P&C - Policy Provisions and Contract Law

What is the maximum penalty for habitual willful noncompliance with the Fair Credit Reporting Act?

$2,500 - An individual who willfully violates this Act enough to constitute a general pattern or business practice will be subject to a penalty of up to $2,500.

Under the professional liability loss settlement provision, what must an insurer do before offering to pay a claimant to settle a claim?

Get the insured's consent - If a claim has ben filled under a professional liability policy, an insurer MUST get the consent of the insured before offering to pay to settle a claim. If the insured's professional reputation is at risk, and they feel there was no negligence, the insured can require the insurer to defend the action in court.

The policy conditions define:

How parties to the contract must act following a loss - Conditions is an essential part of a policy structure. Conditions define what each party to the policy is required to do contractually in the event of a loss.

Persons covered under an insurance policy, whether named or not, are known as the:

Insureds

What is material misrepresentation?

A statement by the applicant that, upon discovery, would affect the underwriting decision of the insurance company

The declarations page of the homeowners policy provides all of the following information EXCEPT:

A statement that earthquake damage is not covered - Declarations section provides information as to who is insured, where they are located, when the policy provides coverage, how much coverage, and the amount of deductible applied to a loss.

Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses?

Additional coverage - The additional coverage portion of a policy provides an additional amount of coverage for specific loss expense, at no additional premium.

In insurance, an offer is usually made when:

An applicant submits an application to the insurer - Offer is usually made by the applicant in the form of the application. Acceptance takes place when an insurer's underwriter approves the application and issues a policy.

A policy condition that stipulates how the amount of damaged or lost property will be determined if the insured nd the principal do not agree on the value of a property loss is known as:

Appraisal - If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an appraisal.

Which of the following describes the transfer of a legal right or interest in an insurance policy?

Assignment - In P&C insurance, assignments of policies are usually valid only with the prior written consent of the insurer.

What term best describes the act of withholding material information that would be crucial to an underwriting decision?

Concealment

Which provision requires that following a loss, the named insured prepares an inventory of damaged property and cooperates with the insurer in settling the loss?

Duties after loss - Insureds are required to uphold duties after a loss occurs, which include protecting damaged property from further damage, creating an inventory of damaged property, submitting proof of loss, and cooperating the insurer in the settlement of the loss. In the event of theft, the insured must also notify the police.

An insured has four separate but identical policies written by different insurers to cover her $100,000 building. Each policy is written for $100,000, and each has the pro rata liability other insurance clause. In the event of a total loss to the building, what would each insurer pay?

Each policy will pay $25,000 of the loss - Each policy will pay its pro rata share of the loss, but not more than the amount of loss in total.

Who may cancel an in-force insurance policy?

Either the insured or the insurer - Cancellation is the termination of an in-force insurance policy, by either the insured or the insurer, prior to the expiration date shown in the policy.

Which of the following would modify the original insurance contract by either adding or removing coverage?

Endorsements - Endorsements change the policy's original terms, conditions, or coverages. Endorsements can add or delete coverage, or merely correct items such as the insured's name, address, etc.

The section of an insurance policy that details what perils are not insured against and what persons are not insured is known as the:

Exclusions

All of the following are found in the declarations section of a policy EXCEPT the:

Exclusions - Declarations state who is insured, what is insured, when the policy begins and ends, how much insurance, and how much premium. The exclusions tell what is not covered.

Which of the following would be named on the declarations page of a property or liability policy?

First named insured - First named insured is the individual whose name appears first on the policy's declaration

When an insurance policy does not cover a continuation or replacement at its expiration date, it is considered a...:

Nonrenewal

The Federal Fair Credit Reporting Act:

Regulates consumer reports - The FFCRA regulates consumer reports, also known as consumer investigative reports, or credit reports.

What type of information would be found in a policy's insuring agreement?

Renewal dates - An Insuring Agreement establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy. The insuring agreement lists the parties to the contract, effective and renewal dates, the description of coverage provided, and perils (among other things). Location of premises, policy limits, supplemental representations, and insurer's name and address can all be found in the Declarations.

Which of the following types of insurance would be covered under the TRIA?

Workers compensation insurance - TRIA applies to commercial property and liability insurance, including excess insurance, workers compensation, and directors and officers insurance.

The part of the policy that sets forth the rules of conduct, duties, and obligations of the parties is called:

Conditions

A person who is not named as an insured on the declarations page of a policy but is protected by the policy is known as the:

Additional insured - An additional insured is usually added by endorsement and is not named on the declarations page but is protected by the policy.

