Property and Casualty Insurance Policy Conditions

personal and advertising injury

(1) A standard coverage (B) of the 1986 and later commercial general liability forms. (2) A defined term in the standard CGL, it combines elements of the earlier separate categories of "PI" and "advertising injury".

mortgagee

A ____ is a financial institution that lends money to a borrower to purchase a home or other real estate. The mortgaged property serves as collateral that secures the loan.

per person limit

A ____ is the maximum amount the insurer will pay for one person's injuries.

deductible

A ____ is the up-front part of a covered loss that the insurer does not pay.

per occurrence limitation of liability

A ____ provision establishes the maximum amount the insurer will pay for all claims resulting from a single occurrence, no matter how many people are injured, how much property is damaged, or how many different claimants may make claims.

$88,389

A building has an ACV of $1 million and is insured under a property policy with a $500 deductible and a 90 percent coinsurance clause, (i.e., its minimum required limit of insurance is $900,000). In this case, assume the policy's actual limit of insurance is $800,000, which is less than the required limit. If a $100,000 loss occurs, the insured's recovery will be reduced by the ratio of the actual limit over the required limit, calculated as follows:

abandonment

A clause in property insurance polices prohibiting the insured from abandoning damaged property to the insurer for repair or disposal.

bailee, dry cleaner

A dry cleaner is a ____. As such, the dry cleaner has possession of a customer's clothes, but it does not own them. The ____, not the clothing owner's insurance company, is responsible for covering any loss or damage to clothes that are at the cleaner.

inland marine coverage

A group of property insurance coverages designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured at a standard rate under a standard form.

sublimit

A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss.

mortgage clause, loss payee

A loss payable clause usually is not as broad as the ____ and does not give the ____ any rights other than a right to share in a claim settlement.

loss payee

A person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has an interest.

bailees

A person or organization to which possession of the property of others has been entrusted, usually for storage, repair, or servicing.

excess coverage

A policy providing ____ pays amounts that not covered by another policy's primary coverage.

primary coverage

A policy that provides ____ comes first; it pays before other applicable coverages until its limits are exhausted.

mortgage clause

A property insurance provision granting special protection for the interest of a mortgagee named in the policy, in effect setting up a separate contract between the insurer and mortgagee.

coinsurance

A property insurance provision that penalizes the insured's loss recovery if the limit of insurance by the insured is not at least equal to a specified percentage (commonly 80%) of the value of the insured property.

liberalization clause

A provision that extends to persons already insured under a particular policy, the broadened coverage features that may be introduced in subsequent editions of that policy form.

commercial general liability

A standard insurance policy issued to business organizations to protect them against liability claims.

assignment

A transfer of legal rights under, or interest in, an insurance policy to another party.

assignment provision

A typical ____ states that any assignment of the policy will be invalid unless the insurer provides its written consent, which rarely happens.

territory provision

A typical coverage ____ specifies that coverage applies only to losses within the United States and its possessions, Puerto Rico, and Canada. (Coverage in Mexico typically requires an endorsement.)

bailees

All the following parties are covered under a property and casualty insurance policy EXCEPT:

subrogation

Amie thought she was correctly following the cooking instructions when she put a frozen turkey into the turkey fryer, but the resulting fire destroyed her neighbor's wooden deck. After paying for the deck, the neighbor's insurer attempts to recover from Amie by exercising its right of:

insurable interest

An insurance policyowner's financial interest in the person or property being insured.

loss payable clause

An insurance provision authorizing payment in the event of loss to a person or entity other than the named insured having an insurable interest in the covered property.

Hire a private detective to investigate the burglary.

Arturo's business has been burglarized. Which of the following is NOT a duty that is required of Aurelio by his insurance policy?

assigned

As a general rule, ownership of a property or casualty policy cannot be ____ to another party, even if that party buys the insured property from the current policyholder.

split limits

Auto insurance policies typically use the ____ approach, which combines the per person and the per occurrence approach.

$50,000

Because he was watching his GPS instead of watching his driving, Gerry's car rear-ended the vehicle in front of him. It will cost $15,000 to repair that vehicle, and the two injured occupants of that vehicle are each awarded $30,000 in damages. Gerry's auto policy has combined single limits of $50,000. How much will his insurer pay?

$55,000

Britney is responsible for an auto accident involving another car which will cost $15,000 to repair and for which the two injured occupants of that vehicle were awarded damages in the amounts of $30,000 and $20,000, respectively. Britney's split-limits policy has liability limits of $25/$50/$10. How much will her insurer pay?

notify insurer of loss notify police if theft or law violation protect property from further harm cooperate with insurer sworn proof of loss within 60 days of insurer's request

Conditions after loss for insured:

salvage subrogation appraisal

Conditions after loss for insurer:

They encourage insureds to exercise care (e.g., reduce hazards) by making them share in losses. They help keep premiums low by not covering small losses while protecting the insured against larger ones.

