3.0 Property and casualty basics

other methods for settlement

1) agreed value 2) stated amount generallly used for classic auto cars 3) functional replacement costs

Restoration/Non-reduction of Limits

Specifies the sum and circumstances under which an insurer charges the insured, usually a business firm, to restore a policy to its initial face value or not reduce limits of coverage after the insurer has paid a claim either to the insured business or a third party on behalf of the business.

policy period

The time frame, beginning with the inception date, during which insurance coverage applies.

deductibles

a specified amount of money that the insured must pay before an insurance company will pay a claim (find in book)

replacement cost insurance

amount needed to replace damaged or destroyed property. ex paying for new materials . involves the full cost to repair or replace damaged property. some provide functional replacement costs for less expensive parts . policies that have guaranteed replacement cost replace the damaged property exactly the way it was even if it exceeds the coverage amount (violating theory of indemnity)

endorsements

an additional attatchment to apolicy which modifies standard coverafe or alters existing coverage or effects a change(provides more coverage) in the policy . usually effected at the beginning of the policy period.

Vacancy and Unoccupancy

applicts to property insurance, vacancy means uilding residence or insured premises is empty or unfurnished, no occupants or contents. may be not intent to return to the property. vacancy poses greater exposure to the insurer than unoccupany. unoccupied means no one is present but there are contents.

3.3

common policy provisions

definitions

definitions section located in conditions section of policy , examples are " named insured" covered premises, policy territory, and policy period . also states who is insured , if you are designated in the declarations as an individual, you and your spouse are insured, employees but not temporary workers are insured, real estate manager is insured ( for the first named insured) , partnership or joint is insured . it is the first named insured who receives notice for cancellation and and must pay premium.

named insured provisions

duties after loss, assignment, abandonment

terrorism risk insurance act of 2002 and extensions act of 2005 (public law)

enables commercial insurer to provide affordable terrorism coverage to policy holders. does not provide coverage pricing guidelines. government shares the risk of loss from future foreign attacks . insurer must disclose the premium that will be charged for the certified terrorism coverage only, and the policy holder may choose not to pay the premium attributed to the certified terrorism coverage. the purchase of terrorism coverage is not mandatory. helps protect the financial capacity of commercial insurers. it does not apply to personal insurance. read book 1-12 for more information

conditions

identifies responsibilities of each party, if insured fails to comply then insurer may deny a claim , many conditions are placed upon the named insured. when a risk is altered or increased the insured is required to notify the insurer. when a loss occurs the insured must notify submit written proof of loss within a certain time period. the primary condition placed upon the insurer is its promise to pay. insurer must provide written proof of cancellation or non renewal

Standard Mortgage Clause

if the insurer cancels the policy or non renews it must provide the lender with a specific number of days notice. if an insured increases the risk without notifying the insurer and the insurer later discovers the increased hazard, the mortgagees interest is protected until policy is cancelled. the mortgagee possesses an insurable interest in the dwelling that is insured since it lent the homeowner funds to purchase the home. therefore the insurer must also notify the mortgagee in situations inlcuding 1) insured doesnt pay premium 2) insured fails to submit proff of loss when loss occurs 3) insurer cancels policy or plans to non renew. A mortgagee is the entity that is owed money by the insured for the lending of funds to purchase real property. a loss payee is the entity owed money by the insured as a result of the purchase of personal property. a covered loss is paid to the mortgagee and the mortgager(the insured) as their interests appear.

limits of liability

includes, per occurance(accident), per person, aggregate, general v products and completed operations, split, and combined single.

coverage amount

insured may select the amount of coverage they wish for but subject to underwriting rules. also reffered to as limit of liabilty. it is the maximum amount payable under the insurance contract.

non-renewal

insurer must provide written notice within certain time period of non-renewal date

combined single limit

involves one amount which will be paid per occurance for covered injury or damage.

