PRACTICE EXAM 1
Sue decides to get a valued insurance policy on her antique car. She and her insurance company agree to a value of $85,000. Three years later, the car is destroyed when a tree falls on it in a parking lot. The car depreciates at $2,000 a year, and its replacement cost is $100,000. Ignoring any deductible, how much can Sue expect her insurer to indemnify her?
$85,000
Which of the following best describes who adjusters can work for?
Answer: Either insurers or claimants
Stephanie is in the process of adjusting George's auto claim. Currently, she is interviewing Shana, who witnessed George's accident and stopped to help. In what stage of the claim process is Stephanie currently working?
Answer: Investigation Statements are an important part of a claim investigation. They serve to paint a whole picture of the events surrounding the claim from varying viewpoints and may expose data that might have been overlooked in the claim handling process. Not only are statements used to gather information about the claim, they can be used to dispute an account provided by the claimant or another witness. A sworn statement may even be used to impeach the credibility of the witness if he changes his story when the claim goes to court. The adjuster should take statements from the claimant, any other people who were involved in the accident, and any disinterested witnesses available.
SureTrust Insurance was founded and operates in Texas. In Texas, SureTrust is considered:
Answer: a domestic insurer. Domestic Insurer ○ located in a particular state, abides by that state's laws
Which of the following incidents would a liability insurance policy cover?
Answer: A man slips inside a grocery store and injures himself. Liability: An obligation to do or not to do something; responsibility for an action.
Which of the following is most likely a third party claim?
Answer: A woman files an insurance claim when she is injured by an employee at a local bar. Third Party Claim: A claim filed against an insurance policy by a third party not named on that policy. Used for liability claims.
In which section of an insurance policy might you find the following statement? "Damage to insured property must be reported within 15 days of the damaging occurrence."
Answer: Conditions Conditions:The section of a policy that qualifies or limits an insurer's promise to pay or perform. In the Conditions section: The insurer specifies any limits or qualifications the policyholder must meet. As we said earlier, an insurance policy is a conditional contract. The C in DICE stands for the conditions section. This is where the policy establishes a set of conditions that the insured must meet in order for the policy to be valid. For example... ● How to file a proof of loss ● How to protect the property after a loss If the policyholder does not meet the given conditions, the insurer has a right to deny coverage. For example... If a jewelry store owner wants to purchase an insurance policy, the conditions section may require that a security guard be present whenever the store is open. Other conditions require a claimant to protect damaged property from further losses, and that the claimant must submit a proof of loss if the insurer requests it. The insured must also cooperate with the insurer during any investigations or lawsuits. These and other conditions are found in the conditions section of the policy.
If an adjuster needs to find clarification about what actually constitutes a collision, in which section of an insurance policy would she find that information?
Answer: Definitions Definitions: Page in policy that gives specific limited meaning to terms used in policy. A Definitions section: ● Is not technically essential, but common in policies ● Defines terms used to write policy including: ○ "collision," "decay," "like kind and quality" ● Includes important language for adjusters to know Another The definitions section is not essential to the insurance contract, but it is commonly included in most policies. It carefully reviews the terms in the contract, making sure that no one can disagree on what each term means. Nearly every definitions page will begin by clarifying what the contract means when it says "you," "we," or "us." You may also see definitions for what look like simple terms such as "collision," "decay," or "like kind and quality." Although these definitions may
Which of the following statements about the principle of estoppel is TRUE?
Answer: Estoppel protects the insured party from an insurer who initially approves coverage, but then later denies coverage after the insured pays for repairs. Estoppel: A legal principle that bars a party from asserting something contrary to what has been implied by his previous actions or statements. This is a form of "implied waiver"; for example, if the insurer regularly accepts late payments, it waives its right to deny coverage due to late payment.
Which section of an insurance policy is designed to OMIT certain risks from coverage?
