Chapter 2 - The Evolution of Property Policies Part 1 Flashcards
What are the elements of a contract?
1) Offer & acceptance
2) Consideration
3) Consideration
4) Genuine Intention
5) Legality of object
- an agreement between legally capable parties for a consideration demonstrating intent to do something that is legal
Name and explain the insurance principles and doctrines related to contracts.
1) Insurable interest
- a person must stand to benefit from the continued existence of that property, or be prejudiced by its loss
- required to recover for loss
2) indemnity
- the insured shall not receive more than the actual loss suffered
- no profit from the loss
- loss must be fortuitous (a chance event)
3) Subrogation
- means the substitution of one party for another as creditor
- under which an insurer assumes the rights of an insured against whoever was responsible for loss/damage to insured prop once insurer has paid the insured’s loss
4) proximate cause
- is the active efficient cause that sets in motion a train of events which brings about a result without the intervention of any other force started and working actively from a new and independent source
- has been the subject of court deliberations when insurer and insured cannot agree
- may often be related to an exclusion but may also determine whether coverage exists
What does the basic fire policy cover?
1) fire (no flame=no claim)
2) lightning - excluding damage to electrical devices/appliances caused by lightning, but will cover any damage caused by actual fire
3) explosions of natural, coal, manufactured gas
- excluding explosion caused by riot, civil commotion, or any other excluded perils
- todays policies are derived from basic fire policy
What is a specific policy?
- when it builds on a standard policy that includes:
i) insuring agreements
ii) all normal exclusions and limitations
iii) general stat cond
What is a modular policy?
- a policy that is made up of a sum of several parts, or modules
- usually a dec page showing such details as name and address of insurer and insured, policy period, and premium
- used for commercial policies
What is direct and indirect loss?
Direct - refers to the value of physical prop that is damaged or destroyed
Indirect - arises from direct loss
- it encompasses other loss suffered as a consequence of the damage to or destruction of physical property
- business interruption is most common form and includes: loss of earnings, rents, and rental income, and also expenses incurred to keep the business in operation after a direct loss
- business interruption losses cannot be recovered under a fire policy
Explain the importance of description and location of subject matter.
1) prop must be described precisely and be clear enough to determine what property is insured if a loss occurs
2) location is critical feature of prop description
3) location regarding moveable property
- prop of the type described in policy at location NOT described in polcy will not be insured
- prop at more than 1 location will usually be insured under a seperate policy for each location
4) blanket coverage
- policy may insure prop of insured at locations that are not in policy
5) item vs. object
- one item doesn’t mean one item
- it means amt of insurance for item applies to all objects within that class of objects describe in policy
6) 2 or more items
- total amt of insurance is the sum of 2 or more smaller amts of insurance, each applying to a particular item
What is occupancy?
- means not the identity of the people occupying premises, but the use to which the premises are put
- essential for insurer to assess risk
What does the insuring agreement describe?
- undertaking between insurer and insured
- insurer undertakes to pay for direct loss arising from destruction/damage of describe prop during stated policy period
What is the basis of indemnity under basic fire policy?
Amt payable to insured the LEAST OF:
1) ACV of damaged/destroyed goods
2) interest of insured in property
3) the amount of insurance
- ACV, not replacement cost
- ACV = the cost of replacing prop, less any depreciation to it at time of loss
- depreciation is determined by physical condition of prop, resale value, normal life expectancy just before loss
- may be affected by market prices such as reduction in value
What are some common rating criterias used?
1) fire protection
2) occupancy
3) construction, height, area
4) susceptibility to loss
What is the first group of exclusions under basic fire policy?
These restrict coverage
1) electrical devices
- loss to electrical devices/appliances is excluded if caused by lightning or other electrical currents
- but loss from any ensuing fire is covered
2) application of heat
- loss of goods caused by process involving app of heat is excluded
- but policy will cover damage to other insured prop damaged if fire spreads
- if a fire starts elsewhere on insureds premises, and destroys good undergoing heat process, exclusion would not apply
3) war risks
- loss arising from foreign or civil war, riot or other civil disturbances is excluded
- fire loss would not be excluded if it occurs during riot/civil distrubance
- however if proximate cause is people taking part in riot which caused fire is not recoverable
4) nuclear incident
- both direct and indirect loss caused by nuclear incident are excluded except for ensuing loss directly from fire, lightning, explosions of nat, coal, manu. gas
- direct and indirect loss by contamination by radioactive material is also excluded
Define nuclear incident.
- is defined in federal Nuclear Liability Act as an occurrence resulting in injury or damage that is attributable to a breach of the duty imposed on an operator by this act
What is the second group of exclusions under the basic fire policy?
Reflect underwriting and rating considerations
1) Excluded property
- removes certain types of prop from policy coverage for: money, books of acct, securities for money, evidences of debt/title, autos, tractors, other MV, aircrafts, and watercrafts
- identifies types of moveable prop that may present unusual hazards, require specialized insurance or raise u/w issues
2) Alterations & additions (loss or destruction)
- loss to a building or its contents during and resulting from alterations/additions to building is excluded unless written permission has been granted
- normal repairs are allowed without permission
- these activities come with increased possibility of loss
- loss not attributable to the work, occurring while work is in progress, is not excluded
- insured should ask permission so it will eliminate risk of uninsured loss, allow insurer to assess additional exposure to loss and negotiate terms with insured
- work may have an effect on prop value which will require a higher premium and insured may become underinsured
3) Vacancy, Unoccupany, Disuse
- loss to insured building/prop inside is excluded while insured knows the building to be vacant, unoccupied for more than 30 consec. days, or if it is a manufacturer, that it has ceased operations for more than 30 consec. days
- policy is not terminated, however, and cov is automatically reinstated as soon as the vacancy, unoccupany, disuse ends
- prolonged v,u,d affect the character of the risk as property may be unsupervised
- it could be vandalised or used by trespassers
- disuse related to manufacturing operations
- the insured has to be aware of the situtation
- once insured is aware, the v,u,d must continue for more than 30 consec days
4) volatile substances
- applies to amts over a gallon of gasoline, benzene, naphtha, or other substance of equal or lower flashpoint
- this is in addition to the contents of tanks in vehicles
- the word while suspends all coverage under policy for as long as the condition exists
5) By-Laws
- loss due to a by-law regulation, ordinance, or law regulating zoning or demolition, repair, or construction of building is excluded
- such regulation may increase costs and cost insurer more than what value of prop damaged/destroyed
- only the extra cost is excluded
- coverage can be added by endorsement
Define vacant and unoccupied.
Vacant - is used to indicate the absense of all occuapnts, none of whom intend to return.
Unoccupied - is generally used where all occupants are absent from prop but intend to return.
