Property and Casualty Chapter 1

What are the 3 elements of insurable risk?

1. Financial (a monetary interest) 2. Blood (relative) 3. Business (a business partner)

HYPOTHETICAL: (life and Health) Brenda has a health insurance policy for $20,000. Brenda was hospitalized and racked up a total of expenses that added up to 15,000. How much will the insurance policy reimburse Brenda?

15,000 (the amount of the loss) NOT 20,000 (the total amount of insurance)

HYPOTHETICAL: (property and casualty) Brenda has a homeowners insurance policy for $200,000. Brenda's home was destroyed and her expense to rebuild the home added up to $150,000. How much will the insurance policy reimburse Brenda?

150,000 (the amount of the loss) NOT 200,000 (the total amount of insurance)

What is an occurence?

A broader definition of loss, which differs from accident in that it includes losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected

What is market value?

A method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss

What is a peril?

A peril is a specific cause of loss.

What is absolute liability?

A type of liability that occurs due to extremely dangerous operations

What does ACV stand for?

Actual cash value

What is an accident?

An accident is an unplanned, unforeseen event which occurs suddenly and at a specific place

Direct loss also includes other damage where the insured peril was the proximate cause of loss. What does "proximate cause of loss" mean?

An act or event that is the immediate or actual cause of a loss For example: an insured building catches fire. When the fire dept. applies water to put out the fire, the wall and floor coverings suffer water damage. Although water damage is not an insured peril, the damage is paid under ht peril of fire because fire was the proximate cause.

How is replacement cost contrary to indemnity?

Because following a loss it may provide the insured with a settlement in excess of the property's actual cash value

What is blanket insurance?

Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one location or for one of more classes of property at multiple locations

What are the two types of property losses that an individual or business is exposed to?

Direct loss Indirect loss

What kind of loss does property insurance cover?

Direct losses

What are general damages?

General damages compensate the injured person for pain and suffering, mental anguish, disfigurement, and other similar types of losses.

What are hazards?

Hazards are conditions or situations that increase the probability of an insured loss occurring.

If a insurance policy covers the peril of burglary, what is required following a loss?

Insurance policies covering the peril of burglary require that there are visible signs of forced entry or exit from the premises following the loss

What does insurance do?

It transfers the risk of loss from an individual or business to an insurance company

What is loss?

Loss is defined as the reduction, decrease, or disappearance of value of the person or property insured in a policy, caused by a named peril

At the time that a property insurance policy is written, the insured has several options as to how a loss to the insured property will be valued at the time of the loss. What factor helps determine how much insurance is required?

Loss valuation

What is loss valuation?

Loss valuation is a factor in determining the premium charged and the amount of insurance required

What are moral hazards?

Moral hazards refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Are losses by mysterious disappearance included in most insurance policies?

Most insurance policies exclude losses by mysterious disappearance

What is mysterious disappearance?

Mysterious disappearance is the disappearance of property without knowledge as to the location, time or how the property was lost.

What is named peril?

Named peril is a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils.

What is negligence?

Negligence is the failure to use the care that a reasonable, prudent person would have taken under the same or similar circumstances.

For named peril, is there coverage for unlisted perils?

No Under named peril, there is no coverage provided for unlisted perils

Does replacement cost include deduction for appreciation?

No.

Is there a single insured item assigned a specific amount of insurance under blanket insurance?

No. However, different amounts may be shown for buildings in general, equipment in general and other terms.

What are physical hazards?

Physical hazards are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it

What is the third class? what are they?

Punitive damages. Punitive damages are a form of punishment for extreme outrageous behavior, gross negligence or willful intent.

What are the two types of risks?

Pure risk Speculative risk

What is pure risk?

Pure risk refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. THIS IS THE ONLY TYPE OF RISK THAT INSURANCE COMPANIES ARE WILLING TO ACCEPT

What is replacement cost?

Replacement cost is defined as the cost replace damaged property with like kind and quality at todays price.

What is robbery?