Answer: Exclusions Exclusions: A section of an insurance policy that reduces coverage by listing specific individuals, property, or perils that the policy does NOT cover. Exclusions list what the policy does not cover. Common Exclusions (in nearly all property policies): ● Earthquakes ● Flooding ● War ● Nuclear hazards ● Intentional acts In essence, the exclusions section reduces the coverage provided in the insuring agreement by describing exactly what the contract does not cover. This may include things such as: individuals, property, or losses arriving from specific causes. As we examine the various forms of property insurance during this course, you will find that nearly every property policy excludes some damages caused by things such as earthquakes, flooding, war, nuclear hazards, and intentional acts.
Which of the following statements does NOT apply to the Standard Fire Policy?
Answer: It automatically covers wind and vandalism. The standard fire policy is a very basic property policy, only covering damages to property caused by fire and lightning. What if you needed a basic policy, but wanted to add coverage for a few other perils, such as wind and hail? Changes to a standard fire policy are made through the use of endorsements. An endorsement is a written document attached to an insurance policy that can add coverage that is not included under the original policy, or subtract coverage that is included.
Which of the following statements is true about an insurance policy?
Answer: It relies on the utmost good faith of both the insured and the insurer. Utmost Good Faith: A characteristic of insurance contracts: 'utmost' meaning the 'highest degree' and 'good faith' meaning, "act with honesty, fair dealing and full disclosure." All parties to an insurance contract must act with utmost good faith. It also applies to a fiduciary agent's responsibility towards the principal. Insurance contracts assume Utmost Good Faith. This means: ● Applicants are expected to be completely honest about the risk to the insurer ● The insurer must rely on applicants not to conceal or misrepresent pertinent facts A third characteristic of insurance contracts is that they rely on the utmost good faith of both parties. This applies particularly to the insured. The insurer simply makes a promise to pay in the event of a covered loss. The insured, on the other hand, is responsible for being totally honest and open about the risk involved in the contract. In other words, if you apply for an insurance policy, your insurer has to trust that you are acting with utmost good faith, and are providing complete and correct information about the items being insured. If you violate this trust at any time during the policy, the insurer can void the contract.
Which of the following statements about the original Standard Fire Policy is FALSE?
Answer: It was the first multi-line policy, combining both Physical Damage and Liability coverages. Standard Fire Policy: The basic foundation for all homeowners and commercial property policies issued today. Developed in 1918 to provide insurance protection for both homeowners and commercial property owners, it was typically a named peril policy, but it only protected against losses from fire and lightning on an Actual Cash Value basis. Standard Fire Policy : ● First standardized property insurance form ● Foundation for all property insurance coverage Standard Fire Policy ● First used in 1918 in New York ● Provided homeowner and commercial property protection ● ACV valuation ● Named peril policy ● Only covered fire and lightning In 1918, the state of New York developed the Standard Fire Policy to provide insurance protection for both homeowners and commercial property owners. Although it is no longer in use in its original format, the Standard Fire Policy continues to act as the basic foundation of all homeowners and commercial property policies issued today. The Standard Fire Policy was typically a named peril policy, but it only protected against losses from fire and lightning. Valuation was usually done on an actual cash value basis. 165 Line" Policy: The original Standard Fire Policy dedicated 165 lines to explain new insurance concepts still used today in property insurance contracts, such as: ● Concealment and misrepresentation ● Property and perils excluded from coverage ● Insurance cancellation due to an increase in hazards ● Obligations to a mortgagee ● Requirements of the insured in the event of a loss ● Subrogation ● Appraisal The standard fire policy is also known as the "165 Line" policy, because it originally dedicated 165 lines to a variety of new insurance concepts that we still use today in all of our property insurance contracts. Some of these newly established property insurance concepts included: concealment and misrepresentation; property and perils excluded from coverage; insurance cancellation due to an increase in hazards; obligations to a mortgagee; requirements of the insured in the event of a loss; subrogation; and appraisal. Line of Coverage: A particular risk or group of risks covered by an insurance policy. Monoline Policy: An insurance policy that covers only one risk or type of risk. When an insurance policy covers a particular risk or group of risks, this is known as a "line" of coverage. A policy can combine several different lines of coverage, as with the Homeowner's policy which we will see next, or it can be a "monoline" policy, covering only one particular type of risk. For example... Say Jane owns a valuable stamp collection. She keeps some of the pieces at home on display, and the rest in a bank vault. If she wants to insure the entire collection against theft, she could purchase a monoline policy that covers only the stamp collection, nothing else.
