1/I - Interest, Subrogation, and Claims Flashcards
Insurance Claims
Claim:
A demand for payment in accordance with the terms of an insurance policy (does not always result in indemnification)
Claimant:
Someone who has filed a claim
Two Types of Claims:
- First-Party Claim
- Third-Party Claim
First Party Claim
- Filed by the policyholder against his or her own insurance policy
- Must be paid by policyholder’s own insurer
Third Party Claim
A claim filed against an insurance policy by anyone other than the person named on that policy
Filing a Claim
Claim-filing facts:
- Filing a claim does not grant immediate indemnification
- When insured parties file a claim, it means they believe they are owed payment by an insurer
- Policyholders file a claim by calling their insurer
Acknowledgement
After receiving a claim, an insurer must:
- Acknowledge receipt of the claim
- Begin investigating all pertinent facts and issues surrounding the claim
Insurance Adjuster: represents the insurer: responsible for evaluating the circumstances of a claim
Investigation
Includes:
- Finding the proximate cause of the loss
- Examining all damages
- Noting all circumstances surrounding the loss
- Taking witness statements and reviewing police reports, when necessary
- Determining liability, when relevant to the claim
- Deciding whether the claim is valid or not
Evaluation
If the claim is valid, the adjuster evaluates it, which includes:
- Considering policy limits and deductibles
- Calculating lender interest
- Determining the value of the loss
- Applying all financial provisions of the policy
Adjustment
The final disposition of a claim
- If claim is accepted, the insurer must pay promptly after notifying that the claim will be paid
- If claim is denied, the insurer must explicitly state its reasons for denial
Insurable Interest
Direct financial interest in protecting something or someone
- Only parties with insurable interest can insure a property or person
- You cannot insure a house you do not own or have some financial interest in
- You can only insure someone’s life if that person’s death would cause you economic hardship
Lender Interest
A lender’s financial stake in an insured item
Lender interest:
- Protects a lender who loans money to a buyer
- Allows insurers to compensate a lender if a property, in which the lender has a financial interest, is damaged
Lender Interest Provisions
- Allow the lender to be listed as a payee on the policy
- Ensure that the lender is notified if the policy is canelled, reduced, or expires
- Provide compensation for the lender in the event of an act or an omission by insured party
- Permit the lender to pay policy premiums to maintain coverage, if the insured fails to do so
Limits on Lender Interest Provisions
- Lender may only collect up to its financial interest in a property
- Lender may never change or cancel an insurance policy
Subrogation
The transfer of rights that allows the insurer to recover its losses after it has indemnified a policyholder.
How it works: When a policyholder is indemnified for a loss, she may no longer collect payment for that loss from anyone else. She has transferred this right to the insurer.
Limits on Subrogation
- Subrogation only applies up to the amount that the insurer pays
- The policyholder still has the right to demand payment from the guilty party for any damages that were not covered
Waiver of Subrogation
- Included in certain types of policies and contracts
- Takes away the insurer’s right to recover its losses after paying a claim
- Usually involves a higher premium
