Chapter 3 - Property & Casualty

Question 0

Underwriting

Answer 0

Hazard recognition and evaluation, risk selection, pricing and determination of policy terms and conditions.

Question 1

Insurable Interest

Answer 1

The insured must have a financial interest (ownership either full or partial) in the subject of the insurance.
Insurable interest must exist at the time of the loss for the insurance to apply.

Question 2

Loss Ratio

Answer 2

The percent of premiums used to pay claims.
Is determined by dividing the losses by earned premium.
Don’t pay out more than you take in.

Question 3

Rates

Answer 3

What is charged.
Rates reflect the price of the insurance for each unit of exposure.
State insurance laws prohibit rates which are excessive to consumers, inadequate to insurers or unfairly discriminatory to consumers.

Question 4

Types of Rates

Answer 4

Class
Rates that apply to all members of a wide group of consumers having similar exposures.
Since risks are similar, these rates can be developed using statistics.

Judgement
Rates that are particularly or exclusively based on judgement. They are developed when there are no distinguishable classes that are similar enough to establish rates based on statistics.
Surplus lines

Question 5

Independent Fillings vs Deviate Fillings

Answer 5

Independent filings - Other companies prefer to make their own rate filings

Deviate filings - companies charging higher or lower rates than the recommended benchmark rates.

Question 6

Hazard

Answer 6

Any condition that increases the chance of a loss or increases the frequency or severity of loss

Question 7

Types of Hazards

Answer 7

Physical - something that can be seen, touched or felt that increases the probability or severity of a loss.

Moral - is a subjective characteristic of an insured person and is usually based on past actions that may tend to increase the probability or severity of a loss.

Morale - is a characteristic of an insured based on their present actions that display an indifferent or “I don’t care attitude”.

Question 8

Physical Hazard

Answer 8

Something that can be seen, touched or felt that increases the probability or severity of loss.
Example is storing gasoline next to workstation.

Question 9

Moral Hazard

Answer 9

Is a subjective characteristic of an insured person and is usually based on past actions that may tend to increase the probability or severity of a loss.

Example is someone who has arson convictions and is looking for property insurance.

Question 10

Morale Hazard

Answer 10

Is a characteristic of an insured based on their present actions that display an indifferent or “I don’t care attitude”.

Example is someone who doesn’t take care of their property after getting a homeowner policy.

Question 11

What is the property portion of an insurance policy?

Answer 11

Protects the insured for direct loses to the property they own.
Protects:
Real property - land, buildings, and other property attached to it
Personal property - contents of a dwelling or an auto

Question 12

What does the casualty portion of insurance cover?

Answer 12

Protects the policyholder for injuries or damages the policyholder is legally liable for.

Question 13

Tort

Answer 13

Any wrongful act committed by one party against another, other than a crime or breach of contract.
Is based on common lass and determines responsibility for injury or damage.
Determined negligence.

Question 14

Negligence

Answer 14

Failure to exercise the standard care required by law to protect others from harm.
Failure to do what reasonable or prudent person would of done in the same situation.

Question 15

Four Elements of Negligence

Answer 15

1. Existence of a legal duty to act or a standard of care
2. The failure to perform a legal duty
3. Actual damages or injuries are sustained
4. Proximate Cuase

Question 16

Actual Damages

Answer 16

The amount of reduction in the value of the insured’s property caused by an insured peril.
The amount sought through an insured claim.
The amount paid on behalf of an insured under an insurance contract.

Question 17

Proximate Cause

Answer 17

Where there is an unbroken connection between the peril and the loss without the intervention of a new and independent cause.

Question 18

Ensuing Loss

Answer 18

Caused by a peril after, or as the result of an intentional peril.
A fire after an earthquake.

If their is an initial peril that is not covered, but results in a second peril that is covered, we cover the whole thing.

Question 19

Assumption of Risk

Answer 19

A person may not recover for an injury received when he voluntarily exposes him/herself to a known and present danger.

Question 20

Comparative Negligence

Answer 20

Based on a percentage of liability.
Permits a person to recover damages even thought he/she contributed to the accident. May recover damages as long as the negligence is 49% or less.
Texas is a comparative negligence state.

Question 21

Contributory Negligence

Answer 21

A person cannot recover from other party of that person contributed in any way to the accident.

Question 22

Intervening Causes

Answer 22

An independent cause of injury or damage that intervenes between the original wrongful act or omission and produces a result that would not have otherwise followed.

