Property and Casualty terminology chapter 2, AD Banker Ch. 2 - Property Ins, AD Banker Ch. 1 Producer: Property and Casualty Insurance, comp exam questions, property and casualty chapter 15 questions, property and casualty chapter 14 questions, prope...
Valued Policy Law
This law requires that an insurer will pay the full (face) amount of insurance in the event of a total loss.
Microbial Matter/Fungus
This means loss due to fungi, bacterial, or viral matter that reproduces through the release of spores or the splitting of cells or other means, including but not limited to, mold, mildew, mycotoxins, and viruses
Right of Salvage
The right of the insurer to take possession of damaged property after paying for its loss. The salvage belongs to the insurer.
Right of Salvage
The right of the insurer to take possession of damaged property after the loss to the property has been paid. The salvaged property then belongs to the insurer.
Deductible
The specified amount of each loss that the insured must bear. In property insurance (and with a per claim, or per occurrence, deductible), the insurer subtracts the deductible from the amount of loss when making payment. By accepting a larger deductible, the insured's premium may be reduced. An insurer may require a larger deductible as an underwriting tool to limit small claims.
Burglary
The taking of property from inside the premises or a locked safe or vault by a person who commits forcible entry into, or exit from, the property of another while trespassing.
Nonrenewal
The termination of a policy by the insurer upon the expiration date.
Mysterious Disappearance
The loss of property when the cause of loss is not known. This is NOT theft, burglary, or robbery.
Occurrence
An accident includes continuous or repeated exposure to the same general harmful conditions.
Bailee
An individual or firm who has taken into its care, custody, and/or control the property of another for servicing, repair, or storage.
Short Rate Cancellation
A cancellation of insurance that incurs a financial penalty. Sometimes when the insured cancels the policy before its expiration date, a short-rate cancellation is issued. The insurer retains a portion of the unearned premium to cover costs.
Flat Cancellation
A cancellation of insurance that is retroactive to the effective date of the policy. No coverage is provided and the insurer must refund the policy premium paid by the insured.
Bailor
A person or organization that entrusts property to a bailee.
Accident
A sudden, unforeseen, unintended, and unplanned event.
Endorsement
A written amendment attached to the policy by the insurer to broaden or restrict coverage, or to further define certain policy provisions. Once attached, the endorsement takes precedence over the original provisions of the policy.
Direct Loss
Damage to property resulting from an insured peril, e.g., fire damage to an insured residence, or water damage to the residence resulting from a ruptured water pipe.
Reporting Form
Designed for firms whose stock fluctuates during policy period. Insured must report 100% of values. Late reporting or under-reporting results in a penalty.
Definitions
Explanation of specific terms used within a policy.
Valued Policy
Expresses on its face an agreement that the item insured will be valued at a specified sum.
Liberalization Clause
Specifies that if the insurer broadens coverage with no increase in premium, the same coverage will apply to all existing policies without the need for an endorsement.
Concealment or Fraud
Specifies that the policy may be voided if there is material concealment, misrepresentation, or fraud on the part of the insured.
Your Duties in the Event of Loss
Specifies the obligations of the insured in the event of a loss. These obligations include: Giving prompt notice of the loss to the insurer Notifying the police if a law has been broken Cooperating with the insurer in the investigation of the loss Forwarding any demands regarding the loss to the insurer Protecting property from further loss and separating damaged and undamaged property Preparing an inventory of the damaged property Submitting proof of loss to the insurer, including: The time and cause of loss Any other insurance that may cover the loss Any appropriate receipts, evidence, or affidavits to support the loss
Loss Settlement
Specifies the valuation method(s) used to pay losses.
Additional Coverages
The Additional and Supplementary Coverage is beyond, and supplements, the coverages set forth as basic Coverages. They are for incidental expenses that often accompany the losses insured against. Additional coverages are automatically included in property policies without an additional premium. The type of additional coverages depends upon the type of policy. Additional coverages are paid in addition to those stated in the insuring agreement and include debris removal, collapse, and fire department service charges.
Salvage Value
The amount for which property can be sold at the end of its useful life. In property insurance, the salvage value is the scrap value of damaged property.
Concurrency/Concurrent Policies
The existence of two or more policies covering the same exposures, having the same policy periods, and the same coverage triggers. For example, if an auto policy and an umbrella policy are written with the same policy dates, they are considered to be concurrent.
Occurrence
Includes continuous or repeated exposure to harmful conditions that results in property damage (an accident is a type of occurrence).
