Assignment One Flashcards
Contract (def)
agreement between parties
What are the four parts needed for a legal, binding contract
- each party must agree to terms
- sufficient consideration or value
- parties must have legal capacity to enter into a contract
- Contract must be legal and not against public policy
Insurance (def)
contract that undertakes to indemnify or pay a certain amount in the event a covered loss occurs
Indemnify (def)
to make whole
Consideration (def)
value for an insurance contract
What is the consideration in an insurance policy/contract
- Premium paid by the insd
2. Promise given by the insurance company
How is temporary insurance put into effect
through binders
What is included in a binder
all of the usual terms, conditions and exclusion contained in a policy
When is cancellation/non-renewal notice required on a binder
- No notice of cancellation or non-renewal required unless the binder has term of 61 or more days
- Auto binders are exception - 5 days notice required to cancel an auto binder
Difference between property insurance and liability insurance
- Property: payment is issued to the insd or others with interest similar to insd
- Liability: payment only issued to a 3p that the insd has injured or caused damage (insd will never rec pmt under their own lx policy
Four fundamental parts of all property and liability insurance contracts
- Declarations
- Insuring Agreement
- Exclusions
- Conditions
Declarations (def)
portion of policy contract that includes info on: □ Insured □ Premium □ Period of coverage □ Policy limits
Insuring Agreement (def)
defines coverages contained in the policy
What does an exclusion do
eliminates coverage
Conditions (def)
requirements that must be met before payment will be made
Conditional Contracts (def)
contract in which insd has certain duties that must be met following a loss
Duties of an insured to meet the conditional contract (5)
1, INSD must give prompt notice of loss
2. Cooperate with insurance company
3. Act in away that preserves the ins company rights
4. Send copies of notices or legal papers to insurer
In property policy
5. Must submit written proof of loss
Proof of loss (def) (2)
evidence offered by the insd to support the claim for damages, and a sign sworn statement by insd verifying what is required according to the policy/insd company
Proof of loss requires ID of what 5 things
- Origin of loss
- Proximate cause of loss
- Interest of the insd and all other parties in the property
- All contracts of insd that applied to the property
- Any changes in title, use, location, possession of the property
Subrogation (def)
when insd collects damages from their own insd company, and those damages were caused by a negligent 3p, the insd’s insurance company acts as insd and is entitled to have reimbursement of those damages from the 3p
Insurance policies are considered what type of contract (personal, third party, commercial)
personal
What must be done for a change to a policy to be permitted
must be made in writing by the insurance company
Coverage applies to a loss that does what in a policy period?
begins and take place
most policies have a condition that limits coverage to “what” in regard to policy period and policy territory
take place in a geographic location
What is an excess policy
policy that pays secondary to a primary policy for the same loss, when all applicable limits on the primary policy have been exhausted
what is an equal share policy
pay an equal share of the loss, but will not pay more than its policy limits
What is a pro rata policy
□ This policy pays the proportion that its limit bears to all limits that apply to the loss □ Example: ® Poly A = $25K limit ® Poly B = $50K limit ® Total limits = $75K ◊ A = 1/3 of total limits ◊ B = 2/3 of total limits ® Loss is $6K ◊ A = 6000 * 1/3 = 2000 ◊ B = 6000 * 2/3 = 4000
Liberalization
If ins company revises a type of policy to broaden the coverage w/out requiring an additional premium, then an insd who has already purchased it will automatically receive the benefit of the better coverage as long as the benefit takes place w/in specified time period (usually 60 days) from policy origination
What is the appraisal process (6)
- If disagreement occurs between insd and insd company on value of loss, each party may select an appraiser
- These two appraisers then select a 3rd to umpire
- The umpire will determine the amount of the loss
- An agreement between any two of the 3 will be binding on both the insd & insurance company
- Appraisal has nothing to do with whether or not a loss should be paid
- LX must be determined before the appraisal process takes place
What is the principal of Severability (2)
§ Insurance applies separately to each insd as if the other didn’t exist
§ Wrongdoing on the part of one insd, does not prevent recovery under the policy for the other insd
Ex: homeowner who commits arson will not prevent the mortgage co from recovering insurance for damage done to the house
Risk (def)
the change of financial loss
what does a large deductible mean in regards to risk, premium and deductible
Large deductible means the insd retains more risk, and the insd co accepts less risk, therefore premium is lower
what does a small deductible mean in regards to risk, premium and deductible
Small deductible means the insd holds less risk, more risk is transferred to the insd co, therefore premium is higher
What are the three types of property
- Real
- Personal
- Rights of possession or use
Real property (def)
land and anything permanently attached to the land (buildings and structures)
Personal property (def)
movable (not perm fixed) property
□ May include auto, clothes, furniture, fixtures
Right of Possession and Use (def)
those who rent property
□ Renter may have an insurable interest in preservation of the property
Example: renter leases space for 10 ys to operate a restaurant. Renter invests money in remodeling and install of equip and furnishings.