While out driving, Jacob doesn't stop at a stop sign and hits Josefina whose resulting injuries cost $15,000. If Josefina's insurance policy pays first and maxes out at $10,000 of coverage, which of the following is TRUE?
Answer: Josefina has the right to collect the remaining $5,000 from Jacob or Jacob's insurer.
On July 14, 2017, Mark suffered injuries when a kitchen appliance he was using broke apart during operation. In Georgia, what is the last date Mark can file a lawsuit for his injuries?
Answer: July 14, 2019
Which of the following is an example of a moral hazard?
Answer: Ken lights a candle, sets it right next to the window draperies and leaves the house to go to work. Hazard: Moral Conscious and deliberate action on the part of the insured that increases the chance of a loss. All conscious acts committed with a hope to defraud the insurance company are moral hazards.
Bob's home was severely damaged by a thunderstorm and he claims it will cost $74,000 to repair. His insurer has investigated the claim, found the repairs could be done for $49,000, and has offered Bob this amount of indemnification. Negotiation between Bob and his insurer seems to be failing. Due to the unpredictability of the result, which of the following options should be avoided by the insurer if possible?
Answer: Litigation Litigation: An action brought in court. Litigation takes place when an insurer and a policyholder disagree about a settlement amount and cannot resolve their differences through any sort of negotiation. Litigation ● Laws and courts favor settlement by negotiation, avoiding litigation ● Offers made during negotiations are not admissible in court As we mentioned earlier, litigation is not strictly speaking a negotiation method; rather, it is a last option when negotiations fail. Courts have determined that, in the interest of society as a whole, every effort should be taken to negotiate a settlement between an insurer and a claimant prior to relegating a case to a court of law. For this reason, laws, statutes, and policies are written to facilitate the parties reaching an accommodation without the necessity of a trial. For instance, the courts have determined that any offers made in the course of negotiations are not admissible in a court of law, thereby encouraging the parties to be more open about what settlement they would accept, without the fear of compromising their positions if and when the case goes to court.
When Zach purposefully burned down Matt's restaurant, Matt's insurer paid the claim and then went after Zach for the damages. Matt is furious about what Zach did and wants to sue him as well. Why is it NOT possible for Matt to sue Zach?
Answer: Matt has already received indemnification from his insurer. Indemnification: Reimbursement for a loss, which leaves the claimant in the same financial position that she was in before the loss.
Nick's home suffered major damage during a tornado. His contractor says it will cost $85,000 to complete repairs, but the adjuster's estimate gives a total of $63,000. Nick and his insurer have tried to reach an agreement, but have failed to do so. Both parties are now wanting a third party to facilitate their negotiations, but only in an advisory role. Which of the following is the best option in this case?
Answer: Mediation
Cindy and her insurer cannot reach an agreement for her property claim, and have gone back and forth for weeks without coming within $10,000 of each other. At this point, since both believe they are offering a fair settlement, a third party is needed to help facilitate the negotiation. Both parties still want to retain their ability to "walk-away" if they cannot reach an agreement. What is the next best step for Cindy and her insurer?
Answer: Mediation Mediation: A method of negotiation that utilizes a neutral third party adviser to reach a mutually-agreeable solution. Mediation differs from Appraisal in that the decision is not binding to the opposing parties. ● Mediator only advises in the negotiation ● Mediator's decision is not legally binding ● Settlement is only legally binding if both parties agree to it ● Either party may "walk away" (impasse) parties. Rather, the mediator plays an advisory role, trying to help the two parties reach a swift, mutually agreed upon solution. In some jurisdictions, a court judge may order the opposing parties in an insurance dispute into mediation. The case will be assigned, by the court, to a mediation firm, whose fees will be split between all of the parties involved in the dispute. If the parties cannot agree, they can walk away without settling (called an impasse). The parties can then proceed to litigation if necessary. However, if the parties sign an agreement, that agreement is immediately binding on the insurer. The claimant, however, often is given a window of time to back out if he has "buyer's remorse," after which time it becomes mutually binding.