Primary Insurance
Property coverage that provides benefits up to the limits of a policy.
Insuring Agreement
This section affirms that the insurer will indemnify the insured for covered losses. It is the insurer's promise of protection to the insured. A description of the covered causes of loss (perils) are also stated in this section.
Stated Amount
An agreed-upon amount that is paid in event of total loss, regardless of the actual cash value of the property (usually used for articles such as antiques, fine arts, paintings and classic automobiles).
Bailor
An individual who retains the ownership of property that has been taken into the care, custody, and/or control of a bailee.
Inherent Vice
A condition or defect that exists within the property itself that causes the property to spoil, break, become defective, or destroy itself.
Bailee
A person or any organization to which property has been entrusted, usually for repairs, servicing or storage. Because bailees are legally responsible for property in their care, property insurance policies specifically exclude coverage for property in the care of a bailee.
Endorsement
A policy form that alters or adds to the provisions of a property and casualty insurance contract
Concurrent Causation
A principle holding that when two perils simultaneously cause a loss (i.e., they are both considered the proximate cause of loss), the insurer must pay the loss even if one of the perils is excluded by the policy.
Arbitration
A process whereby a disputed claim is decided by a neutral third part.
Unoccupancy
A property that contains personal property but has no occupants
Pro Rata Cancellation
A proportionate cancellation of insurance that refunds premium to the insured based on the precise number of days coverage was in effect. The earned premium is the premium charged and retained by the insurer for the number of days coverage was in place; the unearned premium is the premium refunded to the insured for the number of days coverage was not in place.
Vacancy
A provision in a property policy that eliminates or limits coverage for buildings that don't contain sufficient personal property to support intended occupancy or use.
Inherent Vice
A quality within property that causes it to damage or destroy itself. Examples include rust, rot and the fading of paint. Inherent vice is not covered by a property policy.
Accident
A sudden, unforeseen, unintended, and unplanned event from which loss or damage results.
Excess Insurance
Property coverage above the primary amount of insurance. Excess insurance does not pay until any primary insurance has been exhausted.
Mortgage Clause
Specifies and protects the mortgagee's (lender's) financial interests in property insured by the policy. The mortgagee must perform certain duties to protect its interests, which include: Paying any premium due under the policy on demand if the insured fails to do so Notifying the insurer of any change in ownership, occupancy, or substantial change in risk of which the mortgagee is aware Submitting a signed, sworn statement of loss within 60 days after receiving notice from the insurer of the insured's failure to do so.
Assignment
Specifies that the insured may not transfer rights of ownership without the insurer's written consent.
Other Insurance
Specifies the process to be followed when more than one policy covers the same loss. Each policy pays no more than its share of the loss.
Policy Period and Territory
Specifies the time period and location of risks the coverage applies to.
Nonrenewal
The insurer may elect to nonrenew the policy by giving to the named insured written notice stating a clear and specific reason. No insurer may fail to renew a policy based solely on: The age of the insured The grounds that a claim is pending under the policy The fact that the applicant or insured person is, has been, or may be, a victim of domestic violence
Insurable Interest and Limit of Liability
The insurer will not be responsible for an amount that is greater than the financial interest of an insured person.
Subrogation (Substitution)
The legal process by which an insurer seeks recovery of the amount paid to the insured from a third party responsible for having caused the loss. Subrogation transfers insured's right of recovery to the insurer that has paid a claim, and also: Prevents the insured from collecting twice for the same loss Helps the insurer maintain lower insurance rates Ultimately holds the responsible third party accountable for the loss
Actual Cash Value (ACV)
The policy pays for the cost to repair or replace the damaged property at the time of loss, minus depreciation.
Replacement Cost
The policy pays the full cost to replace or repair the damaged property at the time of the loss without an adjustment for depreciation. The coverage amount at the time of the loss must be at least equal to 80% of the cost of replacement for the entire loss to be paid.
Cancellation
The termination of an insurance policy before its expiration date. Once cancelled, a policy provides no coverage. A policy may be cancelled by the insured or insurer.
Loss Payable Clause
The time frame within which the insurer must pay a loss to the insured after the insurer has received the insured's proof of loss and reached an agreement with the insured.
Open Policy
The value of the insured property is not agreed upon in advance, but is left to be determined in case of loss.
Non-Concurrency/ Non-Concurrent Policies
Two or more policies cover the same property against damage or destruction, but the limits of coverage, kinds of property, perils covered, and dates of coverage are not the same. In such cases, the insured may not be fully covered.