Robbery is the taking of property from another by using violence or the threat of violence

What is salvage value?

Salvage value is the estimated value an asset will realize upon its sale at the end of its useful life.

How often is market value used?

Seldom

What are special damages?

Special damages are specific out-of-pocket expenses for medical, miscellaneous expenses, and loss of wages.

What is specific insurance?

Specific insurance is a property insurance policy that covers a specific kind or unit of property for a specific amount of insurance.

What is speculative risk?

Speculative risk involves the opportunity for either loss or gain. Example: gambling THESE TYPES OF RISKS ARE NOT INSURABLE

What is subrogation?

Subrogation is the insurer's legal right to seek damages from third parties after it has reimbursed the insured for the loss.

What is stated amount?

The amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss. youtube video: https://youtu.be/c6FGnZ_mxws

What is burglary?

The forced entry into another's premises with felonious intent

What can the company do by selling salvaged goods?

The insurance company can reduce the cost of the claim

ACV recognizes the reduction of value of property as it ages and becomes subject to wear and tear and obsolescence. What does this reinforce?

The principle of indemnity (making sure the insured doesn't profit)

What is subrogation based on?

The principle of indemnity by preventing the insured from collecting on the loss twice; once from the insurer and a second time from the party that caused the damage

What is actual cash value?

The required amount to pay damages or for property loss, which is calculated based on the property's current replacement value minus depreciation. Current replacement cost - Depreciation = ACV

What is insurance?

The transfer of the possibility of a loss (risk) to an insurance company, which in turn spreads the costs of unexpected losses to many individuals.

Rather than just the cost of rebuilding the structure itself, what does market value take into consideration?

The value of land and location

What is theft?

Theft is any act of stealing or removing property from its rightful owner. Theft encompasses both burglary and robbery.

If the product causes injury and the claimant can prove the defect, what happens to the defendant?

They will be held strictly liable for the damage

Most policies right of salvage condition. What does this allow the insurance company to do?

This allowed the insurance company to take possession of the property after the payment of a loss.

HYPOTHETICAL: Tina sees a truck back into her car and leave. While the truck drives away, Tina writes down the license plate number and calls her insurance company to file a claim. Tina also gives the insurance company the license plate number. The insurance company pays tina the money that it requires to fix her car and works with the police to find the driver of the car in order to subrogate against his insurance company for the money they spent repairing Tina's car. By giving subrogative rights to her insurance company, what does Tina waive the rights to do?

Tina cannot seek damages from the other party

If the insured went on vacation for 2 weeks, what would the house be considered?

Unoccupied

What is vacancy?

Vacancy refers to an insured structure in which no people have been living or working, and no property has been stored from the period of time required as stated in the policy. (usually 60 days)

If the insured moved, what would the house be considered?

Vacant

What is strict liability?

a liability that refers to damages caused by defective products even though the manufacturer's fault or negligence cannot be proven (bodybuilder and ladder)

What is open peril?

a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against ANY RISK OF LOSS that is not specifically excluded (This term replaced the use of the term "all risks")

What is vicarious liability?

a type of liability in which one person is responsible for the acts of another.

If someone would incur a financial loss if property was damaged, who would create an insurable interest?

an insurable interest may be created by the ownership, custody or control of a property. (example: Mortgagees and leaseholders may have insurable interest in their respective properties.)

What is insurable interest?

any interest an insured may have in property that is the subject of insurance, so that damage or destruction of that property would cause the insured financial loss (valid reason for taking out the insurance. Youtube video for extra help: https://www.youtube.com/watch?v=X1tELMatpdI)

In property and casualty insurance, when must insurable interest exist?

at the time of the loss

Damages: In the case of bodily injury, it is more difficult to determine the loss monetarily considering that bodily injuries may lead to...

claims by the injured party not only for medical expenses and lost wages, but also for disfigurement, pain and suffering, mental anguish, and loss of consortium.