Which of the following steps would occur LAST in the processing of a claim?
Answer: Negotiate a settlement with the claimant Negotiation and Resolution ● Goal: to find a settlement amount that is fair and equitable for all parties ● The adjuster proposes a settlement to the claimant ● If the claimant doesn't accept the amount, the adjuster will need to negotiate a sum they both find acceptable Sometimes negotiations are not necessary if the value of the insured item is pre-established. Negotiation can be extremely complex: ● Liability issues ● Multiple coverages ● Unclear causes of damage ● Disputed damages ● Legal issues ● Uncooperative claimants The adjuster must qualify the settlement: ● Explain the reasons for the settlement amount ● Step-by-step justification for decision
Tina has two policies (Policy X and Policy Y) that cover the same risk on a pro rata basis. Policy X has a limit of $100,000 and Policy Y has a limit of $25,000. When Tina suffers a loss totaling $75,000, how will the two policies respond?
Answer: Policy X will pay $60,000 and Policy Y will pay $15,000 Pro Rata Apportionment: When a loss is covered by more than one policy, the policies split the loss, based on the percentage of coverage each policy provided. For example, if a couple has 2 dwelling policies, one for $100,000 and the other for $50,000, and a loss occurs, the first policy will pay 2/3 of the loss, and the other policy will pay 1/3. Say Annie's dwelling policy has a limit of $100,000 and her husband takes out another $50,000 policy. The total amount of insurance covering the property is $150,000. Annie's policy makes up 2/3 of the insurance on the property, since $100,000 is 2/3 of $150,000. So, if a loss occurs, Annie's policy will pay 2/3 of the loss, and the other policy will pay the other third.
When Sandra files a claim with XYZ Insurance after a hailstorm, an adjuster comes out to inspect the damages. He tells Sandra that he will evaluate her claim and get back to her promptly. Which of the following items will the adjuster NOT take into account while evaluating Sandra's claim?
Answer: Policy premium Premium: A scheduled and affordable fee, paid by the policyholder to the insurer, in return for coverage.
When an insurer issues an insurance policy, the actual item, person, or organization that is being insured is called the:
Answer: Risk Risk: In the insurance industry, risk can have two meanings: 1) the potential for financial loss; being exposed or open to damage, and 2) an insured item.
Which of the following is found in the declarations page of an insurance policy?
Answer: The name of the insured party Declarations Page:Also called the Dec page. First page of a policy, which provides a summary of the contract; includes names of insured, addresses, coverage limits, policy period, etc. Declarations Page ("Dec Page"): makes contract specific to the policyholder. Always the first section; it establishes: ● Names of both parties (insured and insurer) ● Policy number ● Location & description of insured item ● Value of insured item ● Dates of the policy (beginning and end) ● Amount and limit of coverage ● Deductible ● Premium The declarations page is always the first page or section of an insurance policy. It gives a general overview of the policy and will include at least 8 details: 1. The names of both parties, the insurer and the insured 2. The policy number 3. The location and description of the insured item 4. The value and replacement value of the insured item 5. The dates that policy coverage starts and ends (known as the inception and expiration dates) 6. The amount and limit of insurance coverage 7. The deductibles on the policy 8. The premium that the insured has to pay This page is essentially the part of the contract that makes it specific to the policyholder. It is what makes it Ted's policy, not Pat's.
A power surge sparks a small electrical fire in an office building. The electrical fire triggers the automatic sprinkler system. The water from the sprinklers soaks the carpets and shorts-out all the computers, causing thousands of dollars in damage. What is the proximate cause of the loss?
Answer: The power surge Loss: Bodily injury, property damage, or damage caused by the insured's negligent acts; loss is the the basis for an insurance claim. Loss can also mean the sum the insurer will have to pay Proximate Cause: The original occurrence, the source, of all the subsequent damages.
Which of the following factors holds the LEAST relevance when an adjuster is evaluating an insurance claim?
