P&C Basics and Policy Structure Flashcards
Definition of a Peril?
the actual CAUSE of loss
Two types of peril:
- Named - SPECIFIED - covered perils are listed - on must be cause of loss or is not covered
- Open - SPECIAL COVERAGE - subject to EXCLUSIONS LISTED -
Def Exclusions: domestic animals, vermin and rodents
What is Open Peril?
SPECIAL COVERAGE - subject to EXCLUSIONS LISTED -
Def Exclusions: domestic animals, vermin and rodents
What is Named Peril
- Named - SPECIFIED - covered perils are listed - on must be cause of loss or is not covered
Another name for Specified Perils?
Named Perils
Another name for Special Coverage?`
Open Perils
Name three things that are always excluded in an Open Peril (Special Coverage) policy:
Domestic animals, vermin, rodents
Definition of Proximate Cause
the peril that was responsible for the loss
What is the Doctrine of Proximate Cause?
IF perils is covered, then ALL damage that is created through a continuous chain of events will be covered
What is personal property?
all forms other that real property - household goods, furniture, etc
What is real property?
buildings and structures - permanently attached (not land)
Definition of a Loss?
Reduction in value, quality or quantity of property
Two types of Loss:
- Direct Loss - actual physical damage to tangible property (real or personal property)
- Indirect Loss (consequential loss) - financial loss incurred as a result of a direct loss (additional living expenses, loss of business income, rental income)
What is a Direct Loss?
actual physical damage to tangible property (real or personal property)
What is another term for Indirect loss?
Consequential Loss
What is Indirect (Consequential) Loss?
financial loss incurred as a result of a direct loss (additional living expenses, loss of business income, rental income)
What are three examples of Indirect (Consequential) Loss?
- additional living expenses (ALEs)
- loss of business income
- loss of rental income
Definition of Settlement:
payment of covered claim
What is the Valuation Clause (loss settlement):
- describes how the property will be determined at the time of loss
- found in the CONDITIONS part of the policy
What is another name for the Valuation Clause?
Loss Settlement
What are the four methods that can be used to value the property in a policy:
- Replacement Cost (RC) - cost (cost new) at the time of loss - no deduction for depreciation - requires a minimum COINSURANCE limit of 80%
- Actual Cash Value (ACV) [Market Value] - replacement cost (cost new) at the time of the loss LESS DEPRECIATION
- Stated Amount - states maximum amount of payment at time of loss - determine at time of loss
- Agreed Amount - insurer and insured agree on value AT TIME OF APPLICATION
What is the Replacement Cost (RC) method of valuation?
- cost (cost new) at the time of loss
- no deduction for depreciation
- requires a minimum COINSURANCE limit of 80%
What is the Actual Cash Value (ACV) method of valuation?
replacement cost (cost new) at the time of the loss LESS DEPRECIATION
What is the Stated Amount method of valuation?
- states maximum amount of payment at time of
loss - determine at time of loss
What is the Agreed Amount method of valuation?
insurer and insured agree on value AT TIME OF APPLICATION
The Actual Cash Value (ACV) method of valuation is Replacement Cost (RC) less __________.
Depreciation
The Replacement Cost (RC) method of valuation requires a minimum ____________ limit of _____
coinsurance
80%
When is the Actual Cash Value (ACV) determined?
at the time of loss
When is the Agreed Amount determined?
AT TIME OF APPLICATION
When is the Stated Amount determined?
at time of loss
When is the Replacement Cost (RC) determined?
at the time of loss
Is there deduction for depreciation in the Replacement Cost (RC) method of valuation?
NO
Is there deduction for depreciation in the Actual Cash Value (ACV) method of valuation?
YES - which is what separates it from RC
Where is the valuation clause found in the policy?
Conditions page
What are the three limits of property insurance?
