Policy Provisions and Contract Law
The ABC Corporation has $100,000 of coverage on its building through insurance Company A, and $50,000 of identical coverage on the same building through insurance Company B. Assuming coinsurance is not an issue, when a $24,000 loss occurs and the pro rata method is used, how much will each insurer pay? ACompany A will pay $20,000; Company B will pay $4,000. BCompany A will pay $12,000; Company B will pay $12,000. CCompany A will pay $24,000; Company B will pay $0. DCompany A will pay $16,000; Company B will pay $8,000.
Company A will pay 16,000, B will pay 8000
Because an insurance policy is a legal contract, it must conform to the state laws governing contracts which require all of the following elements EXCEPT AConditions. BConsideration. CLegal purpose. DOffer and acceptance.
Conditions
What part of an insurance policy sets forth the rules of conduct, duties, and obligation of the parties to the contract?
Conditions
An insurer neglects to pay a legitimate claim that is covered under the terms of the policy. Which of the following insurance principles has the insurer violated? AConsideration BGood faith CRepresentation DAdhesion
Consideration
What is consideration in an insurance contract?
Consideration is something of value that each party gives to the other. Consideration on the part of the insurer is binding.
Which of the following is a mandatory part of an insurance policy that varies with each individual policy? AExclusions BInsuring agreement CDeclarations DConditions
Declarations
When is an appraisal needed and how can it be requested?
If an insured and insurer disagree about the value of property loss, either party can make a written demand for an appraisal.
Persons covered under an insurance policy, whether named or not, are known as the AAdditional insureds. BInsureds. CNamed insureds. DFirst named insureds.
Insureds
What part of an insurance policy contains the insurer's promise to pay claim?
Insuring agreement
What does an endorsement do to an insurance contract?
It modifies the policy's original terms
Duties of the insurer found in property policy conditions include all of the following EXCEPT ANotify the insured in the event of financial difficulty. BPay covered losses. CProvide advance notice of cancellation. DReturn any premiums to the insured.
Notify the insured in the event of financial difficulty
Where is the policy period stated in an insurance policy?
On the declarations page
What provision defines how a policy will respond if there is more than one insurance policy written on the same risk?
Other insurance
Before an insurer will pay any loss under a policy, what is usually required from the insured? AA claims-made form BProof of loss CNotice of claim DA binder
Proof of Loss
What are an insured's duties after loss?
Protect the damaged property from further damage, cooperate with the insurer in settling a loss, and submit proof of loss
What type of information would be found in a policy's insuring agreement? AInsurer's address BRenewal dates CLocation of premises DPolicy limits
Renewal dates
Which method of loss valuation is contrary to the principle of indemnity?
Replacement cost
Which of the following protects consumers against the circulation of inaccurate or obsolete personal or financial information? AUnfair Trade Practices Law BThe Guaranty Association CConsumer Privacy Act DThe Fair Credit Reporting Act
The Fair Credit Reporting Act
Which of the following would NOT be considered a source of insurability information by an insurer? AMotor vehicle records BInsurance history CThe applicant's marital status DInterviews with the applicant's neighbors and friends
The applicant's marital status
What is proof of loss?
A sworn statement from an insured notifying the insurer about a loss
Information about changes to the policy or return of premium can be found in what section of a policy?
Conditions
What section personalizes an insurance policy?
Declarations
Which of the following is NOT the consideration in a policy? AThe application given to a prospective insured BSomething of value exchanged between parties CThe premium amount paid at the time of application DThe promise to pay covered losses
The application given to
The part of the insurance contract that describes the covered perils and the nature of coverage of the contractual agreement between the insurer and the insured is called the AInsuring agreement. BConditions. CExclusions. DDeclarations.
The insuring agreement
Which of the following is a statement that is guaranteed to be true, and if untrue, may breach an insurance contract? ARepresentation BWarranty CConcealment DIndemnity
Warranty
What does the exclusions section of a policy specify?
What perils are not insured against, or what persons are not covered in a policy
When does pro rata liability apply?
When an insured has more than one policy covering a loss
In insurance contrats, when is the offer usually made?
When the insurance application is submitted
In insurance contracts, when does acceptance usually occur?
When the insurer approves a prepaid application
What is the consideration on the part of the insurer?
a promise to pay in the event of a loss
Persons who are not named on the declaration page of the policy but who are protected by the policy are known as what type of insured?
additional insured
What part of a policy shows the amount of insurance, premium, and policy terms?
declarations
What is additional coverage in an insurance policy?
A provision that adds more coverage for a specific loss at no additional premium
In the event of a loss covered by the policy, if the insurer requests a signed sworn proof of loss, the named insured is required to submit it within AA specified time. B1 year. C5 business days. D30 days.
A specified time
What is a binder?
A temporary insurance contract that goes in effect prior to the policy issue
What does the term unilateral contract mean?
A unilateral contract is a one-sided contract. This means only one party makes an enforceable promise
In property and casualty policies, what is required for an assignment to be valid?
A written consent of the insurer
Which of the following is a method of claim settlement used in casualty insurance when the insured and insurer cannot agree on how to settle a claim? AAppraisal BArbitration CProof of loss DRestoration
Arbitration
Which part of an insurance policy covers claims-related expenses, reasonable expenses incurred by an insured to protect damaged property from further loss, or defense expenses? AInsuring agreement BAdditional coverage CExclusions DDeclarations
Additional coverage
What are the four elements of an insurance contract?
Agreement ( offer and acceptance) consideration, competent parties, and legal purpose
When a mortgagee is named in a mortgagee clause attached to a fire or other direct damage policy AThe loss reimbursement will be paid to the mortgagee as their interest may appear. BThe mortgagee's rights of recovery will not be defeated by any act or neglect of the insured. CThe mortgagee may bring a suit in their own name to recover damages to covered property. DAll of the above are true.
All of the above are true
What is a warranty in an insurance contract?
An absolutely true statement upon which the validity of the policy depends
In insurance, an offer is usually made when AAn applicant submits an application to the insurer. BThe insurer approves the application and receives the initial premium. CThe agent hands the policy to the policyholder. DAn agent explains a policy to a potential applicant.
An applicant submits an application to the insurer
Who is an insured in property and casualty insurance?
Anyone covered under the policy, even if not specifically named
What process is used to settle a casualty claim when the insured and the insurer cannot agree?
Arbitration
What is the difference between cancellation and non renewal?
Cancellation is the termination of an insurance policy by either party prior to the policy's expiration date. Nonrenewal is the termination of a policy at its expiration date by not offering a continuation of the existing policy
What term best describes the act of withholding material information that would be crucial to an underwriting decision? ALeading BBreach of warranty CConcealment DWithholding
Concealment
What is the insurance principle does the prorata liability protect?
Indemnity