Legal Concepts - section 5 Flashcards
Suplus Lines: define
most cases, insurance is placed with an admitted insurer but sometimes it can be placed with non-admitted insurers, called surplus lines.
Insurance may be unavailable in the standard market or form admitted companies if an applicant possesses such unusual risk characteristics that standard companies will not take the insurance. This type of business is called “ excess insurance” because it is beyond the capacity of standard insurers to accept
Marketplace need
such coverages are marketed through non-admitted insurers who specialize in offering insurance to the high risk market
these difficult to place risks range from importing and exporting wild animals to hazardous waste
Surplus must be on what list
approved list
Requirements of surplus lines
all states require an insurer to obtain a license or certificate of authority to carry out the business of insurance. In CA, these insurers are called admitted or authorized insurers
- agent must attempt to place business with admitted carriers before referring the client to a surplus lines broker
- must certify to surplus lines broker that they have attempted in good faith to obtain insurance and were unable to do so from the admitted carriers. must complete form of a at 3 insurers who declined risk - any ca citizen may negotiate and obtain insurance on their own property by dealing directly with a non admitted insurer
Special Surplus Lines
- insurance on property or operations fo railroads engaged in interstate commerce
- insurance on goods, ware, merchandise, personal property etc. being exported by land or water
- reinsurance of the liability of admitted insurer
- aircraft insurance
- insurance against perils of navigation, transportation on hulls, freights and disbursements and other ship owner interested, marine builders risks and other types of ocean marine risks
Tort law =
legal liability = establishes who is responsible = who is obligated to pay = harm to others
Tort
private/civil wrong. Excludes breach of contract and criminal wrong
Contract law
agreements, breach of contract, entitled to damages, attorney fees and cost
Type of torts
Intention tort, unintentional tort, absolute liability, strict liability
Intentional tort
deliberate act - assault, battery, libel, slander, false arrest, etc. Some intentional torts can be covered by insurance and are considered “personal injury”
Unintentional tort
negligence
Absolute Liability
claimant does not have to prove anything
strict liability
claimant must prove that a defect in the product caused injury or damage
4 elements of negligence
- . duty owed
- duty breached
- unbroken chain beginning with negligence
- ends in bodily injury or property damage
Proximate cause
what states the sequence of events, An uninterrupted or unbroken chain of events, In liability, it must start with negligence. In property insurance, it must start with an insured peril. Both property and liability would have to induce harm or damage
Defense/doctrines/strategies used to defeat or reduce legal liability:
- contributory negligence
- last clear chance
- assumption of risk
- intervening cause
- comparative negligence
- statutes of limitations
Contributory negligence
if claimants actions contributed to the loss, they are barred fringe recovery
Last clear chance
used to counter contributory negligence. A person had a chance to avoid a loss and did not exercise it or refused to do so. Common law defense
Assumption of risk
The claimant was aware of the risk and still placed themselves in the situation. Example would riding a roller coaster. Common law defense
Intervening cause
a broken or interrupted chain of events freeing the insured from liability, such as black ice. Common law defense
Comparative negligence
both at fault
- damages are settled proportionally to the degree of fault. A person who was 25% at fault. a person who was 25% at fault would receive only 75% of the value of their claim. The other party that was 75% at fault would only receive 25% of the value of their claim. Statutory law
Statutes of limitations
valid defense if legal action is initiated after the statutory time period for taking action has expired. Example: auto claims requires action be taken within 1 year of the accident. Statutory law. This is a state exam question
Absolute liability
Is imposed without regard to fault or negligence. The injured party does not need to prove negligence because the activity
Strict liability
for test purposes will be applied to product claims. Injuries are covered regardless of negligence but the injured person does have to prove that the item causing the injury was dangerous or defective
Intentional tort definitions:
Libel slander defamation false arrest wrongful eviction gross negligence vicarious liability
Libel
written
slander
spoken
defamation
includes both libel and slander and damages another’s reputation
False arrest
wrongfully accusing someone and they are arrested and then released
wrongful eviction
incorrectly evicting a renter from their room or rented space
gross negligence
willful, wanton, total disregard for property of life of another
vicarious liability
when one person is held responsible for acts of another. employer is held responsible for acts of their employees. an employee while running errands for their employer is involved in an auto accident. The employer will also be held liable for the accident under vicarious liability.