- Specific - specific amount of insurance - specific type of property - specific location
- Schedule - each item is specifically described and NOT required to be at a specific location - FLOATER
- Blanket (BEST) - single amount that may apply at multiple locations or different types of property
provides a single amount regardless of location
Specific Property Insurance:
specific amount of insurance - specific type of property - specific location
Schedule Property Insurance:
each item is specifically described and NOT required to be at a specific location - FLOATER
Blanket Property Insurance:
single amount that may apply at multiple locations or different types of property
provides a single amount regardless of location
Definition of Deductible:
portion of property loss paid by the insured (retained)
- applies PER OCCURRENCE
The deductible applies ___ _______.
per occurrence
Deductible are used to do what three things:
- require the insured to share in the loss
- reduce nuisance claims
- reduce insurance premiums
Criminal Court prosecutes for _______ wrong.
Public
Civil Court prosecutes for ________ wrong
Private - TORT LIABLITY
Definition of Tort Liability:
- a private wrong (civil) and not a crime
- responsible party is obligated to pay damages sustain to THIRD PARTY CLAIMANT
Three steps that create Tort Liability:
- Duty to act with reasonable care
- Breach of duty - negligence
- Injury or Damage
What is Casualty Liability Insurance:
liability coverage that protects an insured when legally responsible to a third party claimant
- 3rd party claimant can be individual, corporation, association, partnership, etc
Property insurance is a __ ______ contract.
Two Party
Liability Insurance is a __ ______ contract.
Two Party - THREE PARTIES ARE INVOLVED
Who is involved in property insurance?
Insured
Insurer
Who is involved in liability insurance?
Insurer
Insured
Third Party Claimant
Do deductibles apply in Liability insurance?
NO
Property Insurance protects against _____, while Liability protects against _____ ________.
Perils
Accidental Occurrences
What are the Four ways that legal liability are created?
- Negligence
- Contractual Obligations
- Imposed by Law
- Vicarious
What is the most common method to create legal liability?
Negligence
What is liability assumed by a written or oral agreement?
Contractual Obligation Liablity
What are Four examples of liability imposed by law?
- WC
- Liquor Liability
- No Fault Auto
- Strict Liability (Absolute Liability)
What is another name for Contractual Obligations liability?
Insured Contracts
Workers Compensation is an example of a liability enacted by a legislative body, what is it?
EXCLUSIVE remedy for a work related injury - PAYS BEFORE ALL other types of insurance.
What pays before all other types insurance?
WC
What is No Fault Auto?
rather than sue the responsible party, the insurance company of the injured party pays the damages - OKLAHOMA IS NOT ONE
What is another name for Strict Liability?
Absolute Liability
What is Strict (Absolute liability)?
liability WITHOUT regard to negligence or fault, because the activity is considered INHERENTLY DAGEROUS
What are examples of things that would create Strict Liability?
- wild animals as pets
- handling hazardous materials
What is another term for Liability by Association?
Vicarious
What is a Vicarious liability?
imposed upon one party as the result of actions of another.
Automatic:
- Parent - Child
- Employer - Employee
- General Contractor - Sub Contractor
What are three examples of automatic Vicarious liability (Liability by Association)?
- Parent - Child
- Employer - Employee
- General Contractor - Sub Contractor
What are NOT examples of automatic Vicarious liability (Liability by Association)?
- Teacher - Student
- Coach - Player
- Driver - Passenger
What is the basic Insuring Agreement?
Insurer promises to pay damages up to the limits of liability per occurrence for damages to which any insured becomes legally responsible
Three major parts of the Insuring Agreement:
- Promise to Pay
- Obligation to Defend the insured
- must defend - even frivolous
- insurer can settle without insured’s permissions
- insurer chooses attorneys
- Defense cost is NOT included in policy limits
- lawyers are free - outside policy limits
Three tenets of Insurer’s Obligation to Defend:
- must defend - even frivolous
- insurer can settle without insured’s permissions
- insurer chooses attorneys
Four major types of damages/injuries:
- Bodily
- Property
- Personal
4 Advertising
What is Bodily Injury and what three things does it include?
tangible harm (including death) to third party claimant
- medical bills (sickness, disease, death)
- pain & suffering (lingering effects) - NOT PERSONAL INJURY
- loss of wages
What is Property damage and what does it include?
tangible damage to property belonging to another
- includes LOSS OF USE
What is Personal Injury?
injury to a person’s REPUTATION OR MENTAL STATE
- SLANDER
- LIBEL
- DEFAMATION OF CHARACTER
- FALSE ARREST
- FALSE IMPRISONMENT, ETC
If a billboard falls on a person, would that be covered under advertising liability?
