RMI 3011 Exam 2 Keith Jones

What is a Financial Responsibility Law?

Requires motorists to furnish proof of financial responsibility up to certain minimum dollar limits.

What is Primary and Excess Insurance?

Requires the primary insurer to pay first in the case of a loss; when the policy limits under the primary policy are exhausted, the second insurer pays the excess.

What is the "No Pay, No Play" Law?

Restricts uninsured motorists from suing negligent drivers for noneconomic damages.

What is Representation?

Statements made by the applicant for insurance to induce the insurer to enter an insurance contract.

What is a Declaration in an insurance contract?

Statements that provide information about the particular property or activity to be insured.

What is the Principle of Subrogation?

Substitution of the insurer in place of the insured for the purpose of claiming indemnity from a third party for a loss covered by insurance.

What is an Insuring Agreement in an insurance contract?

Summarizes the major promises of the insurer.

What is a Supplementary Payment?

The amount paid in addition to judgements, settlements, and legal defense costs (duty to defend).

How do you calculate Coinsurance?

(Did/Should) * Loss = Amount Paid

What vehicles are considered eligible under the Personal Auto Policy?

- A four-wheeled motor vehicle owned or leased by the insured for at least 6 consecutive months. - A pickup or van with a gross vehicle weight rating of 10,000 pounds or less.

What four groups of vehicles are considered to be uninsured vehicles? (this mf is also important)

- A motor vehicle or trailer for which no bodily injury liability insurance policy applies at the time of the accident. - An insured vehicle with less coverage than the amount required by the state's financial responsibility law. - A hit-and-run vehicle. - A vehicle covered by an insurer that denies coverage or becomes insolvent.

What are the deductibles in property insurance?

- Aggregate vs. Per Occurrence - Wind/Hail vs. AOP or Hurricane vs. AOP (ONE OR THE OTHER)

What are the distinct characteristics of Insurance Contracts? (He said this mf important)

- Aleatory Contract - Contract where the values exchanged may not be equal but depend on an uncertain event. - Unilateral Contract - Only one party makes a legally enforceable promise. - Personal Contract - The contract is between the insured and the insurer. - Conditional Contract - The insurer's obligation to pay a claim depends on whether the insured or the beneficiary has complied with all policy conditions. - Contract of Adhesion - The insured must accept the entire contract, with all its terms and conditions.

What autos are covered by the Personal Auto Policy?

- Any auto shown in the declarations page. - A newly acquired auto. - A trailer owned by the named insured. - A temporary substitute vehicle, which is a non-owned auto or trailer used temporarily because of mechanical breakdown, repair, servicing, loss, or destruction of a covered vehicle.

What are the deductibles in health insurance?

- Calendar-Year - Elimination (Waiting) Period

What are some tips for purchasing Auto Insurance?

- Carry adequate liability insurance. - Carry higher deductibles. - Drop collision insurance on older vehicles. - Shop around for auto insurance. - Take advantage of discounts. - Improve your driving record. - Maintain good credit.

What is Part D of the Personal Auto Policy?

- Coverage for Damage to your Auto (physical damage). - The insurer agrees to pay for any direct and accidental loss to a covered auto or any non-owned auto.

What are the components of Coinsurance?

- Did = Amount of Insurance Carried. - Should = Amount of Insurance Required (Coinsurance Percentage x Insurable Value). If not stated always 80%. - Loss = Loss Sustained.

What are the exclusions of a Miscellaneous-Type Vehicle Endorsement?

- Does not cover snowmobiles. - The liability coverage does not apply to a nonowned vehicle. - A passenger hazard exclusion can be elected, which excludes liability for bodily injury to any passenger on a motorcycle.

What is the purpose of deductibles?

- Eliminate small claims. - Reduce premiums. - Reduce moral/morale hazards.

What are major changes that have been made to the Personal Auto Policy?

- Exclusions for car sharing. - Using the auto as part of a Transportation Network Companies TNC (platform), such as Uber or Lyft.

What are the exclusions to Liability Coverage?

- Intentional injury or damage. - Property owned or transported. - Property rented, used, or in the insured's care. - Bodily injury to an employee. - Use as a public or livery conveyance (transportation network company). - Using a vehicle without reasonable belief the person is entitled to do so. - Vehicle covered under special nuclear energy contracts. - Vehicle with fewer than four wheels. - Vehicle furnished for the insured's regular use. - Vehicle owned by, furnished, or made available for the regular use of any family member (kid's cars). - Racing vehicle.

