Reference no: EM131809091

Question: Skidmore Trucking Company decided to expand its operations into the warehousing field. After examining several available properties, it decided to purchase a car barn for USD 100,000 from a local bus company and to convert it into a warehouse. The standard contract for a real estate purchase was signed by the parties.

The contract obligated Skidmore to pay the seller on an apportioned basis for the prepaid premiums on the existing fire insurance policy (USD 100,000 extended coverage). The policy expired two years and one month from the closing date. At the closing, the seller duly assigned the fire insurance policy to Skidmore in return for the payment of the apportioned amount of the prepaid premiums, but Skidmore failed to notify the insurance company of the change in ownership.

Skidmore took possession of the premises and, after extensive renovation, began to use the building as a warehouse. Soon afterward, one of Skidmore's employees negligently dropped a lighted cigarette into a trash basket and started a fire that totally destroyed the building.

Was the assignment of the policy to Skidmore valid? Why?

In this exercise, assuming the assignment is valid, would the insurer be obligated to pay for the loss resulting from the employee's negligence? Why?