Peril (def)
event that may cause loss
What are 4 main examples of peril (4)
® Fire ® Windstorm ® Earthquakes ® Flood **Insurance companies only cover perils.
Hazard (def)
increase the risk of loss by peril
what are the three types of hazard
- physical
- moral
- morale
physical hazard (def)
the physical condition of an item increases risk, ie - broken smoke alarm
moral hazad (def)
conscious attitude of the insd. IE - insd that intends to commit arson increases change there will be loss by fire
morale hazard (def)
unconscious attitude of insd. IE - carelessness, driver text messaging while driving
Doctrine of proximate cause (def)
all damages that result from unbroken connection between covered event and damage that grows out of event are covered
Direct Loss (def)
physical harm or damage to tangible property
□ property you can see, touch, feel
□ Ex: fire damage to an office building
Indirect Loss (def)
economic loss that results from Direct Loss
Ex: fire in office building has indirect losses of cost of relocation, loss of profits during repairs
What are the three types of deductibles
- straight
- percentage
- franchise
straight deductible (def)
flat amount subtracted from the loss
□ Amt of loss insd has agreed to be responsible
Percentage deductible (def)
deduction of percentage of value of property or % of policy limits
Franchise deductible (def):
when the loss is equal to or more than the deductible, loss will be paid in full
□ Ex: Franchise dec is $5000
® Loss is $4,999
® No insurance pmt made
*If loss was $5000 or more, the ded will disappear and loss is paid in full
Mortgage clause or mortgagee clause (def)
clause in policy that protects a lender that has made a loan on real property
Loss Payee (def)
lender that made a loan secured by personal property (auto loan)
Actual Cash Value (def):
(ACV): replacement cost - depreciation = ACV
□ Most property insurance policies pay direct losses on ACV
Replacement Cost (def)
the cost of replacing an old item with a new item
Principal of Indemnity (def)
provides an insd shall not profit from payment made for a loss
How does the state of FL prevent a violation of the Principal of Indemnity on total loss on a building
To prevent insd from making a gain on the loss (since replacement doesn’t deduct for depreciation), FL requires replacement actually be done.
Valued Policy (def)
parties agree in advance on a coverage limit or value of an item
□ Ex: insd has ring appraised specifically to insure that item, ins co accepts the appraisal and issues policy for that ring (scheduled item)
Valued Policy Law (def)
law that provides if there is covered total loss to building, structure, mobile home or manufactured housing unit, ins co must pay amt provided in policy for which premium was paid (ie - policy limits).
□ Adjuster must process claim on basis of insd amount rather than ACV
What is coinsurance
Clause in most commercial policies that requires the insd carry specific minimum limit of coverage in order to recover 100% of the loss. If insd carries less than than required amount, then the claim settlement will be reduced to the % they have.
Ex, insd has 50% of the required amt, their settlement will be reduced by 50%.
Specific policies (def)
policy that provides a separate limit for each building and the contents of that building
□ Ex: insd owns two office buildings. Each has a sep policy that provides physical damage for $250K. If one building is destroyed, then that building has a limit of $250K.
Blanket policies (def)
policy that applies a single amount to two or more coverage items
Ex: same insd has blanket policy that covers two buildings with a limit of $500K. If one building was destroyed, it would have a limit of $500K to pay damages.
What are the 3 types of liability policy limits (not coverage lines, but type of financial limit)
- single
- split
- aggregate
Single limit (def)
max lx an insurance company will pay for any accident or occurrence.
□ Ex: $30K is lowest single limit for FL auto. Money can be distributed for BI or PD in any amounts that are appropriate.
Split limit (def)
expressed in two or more figures.
□ Ex: 10/20/10 (10 BI exp / 20 BI acc / 10 PD ) lowest split limit auto in FL
◊ No more than $10K can be paid in BI to any one individual.
◊ No more than $20K max for BI in one accident
◊ No more than $10K for prop in any accident
Aggregate limit (def)
total insurance coverage that will be paid during the policy term for covered losses.
Ex: a company has $50M agg limit for LX claims. If $50M are paid out by end of August and policy goes until Oct, they will not pay out any additional LX claims.
