Question 22

Evan paid $40,000 for a pickup 5 years ago which is only worth $25,000 today. The pickup was demolished in an accident and Evan collected $25,000 from the company

This statement accurately reflects the principle of indemnity, which asserts that an insured party should not profit from an insurance claim but should be restored to their financial position before the loss. Since Evan collected the current market value of the pickup, he is compensated fairly without profit.

A) Evan paid $40,000 for a pickup 5 years ago which is only worth $25,000 today. The pickup was demolished in an accident and Evan collected $25,000 from the company

This option is correct as it exemplifies the principle of indemnity. Evan's original investment was $40,000, but the pickup's depreciated value is $25,000 at the time of the accident. By receiving $25,000 from the insurance company, he is indemnified appropriately, reflecting the current value of his loss rather than his initial purchase price.

B) Dean and Susan each own 50% of an apartment building valued at $250,000. They each purchase their own insurance policy with $250,000 in coverage and are each paid the face value of the policy at the time of a total loss

This option is incorrect as it indicates that both Dean and Susan would receive the full face value of their insurance policies. The principle of indemnity would dictate that they should only receive compensation equal to their actual loss, which would be shared based on their ownership percentage, not the total value of their separate policies.

C) Amanda was making $250 a week babysitting. She was in an accident and unable to work and collected $500 per week in lost wages

This option is incorrect because Amanda's compensation exceeds her actual lost earnings. Under the principle of indemnity, she should only be compensated for her lost wages, which would be $250 per week, not $500. This creates an unjust enrichment situation, contradicting the core concept of indemnity.

D) Wade lends his cell phone to Owen who drops the phone but pays Wade for the value. Wade also submits a claim to his insurance company for reimbursement

This option is incorrect as Wade receiving payment from both Owen and his insurance company would lead to a profit from the loss. The principle of indemnity prevents Wade from being compensated twice for the same loss, effectively violating the tenet that insurance should restore, not enrich.

Conclusion

In conclusion, Option A is definitively correct as it aligns with the principle of indemnity by compensating Evan for the actual value of his loss without providing a profit. All other options fail to adhere to this principle, either by suggesting excessive compensation or by allowing for double recovery, thus undermining the foundational concept of indemnity in insurance claims.