P&C - Chapter 4

Property insurance contains how many people?

2 -- just the insured and insurer

A mortgagee must be given how much notice of cancellation? a. 10 days b. 20 days c. 40 days d. 80 days

A.

A mortgagee who is not notified that the policy has been canceled may recover: a. the balance owing on the mortgage b. the policy limit

A.

Liability policies usually refer to the appraisal remedy as the _____________________.

Arbitration Provision. Same process as appraisal provision

New zoning laws prevent an Insured from replacing a destroyed property. If the Insured transfers ownership of the property to the Insurer, this is an example of: A. arbitration B. abandonment C. assignment D. subrogation

B.

The best example of indemnification is: a. replacement cost b. actual cash value

B.

The burden of proving a loss rests on the: a. insurer b. insured

B.

Transfer of rights of recovery against others to the Insurer is: a. assignment b. subrogation

B.

A covered loss occurs after a policy is cancelled. The mortgagee was not notified of cancellation. The mortgagee may recover: A. $0 B. the fair market value of the property C. the balance owing on the mortgage D. up to the policy limits

C.

Each of the following provides coverage over and above the policy limit EXCEPT: A. Debris removal B. Fire Department Service Charge C. Preservation of Property

C.

The Standard Mortgage Clause: A. gives the mortgagee the right to modify the policy. B. pays the insurance premium if the insured dies. C. allows the mortgagee to pay the premium if the insured doesn't. D. is another name for the appraisal provision.

C.

Special covers each of the following EXCEPT: A. Acts of God B. Theft C. Floods and earthquakes D. Mysterious disappearance

C. Floods and earthquakes aren't covered by Special. But, Special will cover mysterious disappearance, theft, and all the other things that are commonly referred to as "Acts of God" because we mortals can't figure out where else to place the blame.

A Broad Form policy covers: a. water which backs up through a basement drain b. sonic boom c. off-premises power failure d. damage from a broken water pipe

D.

A sworn proof of loss statement must be submitted within: a. 10 days b. 30 days c. 45 days d. 60 days

D.

A Special Form policy covers: a. fungus. b. termite damage. c. rats eat wiring insulation. d. decay that causes a wall to collapse.

D. Special (as well as Broad Form) will cover collapse. However, mold (fungus), insects and vermin are excluded perils.

T or F: FMV is the payment option on property insurance

F. No property policy will ever pay FMV. Most Property policies pay on an Actual Cash Value basis

What are the insured's responsibilities when a loss occurs?

Notify the police if a law may have been broken. • Give the Insurer prompt notice of the loss. • Send the Insurer a signed, sworn Proof of Loss form within 60 days of the request. The Insurer will supply the necessary forms. • Take all reasonable steps to protect the property from further damage and keep a record of expenses. • Give the Insurer complete inventories of the damaged and undamaged property. • As often as may be reasonably required, permit the Insurer to inspect the property and examine necessary books and records. • Cooperate with the Insurer in the investigation of the claim. • If requested, submit to an examination under oath.

What is difference between Replacement Cost VS Actual Cash Value?

Replacement cost pays the Insured the full cost (up to the limits of the policy) of buying new, similar property to replace the old destroyed or damaged property. Replacement cost pays without deducting for depreciation. No matter how old or worn the property is, the Insurer will replace it with new like-kind property. Replacement cost provides "new for old" without any deduction for depreciation. Kind of violates rule of indemnity The vast majority of Property policies state that they will only pay claims on the basis of depreciated value. The insurance world refers to depreciated value as Actual Cash Value (ACV) ACV = replacement cost - physical depreciation Exam will use numbers and throw in like original price paid, but that doesn't matter.

What is a business interruption endorsement on a commerical policy?

Since the policy won't cover indirect loss, this endorsement can pay for loss of income resulting from a peril

T or F: Special covers theft but not theft of money or employee theft.

T

T or F: The Property policy always gives the Insurer the Right of Salvage to recover whatever value it can from damaged property that has been replaced or paid for

T Note, this is the insurer and not insured who can use the salvage

Both ACV and replacement cost coverages require a little research before benefits can be paid. What does not?

Valued policies. On our exam, assume that fine art and antiques are candidates to be covered on a Valued basis. The parties simply specify in the policy how much will be paid for a total loss. A Valued Policy may also be referred to as an Agreed Value Policy or a Stated Value Policy.