Deductibles serve two purposes:

restoration of limits

Depending on the exact type of provision, the ____ provision restores either the full or reduced policy limits after payment of a loss.

products-completed operations limit

Encompasses liability arising out of the insured's products or business operations conducted away from the insured's premises once those operations have been completed or abandoned.

1986 "comprehensive" general liability

GCL Insurance founded in ____ to replace ____.

Contribution by Equal Shares

If Policy A provides $100,000 of coverage and Policy B provides $50,000 of coverage, both policies will pay $37,500 for a $75,000 loss.

Pro Rata

If Policy A provides $100,000 of primary coverage and Policy B provides $50,000 of primary coverage, the first policy will pay two-thirds of any loss. For a $75,000 loss, Policy A will pay $50,000, and Policy B will pay $25,000.

coinsurance penalty

If the actual limit of insurance is less than the required limit, the insured will not collect the full amount on a loss. The difference is called the ____.

nonconcurrent

If two or more policies covering the same loss exposure do not have identical policy periods, they are said to be ____.

$50,000, $25,000, $50,000

If two people are injured in an auto accident, and the at-fault driver's policy has a $50,000 per person limit, the insurer will pay no more than ____ to each person. If one person incurs $25,000 in injuries, and the other person's injuries cost $75,000, the first claimant will receive ____, and the second will receive the per person maximum of ____.

each occurrence

In a CGL policy, this limit is the most the insurer will pay for the total of all claims incurred as a result of any one "occurrence."

the maximum sum the insurer will pay to all injured persons

In an auto policy that has split limits of 50/100/75, what does the "100" represent?

the maximum amount the insurer will pay for damage to other cars or property

In an auto policy that has split limits of 50/100/75, what does the "75" represent?

territory provision

Insurance policies usually include a policy ____ that indicates where coverage applies.

liberalization clause

Insurers often revise their standard policy forms to deal with court decisions, new exposures, or a need to clarify the insurer's intentions. If the change expands coverage, a policy's ____ applies these changes to the policy when it is renewed.

$125,000, $40,000

Jim's auto policy has split limits of $50,000/$100,000/$50,000 (referred to as 50/100/50 limits). Jim causes an auto accident involving two other vehicles, and each car's driver is injured: the first person's bodily injury is valued at $25,000 the second person's bodily injury is valued at $75,000 the two cars' damages are valued at $65,000 The first injured claimant will receive $25,000. The second will receive $50,000, because of the $50,000 per person limit. The insurer will pay a total of $75,000 for bodily injury, which is less than the $100,000 maximum per occurrence limit. The insurer will pay $50,000 (the third limit) for the damage to other vehicles. Damages total $165,000, but Jim's insurer is obligated to pay only ____. Jim is responsible for paying the remaining ____ from his own resources.

less than $20,000

Martha's home has an insurable value of $500,000, which she has insured for $300,000 under a property insurance policy with an 80 percent coinsurance clause. Ignoring any deductible that might apply, if the building sustains $20,000 in damage due to a covered peril, how much will the insurer pay?

Primary and Excess

Policy A provides $100,000 of primary coverage and Policy B provides $50,000 of excess coverage. If a $75,000 loss occurs, Policy A will pay the entire $75,000 loss. If the loss exceeds $100,000, Policy B is responsible for paying the excess above $100,000.

who is entitled to coverage, and when and where coverage applies how and when different policy limits and related provisions apply the insured's and the insurer's duties after a loss occurs how claims will be paid

Policy conditions set forth the rules that determine what is required to qualify for coverage by describing: (4)

salvage

Property after it has been partially damaged by an insured peril such as fire.

policy period

Property and casualty insurance policies provide coverage only during a specific time period, known as the ____.

policy period

Property insurance policies only cover losses that occur during the ____.

all claims during the one-year policy period

Randi's professional liability policy has a one-year term and a $500,000 aggregate limit. This means that the insurer will pay no more than $500,000 for:

loss payee

Secured loans finance the purchase of autos and other personal property. As a secured creditor with an insurable interest in the personal property, the lending institution will want to be listed as a ____ in the property owner's policy.

policy limits and any sublimits deductibles coinsurance provisions restoration of limits provisions

Several provisions in a property insurance policy affect the amount the insurer must pay for a covered loss. These include: (4)

contribution by equal shares

Some liability policies provide for ____ when there are two policies covering the same loss. In this case, both policies split the loss equally. If one policy exhausts its limits, the other policy pays the remaining loss until its limits are exhausted. Example

loss payable

The ____ clause ensures that the loss payee will be included in any claim payment.

