Property and Casualty Insurance Policy Conditions

Question 1

Insurance policies contain the following types of provisions, which might or might not be arranged under headings with these titles:

Answer 1

• Declarations
• Definitions
• Insuring Agreements
• Exclusions
• Conditions

Question 2

The standard mortgage (mortgagee) clause in a property insurance policy covering real property gives certain mortgagee rights to the mortgagee that is named in the declarations. The clause

Answer 2

• ensures that loss to mortgaged property is payable to the mortgagee,
• grants continuing coverage for the benefit of the mortgagee if the policy is voided by some act of the insured, and
• promises advance written notice to the mortgagee of any policy cancellation.

Question 3

Clause that ensures that the loss payee will be included in any claim payment. This is usually done by making a claim check payable to both the named insured and the loss payee as their interests may appear.

Answer 3

The Loss Payable Clause

Question 4

Is the transfer of rights from the policyholder to some other party. States that any assignment of this policy will be invalid unless the insurer provides its written consent. Thus, if John Smith purchases a homeowners insurance policy and then later sells his home to his friend, Frank, he cannot simply transfer the policy to Frank

Answer 4

Assignment Provision

Question 5

Applies when (1) the insurer makes a change that expands coverage under the policy form without charging an additional premium and (2) the change is put into effect shortly before a policy’s effective date or during the policy term.

Answer 5

Liberalization clause

Question 6

Provision that indicates where coverage applies.

Answer 6

Policy Territory

Question 7

Several provisions in a property insurance policy affect the amount the insurer must pay for a covered loss. These include:

Answer 7

• policy limits and any sublimits
• deductibles
• coinsurance provisions
• restoration of limits provisions

Question 8

Apply to certain specific types of property, such as money, jewelry, or trees. Invariably much lower than the policy limit, indicates the maximum amount that the insurer will pay for a loss to that type of property.

Answer 8

Sublimit

Question 9

Encourages insureds to purchase policy limits that adequately reflect the insurable value of their property
by reducing the amount that an insurer will pay for a covered loss if property is underinsured.

Answer 9

Coinsurance

Question 10

Coinsurance Formula

Answer 10

Loss x Limit of Insurance
(Amount of —————— ) - Deductible = Loss Recovery
Limits of Insurance Required

Question 11

When a scheduled item has been lost or destroyed, there is nothing left to insure. After insured property is destroyed, and an insurer indemnifies the insured, what happens to the insurance?

Answer 11

Restoration of limits provision.

Question 12

Restoration of Limits:

Answer 12

Some policies restore the policy limits after payment of a loss, while other policies reduce the limits. With others, however, after the insurer pays a total loss, coverage ceases and the insurer returns any unearned premium.

Question 13

Where coverage for some losses is reduced or eliminated if covered premises are vacant. The wording in many property insurance policies limits, reduces, or entirely eliminates coverage when a building has been vacant.

Answer 13

Vacancy Provision

Question 14

Contains six different limits of insurance

Answer 14

commercial general liability (CGL) policy coverage form

Question 15

Includes losses that result from products the insured has sold or work that the insured has completed

Answer 15

products-completed operations hazard

Question 16

Includes a group of specific offenses such as libel, slander, and false advertising

Answer 16

personal and advertising injury

Question 17

the maximum amount the insurer will pay for all applicable claims during the policy period—usually one year.

Answer 17

Aggregate

Question 18

The CGL and other business policies providing general liability coverage include the following three limits, expressed in dollars.

Answer 18

• General Aggregate Limit
• Products-Completed Operations Aggregate
• Each Occurrence Limit

Question 19

This limit is the most the insurer will pay for all bodily injury and property damage claims (other than those involving the products-completed operations hazard), and all personal and advertising injury claims during the policy period.

Answer 19

General Aggregate Limit

Question 20

Several policy conditions that may affect the claims handling process concern

Answer 20

• abandonment
• salvage
• subrogation
• appraisal
• the insurer’s settlement options

Question 21

A provision in property policies makes it clear that the insured cannot simply walk away from damaged property and turn it over to the insurer.

Answer 21

Abandonment Provision

Question 22

If an insurer pays for a total loss to covered property, the insurer has a right to recover, sell, or dispose of that property.

Answer 22

Salvage

Question 23

When two or more insurance policies cover the same loss exposure, they should preferably cover the same losses and have the same inception and expiration dates

Answer 23

Concurrent

Question 24

When 2 or more policies covering the same loss exposure that do not have identical inception and expiration dates

Answer 24

Nonconcurrency

Question 25

When two or more policies provide primary coverage, they may state that coverage applies on a this basis. In these cases, coverage may be shared by the policies in proportion to their limits.

Answer 25

Pro Rata

Question 26

Liability insurance policies often provide this… If two concurrent policies cover the same loss, both policies pay the loss equally until one policy is exhausted. Past that point, the other policy pays the entire loss unless or until its limits are exhausted.

Answer 26

Contribution by Equal Shares

Question 27

establishes the maximum amount the insurer will pay for all claims resulting from a single occurrence, no matter how many people are injured, how much property is damaged, or how many different claimants may make claims.

Answer 27

per occurrence limitation of liability provision

Question 28

Combines the per person and the per occurrence approach. three separate dollar amounts apply to each accident. First limit is a per person limit, second limit is a per occurrence limit and third limit is a per occurrence limit that applies to property damage claims

Answer 28

Split Limits

Question 29

simply states a single dollar limit that applies to any combination of bodily injury and property damage liability claims.

Answer 29

Combined Single Limits