What is Part A of the Personal Auto Policy?

- Liability Coverage is the most important part of the PAP. - Protects a covered person against a suit or claim arising out of the ownership or operation of a covered vehicle. - Usually written in split limits, but can also be written in a single limit.

What is Part B of the Personal Auto Policy?

- Medical Payments (accident insurance). - Coverage will pay all reasonable medical/funeral expenses incurred by an insured for services rendered within three years from the data of the accident (coverage not based on fault).

What are the requirements of an Enforceable Contract?

- Offer and Acceptance - Applicant for insurance makes the offer. - Exchange of Consideration - The value that each party in a contract gives to the other. - Competent Parties - The parties must have legal capacity to enter into a binding contract. - Legal Purpose - Contract that is legal and enforceable only if it complies with the law and public policy. A contract entered for an illegal purpose is not binding. - Legal Form - Written document is not always required.

What are the reasons why an insurance contract must be supported by an insurable interest?

- Prevent gambling. - Reduce moral hazard. - Measure the amount of the insured's loss in property insurance.

What are the three basic purposes of Subrogation?

- Prevents the insured from collecting twice for the same loss. - Used to hold the negligent person responsible for the loss. - Helps to hold down insurance rates.

What is a Rider in life/health insurance?

- Provision that amends or changes the original policy. - Purpose is to increase, decrease, and add coverage.

What is the purpose of Coinsurance in health insurance?

- Reduce premiums. - Prevent overutilization of policy benefits.

What are the methods used by courts to determine actual cash value?

- Replacement Cost Less Depreciation - Fair Market Value - Broad Evidence Rule

What are Warranties?

- Statement that becomes part of the insurance contract and is guaranteed by the maker to be true in all respects. - Any breach of the warranty, even if minor or not material, allowed the insurer to deny payment of a claim.

What is the Principle of Insurable Interest?

- States that the insured must be in a position to lose financially if a covered loss occurs. - Ex. You have an insurable interest in your car because you may lose financially if the car is damaged or stolen.

What is the Principle of Indemnity?

- States that the insurer agrees to pay no more than the actual amount of the loss; stated differently, the insured should not profit from a loss. - Insurance is a contract of indemnity.

What are the exceptions to Subrogation?

- Subrogation does not apply to life insurance contracts. - The insurer cannot subrogate against its own insureds.

Who does Liability Coverage apply to?

- The named insured and any resident family member. - Any person using the named insured covered auto (with permission). - Any person or organization legally responsible for any insured's use of a covered auto on behalf of that person or organization. - Any person or organization legally responsible for the named insured's or family members' use of any auto or trailer (other than a covered auto or one owned by the person or organization).

Who is covered by Part B of the Personal Auto Policy?

- The named insured and family members are covered while occupying any motor vehicle, or as pedestrians struck by a motor vehicle.

Who is covered by Part C of the Personal Auto Policy?

- The named insured and family members. - Another person while occupying a covered auto. - Any person legally entitled to recover damages.

What is a Collision?

- The upset of your covered auto or non-owned auto or its impact with another vehicle or object. - Collision losses are paid regardless of fault.

What are the rules included in the Law of Agency?

- There is no presumption of an agency relationship. - An agent must have authority to represent the principal. - A principal is responsible for the acts of agents acting within the scope of their authority. - Limitations can be placed on the powers of agents.

What are the exclusions of Part C of the Personal Auto Policy?

- There is no uninsured motorist's coverage on the vehicle. - There is primary coverage under another policy. - The insured settles a claim without the insurer's consent. - The vehicle is used as a public or livery conveyance or is logged into a transportation network company. - There is no reasonable belief the person is entitled to use the vehicle. - No benefit to a workers compensation insurer.

What is the purpose of Coinsurance in property insurance?

- To achieve adequacy of rate.* - Penalizes underinsurance. - Insure to value = no problem (buy a $100,000 house and insure it for $100,000 you're fine).

What is Part C of the Personal Auto Policy?

- Uninsured Motorists Coverage. - Pays for the bodily injury caused by an uninsured motorist, by a hit-and-run driver, or by a negligent driver whose insurance company is insolvent.

