Chapter 1 Flashcards
Depreciation
a reduction in value, particularly due to wear and tear
Exposure
susceptibility to risk
Implied Warranty
a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary buyer’s expectations
Insurance Policy
a contract between a policy owner (and/or insured) and an insurance company which agrees to pay the insured or the beneficiary for loss caused by specific events
Insurer (Principal)
the company who issues an insurance policy
Obsolescence
depreciation in the value of a property due to becoming outdated
Premium
the money paid to the insurance company for the insurance policy
Tort
A wrongful act of the violation of someone’s rights that leads to legal liability
Law of Large Numbers
states that the larger the number of people with similar exposure to loss, the more predictable the actual losses will be.
Insurable Interest
- property insurance: this refers to the financial stake someone has in property their entering. If the property is damaged, they would suffer in monetary loss.
- Creation of insurable interest: you establish an insurable interest in property by owning it, possessing it, or having control over it.
The elements of insurable risk are:
- Financial (a monetary interest)
- Blood (a relative)
- Business (a business partner)
In Property and casualty insurance, insurable interest must exist…
at the time of the loss
Risk
the uncertainty or chance of a loss occurring
The two types of risk are…
Pure and speculative. Only Pure is insurable.
Pure risk refers to
situations that can only result in a loss or no change. There is no opportunity for financial gain.
Speculative Risk involves…
the opportunity for either loss or gain.
Hazards are…
Conditions or situations that increase the probability of an insured loss occurring
Hazards are classified as…
Physical Hazards, Moral Hazards, or Morale Hazards.
Physical Hazards are
those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it.
Moral Hazard refers to…
applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer.
Morale Hazard refers to…
an increase in the hazard presented by a risk, arising from the insured’d indifference to loss because of the existence of insurance.
Perils are…
the causes of loss insured against an insurance policy
Life insurance
insures against the financial loss caused by the premature death of the insured
Health Insurance
insures against the medical expenses and/or loss of income caused by the insured’s sickness or accidental injury
Property Insurance
Insures against the loss of physical property or the loss of it’s income-producing abilities
Casualty Insurance
Insures against the loss and/or damage of property and resulting liabilities
Loss is defined as…
the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril. Insurance provides a means to transfer loss.
Indemnity (Reimbursement) is…
a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss and is not allowed to gain financially because of the existence of an insurance contract.
Indemnity means that insureds…
cannot recover more than their loss.
Subrogation is…
the insurer’s legal right to seek damages from third parties, after it has reimbursed the insured for the loss.
An Accident is…
a sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended
An Occurrence is…
a broader definition of loss than “accident” because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.
The two types of property losses that an individual or business are exposed to are…
Direct and Indirect
Direct loss also includes other damage where the insured peril was the…
Proximate cause of loss (Building catches fire, put out with water, now there is water damage. This is paid under peril of fire because the fire was the proximate cause.)
Indirect losses, also known as consequential losses, are losses considered a result of…
direct loss.
A peril is a…
specific cause of loss.
Open Peril is…
a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against any risk of loss that is not specifically excluded. (replaced the use of the term “all risks”
Negligence is…
the failure to use the care that a reasonable, prudent person would have under the same or similar circumstances.
Under Contributory Negligence…
the injured party must be completely free of fault in order to collect. Any negligence on the part of the injured party that contributed to the injury, however slight, normally will defeat the claim.
A variation of contributory negligence is known as…
The last chance rule. It may be used as a defense by a negligent party who can show the injured party had the last chance to avoid the loss but did not.
Because of the harshness of contributory negligence, the majority of states have adopted a somewhat more lenient doctrine, known as…
Comparative Negligence
Some states have adopted the rule of pure comparative negligence, which allows…
the plaintiff (the party who brings the lawsuit) to revoker the damages as long as he or she is not 100% negligent.
Modified comparative negligence, is also known as…
“Equal to or greater than” rule, the injured party may only recover damages if his or her fault is less than that of the defendant
Burglary is…
the crime of forced entry into or out of the premises of another by a person or persons with felonious intent.
Robbery is…
the taking of property from the care and custody of a person by one who has caused or threatened to cause that person bodily harm, or committed an obviously unlawful act witnessed by that person.
Theft is…
any act of stealing and compasses both burglary and robbery.
Mysterious Disappearance is…
the disappearance of property without knowledge as to the location, time or how the property was lost. Losses by mysterious disappearance are excluded from most insurance policies.
Vacancy refers to…
an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy (usually 60 days)
Unoccupancy (non occupancy) refers to…
an insured structure in which no people have been living or working within the required period of time, but some property is stored.
Blanket insurance is…
a single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations.
Specific insurance is…
a property insurance policy that covers a specific kind of unit or property for a specific amount of insurance.
A tort may result in two forms of injury to another…
Bodily injury and property damage.
In the case of property damage…
the extent of the loss is usually simple to determine
In the case of Bodily injury…
it is more difficult to determine the loss monetarily.
The two classes of compensatory damages that may be awarded are…
Special and general damages.
Special damages are…
specific out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages.
General damages…
compensate the injured person for pain and suffering, mental anguish, disfigurement, and other similar types of losses.
The third class of damages is…
Punitive damage.
Punitive damage is…
a form of punishment for extreme outrageous behavior, gross negligence, or willful intent.
Actual Cash Value (ACV) method of valuation…
reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear of obsolescence.
Formula for ACV is…
Current Replacement Cost - Depreciation = ACV
Replacement Cost is defined as…
the cost to replace damaged property with link kind and quality at today’s price, without any deduction for depreciation.
Market Value is…
a seldom-used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss.
Stated Amount is…
an amount of insurance scheduled in a property policy that is not subject to an coinsurance requirements in the event of a covered loss.
Salvage Value is…
the estimated value an asset will realize upon its sale at the end of its useful life.
Absolute liability is…
Imposed upon a person or company engaged in hazardous or potentially dangerous business who, by negligence or by an omission, causes harm or injury to another person or property.
Strict Liability is…
commonly applied in product liability cases. A person or business that manufactures or sells a product makes an implied warranty that the product is safe.
The vicarious liability doctrine comes from the old English law “Respondeat Superior” in which…
the master was liable for the acts of their servants.
Limits of liability are…
the insurer’s liability for payment as stated in an insurance policy. Limits of liability is the maximum amount of money the insurance company will pay for a particular loss, or for loss during a period of time.
Per Occurrence (Accident) is…
a sub-limit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence
Per Person is…
the maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims.
Aggregate Limit is…
the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims made or the number of accidents that occur.
Split Limits are…
Separately stated limits of liability for different coverages. the limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury and property damage.
Combined single is…
a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.
