Property and Casualty Insurance EXAM

Declaration

-Almost always are found on the first page -Contain information such as the name of the insured, the address, and the amount of coverage, a description of the property and the cost of the policy.

Insurance from state government may include:

-Unemployment insurance -Workers compensation benefits

Insurance from the federal government may include:

-War risk insurance -Nuclear energy liability insurance -Flood insurance -Federal crop insurance

Characteristics of a valid contract include:

-competent parties -legal purpose -offer and agreement -consideration

4 elements of negligence

1. The existence of a DUTY to act in a certain way 2. A FAILURE to live up to this duty 3. An actual INJURY must occur 4. The failure in duty must be the PROXIMATE CAUSE of the injury.

Hazard

A condition or situation which increases the chance for loss

Reinsurance

A contract under which one insurance company (the reinsurer) indemnifies (insures) another insurance company for part, or all its liabilities.

Insolvency

A financial state that occurs if liabilities are greater than assets.

Flood

A general or temporary condition of partial or complete inundation of normally dry land areas. Must affect: - 2 or more acres or - 2 or more properties

Estoppel

A legal bar to changing or denying a fact because of one's own previous actions or words to the contrary. ex: If an insurance company representative intentionally or unintentionally gives the impression that a specific fact exists when it does not and a client relies on that impression and is damaged a result.

Appraisal

A method of resolving disputes between insurers and insureds over the amount owed on a covered loss. -both parties select an appraiser -the two appraisers select an umpire -if the appraisers do not agree, the umpire is consulted -the amount agreed on by 2 out of 3 is the amount that will be paid

Uninsured Motor Vehicle

A motor vehicle or trailer to which: - No liability coverage at the time of accident -has liability coverage but not enough to meet the state's financial responsibility requirement - Operated by a hit and run driver - Has invalid liability insurance at the time of the accident because the insurer is insolvent or denies coverage

Warranty

A provision in a policy that pledges that a condition does exist or will exist at some time in the future.

Blanket Insurance

A single policy written on an insured's interest for 2 or more different types of property (dwelling/building and contents) at the same location, or at different locations.

Binder

A temporary contract of insurance, oral or written, offered by an insurer pending issuance of the policy. Usually written for a period of 30-60 days and remains in force for that period or until a permanent policy is either issued or denied by the insurer.

APIP

Additional Personal Injury Protection (optional)

Comprehensive

Addresses property damage losses to the insured vehicle involving losses other than collisions. Examples: - Contact with birds or animals - Theft or larceny - Fire - Hair, water, or flood - Vandalism or malicious mischief (VMM) - Breakage of glass

Occurrence

An accident, including continuous or repeated exposure to the same harmful conditions, which result in bodily injury or property damage.

Proximate Cause

An act, through an uniterrupted chain of events, that can be determined to be the immediate or actual cause of a loss.

Broker

An individual, partnership, or corporation who, for a commission, acts or aids in any manner in the sale of insurance as the representative of the insured. In an insurance transaction, this person represents the insured.

Subrogation

An insurer's right to recover the amount of its loss payment from the third party who is legally responsible for the loss.

Negligence

An unreasonable or prudent act, A thoughtless or careless act or one committed out of ignorance. It may be a non-act or omission, but it is NEVER an intentional act.

Excess

Any insurance that is provided for a vehicle you do not own, shall be excess over any other collectible insurance. Example: If you borrowed your friend's car, your own liability coverage will act as excess to your friend's primary coverage.

General Rule of Agency

Any knowledge of the agent is presumed to be knowledge of the insurer (principal).

Nonowned Auto

Any private passenger vehicle not owned by the insured being operated by the insured. Examples: - Rental Car - Temporary Substitute

Express Authority

Authority specifically given to an agent, either orally or in writing, by the principal -Written authority is typically provided under the agency agreement which allows the agent to countersign, issue and deliver policies.

Apparent Authority

Authority that states that an agent may have whatever authority a reasonable person would assume the agent has.

What does BIG AFFECT stand for?

Burglar damage, Ice & snow weight, Glass breakage, Accidental discharge, Falling objects, Freezing of pipes, Electrical damage, Collapse, Tearing apart.

Strict Liability

Commonly applied in product liability cases. A person or business that manufactures or sells a product makes an implied warranty that the product is safe.The business is then liable for defective products, regardless of fault or negligence.

Specific Insurance

Coverage on ONE type of property (real or personal) in ONE location.

Underinsured Motorist Coverage (UIM)

Covers the insured when involved in an accident with a driver who has auto liability insurance, but the limit of this insurance is insufficient to pay for the insured's damage.