NO - that’s bodily injury
What is Advertising Liability?
offense that arises from advertising - UNINTENTIONAL violation of copyright laws
Is punitive damage or punishment covered by insurance?
Never
What is the main purpose of medical payment insurance?
AVOID LAWSUITS
Three tenets of Medical Payment Insurance:
- no negligence is required
- used to avoid lawsuits
- payment does not included pain & suffering or loss of wages
Take the Med Pay or
you can sue me, says the insurance company
Three primary limits of liability:
- Split Limits
-max for bodily
split
-max for personal
- limits restored after each loss
2. Combined Single Limit (CSL)
3. Aggregate Limit
Who chooses the limits in liability insurance?
Insured
When a limit is defined as having a max per occurrence for bodily and a max per occurrence for property, what is it called?
Split Limits
When a liability policy has Split Limits, the _____ are ______ after each _____.
limits
restored
loss
Define Bodily Injury Per Occurrence:
max limit paid for any ONE occurrence, REGARDLESS of number of third party claimants injured
Define Bodily Injury Per Person:
max limit paid to a single party claimant (takes away from the total Bodily Injury Per Occurrence limit)
Define Property Damage Per Occurrence:
max limit paid for ANY ONE OCCURRENCE - regardless of number of third party claimant’s property damaged
What is Combined Single Limit (CSL)?
- max limit for any one occurrence for multiple types of injuries
- COMBINES bodily and property into SINGLE LIMIT PER OCCURRENCE
What is the max per person under a Combined Single Limit (CSL) policy?
NO MAX PER PERSON
What is Aggregate Limit:
- max limit for all claims during a POLICY YEAR, regardless of number of occurrences
- limits are not restored after each occurrence
- commercial lines only
What policy limit style is for commercial lines only
Aggregate
What is Excess Liability Coverage?
a condition in policy that requires ALL OTHER LIABILITY COVERAGE TO PAY FIRST
- umbrella policy
What is an Umbrella Policy an example of?
Excess Liability Coverage - ALL OTHER LIABILITY COVERAGE TO PAY FIRST
_____ liability coverage pays first, and then ______ liability coverage can be applied.
Primary
Excess
Four mandatory parts of a Policy:
D.I.C.E.
Declarations
Insuring Agreement
Conditions
Exclusions
What does D.I.C.E stand for?
Four mandatory parts of a Policy:
Declarations
Insuring Agreement
Conditions
Exclusions
What are two other parts a policy may contain other than D.I.C.E. that ARE NOT MANDATORY?
E.D.
Endorsements
Definitions
What do endorsements do on a policy?
used to add, delete or modify insurance contract
Do endorsements cost money?
Not always
What are the five basic things that the Dec page defines?
Who, What, When, Where, How Much
- Name Insured
- Property? Auto? etc
- Policy period
- Location
- Limits, Deductible amount, premium amount
WHO on the Dec Page:
- Name Insured: names of person’s or legal entities
In commercial insurance, the First Named Insured is:
responsible for premium payment, receives all notifications and IS THE ONLY INSURED THAT CAN AUTHORIZE POLICY CHANGES
What four things are NOT on the Dec Page?
- SS#
- DL#
- Territory covered
- Valuation Method
WHAT on the Dec page:
Property? Auto?, etc
WHEN on the Dec page:
Policy Period - always effective at 12:01 AM Standard Time
HOW MUCH on the Dec page:
- Limit of Liability
- Deductible Amount
- Premium Amount
What’s another name for Additional Coverages?
Supplemental Coverage
Do additional (supplemental) coverages cost extra?
NO
What is the Conditions portion of the policy often called?
The Rule Book
Is the bailee provided coverage?
NO - NO BENEFIT TO THE BAILEE -
What is the Appraisal Clause?
