P&C Lessons 4
The CGL policy includes
Coverage A for bodily injury and property damage liability, Coverage B for personal and advertising injury liability, and Coverage C for medical payments.
Retrospective rating applies a formula to include
an insured's current loss experience into the final premium, incenting the insured to control its loss experience.
The price the insurer determines is necessary to insure a single unit of exposure is called the:
rate An insurance rate is the price the insurer determines is necessary to insure a single unit of exposure; the insurance premium-equal to the insured's assigned rate times the number of exposure units-is the amount that the insured pays to the insurance company in exchange for receiving insurance coverage.
The insurer must provide the insured at least
10 days' written notice before it cancels a workers comp policy.
In 2013, ISO introduced the Auto Dealers form as
a replacement to the garage coverage form. Many states have adopted it.
Employee theft coverage is provided in
crime insurance policies, either on a stand-alone basis or as part of a commercial package.
In a trailer interchange agreement, a motor carrier agrees to
exchange trailers with another carrier. Each carrier agrees to indemnify the other for damage the other carrier's trailer sustains while in the indemnitor's possession.
The garage policy insures
franchised and nonfranchised auto and trailer dealers.
The CGL policy has six coverage limits:
general aggregate limit, products-completed operations aggregate, each-occurrence limit, personal and advertising injury limit, damage to premises rented to you limit, and medical expense limit.
The garage policy combines coverage for a dealer's
general liability exposures with coverage for exposures arising from the garage's ownership, maintenance, or use of autos.
Bonds involve a three-party relationship in which one party (the surety, usually an insurance company) agrees to
indemnify a second party (the obligee, e.g., a developer) for loss caused by the failure of a third party (the principal, e.g., a contractor).
Lucy's space heater causes a fire that results in $200,000 in damage to the office building she rents. Although the loss is within the $300,000 general aggregate limit of her commercial general liability insurance policy, the insurer pays only $100,000 of the property damage claim because of the policy's:
limit on damage to premises rented to you Under the CGL policy, damage to any one premises that the insured rents is limited to $100,000 in any one occurrence. This is a sublimit to the each-occurrence limit.
Consumers usually pay higher rates in a residual market and may receive
limited benefits in comparison to voluntary market coverage.
Liquor liability insurance covers the liability exposure of businesses that
manufacture, sell, distribute, and serve alcohol.
When the court appointed Delia as guardian for her late sister's children's financial assets, it also required her to furnish a fiduciary bond. The fiduciary bond does NOT guarantee that Delia will:
raise the children in their parents' religious faith A fiduciary bond guarantees that the fiduciary will exercise duties faithfully, account for all property, and make good for any deficiency.
Flat dividends are applied without
regard to the insured's loss experience.
Theft is a broad term that includes any type of
stealing or attempted stealing.
Under the garage coverage form, the most that will be paid for loss to any one covered auto is
the actual cash value at the time of loss or the cost to repair or replace the property with like kind and quality.
Surety bonds involve a
wide variety of relationships in which one party has a responsibility toward another party to fulfill certain duties.
Federal law requires certain motor vehicles to have minimum limits of insurance coverage to
satisfy public liability and environmental restoration claims that may arise from accidents. An endorsement (MCS-90) to the auto liability policy assures the policy provides this coverage.
Some personal umbrella liability policies pay
the deductible amount for the primary policy. Some may also impose a deductible (called the "retained limit") before they pay for certain injuries, such as slander.
Fidelity bonds guarantee to the employer that
the employee will not be dishonest and indemnifies the employer if that guarantee is not sustained. They are most commonly used by financial institutions or public entities, such as governmental bodies.
Most states allow suits against the employer if
the employer has failed to either buy workers compensation insurance or obtain authorization to self-insure as required by the law.
Public officials bonds cover losses that result from
the failure of a public official to faithfully perform the duties of his or her office.
Workers compensation, personal auto liability, and property insurance are
the types of insurance that are often sold through residual markets.
