Chapter 2 - Property Basics Flashcards
ACCIDENT
A sudden, unforeseen, unintended and unplanned event from which loss or damage results
ABANDONMENT OF PROPERTY
Specifies that the insurer is not obligated to accept any property abandoned by an insured
ACTUAL CASH VALUE (ACV)
The cost to repair or replace property at its replacement value, minus depreciation
2.2
ADDITIONAL COVERAGES
Additional coverages are automatically included in property policies without an additional premium. The type of additional coverages depends upon the type of policy. Additional coverages are paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.
2.4
AGREED VALUE
The insurance company and insured agree to a specific value of a particular property before the policy is issued. If a total loss occurs, the insurer will pay the Agreed Value
APPRAISAL
If the insurance company and insured cannot agree on the amount of a loss, either party may request an appraisal. Each party selects its own appraiser and the appraisers select an umpire. Agreement by any two parties settles the loss. Each party pays the cost of its own appraiser and shares the costs of the umpire and the appraisal. Appraisal is a dispute resolution method and is not used to determine whether the policy provides coverage for a loss
ARBITRATION
Process whereby a disputed claim is decided by a neutral third party. The disputing parties choose the impartial third party and agree in advance to accept the final decision of the arbitrator, who makes a decision after a hearing where both parties offer evidence.
ASSIGNMENT
Specifies that the insured may not transfer rights of ownership without the insurer’s prior written consent.
Example: a business owner cannot sell his business and then transfer ownership of the business’ general liability insurance policy to the new owner without the written consent of the insurance company
BAILEE
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage. Because bailees are legally responsible for property in their care, property insurance policies specifically exclude coverage for property in the care of a bailee
BAILOR
A person or organization that entrusts property to a bailee
BANKRUPTCY CLAUSE
Specifies that bankruptcy or insolvency of the insured does not relieve the insurer of any of its duties or obligations under the policy
BINDER
A legal agreement issued by an insurance company or a producer that provides temporary proof of insurance until the insurer is able to issue an insurance policy. Binders are issued for specific time periods (maximum of 60 days) and automatically end when the policy is issued. Binders contain the name of the insurer, the amount and type of insurance, and the perils insured against
BLANKET LIMIT
Insures property located at more than one location OR more than one type of property at the same location OR both. For example, the $1 million blanket limit applies to two separate buildings at two separate locations, as well as the business personal property contained in each building
2.3
BURGLARY
The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing
CANCELLATION
The termination of an insurance policy before its expiration date. Once cancelled, a policy provides no coverage. A policy may be cancelled by the insured or insurer
CHANGES
Any changes to the policy must be made in writing by the insurer
COINSURANCE
A provision contained in most policies insuring commercial property, and is used to encourage the insured to purchase and maintain insurance to value, and to establish the basis of payment in the event the insured fails to maintain a specified percentage of that value. The higher the coinsurance percentage the insured agrees to purchase, the lower the rate that the insured pays for the insurance. Coinsurance applies only in the event of a partial loss, as total losses typically are paid in accordance with the Valued Policy Law
2.5
CONCURRENCY/CONCURRENT POLICIES
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers. For example, if an auto policy and an umbrella policy are written with the same policy dates, they are considered to be concurrent
CONCURRENT CAUSATION
A principle holding that when two perils simultaneously cause a loss (i.e., they are both considered the proximate cause of loss), the insurer must pay the loss even if one of the perils is excluded by the policy
CONDITIONS
The conditions section states the obligations of the parties to the contract, as well as any other conditions of coverage.
The insureds duties and obligations are spelled out in this section
*Policy Period – Specifies that coverage only applies to losses occurring when the policy is in force.
*Concealment or Fraud – Specifies that coverage will not apply if an insured makes a material concealment, misrepresentation, or fraud in the application pertaining to the claim.
*Liberalization Clause – Specifies that if the insurer broadens coverage with no increase in premium, that broadening of coverage will apply to existing policies without the need for an endorsement.
