Principles of Risk Management and Insurance Chapter 23, RMI exam 3

Limit of Liability

$300K cap the insurer's total liability under coverage E for all damages arising from one occurrence will not be more than the limit shown in the declarations the insurer's total liability for medical expenses for bodily injury to one person resulting from an accident will not exceed Coverage F limit shown in the dec

Tips for Buying a Homeowners Policy

1. carry adequate insurance 2. add necessary endorsements 3. shop around for a homeowners policy 4. consider a higher property insurance deductible 5. take advantage of discounts 6. don't ignore floods and earthquakes 7. improve your credit rating 8. consider purchasing a personal umbrella policy

Section II Additional Coverages

1. claim expenses 2. first-aid expenses 3. damage to property of others 4. loss assessment - certain ones are paid up to $1K

Cost of Homeowners Insurance

1. construction 2. location 3. fire protection class 4. construction costs 5. age of the home - new home discount ends in year 15 6. type of policy 7. deductible amount 8. insurance score 9. loss history report higher the ppc, the more it will cost to protect your home

Coverage E Exclusions

1. contractual liability 2. property owned by the insured - son set fire to the couch 3. property in the care of the insured, with some exceptions - engagement ring 4. workers' comp 5. liability arising out of nuclear energy 6. bodily injury to an insured

Endorsement to a Homeowners Policy

1. inflation guard endorsement 2. earthquake endorsement 3. personal property replacement cost loss settlement endorsement 4. scheduled personal property endorsement 5. personal injury endorsement 6. watercraft endorsement 7. home business insurance coverage endorsement 8. identity theft endorsement

Coverage F Exclusions

1. injury to a resident employee off an insured location - live in nanny: goes on vacation with you HO coverage doesn't pay for it, workers comp does 2. workers' comp 3. injuries that result from nuclear energy 4. persons regularly residing on the insured location

Section II Exclusions (Coverage E & F)

1. liability arising out of the use of an auto or certain watercraft, aircraft, or hovercraft 2. expected or intentional/purposeful injury 3. Business activities, with some exceptions -auto repair shop in garage 4. professional services - consult 5. liability arising out of the use of an uninsured location 6. war or other hostile military acts 7. liability arising out of the transmission of a communicable disease 8. bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical or mental abuse 9. liability arising out of the use, sale, manufacture, delivery, transfer, or possession of controlled substances

Section II Conditions

1. limit of liability 2. duties after an occurrence 3. duties of an injured person under coverage F 4. no suit against insurer 5. other insurance 6. Concealment and fraud

Good student discount (486)

A good student discount can also reduce premiums. The cost reduction is based on the premise that good students are better drivers; the psychological makeup and intellectual capacity of superior students also con- tribute to the safer operation of an auto. Good stu- dents generally are cautious and risk averse.

Extended replacement cost endorsement (514)

A home may be damaged beyond repair by a major catastrophe, such as a hurricane or tornado. There may be a shortage of lumber and other building mate- rials after a catastrophe occurs, which can substan- tially increase the cost of rebuilding. Some insurers make available an extended replacement cost endorse- ment, which pays up to an extra 20 percent or more above the policy limits.

Diminution in value

An actual or perceived loss of an auto's resale or market value that results from a direct, accidental loss

Your covered auto

An extremely important provision is the definition of your covered auto. Four classes of vehicles are consid- ered to be covered autos: Any vehicle shown in the declarations A newly acquired auto A trailer owned by the named insured A temporary substitute vehicle

Modified no-fault plan (479)

An injured person has the right to sue a negligent driver only if the bodily injury claim exceeds the dollar or verbal threshold. Otherwise, the accident victim collects only from his or her own insurer. Thus, modified no-fault plans only partially restrict the right to sue

Identity Theft Endorsement

an endorsement that reimburses crime victims for the cost of restoring their identity and cleaning up their credit report $25/year

Section II Coverages

Coverage E Coverage F

Extended nonowned cover- age endorsement

For an additional premium, the extended nonowned coverage endorsement can be added to the PAP that covers the insured while operating a nonowned auto on a regular basis.

betterment

If the value of the vehicle is increased after repairs are completed (such as repainting the entire car when only one fender and door are dam- aged), the insurer will not pay for the betterment or increase in value.