Question 23

Statue of Limitations

Answer 23

2 yeas and 1 day for most policies.

Question 24

Compensatory Damages

Answer 24

A combination of special and general damages and are designed to compensate an individual.

Question 25

Special Damages

Answer 25

May be awarded for itemized losses such as medical bills, loss of earnings, and property damage.

Question 26

General Damages

Answer 26

Awarded for damages that cannot be specifically itemized such as pain and suffering.

Question 27

Punitive Damages

Answer 27

Awarded in cases of gross negligence and are intended to punish the wrongdoer for their reckless disregard for the safety of others.

Question 28

Absolute (strict) liability

Answer 28

Certain activities impose liability without regard to fault or negligence. Normally involve extra-hazardous situations where he person must use a certain standard of care that prevents the possibility of harm to others. Dangerous animals, explosives, aircraft and intentionally setting fires.

Question 29

Vicarious Liability

Answer 29

Liability imposed on one party as a result of the actions of another. Parents responsible for actions of children Employers responsible for actions of employees

Question 30

Split Limits

Answer 30

Separate limits apply to bodily injury (BI) and property damage (PD) Bodily injury is subject to per person maximums as well as per occurrence maximums.

Question 31

The difference between accident and occurrence

Answer 31

An accident is a single event, normally sudden and unexpected in nature. An occurrence is a single event that can occur over a period of time (workers compensation) An occurrence can be an accident, an accident cannot be an occurrence.

Question 32

Combined Single Limits

Answer 32

A single limit applies to both bodily injury and property damage arising from a single accident. Usually found in commercial auto insurance and homeowners.

Question 33

Aggregate Limit

Answer 33

The maximum amount that would be paid during a policy term for all damages arising out of one or more occurrences. Only found in commercial lines of insurance.

Question 34

Peril

Answer 34

Any event that causes a loss. Loss and peril are interchangeable. Fire, lightning, windstorm

Question 35

Friendly fire

Answer 35

A fire that stays within its boundaries and is under control such as a fire in a fireplace.

Question 36

Hostile fire

Answer 36

A fire that is out of any boundary and out of control such as a forest fire.

Question 37

Extended Coverage Perils

Answer 37

REV C. H. SHAW ``` Riot Explosion Vehicle Civil Commotion Hail Smoke Hurricane Airplane Windstorm ```

Question 38

Exclusions to Extended Coverage Perils

Answer 38

Windstorm - wind driven rain exclusion. There must be a hole in the building (roof or window) before rain damage is covered Vehicle - cannot normally be driven by the insured person or family member unless otherwise stated

Question 39

Named or Specific Perils

Answer 39

List the perils that the company will protect the property against. Does not cover for a loss unless the peril that caused it is listed in policy. The burden rest in the insured

Question 40

Open or All Risk Perils

Answer 40

Covers the insured property against all causes of loss, unless the cause of loss is specifically excluded. Virtually all polices exclude flood, war and nuclear hazard. Losses are initially considered covered. Insurers has burden of proof.

Question 41

Direct Loss

Answer 41

Damage to property caused as a direct result of the peril. | All items destroyed in a house fire

Question 42

Indirect or Consequent Loss

Answer 42

After the peril has resulted in direct damages. | Cost of hotel and eating out while a house is being repaired.

Question 43

Basic Types of Construction

Answer 43

Frame - constructed of wood or other combustible materials including stucco Masonry - constructed of brick, stone, Adobe, or concrete blocks Fire Resistive - constructed entirely of fire resistant materials includes steel frames, concrete floors and fire resistant exterior walls

Question 44

Specific vs Blanket Insurance

Answer 44

Specific Insurance is the most common. There is one object insured under one policy Blanket insurance is when a single amount of insurance covers multiple properties. Is normally found in commercial properties. When a loss occurs at more than one location covered on a blanket policy, the money is distributed by pro-rata distribution.

Question 45

Actual Cash Value

Answer 45

Replacement cost - depreciation

Question 46

Replacement Cost

Answer 46

Provides for coverage on the basis of full replacement costs without a deduction for depreciation. The property must actually be replaced.

Question 47

Functional Replacement Cost

Answer 47

Occurs when property cokes obsolete due to its design or because of technological advances. Provides for closest equivalent available.

Question 48

Agreed Value

Answer 48

Is when the amount of insurance scheduled on the covered property is agreed to be the value and will be paid in the event of a loss.

