Insurance Exam
Loss control
Actions taken and strategies implemented to reduce the frequency or severity of a loss. Insurance companies commonly incentivize their customers to implement loss controls by offering discounts that reduce insurance premiums.
Risk
The chance or uncertainty that a loss will occur.
Pure risk
The only type of risk considered to be potentially insurable. To be considered a “pure risk,” the risk must only present the chance for loss.
Speculative risk
Any kind of risk that could result in either loss or gain and is typically not insurable.
Loss exposure
Possibility of financial loss due to risk. The severity of an individual or entity’s loss exposure increases or decreases depending on their habits, location, and many other characteristics.
Property loss exposure
The possibility of loss to the value or usability of property or a physical, tangible asset.
Liability loss Exposure
Loss resulting from injuries or damages the insured causes to another party as a result of negligence, requiring the insured to compensate the other party for the injuries or damages caused.
Loss
Any injury or damage suffered by the insured because of an accident or event covered under an insurance policy.
Peril
An event, situation, or circumstance that results in property damage or loss.
Hazard
A condition, circumstance, or situation that increases the chance of a loss occurring or increases the severity of a loss.
Insurance
A means of managing financial risk by transferring the risk from one party to another through a legal contract or other arrangement.
Indemnity
Refers to compensation that is paid or promised to be paid to a party for losses that have already occurred or may occur in the future.
Principle of indemnity
States that the purpose of an insurance contract is to make a policy whole again after a loss is experienced and that an insured may not profit from a loss
Risk-retention
When the person, business owner, or professional decides to retain part or all of an exposure to a given risk. This means that they will be fully responsible for any losses that occur regarding the retained risk.
Risk sharing (also known as risk distribution)
Occurs when multiple entities form a group for the purpose of creating a plan where each group member pays into a fund to be used for anticipated future losses that any group member may experience.
Risk avoidance
When the person, business owner, or professional consciously seeks to avoid or eliminate loss exposure to a specific type of risk
Risk reduction
When the person, business owner, or professional is making a conscious effort to minimize the frequency or the severity of losses.
Risk transfer
The strategy of shifting the risk of potential losses to another party, typically through a formal contract and in exchange for some form of compensation. Insurance is the most common risk transfer method used today.
Elements of Insurable Risks
Generally, the following elements must be present for a risk to be considered insurable:
Losses must be definite and definable;
Loss must be great enough to create a hardship for the insured;
Losses must not be completely catastrophic in nature (war or nuclear attack, for instance);
Losses must be accidental; and
The insurance company must be able to calculate the chance of a loss occurring.
Adverse selection
Refers to situations where one party entering into a contract has more knowledge about information relevant to the contract than the other.
Law of Large Numbers
A probability theory stating that as a sample size grows larger, the average of the sample results will begin to approach the expected value more closely. The Law of Large Numbers also applies to insurance. As an insurance company increases the number of policyholders it has issued policies to, its estimated losses in the form of claims payments become closer to what is estimated or expected
The purpose of reinsurance
Is to limit the liability of the original insurer, allowing the original insurer to assume more risk than they could handle otherwise. This could be done for the purpose of transferring the risk of catastrophically large losses that would lead to the company’s bankruptcy or to give the original insurer some breathing room and allow it to expand its business.
The Insurance Services Offices (ISO)
An advisory organization responsible for developing standard policy forms, coverages, structure, provisions, agreements, clauses, deductibles, definitions, conditions, exclusions, endorsements, and other conventions for use by the insurance industry. ISO standards and forms are the most common found in use throughout the industry.
The American Association of Insurance Services (AAIS)
An organization responsible for collecting statistical data, distributing rating information, developing standard policy forms, and filing information with state regulators on behalf of insurers that purchase its services.
The Surety and Fidelity Association of America (SFAA)
A trade association working with all segments of the surety and fidelity bonding industry, acting as a resource to promote and maintain outreach to the public as well as industry and government regulators.
The National Council on Compensation Insurance (NCCI)
Provides comprehensive data, statistics, and solutions for the workers’ compensation industry.
The Gramm-Leach-Bliley (GLB) Act of 1999
(also known as the Financial Modernization Act of 1999)
Dictates how financial institutions such as banks and insurance companies are to handle the private information of consumers.