Rebecca has a personal auto policy (PAP) with a $500,000 limit and a $1 million personal umbrella policy (PUP) with a $500 retained limit (deductible) for slander and defamation. She is at fault in an auto accident that is settled for $600,000. How will this settlement amount be paid?
Rebecca will pay nothing, the PAP insurer will pay $500,000, and the umbrella insurer will pay $100,000. The PAP insurer will pay the PAP limit of $500,000, and because no slander or defamation is involved (meaning, no deductible), the PUP insurer will pay the remaining $100,000.
An occurrence policy covers the insured for
injury or damage that occurred during the policy period even if the policy is expired when the claim is filed.
Physicians professional liability insurance is designed to cover all the following exposures a medical practitioner faces , such as:
delaying a patient's treatment discharging a hospital patient too soon invading a patient's privacy
The difference between the Pollution Liability Coverage Form (CG 00 39) and the Pollution Liability Limited Coverage Form (CG 00 40) is that the Limited Coverage form:
does not cover cleanup costs CG 00 40 provides the same bodily injury and property damage liability coverage as CG 00 39 with the exception of coverage for cleanup costs.
Endorsements can add additional coverage for
lessees of safe deposit boxes, securities deposited with others, guests' property, businesses that provide safe deposit boxes for their customers, and extortion.
The motor carrier and truckers forms provide
liability, physical damage, and trailer interchange coverage.
As a bailee for hire, a garage may be liable for
loss to customers' autos while they are in the garage's care. Although the garage policy's liability insurance does not cover damage to property in the insured's care, custody, or control, the policy's garagekeepers coverage addresses this exposure.
Remuneration ('payroll') is the most common premium basis for
workers compensation.
ABC Company's insurance agent has informed ABC that its current workers compensation policy has a 1.3 experience modifier but its renewal policy will have a 1.1 "mod" which means:
ABC's loss experience was worse than average but is getting better. An experience modification factor (mod) greater than 1.0 indicates that the employer's loss experience during the relevant period was worse than that of others in the same class. In this case, the lower renewal mod indicates that ABC's experience is improving and the premium will decrease
Ernie wants appropriate insurance coverage on his used car business. He only sells used cars and is not committed to a particular brand. Which statement is correct?
He is eligible for garage coverage because he is a nonfranchised dealer. The garage policy may be used for nonfranchised auto dealers, a category that includes used car dealers like Ernie.
Residual market mechanisms make insurance available to
consumers who cannot obtain it in the voluntary market.
Robbery is a theft during which
force is used or threatened against the victim.
The exposure base for workers compensation insurance is payroll. An estimated payroll is used to determine
an estimated premium at the start of the policy period.
If a claim related to an injury suffered by an employee is not covered under workers compensation law, the employer may
be sued. Employers liability insurance is provided as an additional coverage in the workers compensation and employers liability policy.
For bodily injury to be covered by employers liability insurance:
bodily injury must "arise out of and in the course of" the employee's employment with the insured the injured worker's employment must be necessary or incidental to the insured's work in a listed state or territory bodily injury caused by an accident must have occurred during the policy period bodily injury caused by disease must have been caused by or aggravated by the conditions of the employment the employee's last day of last exposure to the conditions that cause or aggravate the bodily injury by disease must occur during the policy period
Employers liability insurance applies to
bodily injury, including death, by accident or disease.
If a worker is killed on the job, workers comp death benefits consist of a
burial allowance and a weekly income benefit designed to help compensate those dependent on the lost income.
FAIR Plans (Fair Access to Insurance Requirements) allow property owners in qualifying inner-city areas to
buy insurance they could not otherwise obtain in the voluntary market.
An ISO crime coverage form includes
eight insuring agreements, but coverage applies only to the insuring agreements for which a limit of insurance is shown in the declarations.
