P.I. Policy Provisions and Contract Law

Question 1

What is an appraisal?

Answer 1

a professional assessment to determine extent of damage

Question 2

What is an earned premium?

Answer 2

The portion of premium paid in advance that now belongs to the insurer because it applies to the elapsed part of the policy

Question 3

What is the removal or loosening of restrictions?

Answer 3

Liberalization

Question 4

What is the failure to use the same care that a reasonable, prudent person would under the same or similar circumstances?

Answer 4

Negligence

Question 5

Define policyowner

Answer 5

The person entitle to exercise the rights and privileges in the policy

Question 6

What is a third party?

Answer 6

an individual/entity other than the two parties involved in an insurance contract (insured and insurer)

Question 7

What is also referred to as ‘risk selection’?

Answer 7

Underwriting

Question 8

Define ‘underwriting’

Answer 8

the process of reviewing applications for insurance to determine eligibility for coverage

Question 9

What are the 4 essential elements for an insurance contract to be considered legally binding?

Answer 9

1. Agreement - offer and acceptance; 2. Consideration; 3. Competent parties; and 4. Legal Purpose

Question 10

The applicant makes an _____ when submitting the application. __________ takes place when underwriting is approved.

Answer 10

Offer; Acceptance

Question 11

The binding force in any contract is the _____________.

Answer 11

Consideration

Question 12

_____________ is something of value that each party gives to the other

Answer 12

Consideration

Question 13

What is the consideration on the part of the insured?

Answer 13

The payment of premium; representations made in the application

Question 14

What is the consideration on the part of the insurer?

Answer 14

The promise to pay in event of loss

Question 15

What requirements must an individual fill to be considered a competent party?

Answer 15

• be of legal age - mentally competent enough to understand the contract - not under influence of drugs/alcohol

Question 16

What is a representation?

Answer 16

Statement(s) believed to be true to the best of one’s knowledge, but not guaranteed to be true; the answers the insured gives to the questions on the insurance application

Question 17

Untrue statements on the application are considered __________________ and could void the contract.

Answer 17

Misrepresentations

Question 18

What is a material misrepresentation?

Answer 18

A statement that, if discovered, would alter the underwriting decision of the insurance company

Question 19

If material misrepresentations are ___________, they are considered fraud.

Answer 19

Intentional

Question 20

A ________ is an absolutely true statement upon which the validity of the insurance policy depends

Answer 20

Warranty

Question 21

Concealment is the legal term for:

Answer 21

the intentional withholding of information of a material fact that is crucial in making a decision

Question 22

A ______ is a temporary agreement issued by an agent or insurer providing temporary coverage until a policy can be issued

Answer 22

Binder

Question 23

Binders expire ____ ___ ______ __ ______

Answer 23

when the policy is issued

Question 24

Every property or casualty policy is comprised of the 7 following major components:

Answer 24

1. Declarations; 2. Definitions; 3. Insuring agreement; 4. Additional coverage; 5. Conditions; 6. Endorsements; and 7. Exclusions and policy limits

Question 25

The section of an insurance policy containing the basic underwriting information, such as name, address, amount of coverage & premiums

Answer 25

Declarations

Question 26

The ____________ component of an insurance policy clarifies terms used in the policy

Answer 26

Definitions

Question 27

The section of an insurance policy that establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy

Answer 27

Insuring Agreement (or Agreement)

Question 28

A provision in an insurance policy that provides an additional amount of coverage for specific loss expense, at no additional premium

Answer 28

Additional (or supplementary) Coverage

Question 29

The section of an insurance policy that indicates the general rules or procedures that the insurer and insured agree to follow under the terms of the policy

Answer 29

Conditions

Question 30

Name examples of conditions in an insurance policy:

Answer 30

1. Inspections; 2. Changes to the policy; 3. Liberalization clause; 4. Return of premium

Question 31

Dictates the method that will be used to calculate the return premium when the policy is cancelled before the expiration date

Answer 31

Return of premium Condition

Question 32

Ensures that if the insurer introduces improved coverage free of charge, the insured will get the benefit of the new coverage immediately and will not have to wait for policy renewal

Answer 32

The liberalization clause Condition

Question 33

What are printed addendums to a contract that are use to change the policy's terms/conditions/coverages?

Answer 33

Endorsements

Question 34

____________ must be in writing, attached to the policy, and signed by an executive officer of the insurer

Answer 34

Endorsements

Question 35

Details the perils that are not insured against and what persons are not insured

Answer 35

Exclusions

Question 36

__________ restrict some of the broad terms used in the insuring agreement, such as people (a spouse), property, and perils

Answer 36

Exclusions

Question 37

Examples of exclusions from coverage in a property policy:

Answer 37

1. Earth movement (caused by earthquake, mudflow, or volcanic eruption) 2. Water damage (flood/subsurface water; water backs up through sewers/drains and overflows from a sump pump; water below ground that seeps through basement walls)

Question 38

Policy limits are also known as ___________

Answer 38

Limitations

Question 39

What is the term for the maximum amount an insured may collect?