Under the Gramm-Leach-Bliley (GLB) Act, financial institutions are also required to:
Deliver privacy policy notices that detail the institution's information-sharing practices and inform consumers of their rights.
The Fair Credit Reporting Act (FCRA)
Is federal legislation created for the purpose of promoting the accuracy, fairness, and privacy of consumer information that is held and provided by credit reporting agencies.
The FCRA places the following responsibilities upon companies that use credit information:
Users can only obtain consumer reports for permissible purposes under the FCRA;
Users must notify the consumer when an adverse action is taken on the basis of such reports (such as a higher insurance rate); and
Users must identify the company that provided the report, so that the accuracy and completeness of the report may be verified or contested by the consumer.
Because insurers also provide information back to credit reporting agencies, they must also:
Provide complete and accurate information to the credit reporting agencies;
Investigate consumer disputes received from credit reporting agencies;
Correct, delete, or verify information within 30 days of receipt of a dispute; and
Inform consumers about negative information which is in the process of or has already been placed on a consumer's credit report within one month.
The Telemarketing Sales Rule, as defined by the FTC
Requires telemarketers to make specific disclosures of material information, prohibits misrepresentations, sets limits on the times telemarketers may call consumers, prohibits calls to a consumer who has asked not to be called, and sets payment restrictions for the sale of certain goods and services.
The Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act of 2003 established the United States' first national standards for the sending of commercial emails. The most relevant section of the law involves rules surrounding the sending behavior of a company that sends a commercial email:
A message cannot be sent without an unsubscribe option;
A message cannot contain a false header;
A message should contain at least one sentence;
A message cannot be null; and
An unsubscribe option should be below the message.
The Terrorism Risk Insurance Act (TRIA)
Was initially enacted as a temporary three-year program to calm insurance markets through the creation of a government reinsurance program that would share in terrorism-related losses. The TRIA will pay certain claims in the event of a loss due to a certified act of terrorism.
The Violent Crime Control and Law Enforcement Act of 1994
Made it illegal for any individual convicted of a crime involving dishonesty, breach of trust, or other related crimes to work in the insurance industry.
Property insurance contracts are designed
To transfer risk of unexpected financial loss from the property owner to the insurance company for an exchange of a unit of cost called an insurance premium.
Liability contracts
(also referred to as casualty policies)
Focus on reimbursement to third parties when the insured engages in negligent acts that lead to the third party suffering bodily injury, property damage, or personal injury.
Insurable interest
means that an individual has a financial stake in something, known as the subject of insurance, and would experience monetary loss if that something was lost, damaged, or destroyed.
An insurance policy
Is only legally enforceable if the insured possesses insurable interest in the subject of insurance at the time a loss occurs.
Underwriting
Is the process of assessing risks to determine if they are acceptable and, if so, how much premium will be charged by the insurance company for accepting the risk.
Risk appetite
Is a term used to describe what risks an insurer finds acceptable and is currently willing to underwrite
A company’s risk appetite can change over time and is determined by a variety of factors, including the following:
The types of risks currently insured by the company;
The types of risks the company now wishes to insure;
The amount the company expects they will be required to pay to settle claims from current risks; and
The amount of competition from other insurers in the same area of risk.
Underwriters use multiple sources of information when evaluating a risk for insurance coverage. Sources can include any or all of the following:
Statements made by the applicant in the policy application;
Underwriting maps that track the frequency of certain loss types in specific areas; and
Information from third-party sources to verify statements made by the applicant in the policy application.
Standard rates are the normal, average rates assessed on an average risk for coverage. Greater risks are “rated up,” increasing the premium rate to reflect the higher level of risk.
The loss ratio
Compares a company’s incurred losses (i.e., the total amount paid out for claims) to the amount of earned insurance premiums collected by the company and expresses this relationship as a percentage. A loss ratio under 100% indicates that the insurer is collecting more premium than it is paying out in claims, meaning that the company is achieving an underwriting profit.
Expense ratio
Shows what percentage of premiums collected from insureds has been used to pay the expenses associated with acquiring, writing, and servicing the company’s insurance policies (often referred to as “operating expenses”). As with the loss ratio, a value of under 100% is desirable and means that the company is operating with an underwriting profit.
The combined ratio
Is a combination of an insurance company’s loss ratio and expense ratio.
