Marcus owns a high-end restaurant and applies for a commercial property insurance policy. During the underwriting and application process, the following events occur:
1. The issued policy includes a drafted provision explicitly requiring the kitchen's automatic sprinkler system to be professionally inspected quarterly.
2. On the application, Marcus states the building's roof is three years old. He genuinely believes this based on the previous owner's disclosure, though it is actually seven years old.
3. Marcus intentionally hides the fact that the main deep fryer's automatic fire-suppression valve is broken, a severe hazard not explicitly asked about on the application.
4. The insurance agent notices Marcus forgot to check a box regarding the building's square footage and fills it in himself before submitting the application, without having Marcus initial the change.
Six months later, a severe grease fire destroys the kitchen. The insurer's investigation reveals that the broken valve caused the fire, the sprinklers had not been inspected in over a year, and the roof age was incorrect.
Based on insurance contract law, which of the following legal conclusions are correct? (Select all that apply)
- The insurer may deny coverage based on a breach of warranty, because the quarterly sprinkler inspection was a specific condition incorporated directly into the contract.Answer
- The insurer is entitled to rescind the policy due to concealment, as the applicant deliberately withheld knowledge of the broken suppression valve, which constitutes a material risk.Answer
- CThe insurer can automatically void the policy due to the incorrect roof age, since applicant statements on a commercial application are legally treated as absolute warranties.
- DThe agent's unilateral addition of the square footage information without the applicant's initials is an authorized underwriting practice that legally prevents the insurer from contesting the policy.