Question 49

Deductibles

Answer 49

What you pay for each loss before insurance company pays. | The lower the deductible the higher the amount of risk and therefore a higher premium.

Question 50

Claim Settlement Options

Answer 50

The insurance company has the option to pay whichever settlement option is least expensive; repair, replace or restore. The insurance company also has right to take a case to court.

Question 51

Salvage

Answer 51

The insurance company can take title to damaged property after payment for a total loss. The insurance company must notify the insured if they will take possession of property after the payment of a total loss.

Question 52

Abandonment

Answer 52

On partial losses or property that can be repaired, the insurance company will not accept the damaged property in return for the full insured value. Will only pay to repair property.

Question 53

Liberalization

Answer 53

If the TDI revises the policy to provide broader coverage, the insurer must provide these broader coverages at no additional charges.

Question 54

Loss Payable Clauae

Answer 54

This form is sent to the lien or mortgage holder to verify that insurance is in force on a specific piece of property for specific coverages. If the policy cancels, notification must be sent to the financial institution.

Question 55

No Benefits to Bailee

Answer 55

When an insured's property is damaged while in the custody of someone else (Bailee), this clause prevents the other party from benefitting from the insurance and preserves the insurers right to subrogate against the Bailee if they are responsible for causing the loss

Question 56

More than one policy

Answer 56

If a policy is primary, it pays first. If a policy is excess, it begins to pay when limits on the primary policy are exhausted. If there is more than one primary or both are excess the loss can be paid by: contribution by limits or contribution by shares.

Question 57

Contribution by limits

Answer 57

The policies will share the loss based on the ratio of each policy's limit to the total available limits. Also know as pro-rata liability. Determine which policy limit is the least and divide that limit into the higher policy limits. Divide the loss by the sum of the ratio.

Question 58

Contribution by shares

Answer 58

Each policy pays equal amounts until the loss is paid or the limits are exhausted. Divide the amount of loss by the number of polices. Each policy pays equal amounts. The payment cannot exceed the policy limit.

Question 59

Coinsurance

Answer 59

Ensures the insurance is at least 80% of property value. If the amount of the insurance is not at least 80% of the property value, the insured becomes a co-insurer of the property. Did/Should X amount of loss = insurance payment Amount Carried/(property value X 80%) X amount of loss = insurance payment. Always check the house value X 80%

Question 60

Vacant building

Answer 60

A building with no tenants or contents. Most policies have a vacant clause that voids or limits coverage after 60 days of vacancy.

Question 61

Unoccupied Building

Answer 61

A building with no tenants but contains contents. No penalty for an unoccupied building.

Question 62

Named Insured

Answer 62

A person or entity named in the policy declarations.

Question 63

First Named Insured

Answer 63

The only person or entity named first on the declarations page. Are the only ones who can: Request cancellation Make changes to policy Receive notice of cancellation or non-renewal Be held responsible for payment of premium

Question 64

Additional Insureds

Answer 64

Other persons covered on the policy. | They are not specifically named and may be added by endorsement.

Question 65

Assignment

Answer 65

Because insurance is a personal contract, the policy may not be given to another person without the insurer's written consent. The policy is not transferable.

Question 66

Each policy has these seven parts

Answer 66

``` Declarations - the page most policyholders see first and are most familiar with. Exclusions - limits coverage Conditions - rules Insuring Agreement - promise to pay Definitions - prevents ambiguity Endorsement - customize Supplemental - additional coverages ```

Question 67

What is included on the declarations part of a insurance policy?

Answer 67

``` Insured's name and address Insurer's name and address Policy period Premium Amounts of insurance Lists of coverages ```

Question 68

What is on the exclusions part of an insurance policy?

Answer 68

This section of the policy is necessary to narrow the scope of coverage to that which is intended by the policy. Limits coverage

Question 69

What is on the conditions part of an insurance policy?

Answer 69

This section establishes certain rules concerning cancellation, dispute resolution, other insurance and other rights of both parties.

Question 70

What is on the insuring agreement per of an insurance policy?

Answer 70

This section of the policy Includes the "promise to pay" for covered claims and describes coverages.

Question 71

What is on the definitions part of an insurance policy?

Answer 71

This section of the policy describes key terms so the average policyholder will have a clearer understanding when reading the policy. This prevents ambiguity in the policy.

