Unit 4 - Property and Casualty Basics

Question 1

Standard Fire Policy (SFP)

Answer 1

A monoline insurance policy (no liability coverage) that was drafted in 1918 (amended in 1943). Forms the basis upon which modern property insurance policies have developed.

Initially the SFP only covered FLI perils (fire, lightening, and internal explosion + removal).

Over time, the SFP evolved to allow an endorsement for a group of perils know as EXTENDED COVERAGE (EC)… WCSHAVVER (Wind, Civic Commotion, Smoke, Hail, Aircraft, Vehicle NOT owned by insured, Volcanic Eruptions, Explosions, and Riots).

Coverage is suspended after 30 days of vacancy.

Question 2

Define VACANT

Answer 2

The premises are empty (no people/no property).

Question 3

Define UNOCCUPIED

Answer 3

No occupant is present, but furnishings remain and the occupant intends to return (i.e. snowbirds).

Question 4

What are the duties of the insured in the event of a loss (after a loss)

Answer 4

SEPARATE undamaged and damages property
PROTECT undamaged property
INVENTORY damaged property… Insured has 91 days to submit a PROOF OF LOSS form to the state of Texas.
NOTIFY Insurance Company (and police when crime has been committed only).

Question 5

Mortgage Protection Clause

Answer 5

• Clause provides rights to the mortgage lender (not the same as a “lienholder”)
• MortgagOR… 1st Party Insured (homeowner)
• MortgagEE… Additional insured (mortgage lender)
  1) May act as the insured by submitting claims/paying premiums but ONLY when 1st party insured is absent.
  2) Has the full right of recovery to the amount under the mortgage.
  3) Has a right to receive advance written notice of coverage cancellation (10 days in Texas)

Question 6

Co-Insurance Clause

Answer 6

• Provision/requirement built into every insurance policy that insures a structure
• The most common co-insurance requirement is 80%
• The co-insurance requirement encourages the insured to carry insurance coverage close to the full replacement value (aka “building value”) of the property so that the insurer receives an adequate premium.
• Although a requirement of every structure/building policy, only applicable when PARTIAL LOSS occurs.

Question 7

Loss Settlement

Answer 7

How much adjuster writes check for.

If property is a…

• … PARTIAL LOSS and the co-insurance requirement is NOT met, a CO-INSURANCE PENALTY APPLIES.
• … PARTIAL LOSS and the co-insurance requirement IS met, partial losses are fully covered minus any applicable deductible.
• … TOTAL LOSS, the policy limits are paid– even if the customer did not meet the co-insurance requirement.

Question 8

Co-insurance Penalty Formula

Answer 8

(Insurance Carried/Insurance required) * loss = amount paid by insurer

(Insurance Insured Actually Purchased/Insurance Value of the building * 80%) * loss = amount paid by insurer

DID/SHOULD

Question 9

Blanket Form

Answer 9

This covers, by single amount of insurance protection the same kind of property in different locations or different types of property at a single location.

Question 10

Liability

Answer 10

The LEGAL obligation to pay for damages caused to another (aka 3rd party) by an insured (aka 1st party).

Question 11

5 Types of Liability

Answer 11

1) DIRECT… Insured is the wrongdoer (tortfeasor)
2) VICARIOUS… Insured is responsible for the actions of the wrongdoer (e.g. a minor child, an employer is liable for an employee’s actions, a bar is liable for it’s intoxicated customers actions)
3) CONTRACTUAL… Insured assumes another’s liability under a written agreement.
4) ABSOLUTE LIABILITY (aka PERSONAL OBLIGATION)… Liability without fault; duty owed and duty breached; established by society/precedent.
- Swimming pool
- Owning a wild or vicious animal
- Loaded fire arm

5) STRICT (aka commercial exposure)… Product defect, not negligence
- Defective tires
- TOYS (most highly compensated claim)
- Legal drugs

Question 12

Negligence

Answer 12

The failure to do something that ordinarily should be done. It is failure to act in a reasonable and prudent manner.

Question 13

How is NEGLIGENCE determined on a liability insurance policy?

Answer 13

1) Duty owed… there must be legal duty of the insured to act or not to act.
2) Duty breached… a wrong must be committed (usually an unintentional wrong).
3) Proximate Cause… act of the wrongdoer must be the proximate cause of injury
4) Actual Loss… an actual injury or property damage must occur.

Question 14

Torts

Answer 14

A civil wrong other than a breach of contract (insurable).

Question 15

Criminal Liability

Answer 15

Wrong against society; punished by jail/fines (uninsurable)

Question 16

Civil Liability

Answer 16

Wrongs against individuals (torts); resolved by claims and lawsuits (insurable)

Question 17

BODILY INJURY (BI)

Answer 17

Damages caused by BI, sickness, or disease–including required care, loss of services, and resulting death (i.e. medical bills, funeral services, loss wages, essential services).

Question 18

PROPERTY DAMAGE (PD)

Answer 18

Damages caused by loss of property, including loss of use, owned by someone other than the insured.

Question 19

PERSONAL INJURY

Answer 19

Damages caused by libel, slander, invasion of privacy, and other intentional torts (damage to reputation and/or grave emotional suffering).

Question 20

ADVERTISING INJURY

Answer 20

Damages caused in the course of conducting advertising activities by libel; slander, defamation, violation of right of privacy, unfair competition, infringement of copyright, title and/or slogan, or piracy.

Question 21

What are the 3 parties involved in liability insurance?

Answer 21

1) Insured (1st party to the contract)
2) Insurer (2nd party to the contract)
3) 3rd Party Claimant (injured party is NOT a party to the contract, but receives the claim payment).

Question 22

Aggregate Limit

Answer 22

An example of liability coverage. The maximum amount of coverage available during the policy period.

Question 23

COMPENSATORY Damages

Answer 23

Money paid to make an injured person whole.

1) Special damages… actual monetary expenses (e.g. medical expenses). Have specific documents/receipts attached
2) General damages… non-economic losses (e.g. emotional loss, pain and suffering, don’t have a traceable receipt)

** NOTE: Awarded by ADJUSTER

Question 24

PUNITIVE DAMAGES

Answer 24

Punish the wrongdoer because of actions greater than simple negligence; gross negligence.

• Intended as a deterrent.
• Awarded in a civil court
• Not considered to be a fine or penalty (which are bit covered by liability insurance)