*Cancellation – Specifies the terms under which the policy can be cancelled by the insurer and the named insured
2.4
D.I.C.E - The structure of a standard property insurance policy
- Declarations; such as Location of insured property & named insured
- who, what, when, where, and how much - Insuring Agreement; such as Promise to pay & description of covered perils
- company’s promise to pay and perils covered against - Conditions; such as Duties of the insured & liberalization clause
- duties and obligations of the insured and insurer - Exclusions; such as Intentional loss and ordinance of law
- perils not covered under the policy and what we don’t pay for
DEATH
Specifies that in the event of the named insured’s death, the insurer will extend coverage to the legal representative of the deceased with respect to the premises and property covered under the policy at the time of the named insured’s death
DECLARATION PAGE
*Who – Names the insurer and insured, including legal representatives in the event of the insured’s death.
*What – A description of the property being insured and other parties having insurable interests, such as a mortgagee.
*Where – The location of insured property and the named insured’s mailing address.
*When – The effective and expiration dates of the policy.
*How Much – The limits of liability insuring covered property and the annual premium for each type of coverage.
2.4
DEDUCTIBLE
The specified amount of each loss that the insured must bear
In property insurance (and with a per claim, or per occurrence, deductible), the insurer subtracts the deductible from the amount of loss when making payment. By accepting a larger deductible, the insured’s premium may be reduced. An insurer may require a larger deductible as an underwriting tool to limit small claims
2.1
DEFINITIONS
Words, terms, and phrases that are clearly described and used in an insurance policy for the purpose of clarifying the intent of the insurer and to avoid coverage disputes with respect to the extent of coverage provided by the policy. Most policies contain a definitions section in the policy and emphasize policy definitions by enclosing them within quotes or highlighting them with bold text
DIRECT LOSS
Causes damage without an intervening cause
2.2
DUTIES IN THE EVENT OF LOSS
Specifies the obligations of the insured in the event of a loss. With respect to any loss, these obligations include:
*Giving prompt written notice to the insurer, including a complete description of how, when, and where the loss or damage occurred
*Notifying the police if a theft occurred
*Cooperating with the insurer in the investigation and settlement of the loss
*Protecting property from further damage
*Preparing an inventory of the damaged property
*Allowing the insurer to inspect any damaged property and examine books and records
*Submitting proof of loss to the insurer, including:
The time and cause of loss
Any other insurance that may cover the loss
Any appropriate receipts, evidence, or affidavits to support the loss
ENDORSEMENT
A policy form that alters or adds to the provisions of a property and casualty insurance contract
2.1
EXCESS INSURANCE
Any form of insurance coverage that provides protection against certain perils or causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated in specific policies or self-insurance. Excess insurance may be written over primary, excess, or umbrella insurance
FIRE RESISTIVE
The entire building and roof are constructed of reinforced concrete and steel. Must have at least a 2-hour fire resistive rating.
FLAT CANCELLATION
A cancellation of insurance that is retroactive to the effective date of the policy. No coverage is provided and the insurer must refund the policy premium paid by the insured
FRAME
A building that has a roof, floor, and supports of combustible material, usually wood, and combustible interior walls
FRIENDLY FIRE
A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace) and results in smoke damage to the inside of a fireplace. Property insurance does not cover damage from a friendly fire
2.1
FUNCTIONAL REPLACEMENT VALUE
The cost to replace property with other property that performs the same function with similar efficiency, although the replacement property is not identical to the property being replaced. This valuation method is typically used with older property (such as a Victorian home) for which the replacement value exceeds the insured’s ability or willingness to purchase coverage
HOSTILE FIRE
A fire that burns outside its intended boundaries, or becomes uncontrollable. Examples of a hostile fire include a wildfire or a fire that damages a home when a spark from a fire in the fireplace ignites a piece of furniture.
