Property Flashcards
1
Q
HO-02 FORM (BROAD FORM)
A
- The HO-02: Broad Form is for owner-occupied dwellings and offers named perils coverage for
Coverage A- Dwelling, Coverage B – Other Structures, and Coverage C – Personal Property on
a broad cause of loss form for all coverages. - Fire and lightning, as well as the REVVV C SHAW coverages, are the named perils for an HO02 form.
- Regarding loss settlement under an HO-02 policy, the following apply:
o Coverage A – Dwelling and Coverage B – Other Structures are settled on a replacement
cost basis. A coinsurance percentage of 80% of the structure’s value at the time of loss
must be met; and
o Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis. - Exclusions under the HO-02 form include only the nine (9) exclusions common to all
homeowners policy forms, as follows:
o Water Damage;
o Earth Movement;
o War;
o Intentional Loss;
o Neglect;
o Power Failure and Interruption;
o Ordinance or Law;
o Nuclear Hazard; and
o Government Action. - The acronym WE WIN PONG can be used to easily remember the common exclusions.
- The HO-02 is now rarely used and only constitutes a small percentage of active homeowners
policies.
2
Q
HO-03 FORM (SPECIAL FORM)
A
- Commonly considered the “standard” homeowners policy form, the HO-03 Special Form is the
most common homeowners policy form currently in use. - The HO-03: Special Form offers different perils coverage and loss settlement according to the
coverage part, as follows:
o Perils coverage:
Coverage A – Dwelling and Coverage B – Other Structures provide open-perils
coverage; and
Coverage C – Personal Property provides named-perils coverage. - The named perils include fire and lightning, the ten (10) Extended Coverage Perils
(REVVV C SHAW), and the nine (9) Broad Form Perils (BIG AFFECTT).
o Loss Settlement:
Coverage A – Dwelling and Coverage B – Other Structures settle losses on a
Replacement Cost basis (with an 80% coinsurance requirement); and
Coverage C – Personal Property settles losses on an Actual Cash Value (ACV) basis.
o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
Payments to Others are also provided. - Exclusions for HO-03 form include:
o The nine (9) exclusions common to all homeowners policies (WE WIN PONG); and
o The Special Form exclusions.
3
Q
HO-04 FORM (CONTENTS BROAD FORM)
A
- The HO-04: Contents Broad Form, more commonly known as renter’s insurance, is designed
to protect the contents and personal liability needs of renters who are occupying a building as
a non-owner. - The HO-04: Contents Broad Form offers:
o Perils Coverage:
No coverage for Coverage A – Dwelling or Coverage B – Other Structures;
Coverage C – Personal Property on a named-perils basis; - The named-perils under Coverage C on an HO-04 form are the same as those
under Coverage C of an HO-03 form (Extended Coverage and Broad Form).
o Loss Settlement:
Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
o Coverage is also provided for improvement, alterations, additions, and fixtures that the
tenant has paid for, with a maximum up to 10% of the Coverage C limit.
o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
Payments to Others are also provided. - Exclusions for HO-04 include only the nine (9) common exclusions.
4
Q
HO-05 FORM (COMPREHENSIVE FORM)
A
- The HO-05: Comprehensive Form is the same as the HO-03 Form, but offers open-perils
coverage for Coverage A, Coverage B, and Coverage C. The HO-05 provides:
o Perils Coverage:
Open-perils coverage for Coverage A – Dwelling, Coverage B – Other Structures,
and Coverage C – Personal Property;
The HO-05 form is the only homeowners form that provides open-perils coverage for
Coverage C;
o Loss Settlement:
Coverage A – Dwelling and Coverage B – Other Structures are settled on a
Replacement Cost Basis (with an 80% coinsurance requirement);
Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
Payments to Others are also provided. - Exclusions for HO-05 include the nine (9) common homeowners exclusions (WE WIN PONG)
and the Special Form open-peril exclusions.