insurer provisions

liberalization, subrogation, salvage, claim settlement options, duty to defend

Claim Settlement

losses settles according to the loss or valuation provisions listed in a policy . when a loss is paid the policy's limit of coverage is restored. the policy's limit of liability is not reduced when a claim is paid. - Types --Actual Cash Value --Replacement cost --market value --valued policy laws --other methods

Standard Fire Policy

most use new york's policy : it consists of endorsements, declarations, insuring provision, conditions, and exclusions. the perils covered include damage caused by fire lightning and removal. coverage was effective under this form at "noon standard time" on inception date

subrogation

mostly applies to auto insurance. based on at fault party.the insured has trsanferred his right of recovery to the insurer as a result of contract. during the claim settlement and recovery oricess the insurer is the party to the contract who will settle the losses - not the insured. the insurer subrogates against another party. it does not subrogate against its own insured. the insurer requires from the insured, an assignment of all rights of recovery against any party responsible for the loss to the extent of the amount of the payment made to the insured by the insurer. subrogation involves the legal right of an insurer to seek reimbursment from a third party who caused damage. it allows the insurer to recieve back some of the money it paid out to an insured in a claim settlement. an insured is not able to recieve a benefit from a policy and then take further action agaisnst an at fault party to try to recieve additional funds

pro rata

pro rata liability clause . example milwauke mutual provides 60k coverage on property. aetna casualty provides 40 k on same risk. since milwauke provides 60% of total coverage it will only pay its proportionate share (60%) of the loss. insurer providing coverage will possess a proportionate share of coverage and claims.

contribution by equal share

proportionate coverage where losses are paid equally by all policies until the limits of one is exhausted and then the remaining policys pays up to its limits if needed.

market value

usually for dwelling that may be difficuult to be replaced.

additional supplementary coverage

incurred loss amounts that are paid in addition to other coverage limits provided. examples are debris rmoval, protecting property from further damage, fire department charges, credit card theft.

3.4

massachusetts laws regulations and required provisions

Mass insurance insolvency fund

the purpose of the guaranty fund is to protect policy owners, insureds beneficiares and other against failure in the performance of contractual obligations due to the impairment or insolvency of the insurer issuing the policies. it protects the insurance buying public against insolvency of insurers. pays the claims for people whos insurers acted insolvency. all insurers must participate in fund. its illegal for insurer to inform that the gurantary fund always covers the full claim amount.

aggregate limit

usually in commercial liability insurance, provides a max limit of liability for the aggregate total amount of losses occurring during policy period. policy may provide 50k per person 100k per occurrence and and aggregate limit of 500k , policy will not pay more than 500k not matter the amount of claims. after each claim is paid the limit decreases or diminishes. except for aggregate limits, most are reinstated following loss because its per occurrence. for restoration of limits most limits are restored once a loss is paid which means that there is no reduction of limits except in case of a commercial liability policy's aggregate limits.

cancellation

when insurer cancels policy they must provide written notice and a reason. 2 concepts. 1) short rate when an insured cancels the policy during policy period. 2) pro rata when insurer cancels policy during policy period. ex. bob pays annual of 600 an insurer cancels policy six months after inception date, insurer will provide pro rata refund of 300. whenever a policy is cancelled by insurer, proper written notice must be sent to first named insured.

coinsurance

(building and personal property form) encourages an insured to carry an insurance amount that is a specific percantage of its value, this provision encourages an insured to carry insurance to value. if the insured complies he will be paid the full amount of a partial loss less any deductible. coinsurance values are determined at the time of loss. insuring to value keeps the property rate lower and allows the insurer to make a fair profit. coinsurance is a mechanism where the insurer agrees to a reduced rate if the insured carries a specific percantage of insurance in relation to the replacement value of the building.

insuring agreement or clause

(insuring provision) provides summary of coverage and agreement , describes nature of the agreement between the parties. identifies the parties involved in contract and sometimes lists the perils covered by polucy. states that "insurer will pay all sums it is legally obligated to pay to an insured" or to a third party on behalf of an insured. identifies the promise

Loss Payable Clause

A provision in property insurance that is used to cover the interest of a secured lender in personal property. (loss payment provision) the insurer will pay the insured for a covered loss unless some other person is named in the policy or is legally entitled to receive payment. the loss will be payable 60 days after the insurer recieves proof of loss and insurer reaches an agreement with the insured also there is an entry of a final judgement and there is a filling of an appraisal award with the insurer.