Overinsurance

Exists if a property or an insurable interest in property is insured by one or more insurance contracts against the same hazard in excess of the fair value of the property or of such interest.

Tort

Fault A civil wrong that violates the rights of another person. Can be intentional or unintentional

Absolute Liability

Imposed on defendants engaged in hazardous activities, such as harboring wild animals, using explosives, etc. The injured party does not have to prove negligence.

Principal

Insurance Company

What is the ISO?

Insurance Services Office which is an organization established for the benefit of its member insurance companies. This organization gathers statistics, provides loss costs, drafts policy forms and coverage provisions and conducts inspections for rate making purposes.

Medical Payments

Insurance company agrees to pay for reasonable expenses incurred for necessary medical and funeral services because of bodily injury. - Covers first party. - "Stays in the car" - 3 years is time limit for incurring medical expenses

Property insurance

Insurance that includes many types of insurance which is designed to handle property risks, risks that will suffer financial loss because something we own is damaged or destroyed. such as dwelling, homeowners etc.

Law of Agency

Knowledge of the Agents is Knowledge of the Principal (Insurance Company)

Pair and Set Clause

Loss to one item of a pair or set does not constitute loss to the entire pair or set.

Fair Credit Reporting Act

Mandates confidential, fair and accurate reporting of information on consumers by reporting organizations as well as organizations (such as insurers) which use the services of reporting organizations. Consumers must be informed if a credit report is needed in order to underwrite a particular line of insurance.

Red Lining

No insurer may refuse to issue or renew an auto policy because of age, sex, race, occupation or principal place of garaging of the named insured.

Single Limit Basis

One amount representing the total (aggregate) limit for all claims arising from any one accident. (1 amount for Bodily Injury and Property Damage)

Contract of Adhesion

One party has greater power over the party in drafting the contract. The insurer has more power when it comes to preparing the contract even though the insured can request provisions or coverage.

Unilateral Contract

Only one of the parties in the contract is legally bound to do anything. -Insurance policies are one sided because only the insurance company is legally bound to perform its part of the agreement.

OBEL

Optional Basic Economic Loss Additional $25,000 to be assigned to any combination of Medical Expenses, Loss Wages, Rehab.

Supplementary Payments

Payments made in addition to the Limits of Liability. - Up to $200/day for loss of earnings - Up to $250 for the cost of bail bonds required because of an accident.

Write Your Own (WYO)

Program instituted by the Federal Government which enables private insurers (Allstate, State Farm, etc) to write, service, bill and settle claims directly with insureds while being backed financially by the federal government.

Part A - Liability Coverage

Provides payment for Bodily Injury (BI) & Property Damage (PD) damage resulting from the injured's use of an automobile for which the insured becomes legally liable. - Covers Third Party Only - Pays for both $pecial and General Damages

Casualty Insurance

Refers to coverage designed to address the liability of individuals and organizations resulting from negligent acts in their personal, business, or professional roles.

Actual Cash Value (ACV)

Replacement Cost, minus depreciation.

Coinsurance Clause

Requires the insured to carry a minimum specified amount (generally 80%) of the replacement cost value of the insured property in order for partial losses to be paid in full.

Consultant

Someone who, for a fee, offers advice on the benefits, advantages, and disadvantages of various insurance policies. -They don't actually sell insurance, only advice.

Deposit Premium

Tentative charge made at the beginning of certain policies and reinsurance agreements to be adjusted when the actual earned charge has been later determined.

Replacement Cost

The amount of money it would take to replace a damaged or destroyed item with one of like kind and quality AT THE TIME OF LOSS. No deduction for depreciation.

Insuring agreement

The heart of the policy which states in general what is to be covered or, in other words, the losses for which the insured will be indemnified. This section also describes the type of property covered and the perils against which it is insured.

Loss of Use

The inconvenience caused to an individual for the inability to use property.

Stacking

The practice of adding (stacking) the limits of all applicable policies to address a given loss.

Collision

The upset of a covered auto or its impact with another motor vehicle .

Endorsement

These are documents that modify or change the original policy in any way and are attached to the original policy. These changes could be anything from broadening coverage, restricting coverage to changing the name of the insured.

Split/ Combined Single Limit

This limit has only one limit that applies to both BI and PD.

Split Limit Basis

This limit has separate limits for BI and PD. For example: 20/50/10 - $20,000 for per person bodily injury, $50,000 total per accident bodily injury, $10,000 per accident for property damage.