No policy will cover all perils, so we need to look to the policy's Causes of Loss form to see which perils are covered. Basic = Broad = Special =

basic = 11 named peril broad = 16 named peril special = all perils not explicitly written (not named peril) A banker holding a mortgage will usually require the property owner to have Special coverage (all-risk, non-named peril coverage)

What additional coverages do specialty provide (big list, but here are some major ones):

*Full glass coverage; *Theft, including robbery and burglary is covered (but not theft of money, employee theft, or theft by the Insured or owner - these are usually excluded but may be covered by Crime Insurance found in Chapter 20); *Mysterious disappearance - it's gone and we don't know where it went. We may suspect theft but we have no evidence of a theft; *Breakage (a child tips over the china cupboard); *A bear breaks down a door; *A deer chews on the siding; *Sonic booms that crack the walls (these weren't covered under Basic because Basic required that the aircraft hit the building - now they are covered because they aren't listed as one of Special's exclusions); *Leaky roof (covered even though the water didn't come from a leaky pipe); and *The Insured's own vehicle hits the Insured's property (this peril wasn't covered under Basic or Broad but now is covered under Special because it isn't listed as an exclusion).

What are the basic coverage perils? "Football Lovers Relish Every Win, Score Score Score, Victory Victory Victory.

1. Football ........................Fire 2. Lovers...........................Lightning 3. Relish ............................Riot and civil commotion 4. Every.............................Explosion 5. Win................................Wind and hail 6. Score .............................Smoke 7. Score .............................Sprinkler leakage 8. Score .............................Sinkhole collapse 9. Victory ..........................Volcano 10.Victory ..........................Vehicles or aircraft 11.Victory ..........................Vandalism note: covers volcano, but not earthquake. also, hostile fires are covered as a peril. Friendly fires are not covered.

What are the additional broad coverage perils? "Willy Wonka's Fabulously Good Chocolate"

1. Willy.................................Water Damage 2. Wonka's..........................Weight of Snow, Ice, and, Sleet 3. Fabulously......................Falling Objects 4. Good...............................Glass 5. Chocolate .......................Collapse Note on water: only covers water which escapes from a water system that is intended to bring water into the building, such as water dripping from a leaky pipe or a water pipe that freezes and then bursts. The water damage coverage is limited to the damage which occurs in the first 14 days - after that, the Insured should have discovered and corrected the leaky water problem. The Broad form won't cover water damage from a leaky roof, Mother Nature's floods, basement foundation seepage, or sewer backup

Most Property policies throw in, as a freebie, at least these three Additional Coverages, and often a few more, and are provided without extra charge. What are they?

1. debris removal - policy will pay the costs to haul the destroyed property to the land fill 2. removal/preservation of property - If the insured property is threatened by a covered peril, the Insurer will provide coverage for an additional time (usually 30 days) if the Insured has to remove personal property from the covered premises. The whole idea is to motivate the Insured to remove property to minimize the potential loss. The Insurer will then provide coverage on the removed property against all perils at its new location (again, usually for 30 days) 3. Fire Dept. service charge - up to $500 in a Homeowner's Policy and $1,000 in a commercial policy). Our key exam points are: • The deductible does not apply to the Fire Departments Service Charge; and • The payment for the Fire Department Service Charge adds to the policy's overall limit of liability. So, a $1 million commercial policy would pay $1,001,000 for the property loss and the Fire Department Service Charge.

Sometimes agreements regarding payment for a loss simply cannot be worked out between Insureds and Insurers, and the whole crew heads to court. In order for the Insurer to be taken to court over a claim, the Insured must file the lawsuit within _____ years?

2 years

The ____________________________ specifies how the parties can resolve payment disputes without going to court.

Appraisal provision Either party may ask for an appraisal which works like this: 1.Each party selects an appraiser - an individual who will represent that party in conducting an evaluation of the amount of the loss. This could be your buddy, your neighbor, a lawyer, or whoever. 2.The two appraisers then choose a neutral third party to cast the deciding vote if the two appraisers can't agree. This third party is called an umpire. 3.Next, the two appraisers evaluate the situation, poke through charred rubble, examine records, consult other professionals, and whatever else appraisers do before arriving at a specific dollar loss. If the two appraisers agree on the value of the items, it's a done deal. 4. The matters (if any) on which the two appraisers disagree are passed on to the umpire, who then casts the tie-breaking vote. 5.Either way, the three-person appraisal team ends up recommending specific figures to the Insurer and Insured by a majority vote. If both the Insurer and Insured accept these findings, the company pays the appropriate benefits. The Insured and Insurer each pay their chosen appraiser, and the umpire's fee is split equally. 6. If either party disputes the appraisal team's recommendation, the matter can be taken to court; neither side is bound by the appraisal.

A policy covers leaky roofs. The insured's roof leaked after a satellite dish installer improperly mounted a new satellite dish on the roof. The leak damaged the wall, the floor, and a couch. The policy will pay for each of the following EXCEPT: a. the floor b. repair of the leaky roof c. the damage to the wall d. the couch

B. Although the damage from the leaky roof is covered, the Insurer is not expected to repair the leaky roof. Likewise, if a water pipe breaks, the Insurer will cover the damage caused but the Insured is expected to repair the broken pipe.