declarations

The ____ indicate the date and time when coverage begins (inception date) and ends (expiration date).

combined single

The ____ limits approach simply states a single dollar limit that applies to any combination of bodily injury and property damage liability claims.

coinsurance

The ____ provision encourages policyholders to purchase policy limits that adequately reflect the insurable value of their property. It does this by reducing the amount that an insurer will pay for a covered loss if property is underinsured.

no benefit to bailee

The ____ provision makes it clear that there is no coverage for outside parties who are bailees.

subrogation

The assignment to an insurer by terms of the policy or by law, after payment of a loss, of the rights of the insured to recover the amount of the loss from one legally liable for it.

actual cash value (ACV)

The coinsurance provision requires the insured to buy a limit of insurance at least equal to a specified percentage (e.g., 80 or 90 percent) of the ____ of the covered property.

per person per occurrence per occurrence to property damage

The first limit is a ____ limit. The second limit is a ____ limit The third limit is a per occurrence limit that applies to ____ claims

general aggregate limit

The maximum limit of insurance payable during any given annual policy period for all losses other than those arising from the products and completed operations hazards.

not responsible

The no benefit to bailee provision in a property owner's property insurance policy clarifies that the insurer is ____ for covering property under the care of a bailee.

first named insured, named insured(s), additional insureds, and secured creditors

The parties protected by a property or casualty insurance policy include the ____.

set of master conditions

The policy may also contain a ____ that apply to all coverages.

policy conditions

The section of an insurance policy that identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuations, other insurance, subrogation rights, and cancellation and nonrenewal.

ensuring that the mortgagee is paid if the mortgaged property suffers a loss continuing coverage for the benefit of the mortgagee if the policy is voided by some act of the insured providing the mortgagee with advance written notice of policy cancellation

The standard mortgage (mortgagee) clause in a property insurance policy gives certain rights to the mortgagee, including:

secured creditors, such as mortgage lenders

Those protected by a property or casualty insurance policy include not only insureds (first named insured, named insured(s), and additional insureds) but also ____.

salvage

To save endangered property and to protect damaged property from further loss.

loss payable clause

Under a typical _____, the insurer is under no obligation to make payment to the loss payee if payment for a loss can be denied to the insured.

limit of insurance

Usually based on the amount requested by the applicant, the policy limit should reflect the insurable value of the covered property, whether based on its replacement cost, actual cash value, or other valuation basis.

is entitled to advance written notice of any policy cancellation

When a bank is named as a mortgagee in a customer's homeowners insurance policy, the bank:

set of conditions

When a policy contains more than one coverage (e.g., separate property and liability coverage sections), each coverage may have its own ____.

concurrent

When two or more insurance policies cover the same loss exposure, they should be ____—that is, they should have the same inception and expiration dates.

pro rata (i.e., in proportion to their limits).

When two or more policies provide primary coverage, they will cover the loss on a ____ basis.

assignment provision

Which of the following policy provisions generally prohibits the transfer of property and casualty insurance policy ownership from one person to another?

six-month

While one-year policy periods are common with homeowner and commercial policies, auto policies typically have a ____ policy period:

try to settle the claim on his own

While working at his service station, Bert mistakenly fueled a customer's truck with gasoline rather than diesel fuel, damaging the truck's engine. In responding to the trucker's liability claim for damages, Bert's insurance policy requires him to perform all the following duties EXCEPT:

Policy provisions

____ describe when, how, and by whom the insurance contract may be canceled and for what reasons.

Cancellation

____ terminates a policy before its normal expiration date.

Policy conditions

_____ set forth the rules that determine what is required to qualify for coverage.

damage to premises you rented

applies to damage by fire to premises rented to the insured and to damage regardless of cause to premises occupied by the insured for 7 days or less.

appraisal clause

applies when the insurer and the insured agree that covered property has been damaged by a covered cause but do not agree on the damaged property's value. In this situation, the insured and the insurer each choose an appraiser, and the two appraisers select an appraiser umpire.

sublimit

apply to specific types of property, such as money, jewelry, or trees.

other insurance

clause that explains how the insurer will handle a situation in which other insurance covers the same loss.

( amount or loss x limit of insurance / limits of insurance required ) - deductible = loss recovery

loss recovery will be limited to the ratio of the actual limit to the required limit, per the following formula:

subrogation

refers to the insurer's right to recover its claim payment from the party that was responsible for the loss.

Policy conditions

set forth the rules that determine what is required to qualify for coverage by describing:

limit of insurance or limit of liability

the maximum amount an insurer will pay for a covered loss.

constructive total loss

when a covered auto is so badly damaged that it would cost more to repair the auto than to buy a similar one, the auto is considered a ____.