1-I Interest, Subrogation, & Claims

Question 1

Claim

Answer 1

A demand for payment in accordance with the terms of an insurance policy

**does not ALWAYS result in indemnification

Question 2

Claimant

Answer 2

Someone who has filed a claim

Question 3

What are 2 types of claims

Answer 3

1. ) First-party claim

2. ) Third-party claim

Question 4

What’s the first step in indemnification?

Answer 4

Filling a claim

Question 5

First-party Claim

Answer 5

• Filed by the policyholder against his or her own insurance policy
• Must be paid by policyholder’s own insurer

Question 6

A first party claim is always paid by the _______ insurer, never any other insurer, and the payee is always the insured.

Answer 6

policyholder’s

Question 7

First-party claim Example

Answer 7

If you insure your home against hail damage with ABC Insurance, and a hailstorm damages your roof, you’ll make a first party claim to ABC Insurance to recover the damages, and they’ll send you a check.

Question 8

Third-Party Claim​

Answer 8

A claim filed against an insurance policy by anyone other than the person named on that policy
- a claim filed against an insurance policy by a third party not named on that policy.

Question 9

Third-party example

Answer 9

If Jake runs a red light and crashes into Kelly’s car, Kelly will want reimbursement for the loss from Jake. Kelly can file a third-party claim with Jake’s insurer to pay for the loss that he caused to her and her car.

Question 10

Claims-filing facts:

Answer 10

● Filing a claim does not grant immediate indemnification
● When insured parties file a claim, it means they believe they are owed payment
by an insurer
● Policyholders file a claim by calling their insurer

Question 11

After receiving a claim, an insurer must:

Answer 11

● Acknowledge receipt of the claim

● Begin investigating all pertinent facts and issues surrounding the claim

Question 12

Insurance Adjuster:​

Answer 12

represents the insurer; responsible for evaluating the circumstances of a claim until they are resolved

Question 13

When someone files a claim, the insurer is required by law to ______, even if it does not think the claim is valid. Each state has its own _______ for how insurers should respond to claims.

Answer 13

• respond

- guidelines

Question 14

Investigation​ includes:

Answer 14

● Finding the proximate cause of the loss
● Examining all damages
● Noting all circumstances surrounding the loss
● Taking witness statements and reviewing police reports, when necessary
● Determining liability, when relevant to the claim
● Deciding whether the claim is valid or not

Question 15

If the claim is valid, the adjuster EVALUATES it, which includes:

Answer 15

● Considering policy limits and deductibles
● Calculating lender interest
● Determining the value of the loss
● Applying all financial provisions of the policy

Question 16

Adjustment: ​

Answer 16

The final disposition of a claim

Question 17

Adjustment; acceptance & denial

Answer 17

● If claim is accepted, the insurer must pay promptly after notifying that the claim
will be paid
● If claim is denied, the insurer must explicitly state its reasons for denial

Question 18

If the insurer denies payment on the claim, they are required by law to_____ why the claim was rejected.

Answer 18

state the reasons

Question 19

It is important to note that an adjuster can have more or less authority to settle the claim, depending on his _______ with the insurer. Employee adjusters tend to have more_______ to settle directly with the claimant, while independent adjusters tend to need _______ by the insurer first.

Answer 19

• work relationship
• authority
• to get review

Question 20

The Claims Process:

Answer 20

● The claimant contacts the insurer and files a claim
● The insurer acknowledges the claim and requests all items necessary to prove
the loss
● The adjuster investigates the claim and determines whether it is valid
● If valid, the adjuster evaluates the claim
● The insurer accepts or rejects the claim

Question 21

Insurable Interest:

Answer 21

Direct financial interest in protecting something or someone

Question 22

Insurable Interest Rules:

Answer 22

● Only parties with insurable interest can insure a property or person
● You cannot insure a house you do not own or have some financial interest in
● You can only insure someone’s life if that person’s death would cause you
economic hardship

Question 23

Insurance Interest example

Answer 23

A person can buy an insurance policy on her own house because she has a direct financial interest in preserving the house from damage or destruction. She has an insurable interest.
However, she cannot buy insurance on her friend’s house. If her friend’s house is destroyed, she suffers no direct economic hardship because she has no financial interest in preserving that house.