____________ is the transfer to the Insurer of the Insured's rights of recovery from a responsible third party

Subrogation With subrogation, the Insurer who has paid a claim is able to take over the Insured's right to sue a third party who caused the loss. Upholds the principle of indemnity (by preventing the Insured from collecting in full from both the Insurer and a third party who caused the loss); *Places the burden of the loss on the third party who caused the loss; and *Reduces the Insurer's loss costs and thus lowers premium rates

T or F: There is no right of abandonment in property policies

T Suppose Ingrid's fashion boutique burns down. The insurance company writes a check for the value of the property, and Ingrid decides to rebuild at another location. If the lost property had any salvage value, the Insurer may indeed haul it away, as is its right. But the insurance company is not required to take possession of the damaged goods, which in this case consist solely of huge piles of smelly rubble. So, the mess belongs to Ingrid, and it is her responsibility to clean it up. The Insured cannot abandon the property to the insurance company. There is no right of abandonment.

T or F: The ordinary Commercial Property policy will pay for direct loss but will not pay (unless there is an endorsement) for indirect loss.

T Direct loss is damage to the property itself. An example of a direct loss is a broken water pipe on the top floor that causes water damage through all of the floors including the basement. Another direct loss example is a fire that causes a wall of the building to fall onto a car in the street. These are direct losses because they involve damage to property - direct losses are covered by the typical Property policy. Indirect loss (or consequential loss) refers to the loss of income or loss of use. If a fire (which is a direct loss) destroys my commercial building, I will also suffer an indirect loss in terms of loss of income (if I can't open the doors I probably can't earn any income) or loss of use (I will have the added cost of moving to a temporary location while my building is being rebuilt).

The Standard Mortgage Provision in the typical Property Insurance policy makes several significant accommodations for the mortgagee: • The mortgagee is entitled to at least 10 days notice of cancellation or nonrenewal. • If the Insured fails to make the premium payment, the mortgagee may make the premium payment to the Insurer and add that amount to the mortgage loan. • If the Insured fails to file a Proof of Loss form within the required 60-day period, the mortgagee will have an additional 60 days to file. • After a loss, the Insurer may make the claim check payable to both the mortgagee and the Insured. The mortgagee, however, cannot collect more than the balance owing on the mortgage plus any accrued interest. • If the Insured is denied payment because of the Insured's breach of one of the provisions of the policy, the mortgagee is still entitled to payment. The usual exam questions involve a bad Insured who is guilty of arson fails to promptly notify the Insurer of a loss, fails to file a Proof of Loss form, or fails to cooperate in the Insurer's investigation of a loss. In these cases, the Insurer will have to pay the mortgagee but will not have to pay the Insured

The upshot of this provision is that the bank or mortgage holder is virtually always paid by the Insurer in the event of a loss. And the upshot of that upshot is that the bank does not need to have its own insurance on the property.

What is the difference between real property and personal property?

To an insurance agent, real property refers to buildings and other structures (like towers, stadiums, grain bins, and the like), but it doesn't include land. personal property includes all stuff that is not real property. In other words, if you own something and it is not a building or other structure, it almost certainly is personal property. For a business, personal property includes the desks, cell phones, file cabinets, inventory

Special excludes what? (and obviously so do basic and broad)

War; ○ Nuclear catastrophe (explosions, radiation, contamination, etc.); ○ Sewer backup; ○ Floods and mudslides (better covered by Flood Insurance in Chapter 10); ○ Earth movement (better covered by Earth Movement Insurance in Chapter 11); ○ Off premises power failure (for example, this causes the food in the freezer to spoil); ○ Government action (if the Homeland Security folks attack your rental apartment to evict the terrorists, the damage isn't covered by insurance); ○ Building ordinance (if strict new building codes have been adopted, the insurance company won't pay for the extra cost associated with complying with those new rules, such as the cost of adding an elevator when rebuilding an old structure which had no elevator); ○ Explosion of a steam boiler, refrigeration system, or compressor, mechanical breakdown of equipment, or an artificially generated electrical current (power surge). Note: These may be covered by an Equipment Breakdown (Boiler and Machinery) Policy - more on that in Chapter 9; ○ Intentional acts by the Insured - such as, arson or the destruction of covered property by the Insured; ○ Theft by employees - for this we need either a Fidelity Bond issued by a surety company or Employee Dishonesty Insurance. (Both will be covered under Crime Insurance in Chapter 20.); ○ Inherent vice (natural deterioration); ○ Normal wear and tear; ○ Neglect (when the Insured fails to take reasonable steps to protect the property after a loss); ○ Birds, vermin, rodents, and insects; ○ Terrorism; ○ Mold; ○ Damage to the structure's interior caused by rain, snow, sand, or dust entering through an open window or door; and ○ Damage caused by animals owned or kept by the Insured.

What about glass coverage?

fudge a bit and say that the Basic form provides no glass coverage and the Broad form provides glass coverage, but only for covered perils. Special will provide full glass coverage.