Section 1: Insurance Terms and Related Concepts

Peril

-A cause of loss

Exposure

-The hazard or peril that can cause harm or loss, along with the scope of harm or loss it can cause

Types of liability insurance limits include:

1. The per occurrence limit is the most the insurer will pay for each occurrence 2. The per person limit is the most the insurer will pay per person for bodily injury 3. The aggregate limit is the most the insurer will pay during the policy term

Damage or Injury

A court must find that actual damage or injury occurred -A breach of legal duty may occur that does not cause harm

Specific Coverage

Also known as scheduled coverage. A specified limit of insurance to each location or property type

Burglary

An act that includes unlawful forced entry or exit, with the result that there is missing property because it was unlawfully taken

Medical Payments

An agreement by the insurer to pay, up to the medical payment limit in the policy, all reasonable medical expenses incurred due to an accident that causes bodily injury -Not based on fault -Found in liability coverages

Punitive Damages

Are awarded in order to punish the liable party. Generally awarded if the court determines the responsible party acted malicious, vicious, or willful manner. May also have the purpose of acting as a deterrent to others, making an example of the defendant, or to teach the defendant a lesson

Audit Premiums

Are due and payable on notice. If the sum of the advance and audit premiums paid for the policy term is greater than the earned premium, the insurer will return the excess to the first named insured

Nominal Damages

Are moneys paid as a result of a court judgment in a situation where loss or injury was negligible. They are small awards made in order to show that the liable party was responsible

Blanket Insurance Coverage

Has one limit of insurance that applies to multiple locations or property types, or both

Damages

If the defendant is found to be legally liable, the court will require the defendant to pay damages to the plaintiff. These damages can include compensatory or actual damages, general damages, nominal damages, and punitive damages

The Unbroken Chain Establishing Legal Liability

Legal Duty Exists --> Breach of Duty Occurs --> Actual Damage or Injury Results

Compensatory Damages or Actual Damages

Moneys paid as a result of a court judgment to compensate for the financial loss for which the defendant is liable. Also paid based on expected future losses due to injury. -Include special damages and general damages

General Damages

Moneys paid as a result of a court judgment to pay for a loss or injury that is a direct consequence of the tort committed, but not for financial loss

Absolute Liability

Negligence does not have to be proven when an activity is considered indisputably hazardous -Ex : keeping wild animals or handling dangerous materials

Vicarious liability

Occurs when another party is held responsible for a negligent party's actions

Pro Rata Cancellation

Pro rata cancellation means that the insurer will charge the insured the earned premium back to the time the coverage has been in effect

Unoccupancy

Refers to a building, which is furnished, not being used as a dwelling or for business

Vacancy

Refers to a building, which is unfurnished, not being used as a dwelling or for a business -Homeowners policies exclude coverage for vandalism and malicious mischief is the dwelling has been vacant for more than 60 consecutive days -Damage by burglars is excluded from dwelling policies when the dwelling has been vacant for more than 30 consecutive days

Common Law

Relies strongly on past court decisions, or precedents -Once a court makes a decision, other courts can use the decision and the arguments behind it when ruling on cases they hear

Additional (Supplementary Payments)

Set of coverages in liability coverage that pay for expenses incurred for providing a defense for an insured and for paying for first aid related to bodily injury for which the insured is liable

Binders

Temporary insurance contract may be given pending the issuance of a policy -Provides coverage until the risk is covered by the actual policy -Given for a period of up to 30 but no more than 60 days

Nonrenewal

The act of terminating an insurance policy after the specified policy period

Flat Cancellation

The cancellation of a policy without any premium charge

Short Rate Cancellation

The earned premium is calculated according to an established short rate table which includes an extra charge to the insured in addition to the pro rata premium

Negligence

The failure to use due and reasonable care

Theft

The unlawful taking of property to the deprivation of an insured

Audit

The verification of books or accounts to determine their accuracy

Legal Duty

There is a legal duty to protect one another's right and property. Reasonable and due care is another legal duty owed

Robbery

Unlawfully taking property by force or by threat of force

Mysterious Disappearance

When property is found missing, such as through an inventory process, and the cause of loss cannot be determined

Strict Liability

Wood flew out and hit the operator and this inaugurated the precedent that a product defect that causes damage or injury can establish liability without requiring negligence on the part of the manufacturer

Insurable Interest

-A legal concept underlying insurance contracts -The insured or policy owner has to suffer financially or be harmed in another way if a loss occurs in order for insurance to be issued