Lila, a self-employed accountant, requires emergency medical treatment after choking on a product of the Dulce Candy Company while in her office. A month later, she asks Dulce to pay her medical bills. Dulce's commercial general liability policy with medical payments coverage (Coverage C) will:
exclude coverage for Lila's claim because the incident occurred away from Dulce's premises As premises and operations coverage, Coverage C does not provide medical payments coverage for bodily injury that occurs away from the insured's premises and arises out of the insured's completed products or completed work.
Physicians professional liability insurance is designed to cover all the following exposures a medical practitioner faces EXCEPT:
failing to meet continuing education requirements
Speedy Trucking Company owns a fleet of trucks. Other companies hire Speedy to transport their cargo. What kind of company is Speedy?
for-hire carrier A for-hire carrier is a company that provides truck transportation of cargo belonging to others and is paid for doing so.
Following the kidnapper's instructions, an employer sent a messenger to deliver $250,000 to the kidnapper who promised to release its kidnapped employee unharmed. However, the messenger was ambushed and the ransom payment was lost. Which coverage of the employer's kidnap/ransom and extortion policy will reimburse the employer for its $250,000 loss due to the ambush?
in-transit delivery of property The in-transit delivery of property insuring agreement pays for the theft of money from a messenger who is delivering it as a ransom payment.
When the policy expires, the insured's actual payroll records are audited to determine the final premium. The insured is required to
keep records of the necessary information for audits up to three years after the policy period ends.
The exclusive remedy provision stipulates that an injured employee is
legally entitled to the workers compensation benefits provided by law but is not permitted to sue the employer.
Sliding scale dividends are paid only if
losses are low during the policy period.
A commercial general liability (CGL) insurance policy provides a business's
main liability coverage. Most businesses are covered by a CGL or a businessowners policy, which provides similar coverage.
A preliminary unmodified premium is set by
multiplying the appropriate rates for the applicable job classification by the premium basis (the covered payroll divided by $100)
The premium for a work classification is determined by
multiplying the rate by the appropriate premium basis.
General liability loss exposures fall into four categories:
premises and operations liability; products and completed operations liability; contractual liability; and independent contractor liability.
Some insurers offer participation (dividend) plans, which may
provide a return of premium after the policy expires.
When primary general, auto, and employers liability coverages underlie an umbrella policy, the umbrella policy will
provide excess limits above the underlying policies. It will also "drop down" to provide bodily injury, personal and advertising injury, and property damage coverage for some claims not covered by underlying insurance.
Classifications categorize employers who have common types of exposures, and are used to
rate the employer as a whole, not the individual occupations of employees.
A form of workers compensation premium calculation that bases the final premium on losses the insured business incurs during the current policy term is called:
retrospective rating Retrospective rating employs a complex formula for factoring an insured's current loss experience into the final premium.
A personal umbrella liability policy provides coverage that
stacks on top of the primary liability coverage provided by the insured's homeowners, personal auto, watercraft, and any other scheduled underlying liability policy. It is activated once the underlying limits of the primary policy are exhausted.
Bodily injury or property damage that occurred before a retroactive date will not be covered even if
the claim is filed during the policy period.
What determines the classification code that the insurer uses in computing a business's workers compensation premium rate?
the nature of the business's operations The type of business operation an employer conducts determines the appropriate classification of covered employees.
A claims-made policy covers the insured if
the policy is in force when the claim is made. It may restrict coverage for operations performed before a specific date.
An insurance premium is a periodic payment paid to the insurer in exchange for insurance coverage, whereas an insurance rate is
the price of insurance for a unit of exposure.
Surety losses typically are largely preventable because often the events that produce a breach of contract are, to a great extent, within
the principal's control.
Crime insurance policies commonly provide coverage for named perils, such as
theft, burglary, and robbery.