5
Q
HO-06 FORM (UNIT-OWNERS FORM)
A
- The HO-06: Unit-owner Form is designed to protect contents of condominium and co-op
owners, including townhomes. - Coverage A will include coverage for the following:
o Alterations, appliances, fixtures, and improvements contained within the residence
premises;
o Items of real property that pertain exclusively to the residence premises;
o Property that remains the responsibility of the insured under the corporation or association
agreement; and
o Structures solely owned by an insured located on the residence premises. - The HO-06 form provides:
o Perils Coverage:
Coverage B – Other Structures is typically not provided since this is the responsibility
of the Corporation or Association that owns the complex;
Coverage A – Dwelling and Coverage C – Personal Property are covered on a namedperils basis (Fire, lightning, Extended Coverage Perils, and Broad Form Perils).
o Loss Settlement:
Coverage A – Dwelling is settled on a Replacement Cost basis;
Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
Payments to Others are also provided
o The policy also provides loss assessment coverage. Loss assessment occurs when damage
occurs to the common grounds or common property that are owned collectively by the
association. In these situations, the Association may assess a fee to each unit-owner to help
cover replacements or repairs that are required to restore the common grounds or
common property.
6
Q
HO-08 FORM (MODIFIED COVERAGE FORM)
A
- The HO-8: Modified Coverage Form is used when the replacement cost of a home is far greater
than the market value. This can occur when rare, exotic, or otherwise expensive materials are
used in the home’s construction. - HO-08 settles claims based on Functional Replacement Cost.
- In the event of a claim, the HO-08 policy will pay the lesser of:
o The policy limit; or
o The actual cost to repair or replace a loss using common construction materials or their
equivalents. - The HO-08 form provides:
o Perils Coverage:
Coverages A, B, and C are provided on a named-perils basis. (Fire, lightning, and the
Extended Coverage Perils);
o Loss Settlement:
Coverages A and B are settled on a Functional Replacement Cost basis; and
Coverage C is settled on an Actual Cash Value (ACV) basis;
o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
Payments to Others are also provided; and
o Exclusions include the nine common homeowners policy exclusions.
7
Q
THE BASIC FORM (DP-01)
A
- The DP-01 Basic Form is a named-perils policy that offers:
o Coverage A – Dwelling;
o Coverage B – Other Structures;
o Coverage C – Personal Property; and
o Coverage D – Fair Rental Value. - Loss settlements are paid on an Actual Cash Value (ACV) basis for all coverages.
- A standard DP-01 form only insures against loss from the following three (3) perils (known as
the basic perils):
o Fire;
o Lightning; and
o Internal explosions (steam explosions are not covered if they stem from equipment owned,
leased, or operated by the insured). - For additional premium, an insured has the option to purchase Extended Coverage (EC) perils
(REVV C SHAW):
o Riot;
o Explosion;
o Vehicles (not yours);
o Volcanic Eruption;
o Civil Commotion;
o Smoke;
o Hail;
o Aircraft; and
o Windstorm. - The Basic Form may also be purchased with optional Vandalism or Malicious Mischief (VMM)
coverage.
8
Q
THE BROAD FORM (DP-02)
A
- The DP-02 Broad Form is a named-perils policy that offers:
o Coverage A - Dwelling;
o Coverage B – Other Structures;
o Coverage C – Personal Property;
o Coverage D – Fair Rental Value; and
o Coverage E – Additional Living Expenses. - Loss settlements for Coverage A – Dwelling and Coverage B – Other Structures are paid on a
replacement cost basis. - Loss settlements for Coverage C – Personal Property is paid on an Actual Cash Value (ACV)
basis. - The DP-02 Broad Form includes all of the perils named in the DP-01 Basic Form, including all
of the Extended Coverage perils and Vandalism and Malicious Mischief (VMM). - A DP-02 “broadens” coverage with the addition of the following nine (9) Broad Form Perils
(BIG AFFECT):
o Burglar Damage;
o Ice and Snow (weight);
o Glass Breakage;
o Accidental Discharge;
o Falling Objects;
o Freezing of Pipes;
o Electrical Damage;
o Collapse; and
o Tearing Apart.
9
Q
THE SPECIAL FORM (DP-03)
A
- Coverage under a DP-03 is provided on both an open-perils and named-perils basis, depending
on the coverage part:
o Open perils:
Coverage A – Dwelling;
Coverage B – Other Structures;
o Named perils:
Coverage C – Personal Property.