Insurer reserves
Are funds that are set aside by an insurance company to make sure it has enough money to meet its financial obligations as they become due. Insurer reserves must be large enough to cover obligations that are currently due as well as obligations that are anticipated to become due in the future.
Loss reserve
Is determined by estimating the value of current outstanding claims and the value of claims that the company may be required to pay in the future.
Statutory funds
State insurance regulators mandate minimum funds that must be maintained by insurance companies operating in their state. They are dictated by state laws, rules, or regulations.
Field Underwriting
In most cases, a producer is able to make some underwriting decisions before the application is submitted to the underwriting department based on guidelines of insurability that the insurer provides. Field underwriting greatly streamlines the application and underwriting process by eliminating obviously ineligible risks before they even reach the underwriting department.
Most insurers use an applicant’s credit information to develop an ---------------------
Insurance score
The Fair Credit Reporting Act (FCRA)
Governs the use of consumer credit information and ensures that applicant’s information remains safe and is not obtained or used in an unfair manner.
Most insurance companies will want
To inspect any property an applicant is seeking to insure to determine if it meets the company’s eligibility guidelines. If the inspection is not completed, the insurer withholds the right to cancel the policy or remove any policy discounts that were contingent upon a satisfactory inspection.
An insurance rate
Is the price charged per unit of exposure. This can be expressed as “x amount of dollars” per “x amount of exposure.”
When developing rates, there are four (4) basic standards that must be followed:
Rates must be fair and not unfairly discriminatory;
Rates must be adequate to meet expected loss amounts as well as turn a profit;
Rates must be revised as often as necessary to reflect current expected costs; and
Rates should encourage loss prevention methods among insureds.
A manual rate
(sometimes referred to as a class rate)
Separates risk exposure units into predetermined classes or groups that all share certain risk characteristics. From there, the same rate is applied uniformly to all exposure units that fall within a certain class or group.
A merit rating
Will consider a risk’s individual characteristics when determining what premium to charge. The premium is determined on the merits of the individual risk.
A judgment rating
Is an insurance rate that is assigned to a risk directly by an underwriter. Instead of being based on empirical data such as a manual or merit rating, it is based on the personal, subjective evaluation of the underwriter that is assigning the rating.
Earned premium
Is the amount of a policy’s premium that applies to the expired portion of an insurance policy.
Unearned premium
Is the amount of a policy’s premium that has yet to be “earned” by the insurance company.
A first-party claimant
Is a person who is making a claim against their own insurance company.
A third-party claimant
Is a person who is making a claim against someone else’s insurance company for damages the company’s insured caused them.
Hazard
Is a condition that increases the probability or severity of a loss.
Physical hazard
is a physical or tangible condition surrounding a risk that increases the probability or severity of loss.
Moral hazard
Exists when an insured begins to behave in a riskier way because they know that their insurance will have to pay any losses that occur. They are purposeful behavioral changes that increase the risk of loss.
Morale hazard
Is an insured’s indifference to loss because they know they are covered by insurance. This indifference towards loss results in unintended behavioral changes that increase the risk of loss.
Legal hazard
Represent an increased likelihood or severity of loss due to legal or court actions.
Peril
(perils are also commonly referred to as causes of loss).
Is a specific event or circumstance that causes loss
Covered perils
Every property insurance policy will describe in some way which perils are insured against
Named perils policies
When a policy covers broad perils, using a broad cause of loss form, it means that the policy will only provide coverage for perils that are specifically listed in the policy.
Polices that use a special, all-risk, or open peril cause of loss forms
Provide coverage against loss from all perils except those that are specifically excluded.
A loss
An unintended, unforeseen reduction or destruction of financial or economic value. it can be further classified as either a direct loss or an indirect loss.
An accident
Is an unforeseen, unexpected, unintended, and sudden event that causes property damage or bodily injury.
An occurrence
Includes losses that are caused by repeated or continuous exposure to the same harmful conditions over time.
Direct loss
Refers to damage inflicted to property directly by a peril.
Indirect losses
(also called consequential losses)
Losses that arise as the consequence of a peril; they are not a direct result of the peril itself.
Time element coverages
(also business interruption insurance).
