Chapter 2 - Property Basics

The Insuring Agreement contains the insurer's promises to the insured. The insured's name is found in the Declarations. NOT The insuring agreement

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A spark that jumps from a fireplace and ignites a nearby rug would be deemed a hostile fire - No answer

A hostile fire is one that leaves the area in which it was intended to be kept.

A spark that jumps from a fireplace and ignites a nearby rug would be deemed a hostile fire - Not a question

A hostile fire is one that leaves the area in which it was intended to be kept.

Property insurance policies that apply coverage only to perils that are stated in the policy, are considered to be written on:

A named peril basis - A named perils form stipulates the perils that are insured against. A broader approach is provided by an open perils form, which insures against all perils, except those specifically excluded under the policy.

All of the following statements regarding the property policy structure are correct, except:

Additional coverages are added to the policy for an additional premium - Additional coverages are automatically included without an additional premium.

Theft is specifically defined as:

Any act of stealing

When the insured and the insurer fail to agree on the amount to be paid for a property loss, the dispute resolution method is called a(n):

Appraisal - An appraisal is the procedure to be followed if the insured and insurer disagree on the amount of loss.

When property is valued on a replacement cost basis, losses will be paid:

At today's costs, without any deduction for depreciation - Replacement cost valuation pays the cost to replace property with property of like kind and quality, without a deduction for depreciation. Many property policies providing loss valuation at replacement value require covered property to be insured to a certain percentage of its replacement value, such as 80% or 90%.

All of the following are methods of writing property insurance limits, except:

Concurrent coverage - Specific, Scheduled and Blanket are all methods of writing property insurance limits. Concurrent coverage applies to separate policies covering a risk, such as a primary policy and an umbrella policy. It does not indicate a type of insurance limit.

The rules and procedures to be followed by the insured and the insurer are found in which section of an insurance policy?

Conditions

A secondary loss that occurs as a result of a direct loss from a covered peril is considered:

Consequential Loss - The direct loss to the property is the damage to the property caused by an insured peril. The indirect, or consequential, loss is further financial loss that results from the loss of use of the damaged property.

The part of an insurance contract that varies with each individual policy, but is still a mandatory part of the policy, is the:

Declarations - The Declarations section of the policy contains specific information about the insured, and thus will vary by policy, even when the type of coverage provided is the same.

When firefighters extinguish a house fire with water, the water damage is considered a:

Direct loss - Water damage is a direct loss to the property.

Under the Other Insurance condition, when two property policies cover the same property, how is a loss apportioned?

Each policy will share proportionately according to the total insurance - For a property policy, the Other Insurance clause generally states that two policies covering the same loss will pay proportionally to their limits of insurance.

Which of the following is attached to a property and casualty insurance policy to amend policy provisions or conditions?

Endorsement - Endorsements are used to modify a policy. They may be used to broaden or restrict coverage, or further define conditions.

Which of the following may broaden the coverage found in an insurance policy?

Endorsements

Which of the following may broaden the coverage found in an insurance policy?

Endorsements - Endorsements may be used to broaden, as well as restrict coverage set forth in the original policy.

Which policy provision omits certain risks from coverage?

Exclusions

When a property insurance policy states that damaged property will be replaced with other property that performs the same function with similar efficiency but is not identical to the damaged property, the policy is written on which of the following bases?

Functional Replacement Cost

When a property insurance policy states that damaged property will be replaced with other property that performs the same function with similar efficiency but is not identical to the damaged property, the policy is written on which of the following bases?

Functional Replacement Cost - Functional Replacement Value represents the cost to replace property with other property that performs the same function with similar efficiency, although the replacement property is not identical to the property being replaced.

When filing a claim, the insured is required to do all of the following, except:

Hire an appraiser - An appraisal is only necessary when the insured and insurer disagree in the amount of the loss.

Loss of income suffered by a storeowner after his/her store is destroyed in a fire is considered a(n):

Indirect Loss - The direct loss to the property is the damage caused by an insured peril, the fire. The indirect, or consequential, loss is further financial loss that results from the loss of business income due to the loss of the damaged store.

Which of the following is not a condition found in an insurance policy?

Insuring Agreement - The Insuring Agreement is a Section of the policy, separate and distinct from the policy conditions.

Which part of a property insurance policy describes the perils?

Insuring Agreement - The Insuring Agreement is the company's commitment to protect the insured and includes a description of the perils.

Which type of construction material has a fire-resistance rating between one and two hours for walls, floors and roofs?