Answer: The premium Premium: A scheduled and affordable fee, paid by the policyholder to the insurer, in return for coverage. An adjuster typically follows nine steps to resolve a claim: first, he will acknowledge the claim and establish open lines of communication with the claimant. Then he will prepare any paperwork needed for the claim and send all required forms to the claimant. The adjuster will then check to make sure that the policy in question applies to the damages being claimed. If it does, he will research and investigate the losses to collect as much information about the occurrence as possible. Next, the adjuster will calculate the time frame and total cost of all injuries and repairs, and then apply the policy's coverages and provisions in order to calculate a settlement offer that is fair and equitable to all parties. If the claimant disagrees with this amount, the adjuster will have to negotiate with the claimant until they can agree on a fair settlement. Once this is complete, the adjuster must wrap up the claims process by preparing final adjustment reports for both the insurer and the claimant.
In appraisal, who chooses the umpire?
Answer: The two appraisers Appraisal: A dispute resolution method which allows the claimant and the insurer each to select an appraiser. The two appraisers in turn select an umpire. The appraisers then work together to determine a settlement amount. If they cannot agree, the umpire steps in. Agreement by any two of the three is binding. Dispute Resolution: Appraisal ● A definite disagreement must exist prior to appraisal ● Each side chooses an appraiser ● Both appraisers agree on an umpire ● Agreement by any two of the three is binding ● Appraisal only decides settlement amount, not whether coverage exists in the first place Many policies include an appraisal condition or "clause," outlining how disputes should be handled. According to this clause, both the claimant and insurer select an appraiser. Then, the two appraisers agree upon a third person, called an umpire. In some cases a court will appoint the umpire, if the appraisers cannot agree. The appraisers then work together to determine a mutually-acceptable settlement. If they cannot agree, the umpire steps in. Agreement by any two of the three is binding. Like the other resolution methods, the appraisal process does not determine whether a claim is covered; it only determines the proper loss payment amount for a claim that is already acknowledged as covered. Also note that neither the claimant nor the insurer may properly demand an appraisal until after an actual disagreement has occurred. In other words, both parties must make a genuine effort to settle the claim through direct negotiation before appraisal becomes an option.
Which of the following is NOT a characteristic of insurance contracts?
Answer: Universal Insurance Contracts are Aleatory. Aleatory: depending on an unknown future event ● Neither party can know future losses ● Insurer only has to pay if and when covered losses occur ● Policyholders could pay more in premiums than they ever get for claims, or insurer could pay more in claims than it receives. Insurance Contracts are Unilateral. In an insurance contract: ● The insurer has an obligation to pay for covered losses ● The insured has no obligation (he can stop paying premiums) Conditional This means: ● The insurer only has to perform if certain conditions are met (such as a covered loss) ● The insured must fulfill all conditions listed in the policy
During a storm, lightning strikes a tree in Harry's yard and starts a fire that spreads to his shed where he keeps all his equipment for his landscaping business. In addition to the shed, Harry has to purchase all new equipment to stay in business. The cost to replace the equipment would be considered:
Answer: a direct loss. Loss: Direct Physical harm to tangible property caused by a peril.
Edward is a member of the Knights of Columbus, a religious group dedicated to voluntary service to the benefit of society. He also recently purchased a $100,000 life insurance policy from the organization. This was possible because the Knights of Columbus is:
Answer: a fraternal benefit society Fraternal Benefit Societies: Non-profit, mutual aid organizations that engage primarily in charitable or benevolent activities. They offer their members insurance against death, disease, and disability. Also known as Fraternal Associations.
An insurance company might consider any of the following a risk, EXCEPT:
Answer: a high crime neighborhood.
An "occurrence" is defined as:
Answer: an unexpected event that causes loss. Occurrence: An unexpected event or circumstance that causes injury or damage.
The job of the adjuster can best be described as:
Answer: comparing claimant's losses to promises made in an insurance policy. Adjuster: An agent who, for compensation, processes insurance claims. The adjuster investigates the damages, evaluates the claim, and makes a fair and equitable settlement based on the insurance contract. Can represent either the insured or the insurer. There are many types of adjusters. Some work for insurers; others work for private companies or adjusting firms; and some contract specifically with claimants. Essentially, adjusters can work on behalf of either the insured or the insurer.