A common form of indirect loss commonly appears in commercial insurance
Contingent loss
Another form of indirect loss present primarily in commercial insurance. It refers to losses that result from lost profits and expenses that result from the interruption of a customer or supplier’s business operations.
Concurrent causation
Refers to occurrences where multiple perils cause damage either simultaneously or sequentially, but not all of the perils are covered by the insurance policy.
Proximate cause
Is the peril that set the other perils in motion.
The proximate cause doctrine
States that if both a covered occurrence and an excluded occurrence occur simultaneously or in sequence.
Generally, when the proximate cause of a loss is a covered peril, an insurance company is required to pay for the entire loss, even the damages caused by excluded perils.
Replacement cost
Is the amount needed to replace or repair damaged property with items or materials of like kind and quality, with no deduction to account for the property’s depreciation in value.
Functional replacement cost
Is the amount needed to replace or repair damaged property so that its original intended use is restored, without the requirement that the replacement or repairs use materials of like kind and quality.
Guaranteed replacement cost
Will cover the entire cost to repair or replace damaged property, even if the cost to do so exceeds the stated policy limits.
Actual cash value (ACV)
A property’s replacement cost minus depreciation.
Market value
The price at which property will sell in the regular marketplace.
Agreed value
When the value of insured property is agreed upon between the insured and the insurance company.
Stated amount
(or stated value)
A property amount stated by the insured when purchasing an insurance policy. The insurer can choose to pay either the --------------- or the actual cash value of the property, whichever is less.
A valued policy
Will pay a predetermined loss amount in the event of a loss. This predetermined amount is not related to the actual loss incurred.
Actual loss sustained
The difference between what a company could have earned if a loss had not occurred versus what the company actually earned after a loss occurred.
Pair and Set clause
If part of a pair or set is lost or damaged, the insurance company has the option to either restore the pair or set to its previous value through repair or replacement or pay the difference between the value before and after the loss.
The broad evidence rule
All documentation, circumstances, or other facts that reflect the value of property can be considered when determining the property’s value for insurance purposes.
Specific insurance
covers real and personal property at one, specific location, is also most commonly seen in personal lines insurance.
Blanket insurance
Covers multiple locations under one contract and one set of contract terms, is primarily utilized in commercial lines insurance.
Describe six (6) construction categories rated from least to most fire resistant in the following order:
Frame (ISO 1);
Joisted Masonry (ISO 2);
Noncombustible (ISO 3);
Masonry Noncombustible (ISO 4);
Modified Fire Resistive (ISO 5); and
Fire Resistive (ISO 6).
The coinsurance clause,
(also known as insurance to value)
States how much insurance an insured must carry on a property to receive the full value of the property when a loss occurs. Generally, an insured must have coverage on a property that is equal to at least 80% of the replacement cost of the property
Legally liable
When a person (the first party) causes injuries or damage to another person (the third-party) or their property through negligence, they are said to be ----------- for the losses the other person has incurred.
Liability insurance
(also referred to as casualty insurance)
Insurance that protects an insured from claims resulting from injuries or damages the insured inflicts upon a third party.
Absolute liability
Assigned to a person who, through their negligence, causes injury or damage to another person because they have created a hazardous or potentially dangerous situation. No proof of fault or negligence is required for the injured party to hold a person liable for their damages.
Strict liability
Allows the person who caused damages certain defenses to prove that they are not liable for those damages, where there are no defenses allowed under absolute liability.
When defending strict liability cases, the following four defenses are allowed:
Plaintiff’s fault: If damages are caused due to the injured third party’s fault;
Act of God: If damages are caused by an event beyond the activity of humans;
Act of third party: If damages are caused by impossible to foresee actions of a third party; and
Consent of the plaintiff: If damages were caused by an activity the injured was willingly participating in.
Vicarious liability
Applies when one person (the “principal”) is legally responsible for the actions of another person or entity (the principal’s “agent”). The principal will be held liable if their agent’s actions cause damages to a third party.
Attractive nuisance
A hazardous or potentially dangerous feature or condition on a property that is likely to attract children onto the property.
The attractive nuisance doctrine
Holds that if an attractive nuisance injures a child, even if the child is trespassing on the property, the property owner may be held liable for the child’s injuries.
Negligence
The failure to use reasonable care or due diligence under a certain set of circumstances.