Concealment, Misrepresentation, or Fraud

Actions on the part of the insured that allow the insurer to void coverage - involves a licensee or any insurance company officer or rep making false written or oral statements which misrepresent the terms conditions or benefits provided by policy - any licensee who includes or omits a statement tending to mislead or decieve a member of public has engaged in this. - read book 14-12 14-13 for more

exclusions

Causes of loss, exposures, conditions, etc. listed in the policy for which the benefits will not be paid. describes types of losses that are not covered. help insurer protect themselves from financial disaster in catastrophic events . also prevent insured from possessing duplicate coverage and allows insurer to lower cost of insurance. wear an tear, depreciation corrosion usually not covered

no benefit to the bailee

Specifies that no coverage applies if loss payment benefits a bailee. No benefit to bailee is a provision or condition that is commonly found in inland marine insurance policies. It is sometimes also included in other types of polices, including car insurance. The provision is intended to prevent a bailee from recovering any portion of insurance proceeds in the event that, for example, property under the control of a bailee is damaged, lost, or stolen. bailee - a person or party to whom goods are delivered for a purpose, such as custody or repair, without transfer of ownership.

cancellation an non renewal continued

for non payment of premium, 10 days written notice of cancellation must be provided to the insured by the insurer. when the policy has been in effect for less than 60 days the insurer may cancel for any reason other than non payment by providing 5 days written notice . if the policy has been in effect for 60 days or more it may be cancelled with 5 days written notice for the following: 1) discovery of fraud or material misrepresentation by the insured in obtaining the policy (meaning the insurer honestly believed you planned on commiting the fraud) 2) discovery of reckless action which increases the hazard insured against 3) physical changes in the property insured 4) conviction of crime related to chance of loss under policy 5) determination by commisioner that continuation of policy will violate or place insurer in violation of law if an insurer non renews a property insureance policy it must provide the insured with 45 days written notice of non renewal

appraisal

if an insured and insurer cannot come to agreement with regard to the extent of a loss an appraisal process begins. its understood that the coverage exists but they do not agree in the amount of a loss. it provides that each party select an appraiser within 20 days to represent them. if the appraises cant agree they have 15 days to select an umpire. written agreement between umpire and two appraisers will begin. not used for disagreement over whether a loss is covered only for the money amount

Vacancy or Unoccupancy

if location is vacant for more than 60 successive days the insurer will not provide coverage of perils including vandalism sprinkler leak, internal water damage glass breaks theft or attempted theft. fire damage s covered but loss settlement amount reduced by 15%. tenant means insured is renting or leasing property its considered vacant when no longer contains enough business personal property to conduct operations. if insured is building owner or lessee of property building is defined as entire property considered vacant unless 31% of total square footage is rented or used. considered vacant when 70% or more of square foot is not rented or used.

Third-Party Provisions

insurance provisions that address the rights of someone other than the policyowner to have a secured financial interest in the insured property. includes standard mortgage clause, loss payable clause and no benefit to the bailee.

supplementary payments

made in addition to the limits of liability provided. some include $250 for bail bonds, premiums on bonds to release attatchments, loss of earning up to 250 per day, premiums on appeal bonds, pre and post judgment interest.