Supplementary payments

In addition to the policy limits and a legal defense, certain supplementary payments can be paid. They include the following: Up to $250 for the cost of a bail bond Premiums on appeal bonds and bonds to release attachments Interest accruing after a judgment Up to $200 daily for the loss of earnings Other reasonable expenses

Homeowners 3 (special form) (497)

Insures the dwelling and other structures against direct physi- cal loss to property. This means that all direct physical losses to the dwelling and other structures are cov- ered, except those losses specifically excluded. Losses to the dwelling and other structures are paid on the basis of full replacement cost with no deduction for depreciation if certain conditions are met

Liability coverage

Liability coverage (Part A) is the most important part of the Personal Auto Policy, as legal liability arising from negligent use of an auto can be quite large. Lia- bility coverage protects a covered person against a lawsuit or claim arising out of the ownership or oper- ation of a covered vehicle.

Medical payments coverage

Medical payments coverage is not based on fault. Thus, if you are injured in an auto accident and are at fault, medical payments can still be paid to you and to other injured passengers in the car.

Summary of PAP Coverages

Part A: Liability Coverage Part B: Medical Payments Coverage Part C: Uninsured Motorists Coverage Part D: Coverage for Damage to Your Auto Part E: Duties after an Accident or Loss Part F: General Provisions

Split limits

Split limits mean that the amounts of insurance for bodily injury liability and property damage liability are stated separately. For example, split limits of $250,000/$500,000/$100,000 mean that you have bodily injury liability coverage of up to $250,000 for each injured person and a maximum of $500,000 of bodily injury coverage for each accident. You also have $100,000 of property damage liability coverage. (Practitioners frequently refer to such limits as 250/500/100.)

Other-than-collision loss

The PAP distin- guishes between a collision and an other-than-colli- sion loss. This distinction is important because some car owners do not wish to pay for collision coverage on their cars. Also, the deductibles under the two cov- erages may be different. Missiles or falling objects Fire Theft or larceny Explosion or earthquake Windstorm Hail, water, or flood

Data recorder (485)

is an electronic device that can be installed in a vehicle to track certain driving behaviors. For example, an insurer may wish to know how quickly a vehicle accelerates, how hard brakes are applied, how far it is driven, and whether it is driven in the daytime or at night.

Fair rental value (505)

The fair rental value is also paid when part of the premises is rented to others. Fair rental value means the rental value of that part of the residence premises rented to others or held for rental less any expenses that do not continue while the prem- ises are not fit to live in. For example, Heather may rent a room to a student for $250 per month. If the home is uninhabitable after a fire, and it takes 3 months to rebuild, Heather would receive $750 for the loss of rents

Nonrenewal

The insurer may also discontinue cov- erage through nonrenewal of the policy at the end of the coverage period. If the insurer decides not to renew the policy, the named insured must be given at least 20 days' notice before the end of the policy period.

Cancellation

The named insured can cancel at any time by returning the policy to the insurer or by giving advance written notice of the effective date of cancellation.

Appraisal provision

This provision is particularly important in the case of damage to a low-mileage car or to a car in above-aver- age condition. The insured may claim that the car is worth more than the amounts stated in various sources listing auto values.9 To resolve the dispute, either party can demand an appraisal of the loss.

Gap insurance

This risk can be handled by gap insurance, which pays the difference between the amount your insurer pays for a totaled car and the amount owed on the loan or lease. You normally do not buy a gap policy when you lease a car.

Choice no-fault plan (479)

Three states (Kentucky, New Jersey, and Pennsylvania) have choice no-fault plans. Under such laws, motorists can elect to be covered or not covered under the state's no-fault law and pay lower premiums, or they can retain the right to sue under the tort liability system and pay higher premiums.

Essential services expenses (480)

Under No Fault- Benefits are also paid for essential services expenses ordinarily performed by the injured per- son. Examples include housework, cooking, lawn mowing, and house repairs.

Insurance score (487)

a credit-based score that proponents claim is highly predictive of future claim costs. They believe that individuals who are careful with credit usage will also exercise care in other areas, such as driving behavior. An insurance score is a statistical analysis of an individual's credit record that insurers believe helps predict the likelihood of filing an insurance claim within a specified future time period. The insurance score is based on an individual's credit history and is combined with other rating factors for purposes of underwriting and rating.