There are four elements that must be present to prove negligence and hold a person liable for damages:
Duty;
Breach of duty;
Proximate cause; and
Damages.
Gross negligence
Willful and wanton misconduct that displays an extreme disregard for the safety of others and their property.
Comparative negligence
Assigns negligence to the involved parties based on their degree of responsibility for any losses experienced by the occurrence under review. In these cases, the injured party can only collect compensation from the negligent party based on the degree that the negligent party is responsible for the incurred damages.
Contributory negligence
An injured party is unable to collect compensation from a negligent party if it is determined that the injured party contributed in any way to damages incurred
Assumption of risk
Means an injured party knew of and understood the risks associated with the actions or circumstances surrounding the injury, but willingly decided or agreed to participate in such actions or subject themselves to such circumstances anyway.
Efficient proximate cause
The action or inaction that most directly led to a loss occurring.
Damages
Monetary amounts awarded to an injured party when the action or inaction of a negligent party is found to be the cause of losses sustained by the injured party.
Compensatory damages
Are paid to an injured party to reimburse losses caused by a negligent party.
Special damages
The out-of-pocket expenses incurred by an injured party. This includes bills from doctors, hospitals, therapists, and even lost wages from the inability to work.
General damages
Compensate an injured party for inconveniences associated with their loss, including the concept of “pain and suffering.”
Punitive damages
Are damages awarded to an injured party that exceed normal, compensatory damages and are designed to punish the negligent party for their action or inaction.
Libel
False, defamatory statements that are written or published and damage the subject’s reputation.
Slander
False, defamatory statements that are spoken and are damaging to the subject’s reputation.
False arrest
The act of mistakenly and unlawful detaining a person on groundless accusations that the detained person has committed a crime.
Libel, Slander, and False arrest are protected under:
A form of insurance known as personal injury insurance.
Property and casualty insurance policies contain the following sections:
Declarations;
Definitions;
Insuring Agreement;
Additional and Supplementary Coverages;
Conditions;
Exclusions; and
Endorsements.
The Declarations page
(also called the “face”)
Each policy issued by an insurance company contains a custom ------------ page specifying the unique contractual relationship between the named insured and the insurer.
Definitions section
Language in quotation marks is gathered in the -------- and acts as a glossary for the policy.
The insuring clause
(also known as the insuring agreement)
The section of an insurance policy that contains the promise that the insurance company will make payment either to or on behalf of the insured under certain loss conditions in exchange for premium paid by the insured. Commonly outlines the broad scope of the coverages provided under the insurance policy.
The Additional/Other Coverages section
Defines additional, limited coverages that are provided for perils or property that are otherwise excluded under the policy.
Supplementary payment
Liability insurance policies, --------------------- are additional payments provided for costs associated with the investigation and resolution of claims. All procedures for each party to enforce their rights, and the duties expected of each party under the policy are contained in the Conditions section.
Exclusions
Limit the scope of coverage in an insurance contract by specifically listing any causes of loss for which coverage will not exist.
Insurance endorsements
(also called riders)
Amendments made to an existing insurance contract that change the terms of the original policy, typically by adding or removing coverages.
A certificate of insurance
Is evidence that insurance has been issued in the amount shown as of the date indicated on the certificate.
A policy application
A printed form used to apply for insurance coverage and represents an offer from the insured to pay premium to the insurer in exchange for the insurer assuming the applied for risk.If the insurer issues a contract to the applicant, the policy application is attached to and becomes part of the insurance contract.
A binder
A temporary coverage which allows that coverage to be put in force by agents who have a binding authority from an insurance company. A ---------- is the acknowledgment that immediate coverage is in effect pending the future issuance of a policy.
John wants to verify how his policy will pay a loss if he has multiple policies that cover the same loss. John should review which section of his policy for this information?
Conditions
If the insured is able to choose their deductible amount
Then the deductible is acting as a form of risk retention. The insured is CHOOSING to retain a certain amount of risk equal to the amount of deductible they choose.
If the insured is not able to choose the deductible amount
(the insurer requires a certain deductible be present on the policy)
Then the deductible is acting as a form of risk sharing. The insurer is requiring the insured to carry a deductible and share that portion of the risk.]