- used when insurer and insured CANNOT agree on the amount of a covered property loss
- each party chooses appraisers
- appraisers pick umpire
- 2 out of 3 appraisers agree - binding
- both parties pay cost of appraisal
What is Arbitration?
used when insured and insurer cannot agree on the amount of damages in a LIABILITY LOSS
Insured’s Duties in event of a loss:
- protect property from further damage - make reasonable repairs
- Notify insurer immediately (insurer must ack receipt of claim within 30 days)
- Notify police if law has been broken
- forward legal papers
- separate damaged property from undamaged
- prepare an inventory of damages
- submit a completed, SWORN proof of loss (within 60 days) of receiving claim form
- allow the insurer to view damaged property
9 cooperate and assist the insurer in loss settlement and defense of claim
- be willing to submit to exam under oath
What four things does an insured NOT have to do in the event of a loss?
- lie detector
- get appraisal
- get estimate
- report prior claims
What is cancellation?
MIDTERM TERMINATION
What is Non-renewal?
termination of policy upon expiration
How many days must the policy be in effect before an insurer can cancel?
45 days
What are the five reasons an insurer may cancel a policy (45 days after in effect)?
- non-payment
- fraud
- willful or reckless acts
- violation of local fire, safety, building ordinance law
- conviction of arson or fraud - moral hazard
Can an insurer cancel a policy because of the number of claims?
NO
How long does an insurer have to notify the insured that their policy is being cancelled?
10 days
Personal lines insurer have ____ days to notify insured of non-renewal.
20 days
Commercial lines insurer have ____ days to notify insured of non-renewal.
45 days - date of mailing
When two or more insurers provide same type of coverage, each will pay ______ shares of covered loss.
Proportionate - contract of indemnity
What is transfer of ownership rights called and whose consent does it require?
Assignment - insurance company - PERSONAL CONTRACT
What is subrogation?
insurer “takes over” any recovery rights - they can sue a responsible third party
What is the Standard Mortgage Clause?
- mortgage company is UNIQUELY protected
- mortgage company has NO liability
What is the Right of Salvage?
if insurer pays for total loss, they can take possession of damaged property and sell it
What is Abandonment?
only the insurer has the right to declare a total loss - insured CANNOT ABANDON DAMAGED PROPERTY
What is liberalization?
insurer expands (broadens) terms of policy without premium charge - automatically extends terms to policies renewing 45 days before change
What is the Pair & Set Rule?
- property together as a set is normally worth more
- gives insurer the option to
1. repair
2. replace
3. pay difference for part of set
The amount paid by the insurer in a Loss Payment is the _____ of these three:
LESSER
- amount of loss
- limit of liability
- insurable interest
If an insured building is vacant for _____ days, coverage for what perils are suspended?
60 days
- vandalism
- glass breakage
- water damage
- theft
Definition of vacant:
property does not contain sufficient furnishing to support its intended use
Occupying a space does not mean that:
it’s NOT vacant - it may still be considered vacanant
What is Property Coinsurance?
- encourage insured to adequately insure property (close to value of property)
- if insured does not, they are subject to a penalty of PARTIAL losses.
- but NO penalty on total losses
80% of value at time of loss
penalty is how much they do not get paid
For what three reason do exclusions appear in policies?
- eliminate (omit) risks which are not insurable
- eliminate risks duplicated by another policy
- eliminate risks for high risk exposures
What are the eight standard exclusions in Property policies?
POWER INN
- Power interruptions
- Ordinances or laws
- Water rising, flood, seepage from ground
- Earth movement, earth settling
- Revolution, Rebellion, War
- Intentional loss at insured’s direction
- Nuclear
- Neglect following loss
Are riots covered under most policies?
YES - but rebellion, revolution and war is not
What are the eight standard exclusions in Liability policies?
- Intentional loss at insured’s direction
- Revolution, Rebellion, War
- Nuclear
- professional liability
- pollution liablity
- employment practices liability
- employee injuries
- property owned by insured
Liability is _____ party coverage.
third
Professional liability:
liability resulting from negligent acts in the performance of services
E&O can acquired
