Risk Management Exam 2

The boat house at the Arthur's beach house is insured under Homeowners coverage:

Other structures

The swimming pool at the Arthur's residence is insured under Homeowners coverage:

Other structures -Detached

Homeowner's eligibility

Owner occupant: detached residence (house), town home, condominium (horizontal boundaries) -Apartment or rental home

What does P&C Insurance stand for?

Property and Casualty

Punitive damages

Punish the wrongdoer

Persons insured

1. Named insured and spouse 2. Resident relatives 3. Full time student away from home 4. Other under age 21 and in the care of the named insured or of a resident relative (foreign exchange student)

What creates insurable interest in Property and Casualty Insurance?

1. Ownership of Property- owner has title to home or automobile 2. Contractual- tenant under lease agreement 3. Bailment- bailee holds personal property of others for service or repair (car shop) 4. Secured creditor- mortgagee (home) or loss payee (automobile)

What is blanket coverage?

All personal property -Broad named perils

Does Silverstein Properties have insurable interest on 9-11-2001?

Yes -Contractual interest

Stephen sustains hail damage to his roof. The cost to replace the roof is $25,000. Stephen has replacement cost coverage on the home with a $1,000 deductible. The home is insured at 90% of current replacement cost. After application of the deductible, what is the net amount that Stephen will collect for the roof replacement?

$24,000 25,000-24000 Flat rate

Assume $300,000 home with 80% coinsurance, $240,000 policy limit and $250,000 loss. What is the amount paid?

$240,000 -Amount paid can never exceed policy limit

Insurance is $168,000; Current Replacement Cost is $350,000. What will the insurance company pay for the $50,000 fire loss? 80% coins and $500 deductible.

$29,500 (168,000/(350,000x0.8)) x 50,000 = 30,000 30,000-500 deductible = $29,500

The current replacement value of the primary home is $582,000. The market value is $505.991. What coverage A amount should be recommended?

$582,000 -Current Replacement Cost

Jeff has a $350,000 home with a $1,000 deductible (except for named storm) and a 2% named storm deductible. Limit of insurance on the house is $350,000. A tree falls on the house during Hurricane Rita causing $75,000 damage. What is the deductible amount for Rita damage?

$7,000 350,000(.02) = 7,000

Amada's beach house has replacement cost value of $400,000 in 2014. The home is insured for $288,000 subject to 80% coinsurance with a 2% named storm deductible. The home suffers a $100,000 wind loss from hurricane Rita. What amount will the insurance company pay for the Rita claim?

$84,240 (288,000/(400,000x.80)) x 100,000 = 90,000 288,000 x 0.2 = 5760 90,000-5760 = 84,240

What is the formula to calculate coinsurance? ***multiple questions on exam

(Did/Should) x Loss or (Amount Carried/ Amount Required) x Loss Should is the coninsurance percentage x current property value

Dram shop imputed negligence

(Liquor liability) -Restaurant owner liable for acts of intoxicated customer

Five tort reform proposals

1. Capping non-economic damages (pain and suffering) 2. State of the art defense (Products)- did product meet safety requirements at date of manufacture? 3. Modifying joint and several liability 4. Modifying collateral source rule 5. Alternative dispute resolution (arbitration and mediation)

What are the two defenses against negligence?

1. Contributory Negligence (NC) -Injured person's conduct contributes to injury -Blocks injured person from recovery 2. Comparative Negligence (Most States) -Considers degree of negligence by each party -Reduces injured person's recovery

What are three solutions to property valuations?

1. Hire an appraiser and/or use insurance company appraisal at policy inception to determine residence value 2. Review and revise policy limits if renovations or additions occur 3. Add policy coverage options (agree value coverage or inflation guard protection)

Subrogation rules

1. Insured can not impair subrogation rights of insurance company after loss. For example, if insured driver admits fault or attempts to settle at the scene, insurance company could deny recovery 2. Permission is granted in the homeowners policy for insured to waive subrogation rights before loss

What are three problems with insurance to value?

1. Insured typically estimates value at policy inception (annual) (not time of loss) 2. Replacement cost value is difficult to measure 3. Values change with inflation, additions and renovations, cost of labor and materials, etc.- prices increase following storm event

What are the three types of torts?

1. Intentional: assault and battery 2. Absolute or strict: regardless of negligence, workers compensation 3. Negligence: failure to exercise standard of care

What are the four elements of negligence?