May has a home with a replacement cost of $250,000, but only insures it under a homeowners policy for $100,000. Which common requirement for property policies is May not fulfilling?
Insurance to value
Carey suffers a total loss of his home valued at $300,000. Carey insures the home under a homeowners policy with $120,000 of coverage, and the policy contains an insurance to value requirement of 80%. How much will Carey's insurer pay for the loss?
$120,000
Carey suffers a total loss of his home valued at $300,000. Carey insures the home under a homeowners policy with $120,000 of coverage, and the policy contains a $1,000 deductible as well as an insurance to value requirement of 80%. How much will Carey's insurer pay for the loss?
$119,000
Brandy has a primary insurance policy through Company X with a liability limit of $50,000. Additionally, she purchases an excess policy through Company Y that provides an extra $100,000 of liability coverage. If Brandy is held liable for a $120,000 loss that is covered under both policies, how much coverage will be provided by Company Y?
$70,000
The characteristic that distinguishes vacancy from unoccupancy is
the presence of personal property.
Liability Formula
(Per Insurer) = (Insurer's Coverage / Total Insurance in Force) x Loss Amount
Coinsurance penalty Formula
(Insurance Bought / Insurance Required) x (Loss) = Settlement Amount Paid by Insurer
The following are policy provisions that are common to most property and casualty insurance contracts:
Insureds (named, first named, additional);
Policy Period;
Policy Territory;
Deductibles;
Cancellation and Nonrenewal;
Lapse; and
Grace Period.
Named insureds
Those individuals or entities that an insurance contract lists by name or title as being covered on its declarations page.
The first named insured
The named insured that is listed first on the policy declarations page.
Commercial policy
The first named insured is the only party the insurance company will recognize as being authorized to exercise contractual rights or initiate changes to be made to the policy.
Additional insureds
Third parties that may be listed on an insurance policy because they also possess an insurable interest in the subject of the insurance policy.
Other insureds
Those that are not listed by name under the policy but are afforded coverage under certain circumstances.
Policy period
Is found in the declarations page and states the period of time for which that policy’s coverage is active.
Generally, losses are only paid if they occur during this period
Policy territory
The physical areas and regions where coverage applies is known as --------------, which defines the geographical limits of a policy’s coverage.
Deductible
Makes the insured responsible for paying a portion of covered losses before the insurer pays any remaining loss amount to settle the claim.
Cancellation
Means a policy ends early, before the expiration date stated in the declarations.
If the insurance contract is rescinded, then the insurer must issue a ------
Flat-rate
When the insurance company cancels a policy, the insured receives a ------------
Pro rata
If an insured initiates a policy’s cancellation, then the insurer is only required to pay a ---------
Short-rate
Nonrenewal
Occurs if an insurance company decides it will not continue to provide coverage to an insured after the current policy period expires.
A lapse
Occurs when an in-force policy terminates because of the insured’s inaction rather than the insurer’s decision or the insured’s request.
A grace period
Is a defined period of time, after the premium due date, during which a policyholder can pay the overdue premium without any lapse in coverage
Limits of Liability
(Policy Limits)
Are the stated maximum amounts of coverage that will be provided and are stated in the policy declarations.
The maximum amount a --------------- pays will equal the total value of the property or the maximum limit of the policy, whichever is less.
Property policy
To avoid underinsurance, property insurers require policyholders to carry a certain amount of insurance on their property to receive full coverage for smaller claims.
In personal lines, this requirement is known as ------------------
Insurance to value
To avoid underinsurance, property insurers require policyholders to carry a certain amount of insurance on their property to receive full coverage for smaller claims.
In commercial lines, this requirement is known as -------------
Coinsurance
Liability Policy Limits
(Casualty Policy Limits)
There are many more forms of liability policy limits, including:
Split limits;
Combined single limits;
Per person limits;
Per loss limits;
Per occurrence limits;
Per claim limits;
Bodily injury limits;
Restoration/nonreduction of limits; and
Aggregate limits.
Split limits
Are used to represent separate limits for different categories of liability losses.
These are most commonly found spilt limits in auto insurance policies, and the liability limits are split as follows:
A per person, per occurrence limit for bodily injury and a per occurrence/accident limit for bodily injury
A per person, per occurrence limit for bodily injury
The most that will be paid to any one (1) person involved in an accident for bodily injury damages;
A per occurrence/accident limit for bodily injury.