Definitions

This section clarifies the meanings of certain terms used in the policy.

Exclusions

This section describes the losses for which the insured is not covered. If and excluded loss occurs, the insured will not be reimbursed.

Conditions

This section states the ground rules for the policy. They describe the responsibilities and the obligations of both the insurance company and the insured.

Blanket insurance

This type of insurance covers more than one item of property at a single location or one more items of property at multiple locations.

Specific insurance

This type of insurance designates a particular item to be insured

Audit

Verification of books or accounts to determine their accuracy.

What does WC SHAVVER stand for?

Windstorm, Civil commotion, Smoke, Hail, Aircraft, Vehicles, Volcanic eruption, Explosion, Riot

Physical Hazards

a hazard that arises from the condition, occupancy, or use of the property itself. ex: skateboard left on the steps

Contract

a legal agreement between two competent parties that promises a certain performance in exchange for a certain consideration. ex: Insurance policy covers insured's losses in exchange for a premium.

Offer

a promise that requires an act or another promise in exchange.

Consideration

a thing of value exchanged for the performance promised in the contract.

Excess or Surplus Lines

an agent licensed by the state to handle highly specialized insurance coverages such as auto racing liability and tuition refund insurance.

Non-Admitted Companies

are companies that are not authorized to conduct business in the state under ordinary circumstances.

Implied Authority

authority given by the insurance company to the agent that is not formally expressed or communicated. -This allows the agent to perform all of the usual and necessary tasks to sell and service insurance contracts and to full exercise the agents express authority.

What are the 5 methods of managing or handling risk?

avoid, control, retain, and transfer risk.

Personal Contracts

contracts that insure the person who owns the property not the property itself.

Producer (Agent)

general term used to describe someone who sells insurance. -represents the insurance company

Monoline companies

insurance companies that only write one type of insurance policy.

Multiline companies

insurance companies that write more than one type of insurance policy.

Health and Disability Insurance

insurance designed to handle the risk of medical bills and loss of income resulting from injury or sickness.

Life insurance

insurance designed to handle the risk of premature death or the risk that an individual may outlive his or her financial resources.

Residual Market Insurance

insurance provided by the government which is not typically available from private insurers. Such war risk, flood, workers comp, etc.

Aleatory Contract

it is a contract that is contingent on an uncertain event (a loss) that provides for unequal transfer of value between the parties. For example, people can pay insurance premiums for years without having a loss or on the other hand someone could experience a loss and be reimbursed a great deal more than they had paid in premiums.

Vicarious Liability

liability situation where someone is held responsible for the actions or omissions of another person. ex: an employer can be liable for the acts or omissions of its employees, provided it can be shown that they took place in the course of their employment.

Solicitor

like an agent, sells insurance and may even be authorized to collect premiums. However, they cannot issue or countersign policies, only agents can do this. -they represent the insurance company

Contract of Utmost Good Faith

means that the insurer relies on the truthfulness and integrity of the applicant when issuing a policy and the insured relies on the company's promise to provide coverage and pay claims

Agreement

occurs when the other party agrees to the offer or does what was proposed in the offer.

Pure

only the possibility of loss. Insurable.

Speculative

possibility of both gain and loss. Not insurable.

Doctrine of Reasonable Expectations

states that a policy includes coverage's that an average person would reasonably expect it to include, regardless of what the policy actually provides.

Principle of Indemnity

states that when a loss occurs, an individual should be restored to the approximate financial condition he/she was before the loss, no more and no less. No one will profit from the result of a loss.

Arbitration

this condition is similar to the Appraisal Condition but it is not limited to disputes over the value of the loss. It may also be used to resolve other areas of disagreement between the insured and the insurance company.

Part C: Uninsured Motorist Coverage

this coverage compensates the insured for bodily injury ONLY as a result of an accident with an uninsured motorist.

Special Damages

type of compensatory damages that reimburse the injured part for direct and specific expenses involved in the loss. Such as medical expenses, funeral expenses and loss wages.

General Damages

type of compensatory damages that reimburse the injured party for such things as pain and suffering and disfigurement.

Punitive Damages

type of damages intended to punish the defendant and make an example out of her to discourage others from behaving the same way.

Morale Hazards

when a person might create a loss situation on purpose just to collect from the insurance company. ex: Prearranged, faked theft of someone's old vehicle so they can get an insurance payout to buy a new vehicle.

Moral Hazards

when an individual through carelessness or by irresponsible actions can increase the possibly for a loss. ex: person who drives carelessly just because they know they are insured.