Property WEBCE
Misrepresentation
a false statement of a material fact. For example, an auto insurance applicant might say he has a clean driving record when, in fact, he has had three speeding tickets within the past two years. If discovered by the insurer at any time, a misrepresentation is grounds to void the contract.
Indirect loss
a more remote ramification than a direct loss, but is still a result of loss from a covered peril (additional costs that follows after the direct loss)
Personal contract
An insurer agrees to financially protect the person who owns the building, not the covered building. In deciding whether to accept an application for property insurance, the insurer evaluates the applicant as well as the property to be covered. (Because the contract between the insurer and the policyowner is personal, a property and casualty insurance policy cannot be transferred to a third party without the insurer's consent.)
Alien company
A company that is incorporated in a country other than the United States but is doing business in the states
personal property
-certainly includes an insured building's contents (including appliances), it includes items that can be transported in and out of the building as well as unattached items on the land. -Jewelry worn by the insured outside the home, cameras brought on vacations, and outdoor patio furniture are examples of insurable personal property not contained in a building.
Cease and desist
-conducting its business in a manner that threatens to make it insolvent or that is hazardous to its policyholders, creditors, or the general public -engaging in an act or practice that might make the insurer subject to conservation or liquidation proceedings or -operating in a manner that could result in irreparable loss and injury to the insurer, insureds, or the general public
Types of insurable property
-real property, which includes land and the buildings and other items (e.g., trees, shrubs and patios) attached to it -personal property, which is any tangible item other than real property
How many hours of continuing education courses must a producer complete every two years?
24 hours
How many days does a Maryland producer have to notify the Insurance Administration of an address change?
30 Days
Express Authority
As expressly written in her agent agreement with the insurer, Mary executed the sale of a property insurance policy by meeting with a prospective client, reviewing his coverage needs, recommending a property insurance product, and assisting him in completing and signing an application.
exclusive agents
Captive agents, which include direct writers, represent a single insurer (one insurance company)
Risk
Chance of loss
Concealment
Concealment is the deliberate withholding of material facts. If the concealed facts would have changed the insurer's decision to offer the insurance policy, then the insurer has grounds to void the insurance contract if the failure to disclose information was intentional.
Reasonable Expectations
If a court finds that the policyholder had reasonable expectations of coverage, it may require the insurer to provide coverage even if the policy wording says something different
Reinsurance Companies
Insurers (ceding company) transfer of risk to other insurers (reinsurance insurer), when the policy is large
implied authority
Prior to meeting with the prospective customer, Mary mailed him some insurer-approved promotional material and called him to request and schedule a meeting. Though these actions are not expressly listed in her agreement, the authority to do them is implied as a normal part of a producer's job.
Insurable risk
Not all pure risks are insurable (a covered loss must be definite as to time, cause and location. It must be clear that a covered loss has occurred. The value of the item must be measurable. Only losses due to chance are insurable. Losses due to catastrophic events such as earthquake impacting many policyowners at once.)
Fraternal Benefit Societies
Organizations of people who share a common ethnic, religious, or vocational affiliation. They may provide insurance to their members through fraternal insurers whose insureds are usually restricted to members of the society.
Association Captives
Owned by and cover the risks of a group of organizations
apparent authority
Six months after the policy was issued, the client misses a premium payment by the end of the premium grace period. Although the insurer has strict rules against it, Mary accepts the late payment and tells him the policy will not lapse. She mails the check to the insurer, who processes it several days later instead of lapsing the policy.
Federal Government Insurance
Social Security Insurance, Medicare, National Flood Insurance, Crop Insurance, Federal Deposit Insurance Corp
masonry noncombustible
The exterior walls are constructed of masonry materials, and the floors and roof are constructed of metal or other noncombustible products.
fire resistive
The exterior walls, floors, and roof are constructed of other fire-resistive materials, such as steel.
noncombustible
The exterior walls, floors, and roof are constructed of, and supported by, metal, cement, or other noncombustible materials.
Key Point
With property and casualty insurance, the insured is not necessarily required to pay the insurer immediately. However, the insurance contract is still enforceable if there is a clearly implied promise by the applicant to pay the premium. If an applicant then fails to make the initial premium payment when it is due, the insurer can cancel the policy for nonpayment of premium.