Coverage F

a mini accident policy medical payments to others pays for accidental injury that wasn't necessarily your fault don't necessarily have to be negligent don't have to be sued the insured is not required to be legally liable coverage does not apply to the insured or regular residents of the household, other than a residence employee coverage applies even if the injury occurs away from an insured location

Maryland Automobile Insurance (483)

a state entity that makes auto insurance available to Maryland motorists who are unable to obtain insurance in the voluntary mar- ket.16 The Maryland Automobile Insurance Fund came into existence in 1972 because of high rates charged by private insurers, large numbers of motorists who had been placed in the assigned risk plan, and difficulties experienced by high-risk drivers in obtaining insuranc

Automobile insurance plan (assigned risk plan) (482)

also called an assigned risk plan) that makes auto insur- ance available to drivers who are unable to obtain insurance in the voluntary market. Under such a plan, all auto insurers in the state are assigned their propor- tionate share of high-risk drivers based on the total volume of auto insurance premiums written in the state.

Occurence

an accident that results in bodily injury or property damage during the policy period Example: a sudden accident or a gradual series of incidents that occur over time

Miscellaneous-type vehicle endorsement

an be added to the PAP to insure motorcycles, mopeds, motor scooters, golf carts, motor homes, dune buggies, and similar vehicles. One exception is a snowmobile, which requires a separate endorsement to the PAP. First, the liability coverage does not apply to a nonowned vehicle. Although other persons are cov- ered while operating your motorcycle with your per- mission, the liability coverage does not apply if you operate a nonowned motorcycle Second, a passenger hazard exclusion can be elected, which excludes liability for bodily injury to any passenger on the motorcycle. When the exclusion is used, the insured pays a lower premium; however, if a passenger on your motorcycle is thrown off and is injured, the liability coverage on the motorcycle does not apply. Finally, the amount paid for any physical damage losses to the motorcycle is limited to the lowest of (1) the stated amount shown in the endorsement, (2) the actual cash value, or (3) the amount necessary to repair or replace the property (less any deductible).

Underinsured motorists coverage

an be added to the Personal Auto Policy to provide more complete pro- tection. Underinsured motorists coverage applies when a negligent third-party driver carries liability insurance, but the limits carried are less than the insured's actual damages for bodily injury.

Home Business Insurance Coverage Endorsement

an endorsement that covers both business and property and legal liability arising out of a home-based business

Earthquake Endorsement

an endorsement that covers earthquakes, landslides, volcanic eruption, and earth movement

Personal Property Replacement Cost Loss Settlement Endorsement

an endorsement that is added to the policy, claims are paid on the basis of replacement cost with no deduction for depreciation amount paid is limited to the smallest of: 1. replacement cost at the time of loss 2. full repair cost 3. coverage c limit, if applicable 4. any special dollar limits in the policy 5. for loss to any item

Personal Injury Endorsement

an endorsement that is used to extend liability coverage to legal liability arising out of personal injury -false arrest, slander

Scheduled Personal Property Endorsement (With Agreed Value Loss Settlement)

an endorsement that provides additional coverage for nine classes of property and the insurer agrees to pay the stated amount for a scheduled item if a total loss occurs - jewlery - furs -cameras - musical instruments -silverware - golfer's equipment - fine art - postage stamps - rare and current coins

Inflation Guard Endorsement

an endorsement that provides for an annual pro rata increase in the limits of insurance in the Section I coverages - goes up each year automatically

Watercraft Endorsement

an endorsement that provides liability and medical payment coverage on any inboard or inboard-outdrive powered watercraft, sailing vessels 26 feet or more in length, and watercraft power by one or more outboard motors exceeding 25 total horsepower don't put this on HO; get a separate policy

No Suit Against the Insurer

an insured may not sue the insurer unless the insured has complied with the conditions required in Section II

Uninsured motorists coverage

ays for bodily injury (and property damage in some states) caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent.

Claims Expenses

covered in addition to the policy limits for liability damages Examples: court costs, attorney fees

Financial responsibility law (472)

does not require proof of financial responsibility until after the driver has his or her first accident or until after conviction for certain offenses, such as driving under the influence of alcohol.

No-fault auto insurance (478)

eans that after an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault. It is not necessary to deter- mine who is at fault and prove negligence before a loss stated percentage of the disabled person's weekly or monthly earnings, with a maximum limit in terms of dollar amount and duration.

Monetary threshold (479)

f a bodily injury claim is below a certain monetary threshold (such as $5,000), an injured motorist is not permitted to sue but instead would collect from his or her own insurer. However, if the bodily injury claim exceeds the threshold amount, the injured person has the right to sue the negligent driver for damages. If the negligent driver is insured, the negligent driver's insurance company will usually cover the loss.