Concurrency/Concurrent Policies
Two or more policies provide identical coverage for the same risk. Each policy pays that proportion of a loss that its limits bear to the total of all policies. This is an important feature for primary and excess coverage policies.
Appraisal
If the insured and insurer cannot agree on the amount of a loss, either may demand an appraisal. The insured and the insurer each select an appraiser, who then jointly select an umpire. The appraisers will appraise the loss and either agree or submit their differences to the umpire. An agreement by any two of the three parties is binding, and each party must pay the cost of its own appraiser and share equally the cost of the umpire.
Unoccupancy
An unoccupied property contains personal property, but has no occupants.
Coinsurance
Coinsurance is a provision contained in most policies insuring commercial property, used to encourage the insured to purchase and maintain insurance to value, and to establish the basis of payment in the event the insured fails to maintain a specified percentage of that value. The higher the coinsurance percentage the insured agrees to purchase, the lower the rate that the insured pays for the insurance. Coinsurance applies only in the event of a partial loss, as total losses typically are paid in accordance with the Valued Policy Law. The formula that is applied in the event of a partial loss multiplies the ratio of insurance carried to insurance required by the amount of loss to get the amount the insurer will pay. Example: The insured owns a commercial building whose current value is $1,000,000. The building is insured for $750,000 and the insured has agreed to 80% coinsurance. The building sustains a $100,000 fire loss. How much will the insurer pay of the $100,000 loss? $750,000 ÷ $800,000 = .9375 .9375 X $100,000 = $93,750 If the insured had maintained a policy carrying coverage of 80% or more ($800,000 or greater, the policy would have paid the loss in full. Because the policy covered only 75% of the building's value, the coverage is reduced by an amount equal to the ratio between the actual amount and the required amount, in this case 93.75%.
Scope of Coverage
Property policies are of two types in terms of the perils covered: Named Perils Open Perils (also called Special Form or All-Risk coverage)
Cancellation
The following provisions apply: The insured may cancel the policy at any time by giving written notice to the insurer. The insurer may cancel the policy for nonpayment of premium by giving 10 days written notice. If the policy has been in effect for 60 or more days, the insurer may cancel the policy for nonpayment of premium by giving 10 days written notice, and 30 days written notice for the following specific reasons: Conviction of a crime for an act that increases any hazard insured against Grossly negligent acts or omissions Nonpayment of the earthquake surcharge on a policy issued by the California Earthquake Authority Material misrepresentation by the insured Substantial change in property, making it uninsurable
Open Perils (also called Special Form or All-Risk coverage)
Covers losses except those specifically excluded.
Named Perils
Covers only losses caused by perils that are specifically stated.
Friendly Fire
A fire intentionally set that stays within its intended boundaries (e.g., a fireplace). Property insurance does not cover damage from a friendly fire.
Hostile Fire
A fire that burns outside its intended boundaries, or becomes uncontrollable. Examples of a hostile fire include a wildfire or a fire that damages a home when a spark from a fire in the fireplace ignites a piece of furniture.
Hostile Fire
A fire that produces a visible spark, flame, or glow, and which leaves the area in which it was intended.
Friendly Fire
A fire that was intentionally set and stays within its intended boundaries (e.g., a fireplace) and results in smoke damage to the inside of a fireplace. Property insurance does not cover damage from a friendly fire.
Binder
A legal agreement issued by an insurance company or a producer that provides temporary proof of insurance until the insurer is able to issue an insurance policy. Binders are issued for specific time periods (maximum of 60 days) and automatically end when the policy is issued. Binders contain the name of the insurer, the amount and type of insurance, and the perils insured against.
Indirect Loss (also called Consequential Loss)
A second or financial loss occurring as the result of a direct loss (loss of rents, loss of business income).
Concurrent Causation
A situation where there are two causes resulting in a loss and one of the causes is excluded while the other cause is not excluded. Unless the policy specifies otherwise, the loss is covered. Some policies may use an "anti-concurrent causation" clause.
Vacancy
A vacant property contains neither occupants nor personal property.
Changes
Any changes to the policy must be made by the insurer's written endorsement.
Excess Insurance
Any form of insurance coverage that provides protection against certain perils or causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated in specific policies or self-insurance. Excess insurance may be written over primary, excess, or umbrella insurance.
Primary Insurance
Any type of coverage that responds to a loss before all other coverage responds.
Peak Season Endorsement
Increases insurance for a specific period to cover increased values.