State Government Insurance
Workers comp., unemployment, state-run automobile insurance (high-risk drivers unable to obtain insurance rom commercial insurers)
Admitted Insurer
a company licensed to do business in the state or country in which it writes applications
Legal Purpose
a contract to insure an international shipment of stolen firearms is not a
Aleatory contract**
a contract where the values exchanged may not be equal but depend on an uncertain event
Physical hazard
a physical condition that increases the chance of loss (Example. Diseases)
To be insurable
a risk must be definable, measurable, beyond the insured's control, common to a large group of people, and not catastrophic
Nonadmitted Insurer
an insurance company that is not licensed to do business in a certain state but is authorized to sell surplus lines insurance there.
Elements of a Legal Contract
an offer, acceptance of an offer, considerations by both parties, competent parties, legal purpose
Producers responsibilities
disclosing all pertinent information concerning a proposed policy, not misrepresenting the terms or conditions of a proposed policy, making suitable recommendations that fit the customer's needs and circumstances, submitting applications only to financially sound, solvent insurance companies, applying for and delivering the policy that the applicant intended
Reciprocal Insurer
an unincorporated group of members that insure each other by exchanging contracts of indemnity that obligate them to collectively pay any member's covered loss. Essentially a form of self-insurance that prefunds coverage of future losses through the member's premium deposits.
Pure Risk
are insurable, not speculative like gambling
Stock Insurance Company
are owned by stockholders who purchase shares of stock as investment
Mutual Insurance Companies
are owned by their policyholders. Rather than issuing shares of stock, mutual companies issue participating policies which distribute the company's surplus "profit" to policyowners in the form of policy dividends.
5 risk management techniques
avoiding (not owning a car that can be stolen), reducing (having fire extinguishers), sharing (groups share the loss "if their ship is pirated"), retaining (deductibles shift small losses), transferring (shifted to insurance policy)
Self-Insurers
businesses that are financially able to self fund certain risks
Peril
cause of a loss (destructive event that insurance guards against example. fire)
Captive Insurance Company
company designed to cover the risks of the "parent" organizations that own it
Hazard
condition that increases the chance of peril occurring
Implied authority
consists of actions that extend beyond what is explicitly provided in the agency agreement but are necessary to carry out the duties expected of the producer
Insurance contracts
contracts of adhesion, aleatory, personal, unilateral, conditional
Ambiguities in a Contract of Adhesion
courts generally interpret any ambiguities in the contract in a way that favors the policyholder, not the insurer
common-law rules of agency
define basic riles that govern the relationship between an agent and principal
Underwriting
determines whether a particular risk can be insured and at which rate.
Unauthorized insurer
different from nonadmitted insurers, is any organization that presents its products as "insurance" although neither it nor its products have been approved by any department of insurance in the jurisdiction where it operates (in short its fake insurance)
Express authority
explicitly stated in the insurer's agency agreement which sets forth the activities the producer is expressly authorized to perform in the course of their job
Producers operate 3 levels
express, implied, and apparent. Actions taken within the scope of these 3 levels of authority will commit the insurer
Risk Retention Group (RRG)
form of captive insurance company that provides their members with coverage except for workers compensation. Members must share a common business, occupational, or professional relationship.
Lloyd's Association
group of individuals who share the risk and the exposure - known for insuring unusual risks
Warranty
guarantees that something is true and will remain true. For example, a jewelry store owner might warrant that a burglar alarm system will always be in operation. The insurer may deny paying a claim if the alarm system is not in operating condition when a burglary takes place.
Direct loss
immediate result of an event caused by a covered peril (costs affected directly)
Foreign company
in every state outside of its state of domicile.
Domestic company
in the state where it is headquartered
Brokers
independent contractors who represent the insurance applicant or policyholder and typically sell products from more than one insurer
Morale hazard
individual tendency, but arise from state of mind, attitude, or indifference to loss (Example. not locking car or reckless driving)
Producers
insurance agents and brokers collectively, they generate business for insurance companies through their sales activities
uberrimae fidei contracts or utmost good faith
insurance contracts are considered this between both parties, failure to disclose info usually gives the other party the right to void the contract
Errors and Omissions Insurance (O&E)
insurance producers can buy E&O insurance that protects them from liability that arises from professional services a producers renders or fails to render
The Producer
is an agent of the insurance company he or she represents
functional replacement cost
is the amount it would cost to repair or replace a damaged building with common (and less costly) construction materials and methods that are functionally equivalent to the obsolete, antique, or custom construction materials and methods originally used.