Exposure Unit

-A unit of measurement used to determine pricing in insurance policies

Morale Hazards

-An attitude that causes people to take less care of property or other insured item because it is insured

Pure Risk

-Cannot result in the possibility of gain -Loss or no loss -Are not speculative

Hazard

-Condition that creates or increases a chance of loss

Replacement Cost

-Cost to rebuild an insured dwelling and other structures -Can be determined by having an appraisal done

Definable Loss

-Defined in terms of cause, time, place and amount

Occurrence

-Defined to mean an accident, including continuous or repeated exposure to substantially the same general harmful conditions that result in bodily injury or property damage

Market Value

-Determined by real estate agents or appraisers and is usually determined by recent sales of properties that are similar to the property to which market value is being assigned.

Risk

-Hazard that causes loss -Degree of probability that causes loss or harm -The amount the insurance company may lose by underwriting an insurance policy -*the chance of loss*

Stated Value

-Insurance coverage under which the insurer and the insured agree on the value of the property of the property insured and that is the value payable in event of total loss

Guaranteed Replacement Cost

-Insurer will pay for the amount to replace or rebuild the home, subject to certain limits, even if the replacement value has gone up since the policy was purchased -To qualify insurance amount equal to at least 80% of the replacement value

Calculable Loss

-Insurers must be able to calculate both actual and expected losses -Expected losses are the basis of the premiums charged -Actual losses may result in an adjustment of premium in the preceding policy and for ongoing charges. Actual losses are also the basis for paying benefits from the policy

Unintentional Losses

-Intentional losses are never insurable

Loss

-Is a decrease in value, or is the amount needed to restore something to its original value, due to a peril.

Proximate Cause

-Liability law doctrine that states that a breach of duty must launch an unbroken chain of events that results in damage or injury in order for liability to be found -To establish negligence there must be a proximate cause between the breach of duty and damage and injury

Physical Hazards

-Physical condition of property that increases the chance of loss

Law of Large Numbers

-Probability theory that states that the larger the number of exposures, the more closely actual results will approach the probable results expected from an infinite number of exposures _Insurers use actual loss experience statistics in order to predict losses that will be incurred by the insureds

Actual Cash Value

-Replacement value less depreciation

Indemnity

-Restore the insured to the financial condition the insured enjoyed prior to the loss or damage covered by the policy

Deductible

-The amount the policy owner pays before the insurer will pay an insurance benefit and is an amount of risk retained by the owner

Adverse Selection

-The condition when only people who are at a high risk for a particular type of risk are likely to purchase insurance -Use underwriting guidelines to reduce adverse selection

Moral Hazards

-The dishonesty or other negative character trait in an individual that increases the frequency or severity of a loss

Limits of Liability

-The maximum amount the insurance company is obligated to pay for any loss as specified in the insurance contract

Salvage Value

-The value or property after a loss or the value recoverable by an insurer after paying a loss

Coinsurance/Insurance to Value ?

-Used primarily in property insurance and acts as a method of ensuring that the insurer can meet policy obligations as affordably as possible for the insured and acts as a method of sharing risk with the insured

Cancellation

-When the insured terminates the policy, the refund of paid premium is based on short-rate cancellation -If the insurer wishes to cancel, it may cancel at any time, but must give the insured a specified number of days written notice -When the insurer terminates the policy, the refund of paid premium is generally based on pro rata cancellation

In order to be an insurable, a loss must:

-arise from a pure risk -be definable -be calculable -not occur to many people simultaneously -not be intentional

Endorsements

A provision attached to a policy to cover a particular need; it will increase the premium in accordance with standard rating practices

Deposit Premium

A tentative charge made at the beginning of certain policies, to be adjusted when the actual earned charge has been later determined

Tort Law

A tort is an act that is committed by one party who causes injury or damage to another party or to another's property -Tort is a private wrong against a party or property, and crime violates a public right -Is possible for an act to be both a tort and a crime

In order to establish the presence of negligence 4 elements must exist

1. a legal duty to act or to not act 2. a breach of duty 3. proximate cause between the breach of duty and the damage or injury 4. actual loss or damage

Certificate of Insurance

A document that indicates coverage amounts, insurance companies and policy effective dates applicable to an insured risk

Special Damages

Are paid due to expenses from the injury, loss or damage and include items such as medical and hospital bills, loss of wages, and repair or replacement of property

Breach of Legal Duty

Besides establishing that a legal duty is owed, a breach of that duty must be found in order for negligence to be present