Cancellation and Nonrenewal

mass law says that a property insurance policy (fire dwelling homeowners etc) can be terminated by an insured at any time. then the insured will receive a short rate return of premium. also the insurer may cancel or non renew the policy under special conditions as well. insurer must give written notice including the reason , delivered by first class mail. using a postal reciept for proof.

non currency

non concurrent policies can be of the same type but do not cover exactly the same property. policies that cover the same property on different basis. example john has two fire policies, one coverage for a building and its contents, the second covers only the building. if they are effective at the same time liability for . loss is prorated in proportion of each policy's applicable limit of liability. if the first policy is the primary it must pay up to its limits before the second pays for any of the loss

other insurance

non currency, primary and excess, pro rata, contribution by equal shares

Duties after a loss

notify insurer, cooperate. since insurer wil lsettle the claim it is not the duty of the insured to make an offer to the injured party or attempt to settle the loss on their own.

Liberalization Clause

property insurance policies - if an insurer adopts new policy forms during the policy term which broaden coverage without an extra premium, the changes are automatically made part of an insured policy. any new coverages or extensions added after a policy is purchased will automatically be included. notice of the modifications will be provided to the insured with a description of the broadened protection.

assignment

provision in property and liability contracts. before an insured can assign a property insuance policy to another he must provide written notice to the insurer. these are personal contracts which indemnify insureds for losses, therefore if an insured owns a homeowner policy and later sells the home she cannot transfer the insurance contract to the new owner unless the insurer provides written permission or consent to do so.

Duty to Defend

requires the insurance company to pay the expenses that are associated with lawsuits brought against the insured party

3.2 declarations

section of insurance contract, personalizes the polcicy with information regarding property or exposures being insured. ex: name, location, coverage limit, deductible, policy period

split limit

subdivided into a coverage limit for bodily injury per person (ie 50k) and per occurrence (ie100k) and a separate limit for property damage (ie 25k) . when limits for loss of injury are paid by policy, the coverage amounts are not reduced following a loss. (ie, the limits of coverage provided are restored after each occurrence.

Claim settlement - ACV

supports principle of indemnity, no matter how much insurance is purchased, the recovery claim amount is limited to the amount of the actual loss incurred. acv is defined as replacement cost minus depreciation. consider the age of property, the replacement cost of property and the kind and quality of property. original cost of property not considered.

policy territory

the US, its territories and possessions puerto rico and canada. also includes international waters or airspace but only if the injury or damage occurse in the couse of travel or transportation between the mentioned places. also includes worldwide if injury arises out of products or goods made or sold by an insured in the mentioned places.

primary and excess insurance

the primary insurer pays first, and the excess insurer pays only after the policy limits under the primary policy are exhausted. when more than one policy covers a specific loss and precents the insured from profiting . example xyz company provides 200k worth of coverage on a building and abc company provides 600k on same building. xyz is primary and abc is excess. if a loss of 80k occurs xyz pays up to limits before abc pays , so they will pay the entire thing

mass insurance insolvency fund continued

there are three classes if assessments that may be levied on insurers when an insolvency arises 1) Class A assessment to pay for administrative costs and general expenses. 2) Class B assessment for expenses incurred in connection with impaired or insolvent domestic insurers 3) Class C assessment for expenses incurred by insolvent foreign and alien insurers

salvage

this concept allows the insurer to recoup some of a total loss paid resulting from a covered peril. this allos the insurer to take title to the damaged property if a total loss is paid (or insured may negotiate with insurer to buy back whats left of vehicle.) it may sell part of the totaled auto for salvage to recoup part of the amount paid to the insured. the insurer has the right to take any damaged part for which they pay. whether the product is salvaged is between the insured and insurer. salvage does not reduce the amount of an individual claim settlement. it reduces the net cost of an insurer when paying a loss. it permits insurer to reduce its loss after the claim is paid

abandonment

this provision or condition placed upon the insured in most property policies states that the insured may not abandon insured property to the insurer following a loss. the insured must cooperate with the insurer during loss settlement process. abandoning damaged property to the insurer is not a right of the insured. it is the insured responsibility to cooperate with the insurance company when it is adjusting and attempting to settle a loss.

Valued Policy Law

whenever any policy of insurance is written to cover any real property(dwelling) against loss by fire tornado or lightning and a total loss occurs the face value of coverage will be paid. it is conflict will indemnity