1. Legal Duty- protect others from harm (safe operation of vehicle) 2. Failure to perform that legal duty (ORP person) 3. Damages or injury 4. Proximate cause- unbroken chain of events between negligent act and damages

Property not covered under homeowner's insurance

1. Motor vehicles- vehicles for SERVICING premises and not subject to registration ARE covered- also vehicles used to assist the handicapped are covered 2. Land 3. Business records and electronic business data 4. Credit or debit cards ($500 for unauthorized use)

What are the purposed of subrogation?

1. Prevents insured from collecting twice- reinforces the principle of indemnity 2. Holds negligent person responsible 3. Holds down insurance rates

Two ways you can have insurable interest

1. Relationship with a person (life insurance) 2. Legal interest in property (required at policy inception and at time of loss) -Have to show these on application

What are the three property valuation methods?

1. Replacement Cost: construction cost based on current value of labor and materials of like kind and quality 2. Actual Cash Value (ACV): Replacement Cost- Depreciation 3. Market Value: price agreed upon between unrelated buyer and seller

What are the three types of damages or injury?

1. Special- medical, loss of earnings, property damage 2. General- pain and suffering 3. Punitive- punishment

Three reasons why insurable interest is required

1. Supports Indemnity Principle 2. Prevents insurance becoming a wagering transaction 3. Reduces moral hazard

Special aggregate limits

1. Theft of jewelry, furs: 1,500 2. Theft of firearms, silverware: 2500 for firearms and 2500 for silverware 3. Watercraft including their trailers: 1500 Should schedule this type of property in order to avoid these limits

Business property limits

2500 on premises, 500 off premises -Add Home Business Endorsement to cover incidental business property under coverage C and to extend liability coverage to incidental business exposures on premises -Businesses with off premises operations, such as contractors, must be insured by separate commercial insurance policy

Matthew was involved in an auto accident and the jury determined that Matthew was 40% at fault and the other party was 60% at faulty. Matthew's damages were $50,000. In a comparative negligence state, what will Matthew collect?

30,0000 50,000 x 0.6

Assume $200,000 home with 80% coinsurance, $120,000 insurance carried and $10,000 loss. What is the amount paid?

7500 (120,000/160,000) x 10,000 = 7500 Should = 200,000(.80) = 160,000 (Did/ Should) x Loss

Your amount of insurance must be at least what percentage of the full value of the property?

80% -Purpose is to protect policyholder in case of total loss -Enables insurance company to collect adequate premium

What is imputed negligence?

A blame attributed to an individual not on the basis of his/her conduct but because of the conduct of another for which s/he becomes legally responsible

What is coinsurance?

A type of insurance in which the insured pays a share of the payment made against a claim -Insurance pays some and insured pays some

Section 1 Coverages

A: Dwelling including attached structures B: Other structures (detaches structure- not business)-- 10% of A C. Personal Property (worldwide coverage)-- 50% of A or 70% of A under HE7 D. Loss of Use (additional living expense)-- 20% of A

What is recommended to suspend coinsurance during inflation?

Agreed Amount or Adjusted Value Coverage -Must upgrade values annually for inflation -Must upgrade values for new additions to the home -Must insure home at 90-100% of replacement cost value

Scheduled property

Agreed value (jewelry, antiques, fine arts, silver) -Pays stated value in event of total loss -Important to schedule valuable items using personal articles floater under HO -Appraisal will be required before scheduling

When is property value for coinsurance determined?

As of date of loss -Replacement Cost Valuation is used for Homeowner's Insurance on the dwelling -Need to update policy values ANNUALLY

When must insurable interest exist in property insurance?

At inception of policy (policy is in effect) and at time of loss

Jim purchased a building from Richard in December 2016. Jim obtained a loan from Gateway Bank to purchase the building, and Gateway Bank has a mortgage on the building. Jim leased the building to Providence Café. Which of these parties has no insurable interest in the building in 2017? A. Jim B. Richard C. Gateway Bank D. Providence Cafe

B. Richard -Jim has ownership of the building -Gateway Bank is a secured creditor to Jim -Providence Cafe has contractual interest-- is leasing the property

All of the following are elements of negligence except: A. Damages or injury to child B. Failure to perform a legal duty C. Ability to pay damages D. Negligent act is proximate in use of damages

C. Ability to pay damages

Current tort reform proposals include all of the following except: A. Modifying collateral source rule B. Alternative dispute resolution C. Allowing joint and several D. Capping damages for pain and suffering

C. Allowing joint and several -Joint and several is BAD

Attractive nuisance

Condition that can attract and injure children -Swimming pool, trampoline or items attractive to a child -Property owner or occupant is liable for injury to child trespasser

Collateral source rule

Considering the injured person's recovery from other sources

What is a Breach of Contract?