Modified fire-resistive

The loss of property when the cause of loss is not known is considered:

Mysterious disappearance

Which term describes the situation that occurs when two policies covering the same property contain different policy periods?

Nonconcurrency - A policy is nonconcurring with another policy when its policy period does not overlap exactly.

When the insurer elects to end coverage at the end of the policy period the policy is said to be which of the following?

Nonrenewed - When an insurer determines that it does not wish to continue coverage for an insured it may choose not to renew the policy upon the expiration of the policy term.

The insured is not required to do which of the following in the event of a property claim?

Notify police, whether or not a law has been broken - The police only need to be notified if a loss is result of theft or other criminal activity.

Which of the following is the broad term for an accident that also includes a continuous and repeated exposure?

Occurrence - An occurrence is an event that results in a loss. While it includes accidents, the loss need not be sudden.

When coverage applies to a property loss by all perils except those specifically excluded, the policy is written on which basis?

Open Perils - The Open Perils policy covers all risks of that are not expressly excluded, rather than enumerating the perils being insured against.

When coverage applies to losses from all perils except those specifically excluded, the policy is said to be written on which of the following basis?

Open Perils - The open perils policy insures against all perils that are not excluded, rather than enumerating the perils being insured against.

All of the following statements regarding property insurance terminology are true, except:

Proximate cause is a secondary cause of loss - Proximate cause is the primary cause of loss, or the first event in the unbroken chain of events.

In property insurance, the principle that gives the insurer the right to take possession of damaged property after paying the loss is known as:

Right of Salvage

X's neighbor shoots off fireworks on July 4th and puts the shells in X's trash can, causing a fire and damaging X's garage. X's company pays the loss and contacts the neighbor for reimbursement. This is an example of:

Subrogation - Subrogation rights apply when negligent third party is the cause of a loss. Since the insurance company has paid the loss, it is granted the insured's right to recover payment from the third party.

Which is the only section of an HO-3 policy that may change or be different for each customer?

The Declarations - The Declarations is specific to each property insured under a policy.

The location of the insured risk can be found is in which part of an insurance policy?

The Declarations - The function of the Declarations is to apply the common policy to a specific insured and property. The risk location, therefore, is found in the Declarations.

Actual cash value may be defined as:

The cost to replace or repair property, minus depreciation

Which of the following most accurately describes the abandonment condition?

The insured cannot abandon damaged property to the insurer - The abandonment clause provides that the company will not accept property abandoned by an insured when there is a claim dispute.

Which of the following parties may assign a standard property policy?

The insured with prior written permission of the insurer - The insured can only assign or transfer rights of ownership with prior written consent of the insurer.

All of the following are true regarding the structure of a property policy, except:

The insured's duties in case of loss are found in the Insuring Agreement - The Conditions list the general rules and duties in the event of a loss under the policy.

Which of the following is true about the right of salvage?

The insurer has the right to take possession of damaged property after payment of a loss - After payment for loss, the insurer has the right to salvage damaged property.

Which of the following is not true about an insurance policy?

The insuring agreement includes the name of the insured - The Insuring Agreement contains the insurer's promises to the insured. The insured's name is found in the Declarations.

All of the following statements regarding a property policy are correct, except:

The insuring agreement personalizes the policy, specifying the exact property being insured - The Declarations personalize the policy. The insuring agreement is written without regard to the precise location and value of the insured property.

All of the following are included in the Declarations of a property policy, except:

The perils insured against - The perils insured against are listed in the insuring agreement.

An insured owns a home with a replacement cost of $300,000 and a market value of $250,000. What is the most a valued policy will pay in the event of a total loss without a deductible?

The policy limit - A total loss under a valued policy is payable based on the policy limit listed on the declarations page.

The concealment and fraud condition in a property insurance policy states:

The policy will be voided if there is material concealment, misrepresentation, or fraud on the insured's part

Which of the following is true of the Insuring Agreement?

The promise to indemnify an insured for a covered cause of loss - The insuring agreement is the company's commitment (promise) of protection to the insured. It specifies the types of property covered, and the perils insured against.

When the insurance company and insured cannot agree upon the amount of the loss, the person selected to help the two hired appraisers is called a(n):

Umpire - Both the insurance company and insured's representatives (usually appraisers) will select a third person to serve as an umpire. If the two appraisers fail to agree on the appraisal, they will submit their differences to the umpire, and an agreement of any two of the three will set the amount of the loss.

Which of the following best describes the situation when a property has neither contents nor occupants?

Vacancy - A vacant building is empty of both contents and occupants. In contrast, an unoccupied building contains physical contents, but has no residents or ongoing business occupants.4