This is the most that will be paid for any one (1) accident for bodily injury damages, regardless of how many individuals are injured
A per occurrence limit for property damage
The most that will be paid for property damages for any one (1) accident.
Split limits are expressed as
Three (3) numbers separated by forward slashes (e.g., 10/20/10 means $10,000/$20,000/$10,000).
Combined single limit
Is a total policy limit per occurrence, which is expressed in the declarations as a single dollar amount that will be paid for both bodily injury (including death) and property damage, regardless of the number of victims, in a single accident.
Per location limit
Is the most a policy will pay for any claims that occur at one (1) location.
The most common co-insurance/insurance to vaule % amount that appears on a property contract is
80%
Once a total loss has occurred and the property insured no longer exists or has been lost, some property contracts have a
Restoration of limits clause
A restoration of limits clause that indicates either:
The limits are restored after a total loss is paid; or
Paying the loss does not cause any limit reduction whatsoever; or
The policy is ended, and a pro rata refund is issued to the insured.
An aggregate limit
Is the total amount a policy will pay for all covered losses that occur during a given policy period, regardless of the total number of claims brought by any number of claimants.
Primary coverage
Is the first contract responsible to pay for claims due to a covered loss
Excess insurance policy
Is a second layer of coverage and picks up where the underlying policy left off, up to the excess coverage limit.
The contribution by equal shares provision
Dictates the amount an insurer will be required to pay when a loss is covered by multiple policies simultaneously. Under this form of loss payment, each insurer that is responsible for covering a loss will pay an equal amount of the loss until the lowest policy limit among them is exhausted.
Nonconcurrency
When the umbrella and the underlying policy, or two (2) individual policies covering the same property, both apply to identical loss exposure, but the separate policies have different perils or different start and expiration dates of coverage. This can create a situation where the underlying policy limit is used and reduced, thus violating the minimum coverage agreement of the umbrella.
The following conditions are related to the named insured:
Severability;
Duties following a loss;
Assignment;
Abandonment; and
Waiver of rights.
Severability of interests clause
States that coverage applies to each insured under the policy as if a separate policy were issued to each of them. This means that it is possible for a policy to provide coverage if one (1) insured makes a claim against another insured.
Immediate Notice of Claim
Writing a claim and telephoning the insurer’s agent is also deemed to meet this criterion under modern interpretation
Prevent Further Loss
Of property from damage under reasonable conditions
Damaged and Undamaged Property
Must be separated to determine loss. There is no duty by the insurer to pay for or replace property that is not damaged or destroyed;
Inventory the Loss
Compiling a complete list of destroyed, damaged, and undamaged property;
Claim Verification
Verification of bank statements, receipts, and records of the insured. These items must be made available to the company for inspection, if requested. It is always a good idea to store such materials off site or in a fireproof container;
Police Reports
Are required in theft loss or a situation where a criminal act involving the loss has been committed;
Cooperation by the Insured
Is required, and the insured must assist the company in the claims process to properly assess and settle a loss
Proof of Loss
The insured must submit a written and signed proof of loss form to the insurer within a time specified in the policy from the date of loss or insurer’s request
Below are duties of the insured when liability claims or lawsuits are involved:
The insured must notify the insurer as soon as practicable of any event or occurrence that could result in a claim. The insurer needs the following information:
Details such as where and when the occurrence took place and how it happened;
Identification and contact information for anyone who was injured as well as any witnesses; and
Details regarding any injuries or property damage that occurred.
In the case of a claim or a lawsuit, the insurer requires the insured to take down the details of the claim or the lawsuit as well as the date it was filed and notify the insurer;
The insured also needs to authorize their insurer to act on their behalf to obtain records and other information needed for the insured’s defense;
The insured needs to cooperate with the insurer in the investigation and defense of any claim. This includes forwarding any relevant documents such as demands and summonses or other legal papers. This could mean helping to enforce the insured’s rights against other third parties, which might relate to any claim or suit; and
Finally, the insured agrees not to make any voluntary payments or take on responsibility for anything, (except for providing first aid) without the consent of the insurer.
Property contracts prohibit the assignment (i.e., transfer) of any right or duties enjoyed by the insured to any other party without the written permission of the insurance company through what is called ---------
The anti-assignment clause.