What are the exclusions of Part D of the Personal Auto Policy?

- Use as a public or livery conveyance, or when logged into a transportation network platform, whether or not a passenger is occupying the vehicle. - Damage from wear and tear, freezing, and mechanical or electrical breakdown. - Radioactive contamination or war. - Certain electronic equipment, such as radios. - Tapes, records, and disks. - Government destruction or confiscation. - Trailer, camper body, or motorhome. - Racing vehicle.

What are the exceptions to the Principle of Indemnity?

- Valued Policy - Policy that pays the face amount of insurance if a total loss occurs. - Valued Policy Laws - Policy that pays the face amount of insurance, regardless of actual cash value, if total loss occurs. - Replacement Cost Insurance - Property insurance by which the insured is indemnified based on replacement cost with no deduction for depreciation. - Life Insurance - Not a contract of indemnity but is a valued policy that pays a stated amount to the beneficiary at the time of the insured's death.

What are the exclusions of Part B of the Personal Auto Policy?

- While occupying a vehicle with fewer than four wheels. - While operating the vehicle as a public or livery conveyance, or when logged into a transportation network company (platform). - When the vehicle is used as a residence. - When using the vehicle for business. - When the vehicle is used without a reasonable belief of permission. - When injuries are from a nuclear weapon or war. - When the vehicle is competing in a race.

What is a Other-Than-Collision loss?

A loss due to the following: - Missiles or falling objects. - Hail, water, flood, fire, windstorm. - Theft or larceny. - Explosion or earthquake. - Malicious mischief or vandalism. - Riot or civil commotion. - Contact with a bird or animal. - Glass breakage.

What is No-Fault Auto Insurance?

After an auto accident involving bodily injury, each party collects from his or her own insurer regardless of fault.

What is an Aggregate Deductible?

All losses that occur during a specified period, usually a policy year, are accumulated to satisfy the deductible amount.

What is Apparent Authority?

An agent who has the authority to act on behalf of the principal when actions or expressions by the principal to a third party lead a reasonable third party to believe that the principal authorized the agent to act (in eyes of the consumer).

What is a Transportation Network Company?

An online or digital network designed to connect passengers with drivers for pre-arranged transportation for a fee (Uber or Lyft).

What is Innocent Misrepresentation?

An unintentional misrepresentation. Also makes the contract voidable.

What is a Single Limit?

Applies to both bodily injury and property damage liability.

What is a Joint Underwriting Association (JUA)?

Auto insurers in the state participate in providing coverage to high-risk drivers through a common pool.

What is Coinsurance?

Contractual provision that often appears in property insurance contracts.

What is a Named-Perils Policy?

Coverage by an insurance contract that promises to pay only for those losses caused by perils specifically listed in the policy.

What is an Open-Perils Policy?

Coverage by insurance contact that promises to cover all losses except those losses specifically excluded in the policy.

What is Contribution by Equal Shares?

Requires each company to share equally in the loss until the share of each insurer equals the lowest limit of liability under any policy or until the full amount of loss is paid.

What is a Pro-Rata Liability?

Generic term for a provision that applies when two or more policies of the same type cover the same insurable interest in the property.

What is the Principle of Utmost Good Faith?

Higher degree of honesty is imposed on both parties to an insurance contract than is imposed on parties to other contracts.

What is a Nonrenewal?

If an insurer decides to discontinue coverage, the insured must be given notice at least 20 days before the end of the policy period.

What is Material Misrepresentation?

If the insurer knew the true facts, the policy would not be issued, or it would be issued on different terms.

What is the Law of Agency?

Important rules of law govern the actions of agents and their relationship to insureds.

What are Miscellaneous Provisions in an insurance contract?

Include cancellation, subrogation, requirements if a loss occurs, assignment of the policy, and other-insurance provisions.

What are Exclusions in an insurance contract?

Includes three types: - Excluded perils (hurricanes, floods). - Excluded losses (business activities, intentional acts). - Excluded property (under auto policy we won't cover your house).

What is the Personal Auto Policy (PAP)?

Insurance on your personal vehicle.

What is a Miscellaneous-Type Vehicle Endorsement?

Insure motorcycles, mopeds, moto scooters, golf carts, motor homes, dune buggies, etc.

Who are Specialty Insurers?

Insurers that specialize in insuring motorists with poor driving records.