Standard Policy Structure
Insurance policies contain the following sections: Declarations, Insuring Agreement, Conditions, and Exclusions (DICE).
Abandonment of Property
Insurer will not accept any property abandoned by insured.
Blanket Coverage
Insures more than one property on one policy for a single amount of insurance that applies to all properties covered under the policy. The amount of insurance must equal at least 90% of the value of all of the properties insured (commonly used to insure business personal property or contents at multiple locations with no specific limit per location).
Scheduled Coverage
Insures more than one property on one policy with a specific amount of insurance on each property.
Specific Coverage
Insures one property on one policy for one specific amount of insurance.
Arbitration
Process whereby a disputed claim is decided by a neutral third party. The disputing parties choose the impartial third party and agree in advance to accept the final decision of the arbitrator, who makes a decision after a hearing where both parties offer evidence.
Binder
Temporary contracts of insurance. Specifies perils covered, amount of coverage, effective date of coverage, and the name of the insurer providing the coverage. The binder does not state the premium amount. In California it is in force up to 90 days, or until the policy is issued. Extensions beyond 90 days may be granted by the Commissioner. Binders may not be applied to life or disability insurance or to coverages of $1,000,000 or more.
Declarations
The Declarations section contains basic information about the policy including: Who - Names the insurer and insured, including legal representatives in the event of the insured's death. What - A description of the property being insured, the risks being insured against, and the insured's interest in the property if he/she is not the absolute owner. Where - The address or legal description of the property being insured. Note: The property address will be found only on the Declarations Page. It is not in California's standard fire policy. When - The effective and expiration dates of the policy. How Much - The limits of insurance coverage, the deductible, and the premium. If the premium is to be determined at the contract's termination, there must be a statement of the basis and rates upon which the final premium will be determined and paid.
Theft
The broadest of the crime coverages, theft includes any act of stealing.
Pro Rata Cancellation
The cancellation of a policy for which a refund is made of the unearned premium calculated in proportion to the time the policy was in force. Generally applies to cancellations initiated by the insurer.
Short Rate Cancellation
The cancellation of a policy for which the premium refund is calculated according to a short rate table whereby the insurer retains a portion of the unearned premium as a penalty. Generally applies to cancellations initiated by the insured.
Flat Cancellation
The cancellation of a policy on the date the policy becomes effective.
Extended Replacement Cost
The company will cover the cost of rebuilding up to a stated percentage over the amount for which it is insured, usually 20% to 30% above the face value of the policy.
Conditions
The conditions section specifies the obligations that the insured and insurer agree to follow.
Non- Concurrency/Non-Concurrent Policies
The existence of two or more policies covering the same exposures that don't have the same policy periods. Non-concurrency may create a coverage gap when underlying liability policies and an umbrella policy are non-concurrent because if an underlying liability policy exhausts its aggregate, it may violate the umbrella's underlying limits requirement.
Proximate Cause
The immediate or actual cause of loss under an insurance policy.
Suit Against Us
The insured may not bring suit against the insurer until the insured has complied with all of the terms of the policy.
Exclusions
The portion of the policy that specifies the causes of loss (perils), or property not covered. A few typical property exclusions are: Earth movement Flood War Wear and tear Insect and vermin Inherent vice Neglect of the insured to protect the property by any reasonable means at and after time of loss Microbial Matter/Fungus - This means loss due to fungi, bacterial, or viral matter that reproduces through the release of spores or the splitting of cells or other means, including but not limited to, mold, mildew, mycotoxins, and viruses
Proximate Cause
The primary cause of loss. If only one peril caused the loss, the proximate cause is the first event in the unbroken chain of events that resulted in loss. If more than two perils caused or contributed to the loss, the proximate cause is the peril having the most significant impact in generating the loss or damage.
Deductible
The specified amount of each loss that the insured must bear. By accepting a larger deductible, the premium may be reduced, and also the number of small claims.
Robbery
The taking of property from the care and custody of a person who has been caused or threatened with bodily harm.
Nonrenewal
The termination of a policy at the expiration of its term. The policy does not renew and no coverage is provided after the expiration date.
Cancellation
The termination of an insurance policy before its expiration date.
Definitions
Words, terms, and phrases that are clearly described and used in an insurance policy for the purpose of clarifying the intent of the insurer and to avoid coverage disputes with respect to the extent of coverage provided by the policy. Most policies contain a definitions section in the policy and emphasize policy definitions by enclosing them within quotes or highlighting them with bold text.