Chapter 5

subrogation

Bruno sets William's car on fire and refuses to pay for the damages. William's insurer pays for the damage and then goes to court to collect from Bruno. This is an example of:

$150,000. The insured can never collect more than the policy limits.

Burt's home is destroyed in a fire. His homeowners policy has a $150,000 limit. What is the maximum amount Burt's insurer will pay for this loss? $______________ Explain your answer._________________________________________________

Actual cash value

The type of loss calculated by determining the item's replacement value and allowing for depreciation is:

A. $7,200 ($75,000/$125,000 × $12,000); B. $4,800 ($50,000/$125,000 × $12,000)

Two policies apply to an insured's $12,000 loss. Policy A has a $75,000 limit and Policy B has a $50,000 limit. How much would each insurer pay under a pro rata other insurance condition? Policy A: $_________ Policy B: $_________

A will pay 7,200, B will pay 4,800

Two policies apply to an insured's $12,000 loss. Policy A has a $75,000 limit, and policy B has a $50,000 limit. How much will each insurer pay under a pro rata loss condition?

Policy A: $100,000/$400,000 = .25 .25 × 50,000 = $12,500 Policy B: $300,000/$400,000 = .75 .75 × 50,000 = $37,500

Two policies cover a $50,000 loss. Policy A's limit of liability is $100,000; Policy B's is $300,000. With the pro rata method, Policy A would pay $12,500 and Policy B would pay $37,500. Here is how we calculated these amounts:

A. $75,000; B. $25,000

Two policies cover the insured's $100,000 loss. ABC's policy, which is primary, has a $75,000 limit. DEF's policy is excess and has a $50,000 limit. A) How much would the ABC policy pay for the loss? $_______________ B) How much of the loss would be covered by the DEF policy? $_______________

subrogation

When an insurance company sues a negligent third party to recover a loss paid to an insured the company is exercising its right of:

Duties following loss

Which of the following conditions of an insurance contact explains the insured's responsibilities after a loss?

liberalization

You purchase a property policy in order to insure your commercial building. Two months later, your insurance company offers the same policy to new customers with improved benefits, but the policies are sold for the same premium rate as your policy. Which clause in your policy would result in your policy automatically including these new improved benefits?

concurrent causation

a situation where two or more perils act at the same time to cause a loss is known as:

fire damage

all of the following are examples of nonaccidental losses and not covered by insurance except: wear and tear deterioration mechanical breakdown fire damage

hail damage

all of the following are found as common exclusions under insurance coverage expect: losses controllable by the insured extra hazardous perils catastrophic losses hail damage

Named perils policies cover only specified losses; open perils policies cover all losses except those which are excluded

how do named perils policies and open perils policies differ?

direct loss is financial and results directly from loss to property; indirect loss is a consequence of the original loss

how does direct loss differ from indirect loss?

the value agreed upon under the policy

if an item is insured under a valued or agreed amount policy, what is the maximum amount the insurer will pay in the event of a loss?

market value or fair market value

never an option to insure for what it could be sold for at the time of loss.

All risk or special coverage

open perils policies are sometimes called:

Actual cash value =

replacement cost - depreciation

Assignment

the condition that specifies that an insurance policy may not be transferred without the written consent of the insurer is termed:

Limit of coverage Limit of Liability Limit of Insurance All of the above

the maximum amount an insurance company will pay for a loss is called the:

as a fair proportion of the total value of the set

under a pair or set condition, how is part of a pair or set valued?

replacement cost

what is part of the formula for calculating the ACV of a building?

vacant means the absence of people and property, and unoccupied is the absence of people

when insurance policies exclude or limit coverage for losses when property is vacant or unoccupied, how are the terms vacant and unoccupied distinguished?

the salvage condition

which of the following allows an insurer to take possession of damaged property after a loss?

coinsurance

which of the following insurance principles is designed to encourage you to purchase adequate protection on your policy?

it encourages policy holders to insure property to value

which of the following is a correct statement about coinsurance?

the property may be described specifically or may be blanket coverage

which of the following is a correct statement about the description of covered property listed in the policy declarations?