Contractor's failure to perform -Usually monetary damages

The valuation of the Arthur's homes for HO insurance should be based on:

Current Replacement Cost -Market Value has nothing to do with homeowner's insurance

A property owner has the duty to warn, inspect for and eliminate property defects in the case of: A. Trespassers B. Customers C. Social groups

Customers (Invitees) -Social groups are licensees

The garage at the Arthur's primary residence is insured under Homeowners coverage :

Dwelling (attached)

Problems with tort liability

Economic loss- high pay in the US

Employee-employer imputed negligence

Employer liable for negligence of employee if employee acting within scope of employment -Ex. Employee's use of personal vehicle on company business (trip to post office or bank)

What is the purpose of coinsurance?

Encourage insurance to value and to provide premium rate equity -Most losses are partial but premium rate is based on full value of property -Basing rates on the full value of the property creates a lower rate per $100, thus all policyholders get the advantage of the lower rate -Coinsurance requires that those insuring at less than 80% of full replacement value pay a penalty if a loss occurs

What is the purpose of a deductible?

Encourages risk control by the insured -Reduces insurance company's cost (small claims are expensive to process)

Special damages

Examples: Medical expenses, cost to replace or repair property, loss of earnings

General damages

Examples: Pain and suffering, loss of consortium, mental anguish

What is the deductible in property insurance?

Flat $500 per loss -Percentage named storm deductible (2% of policy limit)

Scheduled coverage

For jewelry, antiques, collectibles -Personal articles floater -Open perils -Agreed value

Governmental Liability

Governmental unit can be liable for negligence in performance of government functions -New Orleans evacuation -Police accident while speeding

The Arthur's primary home was built in 1995 with a RC value in 1998 of $381,961. The 2014 market value is $505,991. What homeowners form do you recommend to insure this home?

HE7

The Arthur's beach house was built in 2004 at a cost of $229,600. 2013 market value is $255,000. What HO form do you recommend, subject to Insurance Company approval?

HO3 or HE7

A problem with the U.S. tort liability system is:

High expense of judicial system

George Tort Reform

Immunity for Emergency Room providers except for gross negligence -Eliminate joint and and several liability -Reduce forum shopping

Compensatory damages

Indemnify the wronged party for injury or damage sustained

What is the Last Clear Chance rule?

Injured person MAY recover damages

What is subrogation?

Insurance company pays insured for damage to insured's property and then pursues collection against negligent third party Ex. automobile accident, fire loss to rite aid drugs (electrical origin)

Liability claims valuation

Insured will be compensated for extent of damages -Amount paid will be the lesser of the compensable claim amount or policy limits -Looks at: Reasonable and necessary medical expenses, wage loss or loss of earnings capacity, pain and suffering, extent and permanency of disability and impairment, disfigurement resulting from bodily injury, expenses such as household assistance

What is the definition of crime?

Legal wrong against society -Punishable by fines, imprisonment, or death -Ex. OJ Simpson, Nicole Simpson, Ronald Goldman

What is the definition of a tort?

Monetary damages as remedy -Plaintiff (injured party) sues defendant -Automobile accident

Jimmy is an 18 year old freshman at UNC Charlotte and rents an apartment with two friends. Jimmy's parents live in Columbia, SC. Jimmy's roommates have any coverage under the homeowner policy of Jimmy's parents?

No

Will the jewelry ($8,000) and silver ($5,500) be covered for the full value in the event of theft?

No Would need Personal Articles Floater (schedule the items)

Drunk driver runs red light and hits Kristen's car, causing $9,000 damage. Kristen has collision coverage with a $500 deductible. If Kristen recovers collision damage from her insurance company, may she also file a property damage claim against the negligent driver?

