Property-Insurance Terms & Related Concepts

Accident

Sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended.

Cancellation

Termination of an in-force insurance policy by either insured or insurer, prior to expiration date of policy. Maybe voluntary or involuntary.

Non-renewal

Termination of insurance policy at its expiration date by not offering a continuation of the existing policy or replacement policy.

Insurance

The TRANSFER of financial responsibility associated with a potential of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

ACV

= Currenct replacement cost - Depreciation

3 Types of Liability

1. Absolute 2. Strict 3. Vicarious

2 Types of Property Losses (Individual or businesses exposed to)

1. Direct 2. Indirect

3 Elements of Insurable Risk

1. Financial-a monetary interest 2. Blood-a relative 3. Business-busines partner

Peril Examples

1. Life insurance-insures against financial loss caused by premature death of insured. 2. Health insurance-insures against medical expenses and/or loss of income caused by insured sickness or accidental injury. 3. Property insurance-insures against the loss of physical property or the loss of its income producing abilities. 4. Casualty insurance-insures against the loss and/or damage of property and resulting liabilities.

2 Types of Perils

1. Named 2. Open

Negligence

Failure to use the care that a reasonable, prudent person would have taken under the same similar circumstances.

Components of Limited Liablity

1. Per occurence (accident) 2. Per person 3. Aggregate 4. Split 5. Combined single

3 Classifications of Hazards

1. Physical 2. Moral 3. Morale

2 Types of Risk

1. Pure 2. Speculative

Per Occurence (Accident)

A "sub-limit" in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurence.

Indirect Loss

Also called consequential loss. Considered a result of direct loss and often added to property insurance policies.

Proximate Cause

An act or event considered a natural and reasonably foreseeable cause of the damage or event which occurs and damages property or injures a plaintiff.

Perils

Are the causes of loss insured against in an insurance policy.

Coinsurance

Clause states that in consideration of a reduced rate, the insured agrees to maintain a certain amount of insurance on the insured property. Encourages the insured to insure the property closer to full value. REQUIRED PERCENTAGE BY THE INSURER.

Strict Liability

Commonly applied to product liability cases. 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. If claimant can prove defect, the defendant is "strictly liable" for the damage.

Indemnify

Compensate (someone) for harm or loss: "insurance carried to indemnify the owner for loss".

Hazards

Conditions or situations that increase the probability or chance of an insured loss occurring. Ex. slippery floors, congested traffic.

Insurance

Contract in which one party agrees to indemnify the other party against loss, damage, or liability arising from an unknown event.

Replacement Cost

Cost to replace damaged property with like kind and quality at today's price, WITHOUT deduction for depreciation.

Open Peril

Describes the breadth of coverage provided under an insurance policy form that insures against any risk of loss that is not specifically excluded. <<all risks>>

Named Peril

Describes the breadth of coverage provided under an insurance policy form which <<lists specific covered perils>>. No coverage provided for unlisted perils.

Deductible

Dollar amount an insured must pay on a claim before the insurance policy provides coverage.

Absolute Liability

Imposed on defendants engaged in hazardous activity. Does not need to prove negligence. Ex. fireworks place.

Occurence

Includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended or expected. Ex. Air pollution in 911

Proximate Cause of Loss Example

Insured building catches fire and when firefighters put out with water, the wall and floors get damaged. Although water damage is not an <<insured peril>>, the damage is paid under the peril of fire because fire was the "proximate cause".

Unoccupancy

Insured structure in which no one has been living or working within a required period of time but some property is stored. Ex. snowbirds.

Vacancy

Insured structure where no one has been living or working, or and no property has been stored for a period of time. (usually 60)

Limits of Liablity

Insurer's liability for payment as stated in an insurance policy.

Speculative Risk

Involves the opportunity for either loss or gain. Not insurable. Ex. gambling or investing.

Vicarious Liability

Master was liable for the acts of servants. Purpose is to transfer the liability for one person to another person who would probably have a greater ability to pay. Ex. parents maybe held "vicariously liable" for negligent acts of children.

Per Person

Maximum dollar amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims.

Aggregate Limit

Maximum limit of coverage available under a liability policy during a policy year regardless of number of claims that maybe made or the number of accidents that may occur. Losses paid under coverages subject to aggregate limits reduce the amount available for future.

Direct Loss

Means direct, physical damage to buildings and/or personal property. Property Insurance ONLY covers DIRECT losses. May include other damage where the insured peril was the PROXIMATE CAUSE OF LOSS.

Insurable Interest Example

Mortgages and leaseholders may have an insurable interest in the property.

Coinsurance Example

Partial loss-if insured maintained the required percentage of insurance with relation to the value of the property, the insurer will pay the partial loss in full. If less than required percentage, the insurer will only pay that percent of the loss that the insurance bears to the amount of insurance it should have been carried. Total loss-the coinsurance clause does not operate, face amount of policy is paid.

Insurance To Value

Provision usually found in homeowners policies, which means that the property is insured to the exact dollar amount or percentage of value.

Morale Hazards

Refers to an increase in the hazard presented by a risk, arising from the insured indifference to loss because of the existence of insurance. Ex. "I'm not going to fix, if it breaks, my insurance will pay for it."

Pure Risk

Refers to situations that can only result in a loss or no change. No opportunity for financial gain. Only type of which is insurable.

Moral Hazards

Refers to those applicants that may lie on an application for insurance, or in past have submitted fraudulent claims against insurer.

ACV or Actual Cash Value

Reinforces the principle of indemnity because it recognizes the reduction of property as it ages and becomes subject to wear and tear and obsolence.

When are aggregate limits restored?

Restored at the anniversary of policy.

Split

Separately stated limits of liability for different coverages. Maybe stated on a per person, per occurence, per policy basis or can be split between bodily injury and property damage. Ex split limits such as 25/50/25-policy would pay up to $25k for the injury of a single person, up to 50k for bodily injury of 2 or more people (but no more than 25k to any one person), up to 25k for damage to property of others.

Combined Single

Single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurence. Limit may be used in any combination of amounts, not to exceed the single limit.

Indemnity

Sometimes referred to as <<reimbursement>>. A provision in an insurance policy that states in the event of loss, an insured is permitted to collect only to the extent of his/her financial loss and is NOT allowed to gain financially because of the existence of an insurance contract.

Insurable Interest

The insured must have an insurable interest in the person or property covered by an insurance policy. In property insurance, the insured would incur a financial loss if the insured property was damaged. Maybe created by the ownership, custody, or control of a property. Must be demonstrated when policy is issued and always exists at the time of loss.

Risk

The uncertainty or chance of a loss occurring.

Physical Hazards

Those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it. Ex. Faulty wiring

Indemnity Purpose

To RESTORE but NOT PROFIT from loss.