A lightning strike causes one of the storage buildings on John's farm to burn to the ground, aided by the fuel tanks he kept in the building. John knows he wasn't supposed to store any fuel in the building, so he keeps that piece of information to himself when he files a claim. John's insurer may deny his claim based on his:
Answer: concealment. Concealment: The act of withholding relevant material facts from an insurer. Concealment : deliberately withholding relevant information Concealment vs. Misrepresentation: ● Concealment is hiding the truth ● Misrepresentation is stating something untrue Concealment is deliberate intent to deceive or defraud an insurer by withholding relevant information. Concealment can be distinguished from misrepresentation if you remember that concealing is deliberately withholding information, while misrepresenting is stating a falsehood. For example... If you have been convicted of a DUI, yet do not reveal your conviction on an auto insurance application, you are guilty of concealment. You know a DUI record is relevant to auto insurance, but try to conceal your record in an effort to get a lower premium. You might encounter concealment when you practice your career. If a policyholder accidentally starts a fire while working in his garage, he may not reveal all the relevant facts for fear he will not be covered. The insured in this case is practicing concealment.
In the Standard Fire Policy, "intentional losses" and "extreme perils that cause catastrophic damage to a large number of policyholders" would be considered examples of:
Answer: exclusions. Standard Fire Policy : the foundation for property coverage Property owners often have a package policy that builds on this basic coverage 4 Parts of the Standard Fire Policy: 1. Declarations Page 2. Insuring Agreement 3. Conditions 4. Exclusions Exclusions : states which perils are NOT covered under the policy, such as: ● Extreme perils that cause catastrophic damage to multiple policyholders at a time ● Intentional losses ● Risks that are impossible to quantify ● Risks brought on by a policyholder's negligent actions The Exclusions section of the Standard Fire policy provides a list of perils that are specifically excluded from coverage under the policy. In other words, "if such and such event causes damage to your property, we will not pay for the damage."
All of the following are typical exclusions in an insurance policy, EXCEPT:
Answer: explosion. Common Exclusions (in nearly all property policies): ● Earthquakes ● Flooding ● War ● Nuclear hazards ● Intentional acts
Strict liability:
Answer: holds a person liable for his actions regardless of how much care he demonstrates. Strict Liability: Holds a party 100% liable for damages when the activity or instrument they are performing is inherently dangerous.
If a claimant has a history of similar claims, that could mean:
Answer: it is important to investigate for fraud. Insurance Fraud: Using insurance to obtain money unlawfully. This can be done by a policyholder, or by an insurer or an insurer's employees. There are two kinds of insurance fraud: soft fraud and hard fraud.
As a staff adjuster, one of Abigail's most important responsibilities is reporting to the principal. This would include all of the following except:
Answer: keeping the claimant up-to-date on the progress and status of the claim. Open Lines of Communication ● Make sure there is a way to communicate with claimant ● Provide current business address & phone number ● Respond to the claimant's communications promptly ● Answer any questions The adjuster must work to maintain open communication with the claimant throughout the entire claim process. This is because part of being an adjuster is acting as the liaison between the insurer and the claimant. In other words, the adjuster is the main point of contact for both sides. The adjuster must make himself available to the claimant at any time by providing his current business phone number and business address and responding quickly to any questions from the claimant. He must also make sure that the claimant knows the limits and rules of her policy, and that the insurer stays informed about the claimant's losses.
John owes a lot more on his car than it is worth. He figures he would be better off if he burned the car and collected an insurance settlement. He has someone set fire to his garage to destroy the car. John's behavior would be considered a:
Answer: moral hazard. Hazard: Moral :Conscious and deliberate action on the part of the insured that increases the chance of a loss. All conscious acts committed with a hope to defraud the insurance company are moral hazards.
Lucy has insurance on an expensive necklace she likes to wear to work every day. After work, she takes it off and leaves it in her car's cupholder so she can put it back on in the morning on her way to work. Lucy's behavior would be considered a:
Answer: morale hazard. Hazard: Morale Unconscious tendency of insured people to engage in riskier behavior.
