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Flashcards in Property and Casualty Insurance Policy Conditions Deck (29)
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Insurance policies contain the following types of provisions, which might or might not be arranged under headings with these titles:

- Declarations
- Definitions
- Insuring Agreements
- Exclusions
- Conditions


The standard mortgage (mortgagee) clause in a property insurance policy covering real property gives certain mortgagee rights to the mortgagee that is named in the declarations. The clause

•ensures that loss to mortgaged property is payable to the mortgagee,
•grants continuing coverage for the benefit of the mortgagee if the policy is voided by some act of the insured, and
•promises advance written notice to the mortgagee of any policy cancellation.


Clause that ensures that the loss payee will be included in any claim payment. This is usually done by making a claim check payable to both the named insured and the loss payee as their interests may appear.

The Loss Payable Clause


Is the transfer of rights from the policyholder to some other party. States that any assignment of this policy will be invalid unless the insurer provides its written consent. Thus, if John Smith purchases a homeowners insurance policy and then later sells his home to his friend, Frank, he cannot simply transfer the policy to Frank

Assignment Provision


Applies when (1) the insurer makes a change that expands coverage under the policy form without charging an additional premium and (2) the change is put into effect shortly before a policy's effective date or during the policy term.

Liberalization clause


Provision that indicates where coverage applies.

Policy Territory


Several provisions in a property insurance policy affect the amount the insurer must pay for a covered loss. These include:

•policy limits and any sublimits
•coinsurance provisions
•restoration of limits provisions


Apply to certain specific types of property, such as money, jewelry, or trees. Invariably much lower than the policy limit, indicates the maximum amount that the insurer will pay for a loss to that type of property.



Encourages insureds to purchase policy limits that adequately reflect the insurable value of their property
by reducing the amount that an insurer will pay for a covered loss if property is underinsured.



Coinsurance Formula

Loss x Limit of Insurance
(Amount of ------------------ ) - Deductible = Loss Recovery
Limits of Insurance Required


When a scheduled item has been lost or destroyed, there is nothing left to insure. After insured property is destroyed, and an insurer indemnifies the insured, what happens to the insurance?

Restoration of limits provision.


Restoration of Limits:

Some policies restore the policy limits after payment of a loss, while other policies reduce the limits. With others, however, after the insurer pays a total loss, coverage ceases and the insurer returns any unearned premium.


Where coverage for some losses is reduced or eliminated if covered premises are vacant. The wording in many property insurance policies limits, reduces, or entirely eliminates coverage when a building has been vacant.

Vacancy Provision


Contains six different limits of insurance

commercial general liability (CGL) policy coverage form


Includes losses that result from products the insured has sold or work that the insured has completed

products-completed operations hazard


Includes a group of specific offenses such as libel, slander, and false advertising

personal and advertising injury


the maximum amount the insurer will pay for all applicable claims during the policy period—usually one year.



The CGL and other business policies providing general liability coverage include the following three limits, expressed in dollars.

- General Aggregate Limit
- Products-Completed Operations Aggregate
- Each Occurrence Limit


This limit is the most the insurer will pay for all bodily injury and property damage claims (other than those involving the products-completed operations hazard), and all personal and advertising injury claims during the policy period.

General Aggregate Limit


Several policy conditions that may affect the claims handling process concern

•the insurer's settlement options


A provision in property policies makes it clear that the insured cannot simply walk away from damaged property and turn it over to the insurer.

Abandonment Provision


If an insurer pays for a total loss to covered property, the insurer has a right to recover, sell, or dispose of that property.



When two or more insurance policies cover the same loss exposure, they should preferably cover the same losses and have the same inception and expiration dates



When 2 or more policies covering the same loss exposure that do not have identical inception and expiration dates



When two or more policies provide primary coverage, they may state that coverage applies on a this basis. In these cases, coverage may be shared by the policies in proportion to their limits.

Pro Rata


Liability insurance policies often provide this... If two concurrent policies cover the same loss, both policies pay the loss equally until one policy is exhausted. Past that point, the other policy pays the entire loss unless or until its limits are exhausted.

Contribution by Equal Shares


establishes the maximum amount the insurer will pay for all claims resulting from a single occurrence, no matter how many people are injured, how much property is damaged, or how many different claimants may make claims.

per occurrence limitation of liability provision


Combines the per person and the per occurrence approach. three separate dollar amounts apply to each accident. First limit is a per person limit, second limit is a per occurrence limit and third limit is a per occurrence limit that applies to property damage claims

Split Limits


simply states a single dollar limit that applies to any combination of bodily injury and property damage liability claims.

Combined Single Limits