Guaranteed replacement cost (514)

few insurers offer guaranteed replacement cost coverage. The insured agrees to insure the home to 100 percent of its estimated replacement cost rather than 80 percent. If a total loss occurs, the insurer agrees to replace the home exactly as it was before the loss even if the replacement cost exceeds the amount of insurance stated in the policy. For example, if the home is insured for $400,000 and it costs $500,000 to restore the home to its previous condition, the insurer will pay $500,000.

Homeowners 5 (comprehensive form) (497)

form insures the dwelling, other structures, and personal property against direct physical loss to property. This provision means that all direct physical losses are covered except those losses specifically excluded. Unlike the other homeowners forms that cover personal property only for certain named perils, HO-5 insures personal property for all direct physical losses except those losses specifically excluded.

Replacement cost (514)

he amount necessary to repair or replace the dwelling with material of like kind and quality at current prices. For example, assume that a home has a current replacement value of $250,000 and is insured for $200,000. If the home is damaged by a tornado, and repairs cost $50,000, the full $50,000 is paid with no deduction for depreciation. If the home is totally destroyed, however, the maximum amount paid for the damage to the building is the face amount of the policy—in this case, $200,000.

First-aid Expenses

insurer pays these incurred for bodily injury covered under the policy Example: a guest slips in your home and breaks their leg. The ambulance charges you $600. this amount is paid off by the insurer

Loss History Report

insurers also use reports that reveal the prior claim history of a home a comprehensive loss underwriting exchange report shows up to seven years of information on property claims, including the date of loss, type of loss and amounts paid the use of CLUE reports is controversial

Schedule (502)

is a list of covered property with specific amounts of insurance

Homeowners 8 (modified coverage form) (497)

is a modified coverage form that covers loss to the dwelling and other structures on the basis of repair cost, which is the amount required to repair or replace damaged property using common construc- tion materials and methods. Payment is not based on replacement cost. In some states, actual cash value is used to determine the amount payable. The HO-8 policy is designed for an older home whose replacement cost substantially exceeds its mar- ket value. For example, an older home with a replace- ment cost of $300,000 may have a market value of only $200,000.

Homeowners 2 (broad form) (497)

is a named-perils policy that insures the dwelling, other structures (e.g., a detached garage or tool shed), and personal property against loss from certain listed per- ils. Covered perils include fire, lightning, windstorm, hail, explosion, and other perils. The HO-2 also covers the additional living expenses or fair rental value in the event a covered loss makes the dwelling uninhabitable.

Nonowned auto

is a private passenger auto, pickup, van, or trailer not owned by or furnished or made available for the regular use of the named insured or family member, while it is in the custody of or is being operated by the named insured or family member.

Multicar discount (487)

is available if the insured owns two or more cars. This discount is based on the assumption that two cars owned by the same person will be driven more than one car, but not twice as much. The year, make, and model also affect the cost of physical damage insurance on the car. As the car gets older, premiums for physical damage insurance decline.

Collision

is defined as the upset of your covered auto or nonowned auto or its impact with another vehicle or object. The following are examples of a collision loss: You lose control of your car on an icy road, and it overturns. Your car hits another car, a telephone pole, a tree, or a building. Your car is parked, and you find the rear fender dented when you return. You open your car door in a parking lot, and the door is damaged when it hits the vehicle parked next to you. Collision losses are paid regardless of fault.

Homeowners 4 (contents broad form) (497)

is designed for tenants who rent apartments, houses, or rooms. Homeowners 4 covers the tenant's personal property against loss or damage and also provides per- sonal liability insurance. Personal property is covered for the same named perils listed in Homeowners 2. In addition, 10 percent of the insurance on personal property can be applied to cover any additions or alterations to the building made by the insured. The HO-4 also provides a minimum of $100,000 of personal liability insur- ance that covers most personal activities

Homeowners 6 (unit- owners form) (497)

is designed for the owners of condominium units and cooperative apartments. The condominium associa- tion carries insurance on the building and other property owned in common by the owners of the different units. Homeowners 6 covers the personal property of the unit owner for the same named perils listed in Homeowners 2. In addition, there is a mini- mum of $5,000 of insurance on the condominium unit that covers certain property, such as built-in appliances, carpets, additional kitchen cabinets, and wallpaper.