INDIRECT
loss occurs as the consequence of a direct loss
2.2
INHERENT VICE
A quality within property that causes it to damage or destroy itself. Examples include rust, rot and the fading of paint. Inherent vice is not covered by a property policy
INSURABLE INTEREST AND LIMIT OF LIABILITY
The insurer will not be responsible for payment of loss in an amount greater than the financial interest of an insured
INSURING AGREEMENT
The insuring agreement states the insurance company’s promise to pay the insured. This promise is usually broad and the other sections of the policy restrict or limit the scope of coverage provided by the policy. Property insurance policies state in the insuring agreement what perils are covered
2.4
JOISTED MASONRY
Buildings with exterior walls of masonry or fire-resistive construction rated for not less than one hour and with combustible floors and roofs
LEGAL ACTION AGAINST US
Specifies that no one may bring suit against the insurer until all terms and conditions of the policy have been complied with
LIBERALIZATION CLAUSE
Broadened coverage applies automatically to all policies without a premium charge
If the insurer broadens coverage with no increase in premium, the coverage applies to existing policies automatically
LOSS PAYABLE CLAUSE
Specifies how the policy protects the interests of a loss payee. A loss payee has insurable interest in personal property
LOSS PAYMENT
Specifies how the insurer will make payment for loss and any applicable time frames that must be honored when submitting proof of loss and other claim documents
LOSS SETTLEMENT
Specifies which loss valuation method will apply to the property insured under the policy
LOSS VALUATION
A property policy pays for losses to property based on the valuation method contained in the policy or chosen by the insured in an endorsement added to the policy
MARKET
The price a willing buyer would pay for property purchased from a willing seller
MASONRY NONCOMBUSTIBLE
Buildings with exterior walls of masonry (not less than 4 inches thick) or made of fire-resistive construction with a rating of not less than one hour and noncombustible floors and roofs
MODIFIED FIRE RESISTIVE
The materials used in the walls, floors, and roof of a structure must have a fire resistive rating of at least 1 hour, but less than 2 hours
MORTGAGE CLAUSE
Specifies how the policy protects the mortgagee’s financial interest. (A mortgagee has insurable interest in real property.) Payment is made to mortgagees only up to its insurable interest in covered property and in order of precedence. The mortgagee must comply with requirements if the insured’s claim is denied and the mortgagee wishes to collect under the policy
*It must pay any premium due under the policy on demand if the insured fails to do so
*It must notify the insurer of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware
*It must submit a proof of loss to the insurer if the insured fails to do so
Under cancellation requirements, the insurer must provide the mortgage holder (mortgagee) with advance written notice (typically 10 days) before cancelling or nonrenewing coverage, giving the mortgagee the opportunity to pay the premiums
MYSTERIOUS DISAPPPEARANCE
The loss of property when the cause of loss is not known. This is NOT theft, burglary, or robbery
NAMED PERILS
policy specifically lists the covered perils (causes of loss)
2.2
NO BENEFIT TO BAILEE
Specifies that no coverage applies if loss payment benefits a bailee
NON-CONCURRENCY/NON-CONCURRENT POLICIES
The existence of two or more policies covering the same exposures that don’t have the same policy periods. Non-concurrency may create a coverage gap when underlying liability policies and an umbrella policy are non-concurrent because if an underlying liability policy exhausts its aggregate, it may violate the umbrella’s underlying limits requirement
NONCOMBUSTIBLE
The buildings and its walls, floors, and structural framework are constructed of noncombustible materials
NONRENEWAL
The termination of a policy at the expiration of its term. The policy does not renew and no coverage is provided after the expiration date
Addresses the requirements of the insurer if it elects not to renew a policy
OCCURRENCE
An accident includes continuous or repeated exposure to the same general harmful conditions
2.1
OPEN PERILS
policy covers all perils except those specifically excluded
2.2
OTHER INSURANCE
Specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its share of the loss
PRIMARY INSURANCE
Any type of coverage that responds to a loss before all other coverage responds
PRO RATA CANCELLATION
A proportionate cancellation of insurance that refunds premium to the insured based on the precise number of days coverage was in effect. The earned premium is the premium charged and retained by the insurer for the number of days coverage was in place; the unearned premium is the premium refunded to the insured for the number of days coverage was not in place
