PC Chapter 3

Question 1

unoccupancy

Answer 1

a property such as a residence or commercial building that is temporarily devoid of people. nobody is home

Question 2

Two Party Contract

Answer 2

a property contract. The two parties involved are the insured and the insurance company

Question 3

Subrogation

Answer 3

the legal act of an insurance company attempting to recover a payout made to an insured from the party reasonable for the loss. if i accidentally burn down your house,your homeowners company will pay you then subrogate against me

Question 4

Stated Value

Answer 4

a method determining the amount of insurance required which relies upon the stated value that the insured places on the item. the actual value of a loss however is determined at the time of the loss. The insured can “state” that an item is worth a certain amount but the actual value determined at the time of the loss may be substantially different

Question 5

Special Cause of Loss Form

Answer 5

Open Peril

Question 6

Smoke

Answer 6

A covered peril under basis peril coverage. the peril of smoke voveres accidental smoke damage occurring where there is no fire on the covered premises. So for example if smoke from a hostile fire next door damages the insured premise, the loss would be covered under the peril of smoke

Question 7

Sinkhole Collapse

Answer 7

a covered peril under basic peril coverage. Sinkhole collapse covers the collapse of property into an underground space created by erosion from naturally occurring water

Question 8

Salvage

Answer 8

the insurance company’s right to take (and probably sell) destroyed property following the payment of full insured value on a loss in an attempt to partially offset the amount paid as a claim

Question 9

Replacement Cost

Answer 9

replacement cost coverage in a property policy provides for new property of like kind and quality to replace covered property destroyed or lost due to a covered peril. for example, if your five year old couch is destroyed and the coverage on the couch is replacement cost coverage, you would get a new couch with no deduction for depreciation

Question 10

Repair Cost / Functional Replacement Cost

Answer 10

repair cost is coverage that promises to handle a covered loss by providing functionally equivalent property. For example a new modern window for an antique stained glass window destroyed by a covered peril, or asbestos shingles fora slate roof destroyed by a storm

Question 11

Recovered Property

Answer 11

property which was the subject of a paid claim that is later discovered unharmed. The Insured may either return the property or the claim amount to the company

Question 12

Proof of Loss

Answer 12

proof of loss may or may not be required when an insured files a claim under a property contract. Proof of loss is a sworn statement concerning the circumstances surrounding the loss

Question 13

Policy Period

Answer 13

the length of time for which a policy affords protection

Question 14

Peril

Answer 14

a cause of loss such as fire, windstorm or riot

Question 15

Partial Loss

Answer 15

something less than a total loss. A partial loss in commercial property policy could result from the imposition of a coinsurance penalty

Question 16

Open Peril, Special Perils, All Risk

Answer 16

open perils coverage on property means that the insurance company will cover any peril that has not be specifically excluded. Therefore, in the event of a loss, the burden of proof for coverage or denial of coverage rest with the insurance company

Question 17

Nonconcurrency

Answer 17

nonconcurrency exist when property is covered by more than one policy and the policies contain different levels of peril coveage. for example if a commercial building is covered by two commercial property contacts and one policy is covering the building against basic perils and the other is covering the building against broad perils, the two policies are not concurrent

Question 18

Named Peril Coverage

Answer 18

in property contract named peril coverage exist when insured property is covered only for perils specifically named in the contract. Both basic perils and broad peril coverage are examples of named peril coverage

Question 19

Mortgage Holder

Answer 19

the bank or mortgage company holding a mortgage

Question 20

Morale Hazard

Answer 20

a hazard created by the insureds lack of concern for a covered property

Question 21

Moral Hazard

Answer 21

a hazard created by the insured’s lack of moral character. a moral hazard increased the likelihood of various perils occuring because a moral hazard typically is looking or a way to file and collect in a fraudulent claim

Question 22

Misrepresentation

Answer 22

a lie. a material misrepresentation on a application or proof of loss statement can invalidate coverage

Question 23

Loss of Use

Answer 23

an indirect loss following a covered direct loss.

Question 24

Liberalization Clause

Answer 24

a clause that dictates that coverage can only get better or more expansive and not more restrictive over a policy period

Question 25

Insuring Agreement

Answer 25

The provision in a contract that contains the insurance company’s promise to pay benefits for a covered loss

Question 26

Indirect Loss

Answer 26

indirect loss, often called loss of use, is a loss that follows a direct loss and which causes the insured to suffer from further financial consequences.