The Principal
is the party on whose behalf the agent acts
The Insurance Company
is the principal on whose behalf the producer works
Valued contract
life insurance policies, some property and contracts use value approach (they agree on item's value before loss occurs), typically difficult to determine an item's value
Law of Large Numbers***
makes it possible for insurance company actuaries to predict losses among a group of similar risks, as long as there are a sufficiently large number of risks to observe
Estoppel
means that a party that waives its right to enforce a certain contract provision cannot subsequently enforce that right. (By waiving its right to cancel the policy for nonpayment of premiums by the renewal date, the insurer is estopped from exercising that right in the future if the policyholder pays a late premium.)
Contacts of adhesion
means the insured must accept the entire contract, with all of its terms and conditions
Conditional Contract
means the insurer's promise to pay benefits is conditional on specified events occurring, including: making premium payments when due, reporting losses promptly, cooperating with the insurer in settling any loss
legally competent parties
mentally sound, not under the influence, of legal age (some states permit minors over a certain age to enter a contract for auto, life, and health)
Purchasing groups
must have similar businesses or activities and purpose of group must be to purchase liability insurance on a group basis; risk bearer
waiver
occurs when a party to a contract gives up a right that it knows it holds, either through its actions or failure to enforce the right.
Managing Risk
one way is to transfer it commonly done by purchasing insurance
Unilateral Contract
only one party makes an enforceable promise. With an insurance policy, only the insurer makes a promise that can be enforced. It promises to pay benefits if an insured loss occurs. Of course, policyholders must pay premiums to keep their policies in force, but there is no legally enforceable obligation to do so. They may stop paying premiums at will, though doing so will result in lapse of the policy.
All insurance producers
operate under a contractual agency agreement with their insurers
Single Owner Captives
owned by a single company for which they provide insurance
promisor
party making a promise
promisee
party to whom the promise is made
Surplus lines broker
places excess and surplus lines insurance coverage with nonadmitted insurers. Usually deal with the applicant's broker or agent and not directly with the insurance buyer.
Appointment
refers to an agreement between a producer and an insurer by which the producer, for compensation, may sell, solicit, or negotiate policies issued by the insurer.
Exclusive agents
represent a single insurance company or in some cases a group of insurance companies under similar management to sell insurance
independent agents
represent multiple insurers (generally represents multiple insurers) (also called brokers)
Types of insurance
risk, loss, exposure, peril, hazard (maybe need to know)
Broad Evidence Rule
rule of valuation that deviates from the principle that the traditional measure of actual cash value (ACV) (replacement cost less depreciation) is the sole measure of value at the time of loss.
Insurance underwriters
seek to avoid adverse selection, which occurs when someone who is a high risk tries to buy or maintain insurance
Direct marketing system
sell insurance directly to consumers through their employees
Independent Agents
sell insurance on a commission or fee basis for one or more insurance companies (they retain ownership, use, and control of policy records)
Exposure
state of being subject to a possible loss (more exposure greater the premium)
Adverse selection
tendency of those at greater-than-average risk of loss to seek insurance.
Moral hazard
tendency or trait of an individual that increase the chance of a loss (Example. Smoking)
Rescission
the act of declaring that an insurance policy was never in effect. An insurance company that rescinds a policy states that it provides no coverage for a claim.
Apparent authority
the agent's agreement does not provide, the insurer does not intend, appears to be granted by the insurer based on the producer's statements and the actions (or inactions) of the insurer
Typical sales transaction
the applicant is the offeror who makes an offer to the insurance company (offeree) through a signed application plus the initial premium
Fraud
the deliberate act to deceive with the intent to gain something of value. Fraud is often an act of concealment or misrepresentation. An insurer may void a contract if, for example, an applicant has committed fraud in procuring the policy or a policyholder provides false or misleading information in connection with a loss.
Loss
unwelcomed and unplanned reduction in economic value
Excess lines or Surplus lines insurance
when a consumer is legally permitted to buy property and liability insurance from a nonadmitted insurer when that type of coverage is not available from an admitted insurer in the consumer's state.
Indemnity contract
when a covered loss occurs, the benefit payable is related to the amount of the loss. The benefit cannot exceed the lesser of: the value of the loss or the maximum benefit limit specified in the policy
consequential loss
which refers to losses related to equipment failure, such as food that spoils because a refrigeration system is out of operation.