2.1
PROXIMATE CAUSE
The primary cause of loss. If only one peril caused the loss, the proximate cause is the first event in the unbroken chain of events that resulted in loss. If more than two perils caused or contributed to the loss, the proximate cause is the peril having the most significant impact in generating the loss or damage
2.1
RECOVERED PROPERTY
Specifies the procedure to be followed when lost or stolen property is recovered after the insurer has made payment under the policy. Each party shall notify the other of any recovery and, under most property policies, the insured has the right of keeping the claim payment or returning the claim payment and retaining right to the property after adjustments have been made for any damage
REPLACEMENT VALUE
The cost to replace property with property of like kind and quality, at current pricing, without a deduction for depreciation. Many property policies providing loss valuation at replacement value require covered property to be insured to a certain percentage of its replacement value, such as 80% or 90%
2.2
RESTORATION/NONREDUCTION OF LIMITS
Specifies the sum and circumstances under which an insurer charges the insured, usually a business firm, to restore a policy to its initial face value or not reduce limits of coverage after the insurer has paid a claim either to the insured business or a third party on behalf of the business
RIGHT OF SALVAGE
The right of the insurer to take possession of damaged property after paying for its loss. The salvage belongs to the insurer.
ROBBERY
The taking of property from the care and custody of a person who has been caused or threatened with bodily harm
SALVAGE VALUE
The amount for which property can be sold at the end of its useful life. In property insurance, the salvage value is the scrap value of damaged property
SCHEDULED LIMIT
Insures one or more items of property on a single policy and the amount of insurance applying to each item is shown on a schedule. For example, one farm policy insures a home for $100,000 and a barn for $200,000
2.3
SHORT RATE CANCELLATION
A cancellation of insurance that incurs a financial penalty. Sometimes when the insured cancels the policy before its expiration date, a short-rate cancellation is issued. The insurer retains a portion of the unearned premium to cover costs
SPECIFIC LIMIT
Insures a single item of property for a single limit of insurance. For example, a fire policy insures one dwelling for $100,000
2.3
STATED VALUE
A valuation method that states the value of a particular property on the declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of the property following a loss
SUBROGATION
States the insured must transfer to the insurance company its right of recovery against any party causing a loss after it accepts payment from the insurer for a loss. Subrogation allows the insurer to recover from the party that caused a loss any amounts paid to an insured. It also:
*Prevents the insured from collecting twice for the same loss
*Helps the insurer control expenses and premiums
*Ultimately holds the responsible third party accountable for the loss
2.4
THEFT
The broadest of the crime coverages, theft includes any act of stealing
TYPES OF INSUREDS
* Named Insured – The person or organization designated on the Declarations page of the policy. If property is being
insured, the named insured should be the owner of the property. If vehicles are being insured, the named insured should
be the party or entity to which the vehicle is titled and registered. The named insured receives the broadest coverage of
all persons or organizations protected by a policy
* Insured – A person or organization protected by an insurance contract
* First Named Insured – This insured has rights and responsibilities not applying to other insureds. The First Named
insured represents all insured, particularly on commercial lines policies. The First Named Insured receives notifications
from the insurer, can cancel the policy, and is responsible for paying the premium
* Additional Insured – A person or organization not ordinarily protected by a policy but which, through the addition of an
endorsement to the policy, is granted status as an insured. Under a property policy, an additional insured is often a co-
owner of real property. Under a liability policy, an additional insured is often a party to an indemnification or hold
harmless agreement
UNOCCUPANCY
A property that contains personal property but has no occupants
VACANCY
A provision in a property policy that eliminates or limits coverage for buildings that don’t contain sufficient personal property to support intended occupancy or use
VALUED POLICY
A policy that states the value of property as the amount shown on the Declarations page and will pay that full face value in the event of a total loss, regardless of the actual cash value
2.2