Damages
-specific/special damages: have economic value. Actual medical bills, lost wages, loss of future earnings
-general damages: pain and sufferings, loss of ability to have children, loss of a foot, disfigurement, mental anguish
Note: There is no direct relationship (correlation) between general and special damages
Compensatory damages: combination of special and general damages
punitive: not covered by insurance.
Pure no fault
no negligence is established. no lawsuits
Modified no fault
can sue if claim reaches a certain threshold, or if there is disfigurement or death
rating organizations
collect, analyze data from all insurers. develop loss cost basic, policies and endorsements used by the industry. Insurance services office 9ISO) develops policies, endorsements and loss cost base rate for property and casualty, except for workers compensation, bonds and crops. Workers compensation inspection rating bureau also inspects risk for classification accuaracy
ISO develops the policies:
policies must be filed and approved by the DOI
ISO state exam question: what organization develops forms for the standard market?
ISO. methods to identify loss exposure: checklists and surveys; inspections & interviews; financial statements; contracts and agreements. The least professional and least effective is copying previous apps or declaration pages.
Types of property loss:
- direct loss
- indirect loss
- intangible is not a type of property loss
Direct loss: damage to tangible property by an insured peril
Indirect loss: seconds financial loss due to an insured direct loss
Intangible is not a type of property loss
Ratios:
loss ratio
expense ratio
combine ratio
Loss ratio: losses dividend by earned premium
Expense Ratio: expenses divided by premium (operating costs)
Combines Ratio: loss ratio plus expense ratio. If less than 100, the insurer is profitable. If 100, then the insurer is breaking even. If greater than 100, insurer is losing money
Perils=
cause of loss/reason for loss. Examples: fire, wind, hail
- Named peril policy only covers losses due to perils named in the policy. Burden of proof is on the insured. Named peril policy forms are: Basic form, Broad form
- All risk/open peril covers any peril unless specifically excluded. Burden of proof is on the insurer. This policy form is called special
Earned Premium =
insurer has provided coverage
Unearned premium =
insurer has yet to provide coverage. Exposure unit is the measure used to establish rate.
- exposure unit is the measure used to establish rate. Exposure unit is the # of cars or homes that are being insured.
Cancellation
mid term termination of the policy
Pro rata cancellation
insurer cancels. settles proportionally. insurer keeps only earned premium and returns unearned premium
short rate cancellation
insured cancelled. insurer keeps all earned premium plus an additional amount to cover expenses
flat cancellation
insurer returns all premium
Type of ratings: manual
judgement
merit
Manual: class rating that’s published in a manual. convenient but inflexible
Judgment: based on underwriter’s evaluation
Merit: manual ratings that the underwriter applies debits and credits to adjust. Examples of merit rating are experience and retrospective rating
Parties to a contract:
property insurance
liability insurance
first party is the insured. second party is the insurer. called first party insurance
first party is the insured, also known as the defendant. Second party is the insurer. third party is known as claimant or plaintiff. called third party insurance
subrogation
“rights of recovery” substitution. once an insurer pays the insurer. once an insurer pays the insured’s claim, the insured can sign over their rights of recovery against a responsible third party for the insurer to subrogate against. This allows the insurer to recover the amount of the claim paid to the insured due to the third party’s negligence
Arbitration
disputed claim. found in auto policies when settling uninsured motorist
appraisal
disputed property claim. the insured and insurer each hire their own appraiser. The two appraisers hire an umpire. decision of 2 out of 3 wins
reserve
accounting measure of liability/estimate of obligations
Assignment
transferring right of an insurance policy to another. Requires insurer’s written consent
loss cost rating
base rate that insurers can add profit and expenses to and submit for approval
insurable interest
ownership/financial interest in the property being insured. Must be proven at app and claim in property & casualty. Lack of insurable interest voids coverage. Contingent or expectant interest is not insurable. Insurable interest supports the principal of indemnity
Concurrent causation
when two perils happen at the same time or in short sequence of each other, it one is covered and the other is not, then both are covered. If the test says EXCLUDES concurrent causation - if one peril is covered and one is not, then nothing is covered. The exception is fire and explosion. Concurrent causation really only applies to certain perils
