2-20 : Unit 1 : Property & Liability Insurance Concepts

Elements of a Contract

1. Competent Parties, 2. Offer and Acceptance, 3. Consideration, 4. Legal Purpose

Tort

A civil wrong. Causing some harm or embarrassment to someone that you shouldn't have caused.

Abandonment Clause

A clause often contained in property insurance policies stating that the insured cannot abandon damaged property to the insurer and demand to be reimbursed for its full value.

Franchise Deductible

A deductible that specifies that no payment will be made until loss equals or exceeds a prescribed amount; then the loss is paid in full.

Straight Deductible

A deductible that specifies the deduction of a flat amount from a loss payment, regardless of the size of loss.

Percentage Deductible

A deductible which requires a deduction from the loss of a percentage of the value of the property or a percentage of the policy limits.

Causes of Loss Form

A form that is part of the Commercial Property Coverage Part of the Commercial Package Policy. It specifies what perils are insured against and lists exclusions. Several different versions provide increasingly broad coverage from Basic to Broad to Special. An Earthquake form is also available.

Proximate Cause

A fundamental doctrine in property insurance that holds that when there is an unbroken connection between an occurrence and damage that grows out of the occurrence, then the resulting damage is a part of the occurrence. For example, fire is a proximate cause of damage done by water used in extinguishing it.

Concealment

A lie of omission, or hiding facts.

Act of God

A natural occurrence that is unpredictable and cannot be prevented by humans.

Statute of Limitations

A time limit within which a legal right must be exercised.

Replacement Cost (RC)

Actual cost to repair or replace - no depreciation. Repairs must be done before full payment is made.

Loss

Actual damage done.

Special Damages

Actual economic loss (money, assets).

Arbitration Clause (Parts of Insurance Policy)

Allows disputes to be settled out of court by a neutral party. Binding.

Stated Value

An agreed amount that is considered to be the calue of something.

Morale Hazard

An attitude of indifference to loss.

Theft (short answer)

Any act of stealing.

Misrepresentation.

Any untrue statement. It can be an intentional lie or an accidental misstatement.

Theft

As defined in insurance contracts, is a broad term encompassing any unlawful taking of property without the owner's consent, including swindling, embezzlement, robbery and burglary, but usually excludes employee dishonestly and mysterious disappearance.

Robbery

As defined in insurance contracts, is the taking or attempted taking of property by one who has caused or threatened to cause bodily harm or committed and witnessed an obviously unlawful act.

Burglary

As it is defined in insurance policies, is the taking of property by a person unlawfully entering or leaving the premises, as evidenced by physical signs of forced entry or exit.

Appraisal Clause (Parts of Insurance Policy)

Attempts to resolve disputes over value property. Non-binding.

Example of Speculative Risk

Betting on horses or investing in public stock, where the gambler or investor hopes for financial gain.

Risk Transfer

Buying an insurance policy.

Carrier

Can refer to an insurance company, or someone who hauls property for other people.

CCC

Care Custody or Control. Policies will exclude or grant coverage to "property of others in the Care, Custody, or Control of the insured."

Risk Avoidance

Choosing not to own a car could be a way of avoiding property or liability losses.

Risk Pooling

Collecting risk together.

Endorsements (Parts of Insurance Policy)

Conditions or coverages that are added to or removed from other parts of the policy. May broaden or narrow coverage, add or delete insured locations or persons, or make corrections to the policy.

Consequential Damage

Damage that occurs as "consequence" of a direct loss, such as a loss from spoilage resulting from lack of power, light, heat, etc. Not generally covered under property policies unless specified

Parts of an Insurance Policy

Declarations, Insuring Agreement, Conditions, Duties of the Insured, Exclusions and Limitations, Cause of Loss Form, Endorsements, Definition of the Insured, Definitions, Appraisal Clause, Arbitration Clause

Definitions (Parts of Insurance Policy)

Defines terms / words used in the policy. Example: "your covered auto" or "occurrence".

Definition of the Insured (Parts of Insurance Policy)

Describes what parties are "insured" (not necessarily just "named insured" or "first named insured") under the contract. Example: "The person named in the Declarations and relatives by blood or marriage residing in the same household."

Insuring Agreement (Parts of Insurance Policy)

Describes what risk the insurance carrier is assuming, the promise to cover financial losses.

Mysterious Disappearance

Disappearance of property without evidence of what happened.

Insurance Policy Conditions

Duties of the Insured, Subrogation, Loss Settlement Provisions, Assignment, Changes, Policy Period, Territory, Other Insurance, Cancellation, Liberalization, Appraisal, Abandonment, Severability

Equal Shares (Insurance Policy Cooperation)

Each policy pays an equal part of loss.