Question 24

Lender Interest​:

Answer 24

A lender’s financial stake in an insured item

● Protects a lender who loans money to a buyer
● Allows insurers to compensate a lender if a property, in which the lender has a financial interest, is damaged

Question 25

Note that it is possible for more than______ to have an insurable interest in the same property. Lender Interest represents the lender’s ______ in an insured item.

Answer 25

- one party | - financial stake

Question 26

Virtually all insurance policies contain special lender interest provisions, described in the _____ section of a policy.

Answer 26

conditions

Question 27

Lender interest provisions:

Answer 27

● Allow the lender to be listed as a payee on the policy ● Ensure that the lender is notified if the policy is canceled, reduced, or expires ● Provide compensation for the lender in the event of an act or an omission by insured party ● Permit the lender to pay policy premiums to maintain coverage, if the insured fails to do so

Question 28

Lender Interest Provisions example

Answer 28

If the insured burns down his own house, the lender can still collect indemnification up to the limit of its insurable interest, even though intentional acts by the policyholder are not covered. In a homeowner’s policy, the lender’s rights are detailed in what is called a “mortgagee clause.”

Question 29

Limits on Lender Interest Provisions:

Answer 29

● Lender may only collect up to its financial interest in a property ● Lender may never change or cancel an insurance policy

Question 30

Limits on Lender Interest Provisions example

Answer 30

An insurer would ​never​ allow a lender to cancel an insurance policy on a borrower.

Question 31

Subrogation

Answer 31

The transfer of rights that allows the insurer to recover its losses after it has indemnified a policyholder

Question 32

How does Subrogation work?

Answer 32

​When a policyholder is indemnified for a loss, she may no longer collect payment for that loss from anyone else. She has transferred this right to the insurer.

Question 33

Subrogation example

Answer 33

Say Ed destroys some of Sue’s property. As a matter of justice, once Sue is paid by her insurer for the damage that Ed caused, she no longer has any legal right to collect money from Ed for those losses. Only her insurer can demand payment from Ed in order to recover the amount it paid to Sue.

Question 34

Limits to Subrogation:

Answer 34

● Subrogation only applies up to the amount that the insurer pays ● The policyholder still has the right to demand payment from the guilty party for any damages that were not covered

Question 35

Limits to Subrogation example

Answer 35

Let’s say that Beth suffered $25,000 in damage but her insurance policy maxed out at $20,000 of coverage. In this case, Beth would still have the right to collect the remaining $5,000 from Sarah or Sarah’s insurer.

Question 36

So subrogation prevents injured parties from collecting________ on a single loss, which would violate the principle of________, which establishes that a policyholder cannot profit from a claim.

Answer 36

- multiple damages | - indemnity

Question 37

Waiver of Subrogation

Answer 37

● Included in certain types of policies and contracts ● Takes away the insurer’s right to recover its losses after paying a claim ● Usually involves a higher premium

Question 38

Waiver of Subrogation | Example

Answer 38

Let’s say that a company rents space in an office building. Included in the rental agreement is a waiver of subrogation, which means that the tenant and the owner of the office building give up their rights to sue each other if damages occur. If one of the tenant’s employees causes significant damage to the building, the building’s insurer will step in to pay the claim, but cannot pursue restitution from the tenant.

Question 39

Some types of policies and contracts usually include a clause that waives the right of subrogation. This means that the insurer does ​not h​ ave the right to recover its losses from the at-fault party after paying a claim. This clause is often found in______ contracts and other professional services contracts.

Answer 39

construction