Answer 39

Policy limit

Question 40

The individuals(s) whose name(s) appears on the policy's Declarations is the _____ _______

Answer 40

Named Insured

Question 41

_____ _____ _______ is the individual whose name appears first on the policy's declaration

Answer 41

First named insured

Question 42

Individuals or businesses that are not named as insureds on the declaration page, but are protected by the policy (2 words)

Answer 42

Additional Insureds

Question 43

If there is a disagreement between the insured and the insurer on the value of any property loss, either party can make a written demand for an _________

Answer 43

Appraisal

Question 44

An insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk (2 words)

Answer 44

Other insurance

Question 45

___ ____ is a provision found in some property insurance policies that provides for the sharing of loss with other insurance that may be written on the same risk

Answer 45

Pro Rata

Question 46

A process where whatever is being allocated will be distributed in equal portions

Answer 46

Pro Rata

Question 47

A form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred (3 words)

Answer 47

Notice of Claim

Question 48

A sworn statement that must be furnished by the insured to an insurer before any loss under a policy can be paid (3 words)

Answer 48

Proof of Loss

Question 49

What is cancellation (of a policy)?

Answer 49

The termination of an in-force insurance policy prior to the expiration date of the policy; can be voluntary, involuntary, or in mutual accordance with provisions contained in the policy

Question 50

What is nonrenewal (of a policy)?

Answer 50

The termination of an insurance policy at its expiration date by not offering a continuation of the policy

Question 51

A _________ ______ is attached to a policy to protect the interest of the mortgagee in the mortgaged property

Answer 51

Mortgagee clause

Question 52

The ______ _________ defines the location where coverage will be provided

Answer 52

Policy territory

Question 53

What are some sources that may be used for gathering information during the underwriting process?

Answer 53

- Application form - Motor vehicle records - Interviews with neighbors/friends/employers - Inspection of property - Inspection of insurance history

Question 54

A printed form that includes questions about a prospective insured and the desired insurance coverage and limits

Answer 54

Application

Question 55

Which Act established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used?

Answer 55

Fair Credit Reporting Act

Question 56

What law protects consumers against the circulation of inaccurate or obsolete personal or financial information?

Answer 56

The Fair Credit Reporting Act

Question 57

Written and/or oral statements regarding a consumer's credit, character, reputation, or habits collected by a reporting agency from employment records, credit reports, and other public sources (2 words)

Answer 57

Consumer Reports

Question 58

Which Act stipulates that an insurance company may not disclose nonpublic personal information to a non-affiliated third party?

Answer 58

The Gramm-Leach-Bliley Act

Question 59

An insurance company CAN disclose nonpublic personal information to a third party when: (3 reasons)

Answer 59

- The insurance company clearly discloses to the consumer in writing that info may be disclosed to a third party - The consumer is given the opportunity, before the info is disclosed, to direct that info not to be disclosed to a third party - The consumer is given an explanation of how the consumer can exercise a nondisclosure option

Question 60

What 2 disclosures does the Gramm-Leach-Bliley Act require be sent to a customer?

Answer 60

1. When the customer relationship is established (policy purchased) 2. Before disclosing protected information

Question 61

What was the purpose of creating the Terrorism Risk Insurance Act?

Answer 61

To create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry

Question 62

The TRIA requires that all commercial insurers offer what?

Answer 62

Insurance coverage for acts of terrorism

Question 63

What are characteristics of acts of terrorism?

Answer 63

- the act is violent/dangerous to human life/property/infrastructure - the act must have resulted in damage within the U.S - the act must have been committed as part of an effort to coerce the U.S - the act must produce property/casualty insurance losses in excess of a specified amount

Question 64

What are the four primary elements of a legal contract?

Answer 64

1. Agreement - offer and acceptance; 2. Consideration - premiums and representations on the part of the insured, payment of claims on the part of the insurer; 3. Competent Parties; 4. Legal Purpose

Question 65

The declarations section of a policy includes:

Answer 65

1. Limits of Insurance 2. Policy Premiums 3. Name of the insured

Question 66

Duties of the insurer (found in property policy conditions) include:

Answer 66

1. Paying covered losses 2. Providing advance notice of cancellation 3. Returning any premiums to the insured

Question 67

The pro rata liability clause is designed to protect the principle of _________

Answer 67

Indemnity; the intent of insurance is that after a loss, the insured is restored to the condition they were in before the loss

Question 68

The __________ is the part of an insurance policy that sets forth the obligations and duties of the insurer and insured

Answer 68

Conditions

Question 69

The ________ __________ lists the parties to the contract, effective and renewal dates, the description of coverage provided, and perils

Answer 69

Insuring Agreement

Question 70

__________ define what each party to the policy is required to do contractually in the event of a loss

Answer 70

Conditions

Question 71

______ _____ ___ provision requires that the insured protects the damaged property from further damage, cooperates with the insurer in settling the loss, and submits to the insurer signed proof __ ___ within a specified period of time

Answer 71

Duties after loss; loss of