Additional living expense (504)

is the increase in living expenses actu- ally incurred by the insured to maintain the family's normal standard of living.

Appraisal clause (515)

is used when the insured and insurer agree that the loss is covered, but the amount of the loss is in dispute. Either party can demand that the dispute be resolved by an appraisal.

Proximate cause (508)

means there is an unbroken chain of events between the occurrence of a covered peril and damage or destruc- tion of the property. For example, assume a fire starts in the bedroom on the second floor of your home. Firefighters spray water to extinguish the fire, and the water causes considerable damage to your books, fur- niture, and drapes on the first floor of your home. The entire loss is covered, including the water damage, because fire is the proximate cause of loss.

Concealment and Fraud

no coverage is provided to an insured who conceals or misrepresents any circumstance or material fact or engaged in fraudulent conduct

Joint Underwriting Association (JUA) (483

organization of auto insurers operating in the state in which high-risk business is placed in a common pool, and each company pays its pro rata share of pool losses and expenses. The JUA influences the design of the high-risk auto policy and sets the rates that are charged.

Add-on plan (479)

pays benefits to an accident victim without regard to fault, and the injured person still has the right to sue the negligent driver who caused the accident. This plan also includes the right to sue for pain and suffering. Because the injured person retains the right to sue, add-on plans are not true no-fault laws

Medical Payments to Others

pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, or by the activities of an insured, resident employee, or animal owned by or in the care of an insured Examples: a guest slips in your home and breaks an arm; you are playing golf and accidentally injure another golfer; your dog bites a neighbor does not apply to you or to regular residents of your household, other than a residence employee Examples: if a swing set in your backyard collapses, and your daughter and a neighbor's child are injured, only the medical expenses of the neighbor's child are covered

Damage to Property of Others

pays up to $1K per occurrence for property damage caused by an insured, with some exclusions

Section II

personal liability insurance - no deductible

Coverage E

protects the insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly cause by an insured's negligence the coverage is broad and based on legal liability the policy contains a per-occurrence limit the insurer provides a legal defense, even if the suit is groundless, frivolous or fraudulent based on legal liability; before the insurer will pay any sums for damages, you must be legally liable.

Personal Liability Insurance

protects the named insured and family members against legal liability arising out of their personal acts the insurer pays the amount for which the insured is found legally liable, up to the policy limits the insurer also pays defense costs the coverage is found in Section II of the HO policy

Coverage for damage to your auto

provides coverage for damage or theft of an auto The insurer agrees to pay for any direct and accidental loss to a covered auto or any nonowned auto as defined in the insuring agreement, including their equipment, less any deductible. If two autos insured under the same policy are damaged in the same acci- dent, only one deductible must be met.

Compulsory insurance law (475)

requires motorists to carry at least a minimum amount of liability insurance before the vehicle can be licensed or registered.

Low-cost auto insurance (478)

rovides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance or have limited financial assets to protect.

Temporary substitute vehicle

s a nonowned auto or trailer that you are temporarily using because of mechanical break- down, repair, servicing, loss, or destruction of a cov- ered vehicle. For example, if you drive a loaner car furnished by a repair shop or drive a friend's car while your car is in the garage for repairs, your PAP covers liability arising out of use of the loaner car.

Single limit

single limit applies to both bodily injury and property damage liability: the total amount of insur- ance applies to the entire accident without a separate limit for each injured person. For example, a single limit of $500,000 would apply to both bodily injury and property damage liability in any combination of up to $500,000.

Other Insurance

the insurance is excess over other valid and collectible insurance, with some exceptions

Loss to a pair or set (514)

the insurer can elect either (1) to repair or replace any part so that the pair or set is restored to its value before the loss occurred or (2) to pay the difference in actual cash value of the property before and after the loss

Mortgage clause (515)

this provision, if the mortgagee is named in the policy, the mortgagee is entitled to receive a loss payment from the insurer to the extent of its interest, regardless of any policy viola- tion by the insured. For example, if Troy intentionally sets fire to his house, the loss is not covered because the fire is intentional. However, the mortgagee's insur- able interest in the property is still protected.

Duties After an Occurence

written notice of the event must be provided to the insurer, including the time, place, circumstances, and names of any claimants and witnesses -statement written and notarized the injured person (or their rep) must provide written proof of claim and authorize the insurer to obtain copies of medical records - prove your injured