In return for premium, an insurance company must:

Be fair in underwriting and pay covered losses - In return for premium, an insurance company must be fair and impartial in underwriting of risks and must pay claims made for all covered losses.

An insurance contract must contain all of the following to be considered legally binding EXCEPT:

Beneficiary's consent - The four essential elements of all legal contracts are offer and acceptance, consideration, competent parties, and legal purpose.

An applicant is purchasing a homeowners policy. A producer comes to her home, fills out the paperwork, and tells the applicant that her home will be covered as soon as she signs all of the paperwork, and that she will receive a new policy in the mail in 5 business days. Even though the policy is not issued, the applicant's home is temporarily covered until then. Which of the following makes that possible?

Binder - A binder is a temporary agreement issued, usually in writing, but may be oral, by a producer or insurer providing temporary coverage until a policy can be issued.

The ABC Corporation has a $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay?

Company A will pay $16,000; Company B will pay $8,000 - Company A's coverage is twice the amount as Company B's. Therefore, when the pro rata method is used for the $24,000 loss, Company A will pay twice the amount as Company B.

Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT:

Conditions - Conditions are part of the policy structure

An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated?

Consideration - The binding force in any contract is consideration. Consideration on the part of the insured is the payment of premiums and the health representations made in the application. Consideration on the part of the insurer is the promise to pay in the event of loss.

Representations are written or oral statements made by the applicant that are:

Considered true to the best of the applicant's knowledge

Which of the following is a mandatory part of an insurance policy that varies with each individual policy?

Declarations - The declarations tell who, what, when, and where; this information is different in each contract.

The part of a policy that clarifies terms in the policy is the:

Definitions

When would a misrepresentation on the insurance application be considered fraud?

If it is intentional and material - If found intentional and material, fraud would be grounds for voiding the contract.

The pro rata liability clause is designed to protect the principle of:

Indemnity - If more than one policy is in force on the same property at the same time covering the same perils, this is concurrent coverage. The intent of insurance is that after a loss, the insured is restored to the condition they were in before the loss (indemnified). Each policy pays a percentage of a loss directly related to the amount of insurance it provides compared to the total amount of coverage.

Who is responsible for filling out a notice of claim form?

Insured - Notice of claim is a form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred

All of the following are conditions commonly found in the insurance policy EXCEPT:

Insuring Agreement - The insuring agreement provides information on the policy's coverages. Conditions state the legal obligations and duties of the parties to the contract.

The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the:

Insuring agreement - The insuring agreement is the part of the policy structure that describes the insured perils and the method of indemnification.

Which of the following is TRUE regarding TRIA?

It is a temporary federal program for insured terrorism losses

Duties of the insurer found in property policy conditions include all of the following EXCEPT:

Notify the insured in the event of financial difficulty - The insurance department monitors the financial conditions of insurers. The insurers report to the state, not to policyholders.

What insurance policy provision defines how the policy will respond if there is more than one insurance policy written on the same risk?

Other insurance

The other insurance provision that limits the liability of the insurer to a portion of the loss no greater than the amount the insurer bears to all the insurance covering the property is called:

Pro rate liability - To preserve the principle of indemnity, each policy pays a pro rata share based upon the share of the coverage. The insured cannot collect the full amount of loss from each policy.

A sworn written statement that must be furnished by the insured to the insurer before any loss under a policy can be paid is called:

Proof of loss - Proof of loss must be in writing

The Gramm-Leach-Bliley Act was passed to:

Protect private customer information filed with a financial institution - The GLBA was passed to protect private customer information that is filed with a financial institution. Customers must be given two disclosure notices (one at the onset of business and one before information is disclosed), as well as a yearly updated disclosure notice.

Which of the following would qualify as a competent party in an insurance contract?

The applicant has a prior felony conviction When an insurer and insured enter into a contract, both parties must be of legal age and mentally competent. It is legal for a person convicted of a felony to buy an insurance contract.

Which of the following would NOT be considered a source of insurability information by an insurer?

The applicant's marital status - An insurer may inspect, with the applicant's written permission, the following: application form, motor vehicle records, interviews with neighbors, friends and employers, inspection of property, and inspection of insurance history.

Which of the following is NOT the consideration in a policy?

The application given to a prospective insured - Consideration is something of value that is transferred between the two parties to form a legal contract.

When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy...:

The loss reimbursement is paid to the mortgagee

In terms of parties to a contract, which of the following does NOT describe a competent party?

The person must have at least completed secondary education - The parties to a contract must be capable of entering into a contract in the eyes of the law. Generally, this requires that both parties be of legal age, mentally competent to understand the contract, and not under the influence of drugs or alcohol.