Same perils as DP-02. - Loss settlement is paid on a replacement cost basis for Coverage A and Coverage B, subject
to an 80% co-insurance requirement while Coverage C is paid on an Actual Cash Value (ACV)
basis.
10
Q
COMPONENTS OF A COMMERCIAL PACKAGE POLICY (CPP)
A
- Today, modern insurance forms rely heavily upon the Commercial Package Policy (CPP)
concept to serve the diversified needs of larger business entities. - The creation of the CPP is the modern result of a 1980’s era project whose goal included the
reflection of changing conditions and demands to standardize and simplify coverage forms,
endorsements and ratings in the commercial property and casualty contract area. - The commercial package policy (CPP) is insurance coverage that can accommodate multiple
lines and perils simultaneously, allowing for a high level of flexibility to assure that a business
can create coverage closely suited to their individual needs. It is well-suited to large commercial
businesses. The coverages available are as varied and diverse as the businesses acquiring this
contract of insurance, traversing a wide array of both property and liability risk transfer. - Businesses that are smaller and have fairly simple business insurance needs may be eligible for
the Business Owner Policy (BOP). - The CPP must be used when the subject business is larger or has a more complicated insurance
need structure than the BOP is designed to handle. - A true commercial package policy requires that applicants select two or more of the contracts
possible coverage parts:
o Commercial Property coverage;
o Commercial Inland Marine;
o Equipment Breakdown Coverage;
o Farm Coverage (Property and Liability for farm & ranch operations);
o Commercial General Liability (A CASUALTY POLICY CONCEPT);
o Commercial Crime (A CASUALTY POLICY CONCEPT);
o Commercial Auto (A CASUALTY POLICY CONCEPT);
o Professional Liability Coverage (A CASUALTY POLICY CONCEPT); or
o Employment Practice Liability (A CASUALTY POLICY CONCEPT). - To be a Commercial Package Policy, there must be at LEAST two (2) or more coverage parts
chosen. - Each Commercial Package Policy (CPP) consists of four (4) elements:
o Common Policy Declarations – The common declarations page identifies the insured and
the coverages that may be included in the package. It also lists the coverages and the
premiums that are chosen to be included. It also identifies the various forms that apply to
all coverage parts of the contract;
o Common Policy Conditions – These common policy conditions apply to all the coverage
parts selected and made a part of the Commercial Package;
o Interline Endorsements – Interline endorsements are designed to reduce policy coverage
redundancy. The insurer offering the package can use a single interline endorsement to
modify some or all of the coverage parts within it, as specified in the endorsement; and
o Coverage parts – The coverage parts are the individual coverages listed in the Common
Declarations. Each coverage part may have its declarations page describing what is
covered, as well as specific conditions that apply only to the coverage in questions.
11
Q
COMMERCIAL PROPERTY COVERAGE
CAUSES OF LOSS FORMS
A
- Causes of Loss Forms: Policy structure governing what perils are covered under a commercial
property policy, similar to other personal and commercial lines policy forms. The three causes
of loss forms include:
o The Basic Form;
o The Broad Form; and
o The Special Form. - Commercial property policy forms may be written on one of three (3) cause of loss forms, with
a standard deductible of $500. - The Basic Form is a named perils form which includes the following perils and exclusions:
o Perils:
Fire, Lightning, Explosion;
Riot/civil commotion;
Vandalism & Malicious Mischief (VMM);
Falling objects;
Windstorm and Hail;
Aircraft/vehicle damage;
Volcanic action;
Sinkhole collapse; and
Glass breakage, sprinkler leakage.
o Exclusions:
Theft
Water damage
Collapse - The Broad Form is also a named perils form that includes all of the broad form perils as well as
several additional commercial perils. The broad form covers:
o All the basic perils defined in Basic Cause of Loss Form; and
o Four additional causes of loss:
Water damage;
Falling objects;
Collapse; and
Weight ice, sleet, or snow. - The Special Form is an open peril policy form, meaning that coverage applies unless the peril
is expressly excluded. The primary exclusions listed in the Special Form are as follows:
o Ordinance or Law;
o Earth Movement;
o Governmental Action;
o Nuclear Hazard;
o Utility Service (damages caused by the failure of a utility service, such as those providing
water or power);
o War and Military Action;
o Water; and
o Fungus, Wet Rot, Dry Rot, and Bacteria; and
o Criminal or dishonest acts.