How often is strict liability applied in product liability cases?

commonly applied

Indirect losses are also known as...

consequential losses

For example, what would a insurance company do in order to issue a policy on a 35-year-old male?

considering that the company has no way of knowing or accurately predicting when he will die, they use the law of large numbers and look at a large group of similar risks- 35 year old males of similar lifestyles and health conditions and make some conclusions based on statistics of past losses. This allows the insurance company to have a general idea about the predicted time of death for this type of insured and to set the premiums accordingly.

Indirect losses are considered a result of...

direct loss

What does direct loss mean?

direct, physical damage to buildings and/or personal property

What is an example of vicarious liability?

employers may be vicariously liable for the actions of their employees parents may be held responsible for the negligent acts of their children

As far as insurable interest, in property insurance, this means that the insured would incur ___________ if the insured property was damaged.

financial loss (their valid reason for taking out insurance on the property would be because they would lose money if the property was damaged)

What are some perils insured against in standard property policies?

fire, wind, hail and explosions

What does the law of large numbers do?

forms the basis for statistical prediction of loss upon which insurance rates are calculated

The insured must have a/an _____________ in the person or property covered by an insurance policy.

insurable interest

Considering that insurance transfers the risk of loss to an insurance company, what does this do in turn?

it spreads the cost of unexpected losses to many individuals.

What is the law of large numbers?

it states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.

Under absolute liability, the injured party does not need to prove...

negligence

Although property insurance only covers direct losses, indirect losses are related to the direct loss, and insurance coverage to protect against these indirect losses is....

often added to property insurance policies

Where does vicarious liability come from?

old english law in which the master was liable for the acts of their servants

Under blanket insurance, all insured properties are written for....

one total amount of insurance

What are the three classifications of hazards?

physical hazards moral hazards morale hazards

What is a morale hazard?

refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance (ex: "I'm not going to bother fixing this. If it breaks, my insurance will pay to replace it.")

As far as indemnity, the purpose of insurance is to...

restore, but not let an insured or a beneficiary profit from the loss

What is the basis of insurance?

sharing risk among a large pool of people with a similar exposure to loss

What are some conditions that are hazards and may increases the chance of loss occurring?

slippery floors, congested traffic

Under bodily injury, there are two classes of compensatory damages that may be awarded. What are the two classes?

special damages general damages Punitive damages (third class)

Damages: In the case of property damage, the extent of the loss is usually simple to determine. It is measured by...

the actual monetary loss the injured party suffered, which is measured by the value of the property damaged or destroyed and the loss of use of that asset.

If there was no insurance mechanism, what would happen?

the cost of a loss would have to be borne solely by the individual who suffered the loss

What is the most prevalent type of indirect loss for individual homeowners?

the extra living expense that may be incurred by the insured while the home is being repaired

For commercial risks, what is the primary type of indirect or consequential loss?

the loss of profits a business may suffer because of having to close down until the business is repaired

Under stated value, what is the scheduled amount?

the maximum amount the insurer will pay in the event of a loss.

What are indirect losses usually a result from?

the time it takes to repair or replace damaged property

What is risk?

the uncertainty or chance of a loss occurring

A person of business that manufactures and sells a products makes and implied warranty that the product is safe. In response, the business is....

then liable for defective products regardless of fault or negligence

What is the purpose of vicarious liability doctrine?

to transfer liability from one person to another person who would probably have a greater ability to pay

Insurance provides a means to....

transfer loss

What is the determination of the amount of general damages subjective to?

whatever a judge or jury feels is right

Under salvage value, the property can be sold as...

whole or in part. For example, a car may be beyond repair as a complete automobile but some parts may be salvageable and sold.

What are some activities included under absolute liability?

working at extreme heights, harboring wild animals, using explosives, etc.

What is unoccupancy?

(nonoccupancy) Unoccupancy refers to an insured structure in which no people have been living or working within the required period of time, but some property is stored

What is indemnity?

(often referred to as reimbursement) a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is NOT allowed to gain financially because of the existence of an insurance contract.