Question 72

What is on the endorsement part of an insurance policy?

Answer 72

This section of the policy allows the policyholder and the insured to customize the policy by attaching forms that will become a part of the policy itself. Adding or deleting insureds, perils, property, etc.

Question 73

What is on the supplemental part of an insurance policy?

Answer 73

This section of the policy (also called additional coverages) adds coverage for special features covered by the policy. Defense cost for liability claims. All supplemental payments pay in addition to policy limits.

Question 74

What parts of an insurance policy are pre-printed and the insured has no choice in their contents?

Answer 74

``` Exclusions Conditions Insuring Agreement Definitions Supplemental ```

Question 75

Cancellation and Non-Renewal

Answer 75

If an insurance company cancels a policy mid-term or non-renews a policy it must give the customer an opportunity to obtain another policy.

Question 76

Personal Polices Cancellation and Non-Renewal Timeframes

Answer 76

New business (policy in effect for 60 days or less) - 10 days Non-payment of premium -10 days Non-renewal - 30 days

Question 77

Commercial polices cancellation and non-renewal timeframes.

Answer 77

New business (policy in effect for less than 60 days) - 10 days Non-payment of premium - 10 days Non-renewal - 60 days

Question 78

How must a insured cancel a policy?

Answer 78

In writing

Question 79

Reasons for Midterm cancellation

Answer 79

Property insurance: non payment of premium, fraudulent claim, an increase in hazard. Auto insurance: non payment of premium, fraudulent claim, suspension or revocation of driver's license or registration, unless an exclusion for the driver is added to the policy.

Question 80

Restrictions to non-renewal

Answer 80

An insurance company is prohibited from non-renewing a policy for the following reasons: Company no longer writes auto insurance for certain groups of drivers Company no longer writes insurance in a particular geographic area A single loss accident

Question 81

Binder

Answer 81

A binder is temporary written evidence that coverage is in effect and is issued at the time of the sale. Binders should never be backdated or used for short-term coverage.

Question 82

What is the policy period?

Answer 82

All polices begin and end at 12:01 AM standard time on the date specified in the declarations portion of the policy.

Question 83

What is the policy territory?

Answer 83

Most policies limit coverage to the United States and territories, Canada and Puerto Rico. The loss must occur within the policy territory to be covered. No coverage is provided in Mexico.

Question 84

What are the insured's duties after a loss?

Answer 84

Proof of loss must be submitted within 91 days If the loss is a theft, the insured must notify the police Inform the insurer of the details of the loss, all interests in the property, and the existence of any other insurance Complete a signed and sworn statement to the insurer Protect property from further damage after a loss (mitigate damages)

Question 85

Duty to Defend

Answer 85

Insurance company has the duty to defend the insured. The policyholder must forward any demand, notice, summons, or legal papers received conceding the claim or suit to the insurance company.

Question 86

Subrogation

Answer 86

Insurance company's right to go after the truly negligent party after the payment is made.

Question 87

Standard Mortgage Clause

Answer 87

The bank always gets their money In a situation where a loss might not be payable to an insured due to an intentional act (ie arson), the loss may still be payable to the mortgage to the extent of their interest in the property.

Question 88

Mortgagee

Answer 88

The bank

Question 89

Mortgagor

Answer 89

The person taking out the loan

Question 90

Arbitration & Appraisal

Answer 90

An optional procedure for settling disputes between the insurer and the insured. The insurer and insured both select their own arbitrator and then these two select a third, usually called an umpire. The agreement made by an 2 of the 3 is binding on the insured and the insurance company. ``` Arbitration = casualty or liability Appraisal = property or an amount. ```

Question 91

What does arbitration deal with?

Answer 91

Casualty | Liability

Question 92

What does appraisal deal with?

Answer 92

Property | Amounts.

Question 93

Liquidated Demand

Answer 93

All polices insuring real property contains this clause hat pays full policy limits, regardless of ACV, in the event of a total loss by fire to the insured's real property. Does not apply to the contents.

Question 94

Terrorism Risk Insurance Act of 2002

Answer 94

Makes terrorism covered on all policies An act of terror: Must be violent or dangerous to human life, property or infrastructure. Must include an action that results damage within the U.S. Or U.S. Property. Must include an action committed by someone acting on behalf of a foreign person or foreign interest to coerce U.S. citizens or U.S. policy. Must include an action that produces over $5 million in insurance losses