12
Q
BUILDING AND BUSINESS PERSONAL PROPERTY FORM
A
- The Building and Business Personal Property form is utilized to write protection to cover direct
physical loss to the insured’s real and personal property as well as losses involving property
held for others (bailments). This form one of the most common commercial property coverage
forms to be added to a commercial package policy. - The contract defines three classes of covered property:
o Buildings;
o Business personal property; and
o Personal property of others. - Buildings coverage is mostly for real property (buildings affixed to land). Any building materials
intended to become a part of the building are covered if they are within 100 feet of the
premises (including being out in the open, or in a vehicle if the vehicle is parked within 100 feet
of the insured premises). - Business Personal Property covers personal property (not land or items affixed to land) and
includes the contents of the insured building such as:
o Machinery and equipment;
o Furniture and fixtures;
o Stock inventory including raw materials and shipping supplies;
o Other personal property of the insured used as part of the business;
o Labor, materials, or services on the personal property of others;
o The interest of the insured as a tenant for betterments and improvements;
o Leased personal property the insured is required to insure, unless covered as personal
property of others (i.e., covered as a bailment). - Business personal property is covered, whether in (or on) the building listed in the Declarations,
out in the open, or in a vehicle located within 100 feet of the described premises. - Personal Property of Others includes personal property items that are in the care, custody, and
control of the insured, known as the “three C’s,” which creates a legal relationship called a
bailment. - The policy provides insurance coverage, without additional premium, for the following types of
losses:
o Debris removal;
o Preservation of property;
o Fire department service charge;
o Pollution cleanup, and removal;
o Increased cost of construction; and
o Electronic data. - The following is a list of the coverage extensions provided under the Building and Business
Personal Property form:
o Newly acquired or constructed property;
o Personal Effects;
o Valuable Papers and Records (Other Than Electronic Data);
o Property Off-Premises;
o Outdoor Property;
o Non-Owned Detached Trailers; and
o Business Personal Property Temporarily in Portable Storage Units.
13
Q
BUSINESS INCOME FORM
A
- Two optional coverages indemnify an insured against the loss of income resulting from direct
damage to commercial facilities and operations:
o Business Income; and
o Extra Expense. - Insureds may add either one or both optional coverages to the commercial property form by
endorsement for an additional premium. - Both coverages are for an indirect or consequential loss to a business.
- Business Income replaces lost income when a company’s operations are halted or impaired due
to a covered loss. Extra Expense Insurance covers the Extra Costs of avoiding a shutdown and
remaining operational despite the damage to one’s income-producing facilities, such as the
costs to move operations to a temporary location. - Business income loss is paid only during the period of restoration, which begins when the direct
loss occurs and ends when the building should be repaired with reasonable speed and using
materials of similar quality or if the business is resumed in a new location. - There is a 72-hour waiting period after the date a physical loss occurs before this coverage
begins paying on loss to the insured.
14
Q
Business Income and/or extra expense
A
where “business income” coverage must be
designated to be covered;
15
Q
Proof of Loss
A
means the insured must submit a written and signed proof of loss form to
the insurer within a time specified in the policy from the date of loss or insurer’s request.
16
Q
Immediate Notice of Claim
A
to the company in writing is specified, but telephoning the
insurer’s agent is also deemed to meet this criterion under modern interpretation;
17
Q
APPRAISAL
A
- The appraisal clause of a property contract is a condition in a property policy that addresses a
situation in which the insured and the insurer cannot agree on the value (amount) of the loss.
When either party demands appraisal, each party then selects a disinterested third-party
appraiser to assess the loss value. Both parties are responsible for hiring and paying for their
own appraisers; in turn, the appraisers appoint one (1) additional appraiser (known as the
umpire) whose fee is split evenly between the parties. - Each of the initial two (2) appraisers then creates their own estimate of the loss. If the appraisers
cannot agree on the value of the loss between themselves, then the umpire will proceed to
determine the correct value of the loss.