Employer is headquartered in Minnesota (which is listed in item 3.A. of its workers compensation policy), but its employees are apt to travel to any other state for various business reasons. In this case, the most appropriate entry for Item 3.C., "Other States Insurance," is:
"all states and U.S. territories except North Dakota, Ohio, Washington, West Virginia, Wyoming, Puerto Rico, the U.S. Virgin Islands, and Minnesota" Employer is apt to do business in any state, so instead of choosing which states to name, Item 3.c. should say "all states except" and then list the monopolistic states and territories and the states designated in Item 3A (Minnesota in this example).
Workers compensation insurance rates apply per
$100 of payroll
Florist has a business auto policy with a $300,000 limit, and a commercial umbrella policy with a $1 million limit and a $10,000 self-insured retention. While driving the company van, Florist's driver rear-ended a school bus. The injured bus passengers' claims and damage to the bus result in a $500,000 judgment against Florist. How much will be paid by the insurer that issued the umbrella policy?
$190,000 The $300,000 limit of the business auto policy will be paid to claimants, and the umbrella will pay the remaining $190,000 balance of the judgment after the insured pays the self-insured retention of $10,000.
Beck Company's insurance policies include a crime policy that includes blanket coverage on employee theft. Beck's policy would apply to theft of covered property by any of the following individuals
Enid, a student intern who works at a computer station in Beck's office; Maggie, a leased worker engaged in a special project for Beck; Wesley, a full-time clerk in Beck's mailroom An independent contractor who is paid to perform a service but is not under the insured's direction and control in performing that service is not considered an employee. Therefore, a crime policy does not cover theft of property by an independent contractor.
Jonathan is the sole proprietor of a shoe repair business. His wife, Laura, is the bookkeeper. Jonathan is the only named insured listed in the business' commercial general liability insurance policy. Laura is also a business partner with her sister Amy in a restaurant. Who is an insured under the shoe shop's CGL policy?
Jonathan and Laura, with respect to the shoe business When a sole proprietor is a named insured, his or her spouse is also insured with respect to the named insured's business.
When an independent contractor discovered he had asbestosis, he submitted a workers compensation claim to Iva Builders, the contractor that employed him. Iva's risk manager submitted the claim to its insurer, but asserted that the contractor got the disease elsewhere and told the insurer to refuse the claim. Which of the following statements is true?
The insurer has a right to investigate and settle the claim regardless of Iva's consent. The insurer has the right to investigate and settle workers compensation claims or suits without the insured employer's consent.
Vinson Used Autos has an inventory valued at $500,000 at two locations. However, its garage policy has a physical damage coverage limit of $350,000. Why should Vinson increase this coverage limit to match the value of its inventory?
The policy requires Vinson to have full insurance to value on all covered autos. The policy requires the insured to carry full insurance to value on all covered autos at any of its locations or in transit. Coverage is limited to the lesser of actual cash value at the time of loss or the cost to repair or replace the property with like kind and quality, and this coverage is subject to a limit for each covered location. Even if a loss is below the maximum amount shown on the schedule, the insured may recover only a portion of the loss if actual values exceed the limit of insurance.
Depending on the state(s) where the business operates, workers compensation insurance may be available from
a monopolistic state fund, the voluntary private market, a competitive state fund organization, or a state residual market plan.
Businesses face liability claims that are not covered by a CGL policy but may be covered by
a variety of executive and professional liability policies.
An ISO liquor liability coverage form includes two limits of insurance, called:
an aggregate limit and an each common cause limit The ISO liquor liability policy provides an aggregate limit and an each common cause limit.
Commercial crime policies address a need for coverage because while commercial property policies typically cover theft of covered property, money and securities are almost always
an excluded category of property, and employee dishonesty is almost always an excluded cause of loss.
The unmodified premium may be adjusted by
an experience modifier and a premium discount.
To be entitled to medical benefits, an employee must show that
an injury or illness has occurred, it occurred in the course of employment, and it arose out of employment.
Unlike an insurance policy, a surety bond is based on
an underlying contract. In the event of a default, the surety's obligations will be determined by the underlying contract.
Contractors are typically required to provide up to three types of bonds on a construction project:
bid bond, performance bond, and surety bond.
