develop two plausible scenarios. These cannot be scenarios or examples from the textbook. You are encouraged to find actual cases that fit the specific scenario with proper citation.
a) Create a detailed scenario where the insurer has a good case to void the policy because of fraud. Outline the specific reasons from the book why this policy should be voided. What remedies does the insured have to fight this voiding?
b) Create a detailed scenario where the insured has a good case to challenge an insurer’s voiding of the policy. Provide a specific defense using the reasons from the book why this policy should not be voided.
Part 2 (5 points)
Answer these questions:
a) Distinguish between unilateral and bilateral mistakes in a contract.
b) Explain why a person who has reasonably relied on an innocently misrepresented material fact can later avoid a contract.
c) Describe the purpose of the parol evidence rule.
Part 3 (5 points)
Answer these questions:
a) Explain how courts apply established maxims of construction to interpret ambiguous contract language.
b) Contrast entire contracts with divisible contracts.
c) Explain why courts prefer to interpret contracts as divisible.
d) Describe the system of priorities courts apply to resolve contradictory contract terms.
Part 4 (10 points)
Obtain the Commercial General Liability Modified ISO document from blackboard. MFX Indemnity issued a modified ISO commercial general liability policy to Stnky Chemicals. MFX felt comfortable that it had completely excluded pollution such as seepage and runoff in Stnky Chemical’s policy. However, during the policy period, Stnky had a malfunction where an intake pipe reversed its flow and discharged hundreds of gallons of a highly toxic substance into the soil which migrated into the water table and made the well water of Marginal Metals, the business next door, unusable. Marginal Metals filed a claim against Stnky Chemicals for the pollution damage. Stnky Chemicals immediately sent the claim to MFX Indemnity and asked to be defended. Though it was confident that the pollution exclusion applied in this case submitted a reservation of rights letter to Stnky Chemicals rather than an outright denial. This reservation of rights letter said that it would investigate the claim but reserved all other policy rights including the right to deny coverage if facts warrant it. The reason for not denying coverage outright is that Marginal Metal’s attorney filed the claim not as pollution but as trespass. Review the policy language. Make sure that key terms, if they are not defined in policy language specifically that you define them as they are generally understood (e.g. from Webster’s).
a) Provide the rationale that Marginal Metal might apply to this case. Why trespass and where might they find this in a policy with such a strong pollution exclusion?
b) Provide the rationale that MFX Indemnity might use to deny that both defense and coverage is available for Stnky Chemicals in this commercial general liability policy.
c) If you were the judge or jury what would you decide in this case?
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