18
Q
OTHER INSURANCE/LOSS PAYMENT PROVISIONS
A
- There are many situations in which two (2) active policies may cover the same loss. There are
provisions that dictate how losses will be paid in these situations.
19
Q
SUBROGATION (TRANSFER OF RECOVERY RIGHTS)
A
- Under the subrogation clause of an indemnity contract, the insurance company has the right to
recover amounts it has paid directly to its insured as a result of damages caused by a third
party. This clause also prevents the insured from collecting more than one time on a single loss.
20
Q
CONTRACTS
A
- There are two (2) parties to an insurance contract: the insured and the insurance company.
- The following four essential elements must be contained in every contract for it to be
enforceable by law:
o Offer and acceptance;
o Consideration;
o Competent parties; and
o Legal purpose. - To be legally enforceable, a contract must be made with a definite, unqualified offer by one
party followed by the other’s acceptance of the exact terms of the offer. - Consideration is the main element of a contract, defined as the benefit each party receives in
exchange for the promises they agree to or the obligations they assume under the contract. - To be enforceable, a contract must be entered into by competent parties who are legally
capable of entering into agreements on their own behalf. - Contracts must have a legal purpose to be enforceable.
21
Q
Concealment
A
is defined as the failure or neglect of a party to a contract to disclose a known
fact to the other party.
22
Q
representation
A
is a statement made by an applicant that is considered to be true and accurate
to the best of the applicant’s knowledge.
23
Q
warranty
A
s a statement made by an applicant that is guaranteed to be true in the eyes of the
contract.
24
Q
SOURCES OF INSURABILITY INFORMATION
A
- Studies have shown that an individual’s credit score is predictive of future accidents and
insurance claims. As such, most insurers use an applicant’s credit information to develop an
insurance score.
o The Fair Credit Reporting Act (FCRA) governs the use of consumer credit information and
ensures that applicant’s information remains safe and is not obtained or used in an unfair
manner. - Most insurance companies will want to inspect any property an applicant is seeking to insure
to determine if it meets the company’s eligibility guidelines. If the inspection is not completed,
the insurer withholds the right to cancel the policy or remove any policy discounts that were
contingent upon a satisfactory inspection.
25
Q
e Fair Credit Reporting Act (FCRA)
A
federal legislation created for the purpose of
promoting the accuracy, fairness, and privacy of consumer information that is held and
provided by credit reporting agencies.
o The FCRA places the following responsibilities upon companies that use credit
information:
Users can only obtain consumer reports for permissible purposes under the FCRA;
Users must notify the consumer when an adverse action is taken on the basis of such
reports (such as a higher insurance rate); and
Users must identify the company that provided the report, so that the accuracy and
completeness of the report may be verified or contested by the consumer.
o Because insurers also provide information back to credit reporting agencies, they must
also:
Provide complete and accurate information to the credit reporting agencies;
Investigate consumer disputes received from credit reporting agencies;
Correct, delete, or verify information within 30 days of receipt of a dispute; and
Inform consumers about negative information which is in the process of or has already
been placed on a consumer’s credit report within one month.
26
Q
Gramm-Leach-Bliley (GLB) Privacy Protection
A
Act of 1999, also known as the Financial Modernization Act of
1999, dictates how financial institutions such as banks and insurance companies are to handle
the private information of consumers.
o Under the GLB Act, financial institutions are also required to deliver privacy policy notices that detail
the institution’s information-sharing practices and inform consumers of their rights.
27
Q
policy application
A
is a printed form used to apply for insurance coverage and represents an
offer from the insured to pay premium to the insurer in exchange for the insurer assuming the
applied for risk.
* If the insurer issues a contract to the applicant, the policy application is attached to and
becomes part of the insurance contract.
28
Q
Terrorism Risk Insurance Act (TRIA)
A
was initially enacted as a temporary three-year program
to calm insurance markets through the creation of a government reinsurance program that
would share in terrorism-related losses. The TRIA will pay certain claims in the event of a loss
due to a certified act of terrorism.