Question 27

Hazard

Answer 27

a hazard is a person or condition that increases the likelihood of a peril occurring or which would increase the severity of destruction by the peril. Examples would include cans of gasoline near an open flame or smoking in bed. There are three types of hazard. Physical Hazard are those that can be seen and identified. Moral Hazards are those that arise from poor character of an individual and Morale Hazard those caused by the carelessness of an individual

Question 28

Functional Replacement Cost, Repair Cost

Answer 28

Functional Replacement Cost is coverage that promises to handle a covered loss by providing functionally equivalent property.

Question 29

Fire

Answer 29

a basic peril, the peril of fire covers fire damage, smoke damage from the fire. firefighter damage and firefighter water damage

Question 30

Falling Objects

Answer 30

a peril covered under the broad peril coverage. for coverage to apply to interior or contest losses, the falling object must fall from outside the building

Question 31

Fair Market Value

Answer 31

the actual cost or resale value or real property ( a home and its residence premises) Fair Market value issued to establish a limit of coverage in a HO-8 homeowners policy

Question 32

Extensions of Coverage

Answer 32

coverage added to the commercial property policy if the insured business accepts a coinsurance requirement of 80% or more

Question 33

Explosion

Answer 33

a covered peril under basic peril coverage. however certain explosions like an explosuon of a boiler are excluded under the epril because such explosions are better covered under an equipment breakdown policy

Question 34

Exclusions

Answer 34

losses not covered by a policy, such as flood and intentional losses

Question 35

Deductible

Answer 35

the amount of the risk the insured has retained. if you have a $500 deductible, for example you have agreed that the first $500 suffered in a covered loss is your responsibility. the purpose of a deductible is to reduce claims and prevent the over sure of a property policy

Question 36

Declarations Sheet/Page

Answer 36

the first page of an insurance contract that contains information concerning who is covered, what is covered, when it is covered, the amount and cost of coverage and where the covered property is located

Question 37

Consequential Loss

Answer 37

generally an inderect loss. Specifically, an endorsement that can be purchased with an equipment breakdown policy that would cover losses that occur after and as a result of, a direct loss. for example. spoilage that occurs after power is lost

Question 38

Conditions

Answer 38

the conditions section of the policy essential directs how the policy works. the conditions are the rules of the contract and would detail the process for filling claims, how cancellation works and other important information of which the policyowner should be aware of

Question 39

Collapse

Answer 39

collapse of a building due to covered perils or certain other occurrences is covered with either the broad or special cause of loss form

Question 40

Coinsurance Clause

Answer 40

a tool used by insurers in commercial property policies to encourage policy owners to purchase a sufficient insurance. CLaims for a partial loss to property not insured to a certain percentage of value will be reduced

Question 41

Civil Commotion , Riot

Answer 41

a covered peril under a basic peril cause of loss form. a civil commotion or riot ( includdin actions by striking employees) is covered as well as looting that occurs as a result of a riot

Question 42

Cause of Loss Forms

Answer 42

found in property policies, cause of loss forms include, basic, broad, and special perils

Question 43

Bailee

Answer 43

an individual or company that has care, custody or control over someone else’s valuable property

Question 44

Appraisal

Answer 44

more than just having an expert place a value on a item. in commercial property insurance, appraisal refers to a process in which the insured and the company seek to place a value on damaged property by hiring three appraisers, when two of the three agree on the value of the damage it is binding on both parties

Question 45

Agreed Value

Answer 45

a method of valuation in which the insured and the insurance company agree on the value of an insured item before a loss occurs. if and when a covered loss does occur, the company pays the agreed value of the item without considering depreciation

Question 46

Additional coverages

Answer 46

additional coverages are provided without additional cost in property contacts. examples would include payment for debris removal and for a fire department servies charge. the coverage may pay an amount in addition to the stated limits of the policy

Question 47

Actual Cash Value (ACV)

Answer 47

a method of valuing loss under which the insurance company will pay the replacement cost value of an item minus depreciation

Question 48

Abandonment

Answer 48

an attempt by an insured to receive full value for a partially damaged item by offering the damaged property to the insurance company. the company is under no obligation to pay for an abandoned property