What is Concealment?

Intentional failure of the applicant for insurance to reveal a material fact to the insurer.

What is an Auto Insurance Plan (Assigned Risk Plan)?

Makes auto insurance available to motorists who are unable to obtain insurance in the voluntary market.

What is the Broad Evidence Rule method?

Means that the determination of actual cash value should include all relevant factors an expert would use to determine the value of the property.

What is the Shared (Residual) Market?

Method of providing insurance, especially those required by state statutes, for those risks that are uninsurable in the normal insurance market.

Who are Additional Insureds?

Person or party who is added to the named insured's policy by an endorsement.

Who are Other Insureds?

Persons or parties who are insured under the named insured's policy even though they are not specifically named in the policy (resident relative - not insured unless they live with the insured).

What is the difference between property and physical damage?

Physical damage refers to personal damage like when you mess up your car. Property damage refers to damage to something else that isn't yours such as someone else's car.

What is Automatic Termination?

Policy is automatically terminated if the insured declines the insurer's offer to renew.

What is the difference between Primary and Excess Insurance?

Primary insurance is the policy that covers a financial liability for the policyholder as a result of a triggering event. It kicks in first with its coverage even if there are other insurance policies. Excess insurance covers a claim after the primary insurance limit has been exhausted or used up.

What is the Maryland Automobile Insurance Fund?

Provides insurance to high-risk drivers who have been canceled or refused insurance by private insurers.

What is Low-Cost Auto Insurance?

Provides minimum amounts of liability insurance at reduced rates to motorists who cannot afford regular insurance.

What is a Deductible?

Provision by which a specified amount is subtracted from the total loss payment that otherwise would be payable.

What are Conditions in an insurance contract?

Provisions in the policy that qualify or place limitations on the insurer's promise to perform.

What is Actual/Express Authority?

Refers to specific powers given to the agent by the principal. They are written and are difficult if too specific.

What is Implied Authority?

Refers to the authority of the agent to perform all incidental acts necessary to fulfill the purposes of the agency agreement.

What are the exceptions to Actual Cash Value?

Replacement cost insurance, life insurance, value policy laws, and valued policy.

What is a Compulsory Insurance Law?

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

What is a Split Limit?

The amounts of insurance for bodily injury liability and property damage liability are stated separately. Split limits of 250/500/100 means that you have: - A maximum amount of $250,000 for bodily injury to each person for any one accident. - A maximum amount of $500,000 for the bodily injury to all persons resulting from any one accident. - A maximum amount of $100,000 paid for property damage resulting from any one accident.

Who is the First Named Insured?

The first name that appears on the declarations page of the policy as an insured (This individual controls the policy).

What is an Estoppel?

The loss of a legal defense because of previous actions that are now inconsistent with that defense.

What is a Cancellation Provision?

The named insured can cancel at any time by returning the policy to the insurer or providing written notice. If a policy has been in force for more than 60 days, the insurer can cancel only if: - The premium has not been paid. - The driver's license of any insured has been suspended. - The policy was obtained through material misrepresentation.

Who is the Named Insured?

The person or party named on the declarations page of the policy.

What is the Free Market Value method?

The price a willing buyer would pay a willing seller in a free market.

What is a Definition in an insurance contract?

The purpose is to clearly define the meaning of key words or phrases so that coverage under the policy can be determined more easily.

What is an Add-On Plan?

This plan pays benefits to an accident victim without regard to fault, and the injured person has the right to sue the negligent driver who caused the accident.

What is the Replace Cost Less Depreciation method?

This rule has been used traditionally to determine the actual cash value of property in property insurance.

What is a Pure No-Fault plan?

Under this plan, accident victims could not sue at all, regardless of the amount of the claim, and no payments would be made for pain and suffering.

What is a Choice No-Fault plan?

Under this plan, motorists can elect to be covered under the state's no-fault law and pay lower premiums.

What is a Waiver?

Voluntary relinquishment of a known legal right.

What happens when you pay your deductible?

When you pay your deductible, your premium goes down.

What is an Endorsement in property/casualty insurance?

Written provision that adds to, deletes from, or modifies the provisions in the original contract.

What is Fraud?

Wrongful or criminal deception intended to result in financial or personal gain.

What is an Per Occurrence Deductible?

You are responsible for your full deductible amount each time you suffer a covered loss.