Abandonment provision
The insured is prohibited from abandoning damaged property to the insurer for repair or disposal.
Waiver of Rights
This is an endorsement available to the insured on a property policy for additional premium that would waive the right of an insurer to seek subrogation in the event a third party causes loss to the insured.
The following are provisions that relate to the insurer:
Claim settlement options;
Duty to defend;
Liberalization;
Subrogation;
Right of salvage;
Vacancy or unoccupancy;
Appraisal; and
Arbitration/mediation.
In a property policy, the company can
Opt to pay a claim based on the value of the property by either repairing it or replacing it. If the exact item is not available, the company is allowed to provide property of equivalent value or structure.
In liability contracts the insurer has
A duty broader than to just pay loss incurred by the insured but also must defend the insured in a lawsuit. The insurer has the right to investigate a claim against an insured and decide whether to fight or settle. The insurer is not required to obtain the insured’s consent to settle a lawsuit brought against the insured, and the insured is bound to the settlement even if it exceeds the liability limits available under the policy.
Duty to Defend
This includes amounts that go beyond the limit of liability stated in the declarations and includes attorney fees, court costs, and the costs to investigate the claim. However, if the limit of liability as stated in the declarations is exhausted by a claim, then duty of the insured to defend ends.
Liberalization clause
Protects the insured if, within sixty (60) days of buying a personal lines policy or during the policy period, the insurer amends the policy and broadens coverage to contain more favorable terms or provide more coverage benefits. The insured receives the broadened coverage at no additional premium cost.
Under the subrogation clause of an indemnity contract
The insurance company has the right to recover amounts it has paid directly to its insured as a result of damages caused by a third party. This clause also prevents the insured from collecting more than one time on a single loss.
Salvage value
Is the value of insured property after its useful life has ended, and the right to salvage provision states that the insurer has the right to the salvage value of property when a total loss claim has been paid for that property. In essence, when there is a total loss, the insurer has effectively “bought” the property that was deemed a total loss from the insured.
Vacancy
A dwelling or other structure that has no people and no personal property or contents within it.
Unoccupancy
A dwelling or other structure that has no people inside it but still contains personal property or contents within it.
The appraisal clause of a property contract is
A condition in a property policy that addresses a situation in which the insured and the insurer cannot agree on the value (amount) of the loss. When either party demands appraisal, each party then selects a disinterested third-party appraiser to assess the loss value. Both parties are responsible for hiring and paying for their own appraisers; in turn, the appraisers appoint one (1) additional appraiser (known as the umpire) whose fee is split evenly between the parties. Each of the initial two (2) appraisers then creates their own estimate of the loss. If the appraisers cannot agree on the value of the loss between themselves, then the umpire will proceed to determine the correct value of the loss.
The arbitration clause
Is similar to appraisal in that it deals with dispute resolution, but it is not limited to loss settlement disputes. It is a tool used to resolve any area of dispute between: Insurer and insured; Insurer and a third party, such as parties in a liability dispute; or
Two (2) insurers.
The following are provisions that apply when third parties are involved:
The standard mortgage clause;
The loss payable clause; and
No benefit to the bailee.
The standard mortgage clause
Gives special protection for the interest of a mortgagee when a loan is made.
A mortgagee has a financial interest in the mortgaged property and is entitled to certain rights under the property policy bought by the mortgagor to cover the property. Such distinct rights are separate from the property owner’s and enjoyed by the lender, referred to as -----------------------
Third-party property rights.
Third-party rights
Exist directly between the insurer and the mortgagee until the mortgage is fully repaid by the insured.
To facilitate this, mortgage companies normally require the insured to add the mortgagee onto the policy as an ------------------
Additional named insured.
The insurer may pay loss to a third party possessing an insurable interest in the property being insured, such as an additional insured, instead of paying the named insured directly. The authorization for the insurer to pay a third party in the event of a loss is contained in the ----------------
Loss payable clause.
A bailee
is a person or entity who has taken care, custody, control, or possession in some fashion of property from another. Property is commonly entrusted to a them for the storage, repair, or servicing of the property. The no benefit to ------- clause states that if a covered loss occurs while property is in the possession of a --------, the insurance policy will pay the insured, not benefit the