29
Q
POLICY TERRITORY
A
- The physical areas and regions where coverage applies is known as the policy territory, which
defines the geographical limits of a policy’s coverage.
30
Q
Equipment Breakdown Insurance,
A
also referred to as Boiler and Machinery Insurance, covers
equipment that is energized or transmits energy.
* The most basic coverage provided by this form is for the equipment itself and the physical
damage caused to other property should the equipment explode or otherwise fail.
* What we today define as Equipment Breakdown Insurance was historically referred to as a
“Boiler and Machinery” policy because steam boilers were one of the earliest methods for
generating mechanical energy that required insurance coverage. This policy form now covers
many types of machinery including mechanical and electrical equipment, computers,
communication equipment, refrigeration systems, air conditioning systems, and especially
boilers and equipment operating under internal pressure.
* Today, equipment breakdown insurance is coverage for business equipment breakdowns
caused by motors burning out, utility interruptions, boiler or machinery malfunction or
explosion, and operations errors.
* Some of the following coverages may be selected and will only apply to that portion of the loss
or damage that is considered a direct result of a covered cause of loss:
31
Q
BUILDERS RISK FORM
A
- A builder is financially responsible for the structure and all materials on the building site until
the building is finished and put to its intended use. Unlike most property policies, the
coinsurance requirement for the Builder’s Risk Form is one hundred percent (100%) of the
building’s completed value. - Builders risk coverage terminates when any one of the following conditions first occur:
o The policy expires or is canceled;
o The purchaser accepts the property;
o The builder’s interest in the property ceases;
o The builder abandons the construction with no intention to complete it;
o 90 days after construction is complete; or
o 60 days after any building described in the Declarations is occupied in whole or in part or
put to its intended use. - Examples of property covered by a Builders Risk form include:
o Foundations;
o Fixtures and machinery;
o Equipment used to service the building; and
o Building materials and supplies of the builder used for construction provided such property
is intended to be permanently located in or on the structure and is located within 100 feet
of its premises. - Coverage Extensions are provided for the following types of property under the Builders Risk
form:
o Building Materials and Supplies:
Property Owned by others;
In your care, custody or control;
Located in or on the building described in the Declarations, or within 100 feet of its
premises; and
Intended to become a permanent part of the building.
o Loss or damage to sod, trees, shrubs, and plants outside of buildings on the described
premises, if the loss or damage is caused by or results from any of the following causes of
loss:
Fire
Lightning
Explosion
Riot or Civil Commotion
Aircraft.
The maximum payable for loss or damage under this extension is $1,000, but not
more than $250 for any one tree, shrub, or plant.
o Outdoor Signs attached to buildings will pay a maximum of $2,500 per sign for any one
occurrence.
32
Q
CYBER COVERAGE
A
- A Commercial Cyber Insurance Policy covers first-party losses and liability exposures
o The first-party coverages are as follows:
Expenses related to the breach, cyber extortion events, and the restoration of data
Business Income and Extra Expense coverage during a period of restoration
o The policy’s liability coverage applies to the following
liability losses due to a wrongful act,
defense costs and regulatory losses mandated by courts or agencies due
INFORMATION SECURITY PROTECTION CYBER POLICY - In addition to coverages of the Commercial Cyber Insurance Policy, this policy adds coverage
for liability claims related to the wrongful use of payment cards, and the dissemination of untrue
information
33
Q
COMMERCIAL INLAND MARINE
A
- Qualifying marine insurance property must generally be moveable, be in transit, or bear some
other relationship to transportation or communication. This definition is how marine insurance
is classified. - Ocean marine describes covered property traveling or located upon the water, while inland
marine refers to covered property that is stored on or moving by land. - Types of risks insured and defined under nationwide inland marine:
34
Q
Personal floater
A
– Can be referred to as a personal article floater, where the coverage
applies to property while being moved or transported. May be a separate policy or
endorsement to a base policy to include most types of valuable personal possessions.
Examples of property covered under a personal article floater include:
Jewelry;
Furs;
Cameras;
Musical Instruments;
Silverware;
Personal Computers;
China and Crystal;
Electronic Equipment;
Fine Art items (Books, Rugs, Antiques);
Postage Stamps; and
Rare and Current Coins