Jim is out turkey hunting on a private ranch when he hears some movement in the brush. Assuming it's a turkey, Jim raises his shotgun and fires. Unfortunately for Jim, he has not taken a turkey, but has severely injured one of the landowner's calves instead. Jim is responsible for the cost of the calf because he acted with:
Answer: negligence. Negligence: The failure to exercise a reasonable degree of care in a particular situation.
Amy needs more floor space in her antique furniture store, so she buys a storage building 3 miles away. She is worried about keeping the furniture in the storage building safe, so she puts in an alarm system and smoke detectors. By purchasing the alarm system and smoke detectors, Amy is practicing:
Answer: risk reduction Risk Reduction: An insurer practices risk reduction when it takes precautions in order to reduce its exposure; for example, requiring that all homes insured by a homeowners policy have fire alarms installed.
In a declaratory judgment action:
Answer: the court decides the legal rights of both parties. Declaratory Judgement Action As an alternative dispute resolution before litigation, the court can clarify the legal relationship and the rights of both parties: the claimant and the principal. Does NOT decide how to resolve the case. Dispute Resolution: Declaratory Judgment Action ● Court declares the legal rights of both parties ● Court does NOT decide how to resolve the case ● Disputing parties then use the court's decision to come to settlement Sometimes, a court of law can help disputing parties reach an agreement without actually deciding the case for them. This is called a declaratory judgment action. In a declaratory judgment, a court will consider the case and issue a binding decision about the rights of the different parties, but it will not order any action or damages. The decision simply clarifies the legal relationship of the disputing parties, which can help them reach a settlement on their own. Insurance disputes sometimes rely on declaratory judgment to clarify the legal meaning of policy coverages. Once the rights of the insurer and claimant have been declared by a court, the solution often becomes clear from there.
In an insurance policy, the summary of what the insurer will do in the event of a covered loss is called:
Answer: the insuring agreement. Insuring Agreement: A section of an insurance policy that summarizes the insurer's promise to pay. Includes list of covered property and perils. The Insuring Agreement summarizes: ● What is covered ● Which causes of loss are covered ● Any services provided ● Any exclusions to coverage ● The maximum limit of policy coverage in dollars The insuring agreement is a summary of what the insurer promises to do when a loss occurs. Basically, this is where the insurer says: "We agree to indemnify you for losses to these particular items, if the losses were caused by these particular events." We will examine the more technical terms of the insuring agreement, such as "peril" and "hazard," later on. For now, the important thing to remember is that the insuring agreement is where the insurer and the insured agree to what is covered, and how. The insurer may also agree to provide certain services, such as defending the insured in a liability lawsuit. The Insuring Agreement will go on to reinforce any coverage limits and exclusions listed in the policy.
Adjusters are required to give claimants:
Answer: their business address and phone number.
An insurance contract is an agreement between two parties where each side promises to be truthful, factual, and honest about their respective positions. Therefore, an insurance contract is said to be a contract of:
Answer: utmost good faith Utmost Good Faith: A characteristic of insurance contracts: 'utmost' meaning the 'highest degree' and 'good faith' meaning, "act with honesty, fair dealing and full disclosure." All parties to an insurance contract must act with utmost good faith. It also applies to a fiduciary agent's responsibility towards the principal.
Sam suffers $6,000 in injuries when Nicole runs a red light and crashes her uninsured car into Sam's. Sam's own insurance company, ABC Insurance, immediately pays him $5,000 for his injuries. Sam then ponders whether to file a $6,000 lawsuit against Nicole. Why can't Sam sue Nicole for the full amount of his injuries?
By accepting payment from ABC Insurance, Sam forfeited his right to collect this amount from Nichole.
Which item would NOT belong in an adjuster's initial report on a claim?
The final settlement amount The adjuster's job is to determine if the policy in question covers any of the claimed losses, and if so, for how much. After receiving a claim, the adjuster has nine basic steps to follow to ensure it is processed correctly. The Steps of the Claims Process 1. Acknowledge the claim 2. Establish lines of communication 3. Prepare necessary paperwork 4. Determine insurer's liability in the claim 5. Investigate the losses 6. Determine the time and cost of repairs 7. Apply all policy coverages and provisions 8. Negotiate a settlement 9. Prepare final reports