All the following are standard exclusions in the employers liability insurance section of the workers compensation policy
claims arising out of harassment, discrimination, or employment-related practices claims of bodily injury to an employee employed in violation of the law fines or penalties imposed for violation of federal or state law
All the following are standard exclusions in the employers liability insurance section of the workers compensation policy EXCEPT:
claims by a covered worker's spouse for loss of consortium Claims for loss of consortium are not excluded from employers liability coverage.
License and permit bonds, often required by a municipality or other public body, guarantee that the party seeking the license or permit will:
comply with applicable laws or regulations Public bodies require license and permit bonds as a condition to granting a license or permit to engage in a certain activity. The bond guarantees that the bonded party will comply with applicable laws or regulations.
Commercial general liability insurance protects businesses and other organizations by
covering their general liability exposures. It does not cover auto liability or professional liability exposures.
As an accounts receivable clerk, Teresa often receives checks through the office mail. Last month, she took one of the larger checks that was payable to her employer, endorsed it by printing her employer's name, and deposited the check into her own account. The forgery or alteration coverage in the employer's crime policy:
does not cover this forgery claim because it was committed by an employee Her printing of the employer's name constitutes a forgery, and is not covered because she is an employee. Acts of employees is a common exclusion in all crime coverages except employee theft. If the employer has employee theft coverage, it would possibly cover this claim.
Most states have compulsory workers compensation laws. Texas and New Jersey have elective workers compensation laws, so an employer can
either accepting or rejecting the workers compensation law (but if rejected, the employer cannot raise common-law defenses).
ISO crime coverages address
employee theft; forgery or alteration; theft of money and securities from inside the premises; robbery or safe burglary of other property from inside the premises; theft, destruction, and loss of money and securities or property outside the premises while in the possession of a messenger or armored carrier; computer fraud; funds transfer fraud; and losses to fraudulent money orders and counterfeit money.
When the Maritime Coverage Endorsement (WC 00 02 01 A) is added to a workers compensation policy:
employer liability coverage is provided for insureds with true maritime exposures Attaching the Maritime Coverage Endorsement to the policy adds coverage for insureds with true maritime exposures.
Burglary is the theft of property from within a premises by a person who
forcibly enters the premises with the intent to commit a crime.
Which coverage under Mason's garage policy would respond to a claim for damage to a customer's car while it was in his shop for repairs?
garagekeepers coverage The garage policy's garagekeepers coverage addresses the exposure of damage to customers' autos in the garage's care.
A personal umbrella liability policy, covering bodily injury, property damage, and personal injury, provides
high limits of liability coverage to protect an insured against a catastrophic liability loss.
Workers compensation insurance provides benefits to
injured workers regardless of negligence or fault of the employer.
Unlike an insurance policy, a surety bond:
is a three-party contract Three parties-the principal, the obligee, and the surety-are involved in a bonding relationship.
When an insurance policy provides crime coverage on a discovery basis, coverage is triggered by a loss that:
is discovered during the policy period or within 60 days after the policy period ends Discovery-based coverage applies to loss discovered during the policy period or within 60 days after the policy period ends. Loss sustained coverage applies to loss that occurs during the policy period and is discovered within one year after the policy period ends.
An insurance policy is different from a surety bond in that an insurance policy:
is issued with the expectation that some insureds will have losses Although they do not know which insureds will suffer a loss, insurance underwriters anticipate that a certain number of losses will occur; insurance is a mechanism for spreading the financial impact of those losses.
A dealer can buy coverage under the garage policy for physical damage to
its own vehicles and to vehicles consigned to it for sale. It may also buy garagekeepers coverage for customers' vehicles in its care.
All states and the District of Columbia have workers compensation laws. These laws provide
no-fault benefits to workers injured on the job.
Surety bonds are generally
noncancellable.
An injured employee must prove two additional elements to qualify for wage replacement benefits:
the work-related condition resulted in impairment, and the impairment resulted in a wage loss.