Pro rata (Insurance Policy Cooperation)

Each policy pays its proportionate share.

Indirect Loss

Economic loss in consequence of direct loss.

T/F - Speculative Risk is insurable, Pure Risk is not.

False

Declarations (Parts of Insurance Policy)

Gives the name and address of the insured, tells which coverage forms and endorsements are attached, what locations or property are covered, and what the policy limits are, the effective date and expiration, and the policy premium.

Coinsurance

Helps keep premiums down by specifying that under insured policyholders will share a portion of "partial" losses with the carrier.

Hazard

Increases the chance of a loss occurring. Often described as increasing your 'exposure' to loss by a specific peril.

Moral Hazard

Intentionally caused losses.

Representation

Is a statement that is thought to be true, to the best of one's knowledge.

Deductible (short answer)

Is the part of a loss that the insured pays out of pocket.

Physical Hazard

Laws of nature.

Risk Mitigation

Lessening the possibility of a loss. Also called risk reduction.

Occurrence

Means a bad thing that happens and is covered by one's insurance. The exact definition is different for different policies.

Limit

Means the most an insurance company will pay for a type of loss. This is their "limit of liability".

Risk

Means the possibility that a loss might happen. If you have a house, it is possible your house will be damaged.

Cause of Loss Form (short answer) (Parts of Insurance Policy)

On property policies, describes what perils are covered by the contract.

Bailee

One who has temporary custody of property belonging to another. (Example: Dry Cleaners)

Pure Risk

Only the possibility of a loss. For example, owning something with the possibility that it could be stolen or damaged.

Example of Pure Risk

Owning something with the possibility that it could be stolen or damaged.

General Damages

Pain, suffering, anguish, loss of companionship.

Characteristics of a P&C Insurance Contract

Personal Contract, Conditional Contract, Contract of Adhesion, Indemnity Contract, Insurable Interest

Direct Loss

Physical harm to tangible property.

Types of Hazards

Physical, Moral, and Morale

Conditions (Parts of Insurance Policy)

Places limitations or qualifying statements on the insurer's promise to pay or perform. Includes requiring the prompt payment of premium, providing notice and proof of loss. Includes number of days notice the company must give for cancellation or non-renewal.

Ways insurance policies can cooperate.

Primary, Pro rata, Equal Shares, Excess

P&C

Property and Casualty

Loss Payable Clause

Protects Lenders interest in personal property.

Mortgage Clause

Protects Lenders interest in real property. Policies can not be cancelled without notifying the mortgagee. Acts of the insured that compromise the policy (such as committing arson) do not affect the mortgagee's ability to collect their interest from the policy.

Vacancy

Refers to a building that has no occupants and is not furnished for people to occupy it.

Unoccupancy

Refers to a building that has no occupants, but is furnished.

Actual Cash Value (ACV)

Replacement cost less depreciation.

Specific Insurance

Separate amount of insurance on each item insured.

Blanket Insurance

Single amount of insurance on several items to be covered. Each location has a deductible.

Robbery (short answer)

Taking property by force or threat of harm.

Exclusions and Limitations (Parts of Insurance Policy)

Tells what is not covered; takes away coverage from the insuring agreement.

Duties of the Insured (Parts of Insurance Policy)

Tells what the insured must do after a loss: give notice, do not prejudice insurer's rights, submit proof of loss. Aka "duties in the event of loss or damage" or similar wording.

Claim

The assertion of a legal right against an insurer that carries with it a demand for appropriate relief.

Peril

The cause of a loss.

Market Value

The cost to buy something in the current market. Typically the same as Replacement cost.

The Law of Large Numbers

The more data you have, the more accurate your calculations will be when using that data.

Primary (Insurance Policy Cooperation)

The policy that pays first.

Speculative Risk

The possibility of a loss or a gain. Betting on horses or investing in public stock are examples, because the gambler or investor hopes for financial gain. Insurance does not deal with speculative risk.

Other Insurance Clause

This tells how the policies will act if more than one policy covers the same loss.

Burglary (short answer)

Trespassing for the purpose of stealing. May require "visible signs of forced entry".

T/F - Pure Risk is the type of risk that is insurable. Insurance does not deal with Speculative Risk.

True

Salvage Value

Used when there is an undamaged or partly damaged portion of the property that can be sold.

Deductible

Usually, a dollar amount the insured must pay on each loss to which the deductible applies. The insurance company pays the remainder of each covered loss up to the policy limits. See also Franchise, Percentage & Straight Deductible.

Excess (Insurance Policy Cooperation)

When limit of other policy is exhausted, this policy then pays.

Bailee

You have other people's property in your care, custody or control (CCC).