Chapter 2 Flashcards
Replacement cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
Like kind and quality
A method of determining replacement cost valuation using a comparable model or item.
Functional valuation approach
A valuation method in which the insurer is required to pay no more than the cost to repair or replace the damaged or destroyed property with property that is its functional equivalent.
Principle of indemnity
The principle that insurance policy should provide a benefit no greater than the loss suffered by an insured.
Actual cash value
Cost to replace property with new property of like kind and quality less depreciation.
Straight-line depreciation method
An accounting method of calculating depreciation by taking an equal amount of an asset’s cost as an expense for each year of the asset’s expected useful life.
Accelerated depreciation
Depreciation that occurs more rapidly when an item is first purchased and then more slowly in subsequent years.
Decelerated depreciation
Depreciation that occurs slightly for a given time period and then increases rapidly.
Obsolescence
The loss of value caused by changes in technology or fashion.
Market value
The price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller.
Broad evidence rule
A court ruling explicitly requiring that all relevant factors be considered in determining actual cash value.
Valued policy law
A law that specifies that insureds may recover the policy limit for certain losses regardless of the actual value of the property.
Pair or set clause
A policy provision that indicates how values will be determined when a part of a pair or set is lost, damaged, or destroyed.
Policy limits
The maximum that can be paid on a claim, regardless of the actual value of the property damaged.
Special limits of liability
Internal dollar limits on certain specified classes of property that apply regardless of the overall policy limit.
Straight deductible
A specified dollar amount that the insured must pay towards a covered loss.
Split deductible
A deductible provision that applies one deductible for most causes of loss but a different, higher deductible for other specify causes of loss.
Absorb a deductible
To apply the deductible to the actual loss before applying any coverage limits.
Condition
Any provision in an insurance policy that requires an otherwise enforceable promise of the insurer.
Primary coverage provision
An other-insurance provision that specifies that the policy pays the lost amount before other applicable policies until its own limits have been exhausted.
Excess of other insurance
Insurance that pays an amount over the primary layer of coverage.
Proportional share (pro rata share)
An approach to other insurance by which the insurers contribute to the loss payment in the proportion to which they contribute to the total amount of coverage purchased (their limits of liability).
Payment by equal shares
An approach to other insurance by which the loss is paid equally by both policies until one policy is exhausted; then the other policy alone pays.
Payment by amounts payable
An approach to other insurance by which each insurer pays a portion of the loss equal to the amount that one insurer would separately pay, divided by the total of the separate amounts payable by all insurers.
Guiding principles
A set of industry-agreed-upon principles designed to resolve situations of overlapping coverage.
Waiver
The intentional relinquishment of a known right.
Estoppel
A legal principle that prohibits a party from asserting a claim or right that is inconsistent with that parties past statement or conduct on which another party has detrimentally relied.
Nonwaiver agreement
A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy.
Reservation of rights letter
An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it.
Proof of loss
A statement of facts about a loss for which the insured is making a claim.
Examination under oath
A statement given by a person who has sworn to tell the truth before an officer of the court.