No -If insurance company successfully subrogates against the negligent party, the insured (Kristin) should be reimbursed for her $500 deductible

Invitee

On property to benefit property owner -Mail carrier, business customer in a store -Owner's duty to inspect and eliminate dangerous conditions

Licensee

On property with owner's consent -Social guests -Owner's duty to warn of unsafe conditions

Trespasser

On property without consent -Owner's duty to not intentionally injure or trap

Michael and Ed are deer hunting. Michael sees bush movement and fires his rifle, hitting and injuring Ed. In SC (comparative negligence state), Ed's potential recovery would be:

Percentage of damages

What is the assumption of risk defense?

Person who understands danger inherit in a particular activity is blocked from recovery -Assumption of risk by injured person BLOCKS recovery -Ex. Snow skiing, sky diving, etc.

The Arthur's own silver, jewelry, and watercraft exceeding the special PP limits. What form can be used to insure these items to full value?

Personal Articles Floater

How much will the policy pay when the policy amount is less than 80%?

Policy will pay the greater of ACV (actual cash value) or the amount produced by application of the coinsurance formula

Matthew needs knee surgery on his right knee to correct cartilage damage. Dr. Jones, an orthopedic surgeon, performs the knee surgery. When Matthew wakes up from the surgery, he finds both knees are bandaged. Dr. Jones will probably be liable for injury to Matthew based on:

Res Ipsa Loquitur

Indemnity Principle

Rule of insurance law which says an insurance policy should not confer a benefit greater in value than the loss suffered by the insured

Homeowner's Package Policy:

Section 1: property Section 2: liability

Liability losses that can be documented are:

Special

Animals

Strict liability if dangerous animal causes injury (exotic pets) -Liability for dog bites -History of bites or vicious behavior -Lease laws requiring that dogs be restrained or fenced -Some states apply strict liability

What is the Broad Evidence Rule?

Takes all factors into account when calculating ACV including neighborhood, community plans for the area, obsolescence, inflationary trends

What is Res Ipsa Loquitur?

The idea that the occurrence of an accident implies that there was negligence -Existence of injury creates presumption of negligence -Burden on defendant to overcome presumption of negligence -"the thing speaks for itself"

When is the coinsurance calculation made?

Time of loss

Joint and several liability

Under joint and several liability, Co-defendant with slight negligence can be held liable for entire damage -Recovery should be based on degree of liability, not "deep pockets" -Whereby a plaintiff may recover all the damages from any of the defendants regardless of their individual share of the liability

Family purpose doctrine imputed negligence

Vehicle owner liable for acts of immediate family members who operate the vehicle

Smith Construction is building a residence. Smith Construction leaves a tractor on the premises over night Fred, age 10, is playing on the tractor and releases the brake. The tractor rolls down hill, and Fred is injured. Is Smith Construction liable for injury to Fred?

Yes

Tom is late for class. He is running from East Parking to the Friday Building and runs across the street at the cross-walk even though the pedestrian light is red. Jessica sees Tom and has time to stop but fails to do so because she has a green light. In a contributory negligence state, can Tom collect from Jessica for damages related to his injury?

Yes

Silverstein Properties, LLC signed a long term lease with NYC Port Authority for lease of World Trade Center property on 9-5-2001. Lease required that Silverstein provide insurance on the property. Does Port Authority have insurable interest on 9-11-2001?

Yes -Contractual interest -Port Authority is owner and just leasing it

Michael and Ed are deer hunting. Michael sees bush movement and fires his rifle, hitting and injuring Ed. Is Michael guilty of negligence?

Yes -Contributory negligence

Emily is a sales representative for Parkway Distributors,Inc. a wholesale firm. Emily was involved in an accident while she was driving her personal car to a sales call. Can Parkway Distributors, Inc. be held liable for injury to others caused by Emily's negligence?

Yes -Employee-employer imputed negligence

Jimmy is an 18 year old freshman at UNC Charlotte and rents an apartment with two friends. Jimmy's parents live in Columbia, SC. Is Jimmy insured under his parent's homeowners policy?

Yes -Full time student away from home

Can more than one person have insurable interest in the same property?

Yes -Lender/borrower (bank) -Ownership structure (family)

Ron and Linda Arthur own jewelry items valued at $8,000 and silverware valued at $5,500. Will the jewelry ($8,000) and silver ($5,500) be covered under the Homeowners for the full value in event of fire?

Yes -Not in theft

Matthew was involved in an auto accident and the jury determined that Matthew was 40% at fault and the other party was 60% at faulty. Matthew's damages were $50,000. In a contributory negligence State, what will Matthew collect?

Zero