The bailee is not covered under the insured's policy while the bailee has possession of the insured's policy

which of the following is addressed by the No Benefit to Bailee condition of an insurance policy?

a flat premium is charged each time the policy is renewed

which of the following is not a correct statement about insurance policies issued on a reporting basis?

the day of the week that coverage begins and ends

which of the following is not part of a policy period?

each party must pay for its chosen appraiser

which of the following pays for appraisal under the appraisal provision of insurance policies?

a deductible

which of the following reduces the cost of insurance by reducing the number of small claims?

I All Risk policies cover losses from any peril that is not specifically excluded.

which of the following statements about All Risk coverage is TRUE? I All Risk policies cover losses from any peril that is not specifically excluded. II All Risk policies cost more because of the increase in the dollar amount of coverages. III Under an All Risk policy the insurance company has the legal right to modify its claim settlement practices.

the abandonment condition

which of the following states that an insured may not give up property to the insurer and ask to be reimbursed for its full value?

the insuring agreement

which part of the insurance contract explains what property is covered and the perils the property is insured against?

inherent vice

your new white car turns to rust during the next 3 years as the result of sitting outside. In P & C language, this phenomenon would be classified as a(n)

direct losses

A homeowner discovers that a valuable painting was stolen from her home.

Indirect losses

A large fire destroys a city newspaper. To continue publishing, it rents another printing press at an additional cost

indirect losses

After a warehouse fire, an automobile agency has to rent office space from a motel until the damage can be repaired.

Jewelry

An insurance policy that pays for loss based on functional replacement cost basis is generally used to cover all of the following except:

actual cash value

Every property insurance policy must clearly state how the insurance company will determine "value" under the contract. Which of the following definitions of "value" would normally result in the insured receiving the smallest settlement for a loss?

$100,000. George has a 50% insurable interest in the condo, so the most he can collect is half its value, or $100,000.

George and his cousin, Nadine, each own 50% of a $200,000 condominium. George buys a $200,000 insurance policy to cover the condo. If it were totally destroyed, what is the maximum amount he could collect? $______________ Explain your answer._____________________

Insurable interest or the policy limit, actual cash value, and repair or replacement cost

I the event of a loss, an insured can collect the lesser of:

An umpire

In the event of a dispute in which the insured insists a stolen item was worth $2,000 but the insurer is only willing to pay $800, which of the following will ultimately decide the claim's value?

the mortgagee or loss payee

In the event of a loss, which of the following is granted rights and given duties under the mortgage or loss payable condition?

first named insured

Jamal and Pierre are co-owners of a carpet cleaning company. Both are named insureds on the company's insurance policy. Since Jamal's name appears first on the Declarations, he is the -additional insured. -named insured. -first named insured.

Named Insured

John purchases an Auto policy for his new car. There are no other insureds listed on the Declarations. John is considered the: -additional insured. -named insured. -first named insured.

The amount the item could be sold for

Market value is best represented by:

Fair market value

Most property insurance policies can be written to insure property on all of the following value basis EXCEPT. ACV fair market value replacement cost stated value

additional insured

Pedro's Homeowners policy lists the mortgage company that has an outstanding loan on the home. The mortgage company is a/an -additional insured. -named insured. -first named insured.

A will pay $75,000 and B will pay $25,000

Renee suffers a $100,000 loss that is covered by two policies. Primary policy A has a $75,000 limit. Excess policy B has a $50,000 limit. How much will each policy pay for the loss?

coinsurance

Requiring that a property be insured for at least 80 percent of its value is an example of:

depreciation

The definition of Actual Cash Value includes which of the following?

$6,000

The ABC insurance company has a $60,000 fire policy on a factory. The XYZ insurance company has a $40,000 fire policy on the same factory. Assuming that the factory is worth $100,000, how much would the ABC insurance company pay on a $10,000 covered loss at the factory?

Eliminate small claims

The primary purpose for including a deductible in a n insurance policy is to: