Professional Documents
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Property & Casualty Insurance Basics
Property & Casualty Insurance Basics
Insurance
Module 1: Property Insurance
Module 2: Casualty Insurance
Table of Contents
MODULE 1: Property Insurance
Lesson 1: Insurance Terms and Related Concepts
Lesson 2: Types of Policies
Lesson 3: Commercial lines
Lesson 4: Other Types of Policies
Lesson 5: Policy Provisions and Contract Law
The basic form is the meat and potatoes everyone gets. It covers against
fire, lightning and other common perils.
The broad form still includes the meat and potatoes, but provides
vegetables and a drink, with extended coverage for other types of perils.
The special form includes the first two, but gives a full menu of coverage
for physical losses, with noted exceptions. Think of this as the dessert.
Lesson 1:
INSURANCE TERMS AND RELATED CONCEPTS
This lesson focuses on the following topics:
Purpose of Insurance
Risk
Loss
Peril
Hazard
Insurable Interest
Deductibles
Indemnity
Limit of Liability
Coinsurance
Extensions of Coverage
Additional Coverages
Cancellation
Nonrenewal
Right of Salvage
Abandonment
Liability
Negligence
Purpose of Insurance
The purpose of insurance is to provide a practical solution to economic
uncertainties and unexpected losses by spreading risk. For test purposes,
insurance is defined as a social device for handling risk by transferring it.
D - Declarations are usually found on the first page of the policy, and
include: the kind of insurance, the name and address of the insured,
description of the property, amount of coverage, and the cost of the policy.
I - Insuring Agreements are the core of the policy. This section describes
the insured property and the perils that are covered by the policy. To use
insurance language, it describes the losses for which the insured will be
indemnified or protected.
Changes in the policy can only be made with the consent of the insurer.
Insurer and rating organizations have the right to inspect the insured
property.
The insurer must give permission to transfer the rights of the policy.
If the named insured dies, rights are transferred to the deceaseds legal
representative.
A Property Insurance contract relies upon several familiar ideas - risk, loss, peril
and hazard - and each is precisely defined for insurance purposes.
Risk
A risk involves uncertainty, or the chance of a loss. There are two types of risk:
Loss
A loss is an unintended or unforeseen reduction in the quantity, quality or value
of property listed in the policy. Anyone who has claimed insurance after a traffic
accident knows that losses may be partial or total.
Example: A forklift manufacturing plant burns to the ground. The direct loss is
the total destruction to the building and its contents. The indirect loss is the
inability of the factorys owner to conduct business following the fire.
In the case of a fire, the cause of the loss is obvious. Sometimes, the cause and
effect or we could say, the peril and the loss are separated by time, but the
peril still causes the loss. In this situation, the peril is a Proximate Cause of a
loss.
Proximate Cause of a loss is an action that produces the loss without the
intervention of any other factor. The proximate cause of a loss is an important
issue in insurance because it determines which policy will pay for a loss.
Example: Employees at a company party enjoy the appetizers, but everyone
who eats the smoked salmon becomes ill. One employee is so sick he becomes
loses consciousness driving home and has an auto accident. Who pays for the
losses resulting from the accident? The insurance policy that covers the
proximate cause of the loss is liable. In this case, his employers policy will likely
pay instead of his personal auto policy.
Peril
A peril is what creates risk. It causes the loss covered by insurance. For
example, if a home is destroyed by a fire, the fire is a peril. An insurance policy
defines the perils it covers:
Property and casualty insurance policies are written to cover either named
perils or all risk or open perils.
Named perils are the specific perils covered by a policy. In order for the
insured to collect from a loss, the specific peril that caused the loss must
be listed.
An all risk or open perils policy covers all risk of loss - that is, all perils except those that are specifically excluded.
Hazard
A hazard is any factor, or any situation, that increases, or contributes to, the
probability that a peril will occur, thereby increasing the chance of a loss. Oily
rags stored next to a furnace constitute a hazard.
An insurance company is concerned about three kinds of hazards.
Types of Hazards
Physical Hazard
A visible or tangible condition of the premises that increases the chances of a
peril occurring, like faulty wiring, slippery floors, icy roads, gasoline cans, or other
obvious situations.
Moral Hazard
The possibility that the insured may try to defraud the insurance company
through intentional and deliberate destruction of property, by arson, for example.
Morale Hazard
Attitudes or behaviors that make a loss more likely, like indifference,
carelessness, laziness or lack of concern for the property. Leaving keys in a car,
smoking in bed, and exceeding the speed limit are all morale hazards.
Insurable Interest
In order to qualify for Property insurance, the policyowner must stand to lose
something financially should anything happen to the covered property. The
policyowners insurable interest must be valid at the time of a loss.
Example
1. A bank or other mortgage holder has an insurable interest in a home it holds
the deed to.
2. A business owner has an insurable interest in property owned by the business.
Deductibles
The deductible is the amount that must be subtracted from total loss before
insurance coverage kicks in. If a policy specifies a $1,000 deductible and the loss
is $10,000, the policyowner pays $1,000 and the company picks up the
remaining $9,000.
Indemnity
Indemnity is simply the duty of protecting against loss or damage. Insurance
contracts are contracts of indemnity. The insurance company indemnifies the
policyowner by promising to protect against covered losses up to the limit of the
policy.
The purpose of indemnification is to restore the policyowners financial position
enjoyed before the loss occurred.
Example: Billy Bob bought a new car three years ago for $22,000.
Today, it has a book value of $14,000. According to the principle of indemnity,
the insured should receive no more than $14,000 if the car is demolished
because that would represent Billy Bobs financial position before the loss
occurred.
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This is only fair. In fact, the principle of indemnity would be violated if the insured
were paid the full replacement cost without deducting anything for having used
the insured item.
The formula for Actual Cash Value is:
ACV = Replacement Cost (minus) Depreciation
Limit of Liability
The limit of liability is the maximum amount the insurance company will pay for
a specified loss, or for all losses up to the policy limit. The insurer determines the
reimbursement for a loss by applying the principle of indemnity and policy
conditions. The limits of liability are found on the Declarations page.
Coinsurance
Many policies require coinsurance to encourage policyholders to insure property
to value in other words, to have enough insurance to cover most of the
propertys value. A typical coinsurance clause requires the insured to carry
coverage for 80% of the propertys value.
The policyowner who meets coinsurance requirements will enjoy a reduced
premium rate and partial losses will be paid in full. Those who do not satisfy the
coinsurance requirement will discover that partial losses are subject to a penalty
payment.
Extensions of Coverage
A property policy can extend coverage to property like outbuildings, or personal
property that is kept off premises, like items in a car or dorm room. Extended
coverage on a fire policy may include windstorm, hail, smoke, explosion, riot, civil
commotion, vehicles, and aircraft.
Some extensions may be included with the policy; others are optional.
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Additional Coverages
Like extended coverages, additional coverages offer some additional policy
coverage under certain conditions associated with a loss. Several examples will
be discussed in later lessons of this course.
Cancellation
The insured can cancel a policy without notice, but the state requires the
insurance company to give prior written notice of cancellation and the effective
date of cancellation.
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An insurance company that cancels the policy before its expiration date is
obligated to return money to the policyowner on a pro rata basis, which means
the return of all the money that has not been applied to premium cost, without
deducting service fees or underwriting costs.
A flat cancellation occurs when the insurance company cancels the policy on the
date it was to have taken effect. The company must then refund the entire
premium.
A policyowner who cancels the policy before its stated expiration date will receive
a refund of any unearned premium calculated on a short rate basis, which
means the insurance company will deduct its expenses from the amount
returned.
If either the company or the policyowner cancels the policy on its effective date of
expiration, neither party owes the other any money, provided sufficient notice
was given.
Nonrenewal
Nonrenewal is notice given by the insurance company informing the insured of its
decision to not renew the policy after its termination date. Reasons may include
non-payment of premiums, misrepresentation, higher than expected expenses,
or a decision to quit offering a type of coverage. There may be some state
limitations on the insurance company for nonrenewal.
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Right of Salvage
An insurance company has the right to settle a property claim by repairing or
replacing property, or providing cash to the insured. After the claim is settled, the
company has the right to salvage property that has either been destroyed or
partially damaged, but still has some value.
Abandonment
A policyowner cannot abandon the insured property and then demand
the insurance company pay its full value. Under the insurance contract, the
insurance company is the party with the right to settle a property by payment,
repair or outright replacement.
Liability
Liability insurance protects policyowners against financial loss from claims by
third parties. Like other risks covered by the general insurance system, it works
by transferring the burden of financial loss from the insured to the insurance
company.
Negligence
The law imposes a duty on everyone to act in a reasonable and prudent manner.
When they dont they violate Tort Law. A Tort is a legal wrong that results in
injury to persons or property. Insurance companies will not cover intentional acts
that violate Tort law.
Negligence can be seen as an unreasonable or imprudent act, but it is never an
intentional act. Negligence is also known as an unintentional Tort.
Insurers have created a checklist to determine whether one fails to do what a
reasonable person would do under similar circumstances.
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Lesson 2:
TYPES OF POLICIES
This lesson focuses on the following topics:
Personal Lines
Other Coverages
Additional Coverage Available with DP-2 and DP-3 (Not available with DP1)
Personal Liability
Earthquake Coverage
Endorsements
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Personal Lines
Personal lines are insurance policies written for individuals, as opposed to
commercial lines written for businesses.
The Dwelling policy provides more limited Property coverage than the
Homeowners policy, which will be reviewed in another Chapter.
Dwelling property forms are used to provide coverage for the following types of
personal residences:
The Dwelling policy covers the named insured and his or her spouse, as
long as the spouse lives in the same household as the insured.
Coverage A - Dwelling
Dwelling
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Insures buildings that are on the premises, but not in contact with the
dwelling.
Covers the financial loss to the insured if the loss to the dwelling makes it
uninhabitable and the insured cannot collect the rent that would have been
received if the loss had not occurred.
10% of the insurance on the dwelling is available for Fair Rental Value
coverage.
Perils that are automatically covered under the Basic form include fire,
lightning and internal explosion.
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Riot: Direct loss caused by striking employees. Riot and civil commotion
are very close in definition.
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Other Coverages
In addition to insuring against the listed perils, the Dwelling Basic form provides
the additional following coverages:
Debris Removal: Pays for the expense of removing debris resulting from
a loss that is covered by the policy.
Rental Value: Provides 10% of Coverage A limit for loss of fair rental
value, payable at 1/12th of the 10% limit for each month the described
location is unfit for its normal use. This is the basic policy coverage.
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Losses resulting from earth movement, except for direct loss by fire or
explosion resulting from earth movement.
War
Nuclear hazard
Loss Settlement
Covered property losses are settled for their actual cash value, and that figure
cannot exceed the amount necessary to repair or replace the property.
The actual cash value of MFMs widget was $10,000. MFM couldnt expect a
higher settlement just because its founder bought the widget in 1981 and it has
historical value to the company.
Our Option
Gives the insurer the right to repair or replace damaged property with the
equivalent property within 30 days of receiving the insureds statement of loss.
MFMs widget was so old they didnt even make that model anymore. But they
did make newer, better, and cheaper ones. The insurer may decide to give MFM
an equivalent widget.
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Pair or Set
This clause in a policy explains how a claim will be handled when one item of a
pair or set is damaged. The company may either:
Repair or replace any part to restore the pair or set to its value before the
loss.
Settle by paying the difference between the actual cash value of the set
before and after the loss.
For example: In a stroke of really bad luck, the home of MFMs President also
caught on fire and destroyed one earring of a custom-designed set owned by his
wife Diane. Each earring was worth $1,000, but the pair was worth $5,000. Diane
said that wearing one earring would make her look like a pirate! and she
wanted a settlement of $5,000. The insurance company that insured their home
property preferred to pay only $1,000, but neither amount was fair. The company
should either replace the earring or pay Diane $4,000 less any applicable
deductible.
Deductibles
This clause, located in the Declarations section, states that only the amount of
loss over the deductible will be paid, up to the limit of liability.
MFM paid the first $2,000 deductible and their insurer paid the remaining $8,000,
to make up the widgets actual cash value of $10,000.
Other Insurance
If a loss is also covered by other insurance, the insurance company will pay only
its proportion of the loss. Since MFM had no additional property insurance, its
primary insurer was responsible for the replacement value, less deductible.
Loss Payment
The loss will be paid within 30 days after reaching an agreement with the
insured.
Recovered Property
If the insured or insurer recovers property on which the insurer has made loss
payment, the other party must be notified. The insured may have the property
returned, in which case, the loss payment will be adjusted, or allow the company
to have it.
As it turned out, the retired engineer who designed MFMs original widget heard
about MFMs problem and offered to repair the damaged widget for $5,000. MFM
liked the deal and notified the insurer, who had already paid MFM $8,000 for the
loss. The insurer had the right to either ask for $3,000 back from MFM or allow
them to keep the money.
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Coverage A - Dwelling
In addition, both the Broad Form (DP-2) and Special Form (DP-3) provide an
additional coverage known as Coverage E.
Burglar damage
Glass breakage
Accidental discharge
Falling objects
Freezing of pipes
Electrical damage
Collapse
Tearing apart
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Ice
Provides protection from damage due to falling objects such as ice, snow, and
sleet. Covers the insured building and/or its contents.
Ice coverage does not include:
Awnings
Fences
Patios
Pavements
Swimming pools
Foundations
Retaining walls
Bulkheads
Wharves
Docks
Piers
Glass Breakage
Covers all building glass, as long as the insured premises have not been vacant
for 30 consecutive days or more immediately before the loss.
Accidental Discharge
Accidental discharge of water and steam from plumbing, heating, air-conditioning
or fire protective sprinkler systems, or of a household appliance.
This does not include:
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Falling Objects
If a falling object first damages the roof or exterior wall, the damages to the
exterior of the insured premises and its contents are covered.
Damage to the falling object itself is not covered.
Example: Outdoor antennas, wiring, equipment, awnings and fences are not
covered.
Freezing of Pipes
Damages caused by freezing pipes are covered as long as the insured has taken
reasonable care to:
Electrical Damage
Provides coverage for damages resulting from sudden and accidental electrical
current surges or interruptions.
Collapse
The collapse peril covers the risk of direct physical loss due to the collapse of a
building or any part of it caused by:
Hidden decay
Insect damage
Weight of contents
Settling
Cracking
Shrinking
Bulging
Expansion
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Awnings
Fences
Patios
Swimming pools
Foundations
Tearing Apart
Covers damages caused by sudden and accidental tearing apart, cracking,
burning or bulging of steam or hot water heating systems, air-conditioning,
automatic fire protective sprinkler systems, or hot water heaters.
This peril does not include loss caused by freezing, except as provided in the
peril of freezing.
Collapse: Pays for the collapse of the dwelling caused by a specified list
of perils.
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DP-2
Broad Form
Fire
Fire
Lightning
Lightning
with
Internal Explosion
Internal Explosion
plus
plus
Extended Coverage
Extended Coverage
DP-3
Special Form
All Risk On Dwelling
plus
Windstorm
Civil commotion
Smoke
Burglar damage
Hail
Aircraft
Glass breakage
Vehicles
Accidental discharge
Volcanic eruption
Falling objects
Explosion
Freezing of pipes
Riot
Electrical damage
Vandalism
Collapse
Malicious mischief
Tearing apart
plus
THEFT
Both the DP-2 and DP-3 settle losses to personal property at actual cash
value.
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Example: Billy Bobs home has a replacement value of $200,000. To have the
home restored or replaced at replacement cost, Billy Bob must carry insurance
equal to or greater than 80% of $200,000, or $160,000.
However, Billy Bob forgot the rule and does not carry enough insurance to qualify
for replacement cost coverage. Therefore, he will be paid:
The actual cash value of the loss.
A proportion of the replacement cost, whichever is larger.
Billy Bobs reimbursement is calculated using the Proportional Replacement
method. Lets assume that Billy Bob has a loss of $40,000. For full replacement,
he needed $160,000 of insurance, but only has $130,000. Here is the formula for
proportional replacement:
Insurance carried
-------------------------- X
Insurance Required
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Personal Liability
The insured may purchase Personal Liability and Medical Payments to Others
Coverage as an endorsement to the Dwelling policy. These coverages can also
be purchased as a separate policy, and are similar to those provided in the
Liability section of the Homeowners policy, which will be covered in the next
Section.
The insurer will defend the insured against such claims at its own
expense, even if the suit is groundless or fraudulent.
The insurance company will pay all necessary medical expenses incurred
within three years of an accident that causes bodily injury.
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HO-2 Broad
HO-3 Special
Fire
Lighting
Internal Explosion
Theft
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Similar coverage to the broad coverage for personal property found in HO2 and HO-3.
Similar coverage to that provided under the HO-2, HO-3 and HO-4.
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HO-3
Special Form
HO-4
Tenant or Renter
All Perils On
Dwelling Except
Those Excluded
Broad Form On
Personal Property
Only
Internal
explosion
with
plus
Extended Coverage
plus
Broad Form
Additional Perils:
plus
HO-6
Condominium
unit owner
Same as HO-4
with
Broad Form On
Personal Property
Only
Broader Additions
And Alterations
THEFT
Burglar damage
Ice & snow
weight
Glass breakage
Accidental
discharge
Falling objects
Freezing of
pipes
Electrical
damage
Tearing apart
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Coverage A - Dwelling
Coverage A - Dwelling
Covers the dwelling, structures attached to the dwelling, and materials and
supplies located on or next to the dwelling that are being used for construction,
alteration or repair.
Example: The insured installs built-in cabinets, vanities and wall to wall carpet.
These items are generally not considered contents and will be covered only as
alterations and additions to the dwelling.
Coverage B - Other Structures
Provides protection for structures on the premises that are detached from
the dwelling, like a tool shed or a garage.
Coverage does not apply to land or structures that is used for business, or
is rented to anyone other than a tenant of the dwelling, unless it is a
garage.
HO-4 does not include Coverage A or Coverage B since only renters and
tenants can insure their personal property.
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Exclusions
The following personal property is not covered under Coverage C:
Credit cards
Stolen jewelry, furs and precious stones - $1,000 total for loss by theft
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Replacement Cost for Personal Property that pay for the full cost of the
repair or replacement of the damaged personal property. Available as a
rider to all HO policies.
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Trees, Shrubs And Plants: Pays for losses to plants on the premises
caused by covered perils - up to 5% but no more than $500 per tree,
shrub or plant.
Property Removed: Covers property against direct loss from any peril
while it is being removed from a premise that is endangered by a covered
peril. Coverage lasts for up to 30 days while the property is removed.
Example: After a storm damages her roof, a homeowner removes
property stored in an unused bedroom. Her removed property is covered
during transportation and while it is in storage, for up to 30 days.
Earth movement
Power failure
War
Nuclear hazard
Intentional loss by, or directed by an insured with the intent to cause loss
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Earthquake Coverage
HO policies generally exclude coverage for earthquake losses, but it can be
added by endorsement. Costs depend on the homes construction. Frame
houses are less expensive than masonry.
Limits of liability defines the maximum amount the insurance company will
pay for a loss, or for losses sustained during a period of time. This is also
known as the Policy Limit and Limits of Coverage.
Suit against insurer requires that all policy provisions have been complied
with, and the suit is filed within a specified period after the loss typically
one year.
Property and Casualty Insurance
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Section II Liability
Home owners have tremendous liability exposure: A visitor falls on the sidewalk
and breaks his leg; a dead tree falls on the neighbors house and destroys her
new roof; the family dog bites an unwary jogger or, worse, little Johnny trips the
poor runner as a joke. It gets worse. The homeowner goes to a football game
and it starts to rain. When he opens his umbrella, one of the metal tips pokes the
person in the next seat in the eye. Life is risky, but insurance was created to
handle risk.
A home owners responsibility to the general public is insured through Coverage
E - Personal Liability, and Coverage F Medical Payments to Others.
Coverage E - Personal Liability
Coverage E Covers bodily injury or property damage if someone is inured on the
insureds property and the insured is found liable. Minimum limit of liability is
$100,000, but it may be increased with additional premiums. Coverage is for nonbusiness activities.
The insured includes the named insured and all related residents of the same
household and residence under 21 in the care of any member of the named
insureds family.
Coverage E defines the conditions of coverage, including the personal activities
of the insured on or off the insured premises, and the actions of an employee
who lives at the insured location in the course of employment.
Coverage E Definitions and Conditions
Bodily injury (BI) liability includes bodily harm, disease or sickness, even
when it results in death.
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Sustained while the injured party is off the insured location if the injury
arises out of a condition that:
o Occurred on the insured premises
o Involved an activity of the insured
o Was caused by a residence employee - a live-in maid, for
example - in the course of employment duties
o Was caused by an animal owned by, or in the care of, any insured
BI and PD arising out of the rental of any part of the premises, unless the
rental is part of an insureds residence.
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Liability arising out of war and war-like acts, such as insurrection and
rebellion.
First Aid Expenses: Does not pay expenses for first aid to the insured,
but does pay expenses incurred by an insured in the course of giving first
aid to others.
Loan Assessment: Pays $1,000 per occurrence for the insureds share or
assessment as a member of a group of property owners for liability arising
from an act of a director, officer or trustee.
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Section II Conditions
These conditions apply to both Sections I and II:
Endorsements
Homeowners policies are designed for the average homeowner. Some
homeowners, however, have special needs that can be addressed with
endorsements that modify coverage under Sections I and II.
Section I Endorsements
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Earthquake endorsement.
Section II Endorsements
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The mobile home package policy offers the Broad form of All Risk coverage for
the following:
Built-in accessories
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Lesson 3:
COMMERCIAL LINES
This lesson focuses on the following topics:
Coverage Extensions
Optional Coverages
Coverage Extensions
Optional Coverages
Supplementary Payments
Businessowners Exclusions
Businessowners Endorsements
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All buildings
Permanent fixtures
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Furniture
Fixtures
Office equipment
Machines
Property owned by others in the custody of the insured, or within 100 feet
of the premises.
Animals - the companys pet dog is not covered, but animals that are
boarded on the premises, or for sale, are covered
Building foundations
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Removal of debris
Coverage Extensions
Coverage extensions are available if the insured agrees to an 80% or higher
coinsurance feature.
Newly Acquired or Constructed Property
It is covered up to 25% of the policy amount, or a maximum of $250,000 per
building. This extension protects property that is under construction on the
premises and buildings at another location that will be used for the same purpose
as existing building or warehouse.
In the case of a new location, business personal property is covered for up to 30
days up to 10% of the policy or a $100,000 maximum limit.
Personal Effects and Property of Others
The personal effects and property of the insureds employees, officers and
partners is covered up to a maximum of $2,500.
Valuable Papers and Records
Researching, replacing or restoring lost information can be an expensive
proposition. This extension provides up to $2,500 for the cost restoring data onto
magnetic media and electronic storage devices at each premise described in the
policy.
Property Off-Premises
Covers off-premises property to a maximum of $10,000, with some exceptions.
Coverage does NOT apply to:
Property in a vehicle.
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Outdoor Property
Up to $1,000 can be applied to cover typical outdoor items like fences, antennas,
signs, trees, and plants destroyed by perils like fire, lightning, explosion, riot or
aircraft. A maximum of $250 can be applied per plant or shrub.
Optional Coverages
For an additional premium, policy owners can choose various optional
coverages. To be activated, optional coverages must be listed in the Declarations
section of a Building and Personal Property policy.
Agreed Value Coverage
This coverage suspends the coinsurance requirement and substitutes an
agreement to cover any loss in the same proportion that the limit of insurance
bears to the stated value.
Example: If the stated loss of the property is $60,000 and the policy limit is
$60,000, the entire loss (100%) will be covered. If the limit of coverage is
$30,000, only 50% of any loss will be covered.
The insured is required to submit a form stipulating the value of the property.
Inflation Guard Coverage
This optional coverage raises coverage limits to compensate for inflation. Heres
how it works.
The policy owner and the insurance company agree on an annual percentage
increase on insurance limits.
Example: if 7%, is selected, the total limits of insurance will gradually increase
on a pro rata basis until, the available limit is 7% higher at the end of the year
than at the beginning.
Replacement Cost Coverage
This coverage overrides Actual Cash Value (ACV) in the Valuation condition
which will be discussed in more detail in a future chapter. The company agrees
to pay for loss or damage to covered property on a replacement cost basis, with
the exception of certain property listed in the provisions.
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Fire
Lightning
Explosion
Vehicles
Windstorm or hail
Vandalism
Volcanic action
Earth movement
Ordinance or law
Government action
Nuclear hazard
War
Failure of power or other utility services occurring away from the insureds
premises
Mechanical breakdown
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Falling objects - but does not cover interior damages, unless damages first
occur to the outside
Mechanical breakdown
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Example: Limits of 30% / 75% / 100% mean that if the period restoration was:
30 days or less -30% of the full amount of insurance will be paid.
31-60 days - 75% of the full amount of insurance will be paid.
Over 60 days - 100% of the full amount of insurance will be paid.
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Example: A-1 Kite Makers, Inc. sustained extensive damage when a windstorm
roared through the valley and ripped off its roof. Their Business Income without
Extra Expenses coverage reimbursed A-1 for business losses during the period it
was closed, but did not reimburse for extra expenses to stay in operation during
the restoration period.
Rental Value
Rental value coverage includes the total anticipated rental income from a Tenant.
With either of the two Business Income Expense forms the insured can choose:
New buildings
Machinery
Equipment
Construction supplies
Alterations
Certain other losses may be covered if they are related to the occupancy of new
buildings.
Extended Business Income
Extended Business Income automatically extends the period of restoration for up
to an additional 30 consecutive days to cover loss of earnings, as long as the
policy limits have not been exhausted.
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Optional Coverages
Some optional coverages will reduce premium rates, while others will increase
them.
Maximum Period of Indemnity
Limits reimbursement for loss of business income to no more than the amount of
loss incurred during the first 120 days following a direct loss.
Extended Period of Indemnity
This gives the insured extended business income coverage for the number of
days stated in the Declarations, rather than the 30 days allowed by the Extended
Business Income Additional coverage.
Monthly Limit of Indemnity
Allows the insured to establish the amount of reimbursement for loss of business
income during each 30-day period.
Commercial Package Policy (CPP)
Unlike monoline" policies that provide single coverage a Commercial Package
Policy (CPP) bundles several lines of business coverage. The CPP package
approach streamlines and standardizes the process of choosing the right
coverage for every business client. In fact, a CCP can be customized to cover
nearly every commercial risk.
A CPP must contain the Common Policy Declarations Form, the Common Policy
Conditions Form and at least two of the following lines of coverage:
Commercial Automobile
Commercial Property
Commercial Crime
Farm Coverages
Pollutant Liability
Professional Liability
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Coverage
The insured must own the steam boiler or machinery, be legally liable for
it, and have it in the insureds care, custody or control.
Objects of the same type are automatically covered at new locations for
up to 90 days.
The policy can be written to pay for (1) direct damage to listed property,
(2) damage to other property, (3) interruption of business losses, or all
three.
Boilers and machines are covered for losses due to an accident -a sudden
and accidental breakdown of the insured boiler or machine -that requires
repair or replacement of the boiler or machine.
An accident does not include:
o Wear and tear
o Depletion
o Deterioration
o Depletion
o Corrosion
o Erosion
o Leakage of a valve
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o Breakdown of tubes
o Breakdown of electronic computers
o Breakdown of structures or foundations supporting the boiler or
machine
o Malfunctioning of any safety device
o Explosion of gas or unconsumed fuel within the furnace or any of
its passageways
Expediting Expenses Coverage
It reimburses the insured for any reasonable extra expenses involved in making
temporary repairs, and for expediting the repair of damaged property. Examples
can include employee overtime and the extra cost of express shipments. Policy
limit is $5,000.
Defense, Settlement and Supplementary Payments Coverage
It pays costs of legal fees, interest on judgments, and premiums for appeal
bonds. Settlement paid under this coverage is in addition to the face amount of
the policy.
The Inspection Service is provided free of charge by the insurance company.
An inspector can shut down an unsafe boiler or other machinery and the
company may suspend coverage for damage caused by the faulty equipment
until it is repaired.
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Building
Medical Expenses
BOP Eligibility
The BOP is available for these classes of business:
Retail
Offices
Services
Apartments
Wholesale distributors
Contractors
Small restaurants
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The BOP is a multi-peril policy that includes basic property and liability
coverages. Optional coverages allow an insurance professional to design a
policy customized for each small business.
The Business Owners Declarations for a BOP and a Commercial Package policy
are similar.
Eligibility rules for a BOP are more stringent than those for the CPP. BOP
policies typically cover a business with annual revenues of $3 million or less,
occupying an area of up to 25,000 square feet, or an owned building of up to
100,000 square feet and less than six stories.
The following businesses are not eligible for a BOP:
Places of amusement
Service stations
Wholesalers
Contractors
Bars
Fire
Lightning
Explosion
Windstorm or hail
Sprinkler leakage
Smoke
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Aircraft or vehicles
Sinkhole collapse
Volcanic action
The Business owners Special Property form provides All Risk or Open Peril
coverage.
Optional Coverages
They are available for:
Outdoor signs
Computer
Mechanical breakdown
Building Coverage
Both Business owners Property forms provide coverage for buildings and
business personal property. Coverage for buildings includes:
Completed additions
Fixtures
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If no other insurance applies, then the following are also usually covered:
o Alterations and repairs to the buildings or structures
o Additions under construction
o Materials, equipment, supplies and temporary structures that are
on or within 100 feet of the premises and being used for additions,
alterations or repairs
Motor vehicles
Aircraft
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Coverage Extensions
Coverage extensions in both Property forms allow the insured to extend the
insurance for specified purposes. The extensions generally include a higher limit
of liability.
Business Personal Property at Newly Acquired Premises
It covers personal property that is moved to premises the insured acquires during
the policy term. Maximum limit is $100,000.
Business Personal Property off Premises
It covers business personal property while it is in transit or temporarily located at
premises not owned, leased or operated by the insured. A $5,000 limit applies.
Outdoor Property
Extends coverage by an average of $1,000 for outdoor property like fences,
signs, trees, shrubs, plants, and radio and television antennas. A limit of $500
maximum per tree applies.
Personal Effects
Up to $2,500 in Business Personal Property coverage for personal effects owned
by the insured and the insureds employees.
Accounts Receivable
Reimburses insured for money that cannot be collected from customers due to
damage to the insureds accounts receivable records. Coverage is limited to
$5,000 for records on the premises and $2,500 for records that are not on the
premises.
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Optional Coverages
Optional coverages usually require an additional premium. They include:
Outdoor Signs
It covers damage to all outdoor signs owned by, or in the custody or control of,
the insured.
Employee Dishonesty
It covers loss to business personal property, money or securities that results from
dishonest acts of employees.
Interior Glass
It covers loss to glass items that are permanently attached.
Mechanical Breakdown
It covers damage caused by sudden and accidental breakdown of boiler and
pressure vessels.
Burglary and Robbery (Standard form only)
It covers burglary and robbery to business personal property, money and
securities. The limit for business personal property is 25% of the business
personal property limit shown in the Declarations.
Money and Securities (Special form only)
It covers loss of money and securities from theft, disappearance and destruction.
The Business owner Liability Coverage form protects against loss from bodily
injury, property damage and for personal and advertising injury. It also provides
medical expense coverage.
The standard Liability and Medical Expense limit of $300,000 is the most the
insurer will pay for damages arising from one occurrence that results in bodily
injury (BI), Property damage (PD) and medical expenses. It is also the limit for
personal and advertising injury sustained by any one person or organization.
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Supplementary Payments
Supplementary payments are also included in the Business owners Liability form.
Most of them are paid in addition to the policy limit. They include:
Up to $250 for the cost of bail bonds related to violations that arise from
vehicles.
Intentional injury
Contract or agreement
War
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Lesson 4:
OTHER TYPES OF POLICIES
This lesson focuses on the following topics:
Personal Floaters
Commercial Floaters
Flood Insurance
Earthquake Form
Additional Coverages
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Imports
Exports
Domestic shipments
Personal Floaters
A floater is coverage on property that moves from one location to another. It is
written on an all risk or open perils basis to cover all scheduled and
unscheduled personal property. Think of a floater this way: a homeowners policy
covers items that generally stay in the home; a floater covers items that are away
from the home.
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Most personal floaters limit the insureds settlement to actual cash value at the
time of loss, or the cost to repair or replace the property. The following perils are
excluded from floater coverage:
War
Flood
Earthquake
Dishonesty of employees
The following floaters must be attached to a valid Personal Inland Marine policy:
A Personal Articles Floater (PAF) covers all risks from physical loss or
damage to specified classes of property valued at $100 or more, like
silverware, fine arts, camera and golf equipment.
o The PAF may be written as a separate policy or attached to an
existing policy.
o The policyowner must provide a detailed appraisal of insured items.
Commercial Floaters
Commercial floaters protect business property and equipment on premises and
in transit. They can be written on a scheduled or a blanket basis for named perils,
or for all risk of loss. The market offers commercial floaters designed for every
conceivable business segment. Check out these examples, which prove the point
that Business Property Insurance allows policyowners to carefully customize
coverage:
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Transportation policies protect either the shipper or the carrier for loss to
shipments in transit.
The Neon and Electrical Sign floater protects against loss to neon and
electrical signs, just like its name implies.
Flood Insurance
Anyone who has lived through a flood has a detailed definition of one, but for
insurance purposes, a flood is defined as a general and temporary condition of
partial or complete inundation of normally dry land areas from the overflow of
inland or tidal waters, or the unusual and rapid accumulation of runoff of surface
waters from any source.
Flood losses are generally excluded from most personal and commercial line
policies. Luckily, National Flood Insurance, sponsored by the Federal
Government through the National Flood Insurance Act of 1968, offers flood
insurance to homeowners and businesses.
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Under the federal National Flood Insurance Program (NFIP), property owners
may purchase flood insurance as long as their communities have met the
minimum NFIP standards for land use and water control hazards. The program is
managed by the Federal Insurance Administration (FIA) which is a branch of the
Federal Emergency Management Agency (FEMA).
The Emergency program goes into effect when the community applies to the
NFIP, and remains in effect until the government finalizes the Flood Insurance
rates for that community.
Under the emergency program, insureds may purchase limited amounts of Flood
Insurance for buildings and contents at subsidized rates.
o Policies include a standard minimum deductible of $1,000 for
policies rated on the basis of subsidized rates. A higher deductible
is available for a premium discount.
Under the Regular Flood Insurance program, a property owner in an approved
community is eligible for Flood Insurance to cover residential and commercial
buildings and contents, and farms.
o The standard deductible is $500, except for:
Livestock
Roads
Growing crops
Motor vehicles
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Hull Insurance
Provides Physical Damage coverage for the ships structure while in transit
on oceans, rivers and lakes.
Offers coverage for a single vessel or an entire fleet.
Limited liability insurance may also be included, providing protection for the
negligent operation of a vessel and damages to another ship.
Cargo Insurance
Covers goods while they are in transit over water.
Coverage is extended to include property from its point of origination to its
point of destination and incidental travel on land.
Coverage can be purchased for a single trip (voyage) basis.
Importers and exporters can purchase open cargo insurance that covers all
shipments by the insured.
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Freight Insurance
Protects against shipping costs losses. For example, if the owner of the
cargo prepays shipping costs and the cargo is lost, the owner will lose the
shipping charges unless they are covered by freight insurance.
Freight insurance can be written separately or included with Hull or Cargo
Insurance.
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Seaworthiness
The vessel must be fit for the voyage, not overloaded, and carry a competent
crew.
Legality
The trip must be for a legal purpose.
Conditions of Cargo
The cargo must be warranted to be sound and properly packed.
No Deviation in Voyage
The ship must follow an agreed route, with no changes in destination.
Earthquake Form
Because earthquakes are not listed as a common peril, Dwelling and
Homeowners policies do NOT cover losses sustained from earthquakes. Many
companies, however, will issue earthquake protection as an endorsement to a
Dwelling or Homeowners policy, or as a separate policy.
Earthquake insurance generally covers damage to a structure, its contents, or
both as the result of an earthquake.
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Insurance basics still apply to Farm insurance: The insured must have an
insurable interest in the farm, whether the insured is a local owner or an
absentee landlord, and risks must be carefully assessed to assure proper
coverage.
Definitions
Farm Personal Property
Includes equipment, supplies, and products of farming or ranching operations,
including but not limited to: feed, seed, fertilizer, livestock, other animals, poultry,
grain, bees, fish, worms, produce and agricultural machinery, vehicles, and
equipment.
Livestock
Includes cattle, sheep, swine, goats, horses, mules, donkeys.
Poultry
Includes fowl kept by the insured for use or sale.
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Water
Note: For replacement cost coverage to apply, the policy must be written to
protect against 80% of the dwellings replacement value.
Water
Business property
Property and Casualty Insurance
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Farm personal property, BUT any office-related items and furniture used in
an on-premise office IS covered.
Grain, ground feed, silage, and manufactured and blended livestock feed
in buildings or structures, sacks, wagons or trucks.
Grain in stacks, shocks, swaths, or piles in the open are insured against
losses by fire, lightning, vehicles, and theft.
Hay, straw and fodder in buildings, structures, or bales are covered for
losses by fire, lightning, windstorm, hail, vehicles, and theft.
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Any and all motorized vehicles primarily designed and licensed for road
use, BUT farm wagons and farm trailers are not excluded.
Bulk milk tanks, bulk feed tanks or bins attached to buildings or structures;
barn cleaners, pasteurizers or boilers; any permanent fixtures within or
attached to buildings.
Brooders or fences
Irrigation equipment
Portable structures
Borrowed farm machinery, vehicles and equipment. But this does NOT
include:
o Motor vehicles primarily designed and licensed for road use-other
than farm wagons and farm trailers.
o Watercraft or aircraft and their attendant parts.
o Dealers' demonstration machinery, vehicles or equipment.
Farm machinery, vehicles and equipment away from the insured location
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Motorized vehicles primarily designed and licensed for road use, and
watercraft or aircraft including their attendant parts and equipment
Irrigation equipment
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Portable structures
Fences, corrals, pens, chutes, and feed racks-this does NOT include field
or pasture fences
Water
Fire or lightning
Livestock or poultry are NOT covered under Basic when their loss caused
by running into bodies of water or against fences or other objects,
smothering, or injury resulting from fright
Explosion
Direct loss from volcanic action when loss is caused by airborne volcanic
blast or airborne shock waves, ash, dust, particulate matter, or lava flow
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Aircraft
Vehicles
Vandalism
Loss is excluded if the dwelling has been vacant for more than 30 days
Broad Coverage covers losses under the Basic form, plus the following:
Breakage of glass
Falling objects
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Special Coverage
Farm insurance offers multiple special coverage options, but the following are
exclusions to special coverage in the Farm Property form:
Rain, snow, sleet, sand, or dust to the interior of a building unless the
building first sustains wind or hail damage to roof or walls.
General Exclusions
The following are excluded from coverage under the basic, broad, and general
forms:
Losses caused by enforcement of building ordinances or laws.
Intentional loss, meaning acts committed with the intent to cause a loss.
Nuclear hazard
Power failure
Water, including flood, surface water, waves, tides, tidal waves, overflow
of any body of water, or spray, mudslide or mud flow, water backing up
from a sewer or drain, water under the surface of the ground.
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Additional Coverages
Collapse
Damage from partial or full collapse of a building is covered if the collapse is
caused only by one or more of the following:
Hidden decay
Other Coverages
Debris removal and fire service charges are covered under all Coverages, but
wise insurance professionals will pay attention to the details of additional
coverages, which can be confusing.
Example: removal of fallen trees is possible under Coverages A, B, C and D, but
coverage up to $2,000 to research and restore damaged data records is only
available only with Coverages E and F.
This concludes lesson four.
Return to your online course player to take the Lesson Quiz.
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Lesson 5:
POLICY PROVISIONS AND CONTRACT LAW
This lesson focuses on the following topics:
Introduction
Mortgagee Rights
Appraisal
Other Insurance
Assignment
Subrogation
Arbitration
Concealment
Binder
Introduction
All insurance policies include certain definitions, statements of duties, and other
items required to make a policy a legal contract. Insurance professionals will
encounter these terms on a daily basis and have a legal and ethical duty to
explain them to prospects and clients.
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In some cases, however, a person not specifically named in the contract still has
recovery rights in the event of loss. A house guest, for example, is covered for
specific loses under Dwelling and Homeowners forms.
Mortgagee Rights
The mortgagee - the bank or lender - stands to lose if a mortgaged property is
damaged, and so has an insurable interest in that property. That means the
mortgagee has the right to file a proof of loss within 60 days of receiving notice of
the insureds failure to file.
If the insurer decides to cancel or not renew the policy, the mortgagee must be
given 10 days written notice
Appraisal
Imagine this scenario: Jane Business owner suffers a property loss when a very
large tree smashes through the roof of her shipping department, destroys
inventory and fork lifts stored inside as well as the oldest part of the building that
had been turned into a shipping warehouse. The amount she gets from her
insurer depends on how much loss occurred, but she and the insurer have
different opinions on the value of the loss and are at a stalemate.
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In this situation, both the insured and the insurer is required to:
1. Obtain an independent appraisal.
2. Share in the cost of an umpire who will settle the dispute.
3. Abide by the umpires decision because legally, it is final and binding.
The umpire only decides the amount of a settlement. The question of whether
coverage exists would be decided in another legal venue.
Other Insurance
When more than one insurance company insures a piece of property,
pro rata liability rules will apply, in keeping with the doctrine of indemnity. The
formula to establish settlement contributions is as follows:
Company A Coverage Amount
----------------------------------------Total Amount of Insurance
(from all companies)
SHOULD
Coverages from all companies
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Example
Alice, a hard working author, purchases a retreat home in upstate Wisconsin.
Alice needs seclusion to write her blockbusters but unfortunately, the price of
seclusion is loss of convenient services like nearby fire hydrants.
Alice attempts to purchase a full coverage insurance policy for her $300,000
home from Lake in the Hills Insurance Company, but the Company will only
provide insurance for $150,000 (Policy A). Alice then goes to the Elgin
Insurance Company and picks up a policy (Policy B) for the remaining
$150,000.
What will happen if there is a $50,000 loss? Will both companies pay the
$50,000?
Well, we know for sure that both companies wont pay the $50,000 because
of the doctrine of indemnity. Lets take a look at what the companies will pay
under pro rata liability:
Policy A = $150,000 x $50,000 = $25,000
-----------$300,000
Policy B = $150,000 x $50,000 = $25,000
------------$300,000
Total Settlement = $50,000
Assignment
The Assignment condition specifies that a policy may not be transferred to
anyone else without the written consent of the insurer, unless the insured dies. In
that case, the rights and duties under the policy are transferred to the insureds
legal representative.
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Subrogation
Subrogation is a word that means substitution. In the legal arena the process
works like this:
The insureds insurance company (Company A) pays losses that were caused by
an insured of another insurance company (Company B). In return for paying the
claim, the insured gives Company A the right to arbitrate or sue Company B to
recover the payment. Subrogation is this transfer of the insureds right of
recovery against others to an insurance company.
Arbitration
Arbitration is used to resolve areas of disagreement between: (1) the insured and
the insurance company, (2) between two insurers or, (3) in the case of liability
insurance, between the company and a third party.
An arbitrator listens to both parties and makes a fair decision based on oral
evidence provided by both. Typically, both parties agree to be bound by the
arbitrators decision.
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3. Consideration
In a valid contract, all parties provide something of value a Consideration.
Lets make a deal, says the prospect to the insurer. Ill fill out the forms and
pay the premium and you promise to pay for a covered claim in the future.
The deal is done, says the insurer. Our mutual consideration requirements are
satisfied.
This kind of contract, in which one party pays something and the other party
promises to do something in the future, is known as a Unilateral Contract.
4.Contract Must Be For A Legal Purpose
For example, you cant buy a policy with the intent to kill the insured to collect the
proceeds.
5. Meeting of the Minds, or Competent Parties
All parties must be competent, understand the terms, and have the capacity to
contract. If the contract is written in a foreign language your prospect doesnt
understand, or if the contract language is so confusing that it cannot be
understood by a reasonable person, and has not been explained by the agent,
there is no valid contract.
Courts have determined that minors have the capacity to contract for life
insurance, but not for property and casualty insurance.
5. Meeting of the Minds, or Competent Parties
All parties must be competent, understand the terms, and have the capacity to
contract. If the contract is written in a foreign language your prospect doesnt
understand, or if the contract language is so confusing that it cannot be
understood by a reasonable person, and has not been explained by the agent,
there is no valid contract.
Courts have determined that minors have the capacity to contract for life
insurance, but not for property and casualty insurance.
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Sometimes specific agreements between the insured and the insurer specify
that certain conditions will be met. For example, an agreement might require a
small convenience store to hire a security guard during the nighttime hours
because of local crime problems.
Such an agreement is called a warranty, and becomes part of the policy. A
breached agreement can void the policy.
Concealment
Concealment is failure to disclose a material fact that would have prevented the
contract from being agreed to had it been known by the insurer.
Binder
A Binder is a temporary contract of insurance - oral or written - offered by an
insurer or an agent with the authority to issue a binder. It provides temporary
coverage of the insured until the policy is officially issued. A binder is usually
written for a period of 30 or 60 days and remains in force for that period unless
canceled, or until a permanent policy is issued or refused by the insurer.
A binder does not guarantee that a policy will be issued. It only guarantees
Temporary coverage.
Coverage under a binder may be cancelled by a formal cancellation or a rejection
notice. If no formal action is taken by the insurer the binder remains in effect until
it expires.
Example: Neil purchases a new car and calls his insurance agent.
The agent tells Neil that hes covered for a period of 60 days. This is
an example of a binder. The insurance company then reviews the application
and decides not to issue the policy. However, the insurance company
doesnt send a notice to Neil. It gets worse. Thirty days later, Neil is in a car
accident and its his fault. Is he covered?
Yes he is, because the agent issued a binder and would have coverage
for this loss unless notified to the contrary.
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Inspection reports
Credit reports
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Policy Provisions
After completing this module and reviewing the relevant material specific to your
state, you will be prepared to pass the test that will allow you to protect your
clients through Casualty Insurance.
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Lesson 6:
INSURANCE TERMS AND RELATED CONCEPTS
This lesson focuses on the following topics:
Purpose of Insurance
Risk
Hazards
Indemnity
Insurable Interest
Negligence
Liability
Burglary
Robbery
Theft
Mysterious Disappearance
Binder
Concealment
Limits of Liability
Deductibles
Insured Contracts
Certificate of Insurance
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Introduction
This lesson will review many of the terms you learned in the Property Module and
add several that are specific to Casualty Insurance.
Purpose of Insurance
The purpose of insurance is to provide a practical solution to economic
uncertainties and unexpected losses by spreading risk. For test purposes,
insurance is defined as a social device for handling risk by transferring it.
D - Declarations are usually found on the first page of the policy, and
include: the kind of insurance, the name and address of the insured,
description of the property, amount of coverage, and the cost of the policy.
I - Insuring Agreements are the core of the policy. This section describes
the insured property and the perils that are covered by the policy. To use
insurance language, it describes the losses for which the insured will be
indemnified or protected.
Risk
A risk involves uncertainty, or the chance of a loss. There are two types of risk:
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Hazards
A hazard is any factor, or any situation, that increases, or contributes to, the
probability that a peril will occur, thereby increasing the chance of a loss. Oily
rags stored next to a furnace constitute a hazard.
An insurance company is concerned about three kinds of hazards.
Types of Hazards
Moral Hazard: The possibility that the insured may try to defraud the
insurance company through intentional and deliberate destruction of
property, by arson, for example.
Morale Hazard: Attitudes or behaviors that make a loss more likely, like
indifference, carelessness, laziness or lack of concern for the property.
Leaving keys in a car, smoking in bed, and exceeding the speed limit are
all morale hazards.
Indemnity
Indemnity is simply the duty of protecting against loss or damage. Insurance
contracts are contracts of indemnity. The insurance company indemnifies the
policyowner by promising to protect against covered losses up to the limit of the
policy.
The purpose of indemnification is to restore the policyowners financial position
enjoyed before the loss occurred.
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Insurable Interest
In order to from insurance, the policyowner must stand to lose something
financially should anything happen to the insured items. The policyowners
insurable interest must be valid at the time of a loss.
Negligence
The law imposes a duty on everyone to act in a reasonable and prudent manner.
When they dont they violate Tort Law. A Tort is a legal wrong that results in
injury to persons or property. Insurance companies will not cover intentional acts
that violate Tort law.
Negligence can be seen as an unreasonable or imprudent act, but it is never an
intentional act. Negligence is also known as an unintentional Tort.
Insurers have created a checklist to determine whether one fails to do what a
reasonable person would do under similar circumstances.
A case for negligence can be made if all four questions can be answered with a
yes. The insurance policy will typically pay for the covered losses.
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Liability
Liability insurance protects policyowners against financial loss from claims by
third parties. Like other risks covered by the general insurance system, it works
by transferring the burden of financial loss from the insured to the insurance
company.
Burglary
Burglary is the forcible entry into or exit out of an insureds locked premises, and
the carrying away of property belonging to the insured. Burglary can also include
the act of forcing a guard to open a locked premise.
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Robbery
Robbery is not simple theft. It is the forcible removal of an insureds property from
a messenger or custodian through violence, or the threat of violence by any
means that may injure or murder the messenger or custodian.
Theft
Theft is a broad term that includes any unlawful taking of property, including the
acts of burglary and robbery. The term theft, however, does not include all
forms of stealing. For example, it usually does not include employee dishonesty.
Mysterious Disappearance
A mysterious disappearance is as unexplained in the insurance world as it is in
an old black-and-white detective movie property simply vanishes with no known
explanation.
Binder
A Binder is a temporary contract of insurance oral or written offered by an
insurer or an agent with the authority to issue a binder. It provides temporary
coverage of the insured until the policy is officially issued. A binder is usually
written for a period of 30 or 60 days and remains in force for that period unless
canceled, or until a permanent policy is issued or refused by the insurer.
A binder does NOT guarantee that a policy will be issued. It only guarantees
temporary coverage.
Coverage under a binder may be cancelled by a formal cancellation or a rejection
notice. If no formal action is taken by the insurer the binder remains in effect until
it expires.
Property and Casualty Insurance
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Concealment
Concealment is failure to disclose a Material Fact that, had it been known by the
underwriter, would have prevented the underwriter from issuing the policy.
Limits of Liability
Limits of liability represent the maximum amount the insurance company will pay
for a loss. Within this framework, the principle of indemnity and applicable policy
conditions are used to determine the exact reimbursement in the event of a loss.
The limits of liability are found on the Declarations page.
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Deductibles
In order to avoid minor claims, companies usually write deductibles into their
property contracts. This means that the insured must pay some portion of the
loss. The insured will pay the deductible first and the insurance company will pay
the remainder of the claim within covered imitations.
Insured Contracts
Insured contracts are contracts to perform a service or use of property which,
because of the subject matter, requires insurance coverage to pick up any
potential covered risks.
Insured contracts could include any of the following:
A lease of premises
Certificate of Insurance
A Certificate of Insurance is the legal document that attests to insurance
coverage. It is a short-form summary of the coverage provided by the policy.
In Property Insurance, a Certificate of Insurance can prove the existence of a
master policy that provides protection for more than one person.
Property and Casualty Insurance
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Lesson 7:
TYPES OF POLICIES, BONDS, AND RELATED
TERMS
This lesson focuses on the following topics:
Basic Hazards
Occurrence
Claims Made
Who is an Insured?
Limits of Insurance
CGL Conditions
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Basic Hazards
Premises and Operations Exposure
Premises and Operations Exposure refers to liability that arises out of the
conduct of a business, including hazards of its location. It includes liability for
bodily injury, property damage and personal and advertising injury.
Personal and Advertising injury includes issues like slander, libel,
copyright infringement, invasion of privacy, false arrest, wrongful entry
onto anothers premises, and malicious prosecution.
Example: While visiting her local bank, Mary Jane slips on the floor because an
employee failed to wipe up water caused by a rain storm. The bank is liable
because of the condition of its premises.
Independent Contractors
From time to time, a business can be held liable for the actions of others.
This is known as Contingent Liability, which arises out of the work done by
independent contractors. In general, an individual business cannot be held
responsible for the negligence of an independent contractor, unless:
Contractual Liability
Contractual liability applies to insured contracts, which include all of the
following:
A lease of a premises
A sidetrack agreement
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CGL Declarations
Before learning the details of GCL coverage, lets revisit the idea of an
occurrence and understand the requirements for making claims.
Occurrence
You will recall that an occurrence is an accident that involves continuous or
repeated exposure to the same general harmful conditions. Coverage under
the occurrence form is triggered by damage or injury that occurs during
the policy period.
If a policy has been written on an occurrence basis, the insurer will pay a claim
that is covered, even if the claim is submitted after the effective policy period, as
long as the accident occurred while the policy was in force.
Claims Made
With a Claims Made policy, the insurer will only cover claims made during
the policy period, rather than cover occurrences and allow claims to be submitted
after the policy period.
A Claims Made Policy is designed to prevent a phenomenon called stacking of
liability claims. Suppose an occurrence happened repeatedly over a 2 to 3 year
period. Under an occurrence basis policy, the insured could stack claims to
gain maximum liability limits for each year.
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The insurer renews or replaces the form shown in the Declarations of the
current form.
If an event took place before the Claims Made policy expired, but it
appears that the claims may not be made until after the 60 day basic
extended reporting period, the insured has up to 60 days after the policy
expiration to report the occurrence or offense to the insurer. In this case,
the five year basic extended reporting period automatically applies, and
Claims for damages arising from the reported occurrence can be brought
any time during the five year period.
The extended reporting period takes effect at the end of either the 60 day
or five year ERP, whichever applies.
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Retroactive Date
The Retroactive Date is the date when a Claims Made policy may not pay.
However, the retroactive date can provide some measure of protection against
previous losses that may have occurred before the claims made form was
written.
The retroactive date is listed in the CGL Declarations. The insured has
three options for the retroactive date:
o Use the same date as the policy effective date.
o Use an earlier date than the policy effective date.
o Use no retroactive date.
When selling a new CGL policy, agents should take care to not create a
gap when the insured has no coverage.
Coverage A
Premises
BI and PD Operations
Products
Completed Operations
Independent Contractors
Contractual
Fire Legal
Coverage B
Personal Injury
Advertising Injury
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Coverage C
Medical Payments
Supplementary Payments
Products
Completed operations
For coverage to be effective, the BI or PD must occur within the policy period,
and must be caused by an occurrence.
Property damage means physical injury to tangible property, including the
resulting loss of use of that property, as well as the loss of use of tangible
property that is not physically injured.
The insurer has the right and the duty to defend against any suit that seeks BI
and PD damages.
Exclusions to Coverage A
Coverage A does not apply to BI and PD caused by:
War
Work-related occurrences
Discharge of pollutants
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Damage to the insureds own product arising out of the product itself
Any loss, cost or expense incurred by the insured for the recall of a
product because of a known or suspected defect
Malicious prosecution
Libel
Slander
False arrest
Defamation of character
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Exclusions to Coverage B
Coverage B will not protect the insured when the insured:
A breach of contract
Defense costs
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The cost of appeal bonds and attachment bonds, but the insurance
company is not responsible for actually providing the bonds
Any interest awards made to the other person to offset the time between
the occurrence or the judgment and the actual payment of damages
Ambulance
Funeral expenses
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Exclusions to Coverage C
Medical payments will not cover expenses for bodily injury to:
Insureds
Who is an Insured?
Since the need for liability insurance varies with the type of business, the CGL
addresses all types of business structures:
Note: In all these cases, employees are also insured for acts within the scope of
their employment. The insureds legal representative is considered an insured if
the insured dies, but only with respect to duties as the legal representative.
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Limits of Insurance
The Limits of Insurance shown in the Declarations establish the most the insured
will be paid, regardless of the number of insureds, claims made, suits brought or
persons bringing suit.
The Declarations include several kinds of limits:
The General Aggregate Limit is the most the insurance company will pay
during the policy period for BI and PD, except those provided for under Products
Completed Operations coverage. This limit can be modified by endorsement so
that it applies separately to each of the insureds locations or projects.
Aggregate Limits of liability are established for all coverages included under two
sets of claims:
The Personal and Advertising Injury Limit represents the most that will be paid
under Coverage B for the sum of all damages due to personal injury sustained by
any one person or organization. This limit is also subject to the overall General
Aggregate Limit.
Each Occurrence Limit is the most the insurance company will pay for the sum of
all damages under Coverage A and C because of bodily injury, property damage
and medical payments, arising out of any one occurrence. This limit is also
subject to either the General Aggregate Limit or the Products Completed
Operations Aggregate Limit, whichever is applicable.
Damage to Premises Rented to the Insured Limit represents the most that will be
paid under Coverage A for liability for fire damage to premises rented to the
insured - or occupied by the insured with the owners permission - arising out of
any one fire. This limit is also subject to the Per Occurrence Limit and the
General Aggregate Limit.
Medical Expense Limit is the most that will be paid under Coverage C for all
medical expenses because of bodily injury sustained by any one person. The
Medical Expense Limit is subject to the Per Occurrence and General Aggregate
Limits.
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CGL Conditions
These conditions are found in both the Occurrence and Claims Made forms.
Legal Action against Us states that no person or organization has the right
to join the insurance company as a party, or to bring the insurance
company into a suit.
Nonrenewal
If the insurer decides to not renew the CGL policy, it must mail or deliver written
notice of nonrenewal to the first named insured at least 30 days before the
expiration date of the policy.
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The insurer is obligated provide the first named insured certain information
relating to the current CGL claims made form and any previous claims
made forms the insurer has issued to the insured during the previous
three years. This information includes:
o A list or record of each occurrence not previously reported to any
other insurer of which the insurer has been notified according to
policy provisions.
o A summary, by policy year, of payments made and amounts
reserved under any applicable General aggregate Limit and
Products Completed Operations Aggregate Limit.
If the insurer cancels or does not renew the policy, it will provide this
information no later than 30 days prior to termination.
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Under the O&CP insuring agreement, claims will be paid for bodily injury
or property damage due to operations performed for an insured who is
named by a contractor designated in the Declarations agreement, and
only at the designated location.
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Lesson 8:
AUTOMOTIVE: PERSONAL AUTO AND BUSINESS
(COMMERCIAL) AUTO
This lesson focuses on the following topics:
Introduction
PAP Coverages
Who is an Insured?
Exclusions
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Introduction
Americans love their cars and trucks. The United States has more than 243
million registered passenger vehicles and 196 million licensed drivers to operate
them. Thats 1.2 vehicles for every driver! And every vehicle needs insurance,
whether it is used for personal or business purposes. This is a huge market. It
pays for every agent to be an expert on automotive insurance.
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PAP Coverages
Part A - Liability Coverage
Part A provides payment for Bodily Injury and Property Damage for which the
insured becomes legally liable. Under this Part, the company promises to settle
and defend claims brought against the insured involving the insureds use of an
auto. The company also agrees to pay for all defense costs.
The definition of insured is quite broad and includes not only family members,
but anyone who drives a vehicle with permission. The liability coverage under a
PAP policy is for any insured who becomes legally responsible for the bodily
injury or property damage to someone else because of an auto accident. An
insurance company will pay sums up to limits stated in the Declarations portion of
the PAP.
Coverage begins at 12:01 a.m. on the date listed in the policy.
Damages paid for bodily injury include not only payments of documented medical
costs, but also for a persons pain and suffering due to the injury.
Property damage extends to any kind of property that is damaged due to the
negligent operation of an auto including vehicles, buildings, street lights or any
other kind of stationary object.
The insurer has the option to settle or defend any claim or suit that it deems
appropriate. The insured cannot dictate coverage payment or refusal.
Liability Limits
Part A liability is the most the company will pay for all damages resulting from
any one auto accident, regardless of the number of insureds, claims filed,
vehicles or premiums listed in the Declarations, or vehicles involved in the
accident.
Liability coverage is written on a split limit basis such as 20/30/15. The first two
numbers are related to bodily injury. In this case, the liability limits are: $20,000
per person for bodily injury in any one accident, $30,000 per accident for bodily
injury; and $15,000 maximum for all property damaged in any one accident.
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Any organization that holds legal responsibility for the acts or omissions of
a person for whom coverage is afforded under this part.
PAP Example
Melvin Doofis, a citizen of a town called Eat n Plenty, is the head coach of
the towns football team. On a hot summer night, Melvin decides to host an
outdoor pool party at his house for the entire football team, friends and
relatives. Since all of the 250 guests brought automobiles to the dinner, parking
is a problem. Melvins car is parked at the top of his driveway. Billy Bob, Melvins
quarterback, parked his car just to the right of Melvins. In back of those cars, are
two cars belonging to the Eat n Plenty cheerleaders, Pattie and Sally.
In the middle of the party, Melvin runs out of snacks, and the team is getting
rather hostile and ugly. Melvin asks Herman to accompany him to the grocery
store. He borrows Sallys car, which is located in the driveway nearest the street.
Sally carries minimum limits of 10/20/5 liability insurance. Melvin carries
200/300/200.
Lets take a look at the following facts to understand some of the issues in this
situation:
1. Whose auto insurance liability applies if there is an accident?
Sallys liability insurance applies when Melvin drives her car with her permission.
By definition, Melvin becomes an insured under Sallys liability coverage.
2. If Melvin negligently runs a stop sign, hits a light pole and causes
injuries to himself and Herman, whose liability insurance would cover both
Hermans and Melvins injuries?
Sallys liability insurance would apply to both on a primary basis because at the
time of the accident, the driver - Melvin - is an insured under her policy, and
Herman - the passenger - is also an insured.
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Up to $200 a day for lost wages when the insured is required to attend a
legal hearing or trial.
Exclusions
Part A does not pay for:
Damage to property rented to, used by, or in the care of the insured.
Damages to any vehicle that is being used for regular business purposes.
Motorized vehicles with fewer than four wheels, or designed for use off of
public roads.
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Exclusions
Part B Medical Payments coverage does not apply to bodily injuries for any
persons who sustain the injuries while:
Occupying any vehicle other than a covered auto owned by, or used
regularly by, a named insured or family member.
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With liability coverage, but not enough to meet the states financial
responsibility requirement.
Without liability coverage at the time of the accident because the insurer is
insolvent or denied coverage.
The above definition of an uninsured motor vehicle does not apply to:
Vehicles owned by, or made available for, the regular use of the insured or
any family member.
The person named as the insured in the policy and family members.
Exclusions
Part C does not cover losses:
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That occur while the insured is using an auto without the reasonable belief
that he or she is entitled to do so.
Limit of Liability
Coverage for Part C is subject to the limits of liability explained in Part A. In other
words, the overall limit remains the limit, regardless of whether injuries are
sustained by an accident with an insured or uninsured motorist.
Collision
Collision means the upset of a covered auto or its impact with another vehicle or
object. When a loss is not considered to be from a collision, it will be covered
under something other than collision coverage. Autos will be replaced on an
Actual Cash Value (ACV) basis.
Comprehensive coverage is a loss other than from collision and addresses
damage losses to the insured vehicle caused by:
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Fire
Theft or larceny
Explosion or earthquake
Windstorm
Breakage of glass
Exclusions
Electrical breakdown
Mechanical breakdown
Rental Cars
Car rental companies make the renter responsible for loss or damage to the
rental car. Collision damage waivers may be purchased to relieve the renter of all
or part of responsibility for loss or damage to a rental car. Under a PAP,
Coverage D provides some coverage for a rental car, but details vary.
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Be specific as to all the details of the loss, including when and where the
loss occurred, how it occurred, names and addresses of witnesses and
data about injured persons.
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The liability coverage will pay all sums an insured legally must pay as
damages because of bodily injury or property damage to which the
insurance applies, caused by an accident and resulting from the
ownership, maintenance or use of a covered auto. This coverage is similar
to the PAP coverage.
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Fire
Lightning
Explosion
Theft
Windstorm
Hail
Earthquake
Flood
Vandalism or mischief
Who is an Insured?
Named insured
Exclusions
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Pollution damage.
Any auto not owned by the named insured that is being used as a
temporary substitute for a vehicle shown in the Declarations that is out of
use because of breakdown, repair, servicing, loss or destruction.
Liability coverage
Garagekeepers coverage
Covered Autos
Customer autos left with the insured for service, repair, storage or
safekeeping.
Physical damage coverage only for the dealers autos and autos held for
sale by dealers, nondealers or trailer dealers.
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Liability Coverage
The Garage coverage form covers both auto and business liability arising from:
Garage operations
Covers the insureds liability for damage to customers property that the
insured has for servicing, repair, parking, or storage
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Lesson 9:
OTHER POLICIES: WORKERS COMPENSATION
INSURANCE, EMPLOYERS LIABILITY
INSURANCE AND RELATED ISSUES
This lesson focuses on the following topics:
Job Classification
Surety Bonds
Professional Liability
Aviation Insurance
Nearly all states that allow private insurance companies to offer coverage
use the standardized Workers Compensation and Employers Liability
policy filed by the National Council on Compensation Insurance (NCCI).
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Because of their temporary status, the following types of employment are not
covered under state workers compensation laws:
Farm labor
Domestic employment
Casual employees
Job Classification
Workers Compensation groups businesses according to types of labor. The
business is classified, not individual jobs or operations. Classification is mainly
determined by the labor that generates the greatest payroll.
All employers and businesses in the same class receive the same rates.
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Example
Business A had five $1000 claims over their three-year period.
Business B had one $5000 claims over the same period.
Although the total dollar amount of claims is equal, Business B would likely be on
better footing than Business A because it only filed one claim.
Self insurance
Private insurance
State funds
Self Insured
Self Insured means a business chooses to cover exposure for workers
compensation through its own resources rather than purchase a policy. Most
states allow self insurance as long as the employer shows evidence of financial
adequacy. Self insurance - also called retention -is an option for large
employers who meet certain criteria by:
Posting a surety bond that will guarantee the security of benefit payments.
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Payments are made to employees regardless of fault, as long as the injuries are
work-related.
Under this part, the policy also pays for damages resulting from bodily
injury claims initiated by employees.
Exclusions
Part II does not pay for:
Bodily injury to an employee while employed in violation of the law with the
insureds knowledge
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A non-work related injury is one suffered by the employee while not in the course
of employment.
Example: If an employee sponsors a picnic and a work colleague is injured
playing softball, the injury would not be work related, and would not be covered
by workers compensation.
It is not available in those states that have a state fund in which private
insurance is not allowed.
The insurer reserves the right to inspect the workplace at any time.
The insured can cancel at any time, while the insurer must give 10 days
notice of cancellation.
Part V - Premium
This part explains how the cost of the policy is determined.
Part VI - Conditions
Part VI, Conditions, sets forth the various conditions that apply to the policy, such
as cancellation procedures, subrogation and the insurers right to inspect the
insureds workplace.
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Fidelity Bonds
A Fidelity Bond is an insurance policy that guarantees an employees honest
discharge of duties. It is written to protect an insured from dishonest acts by
employees.
Most fidelity bonds contain a discovery period, which is a period of time for which
indemnity still exists for loss after the bond itself has expired - usually after one
year.
Bonds are contracts between three parties:
Principal
The party who promises to do, or not to do, a specific thing. This is the person
bonded.
Surety
The party (often the insurance company) who agrees to be responsible for losses
that may result if the principal does not keep his or her promise.
Obligee
Party to whom the principal makes the promise, and for whose protection the
bond is being written.
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Although a loss does not reduce coverage for any future losses caused by other
employees, no more coverage will be provided for future losses caused by
someone who has already created a loss. Coverage is in effect whether
dishonest employees act separately or in collusion. There is a one year discovery
period.
2.Blanket Position Bond
It provides for a specific individual penalty listed in the bond for each of the
insureds employees. This bond has a multiple penalty, which means that the
payment of any one loss does not reduce the coverage offered for future losses
that may occur due to the actions of other employees. There is a two year
discovery period.
They provide a discovery or cut-off period for losses that occurred during
the term of the bond, but were not discovered until after its termination.
Surety Bonds
A surety bond is an insurance policy that guarantees one party will make good
the default, debt other obligation of another party.
Parties to a surety bond are:
Obligee
Individual or entity requiring a bond prior to commencement of business. The
Obligee receives the bond.
Principal
The primary individual or entity that obtains the bond and will be performing the
duties
Surety
The party who ensures that the Principals obligations will be performed.
Contract Bonds
Contract bonds guarantee that a specific contract will be completed to
specification. Contract bonds are often used in construction with contractors and
sub-contractors to guarantee performance.
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Judicial Bond
A Judicial Bond is any bond filed with the court. Examples include:
Administrator / Executor's Bond
Ensures an estates executor will execute duties toward a deceaseds estate
according to the law.
Guardian's Bond
Guarantees that a court-appointed guardian will carry out assigned custodial
duties in conjunction with a minor or incapacitated person.
Replevin Bond
If property is seized by the court, the Replevin bond ensures its return.
Additionally, if the court decides in favor of the other party, this bond guarantees
the payment of damages.
Outside the Premises coverage pays for loss of money and securities
through theft, disappearance or destruction outside the premises and in
the care and custody of an insured, business partner, employee, or
armored car company.
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Makes provision for coverage of property other than money and securities
both inside and outside the premises.
Inside the premises coverage may be written to cover both robbery and
safe burglary, or can be limited to either robbery or safe burglary. Outside
the premises coverage applies to robbery of property in the care and
custody of a messenger.
o A messenger is defined as an insured, partner, officer or any other
employee of the insured who is authorized to have custody of the
insured property outside the insured premises.
o A custodian is defined in the same way as a messenger, but is
found inside the premises.
o A guard or watchperson means any person the insured retains
specifically to have care and custody of property inside the
premises and who doesnt have any other duties.
Professional Liability
Professional liability arises from a failure to use due care, and/or exercise the
degree of skill required and expected in a particular profession. A profession is
a vocation, calling or occupation involving labor, skill, education and special
knowledge of an intellectual nature.
Typical professionals include physicians, attorneys, accountants, engineers,
architects, securities and insurance professionals.
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Automobile liability
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Aviation Insurance
Aviation insurance protects an individual or entity involved in the manufacture,
use or operation of an aircraft. Aviation insurance includes all facets of general
aviation - flight instructors, aircraft manufacturers, pilots, airlines or airports.
Like auto or homeowners insurance, aviation insurance provides coverage for
property damage and/or medical payments (when combined with passenger
liability coverage), property loss, and bodily injury.
Coverage is written as all-risk or all-risk while not in flight.
All-risk coverage protects against all risks while the aircraft is in the air or
on the ground, though there are usually exceptions and limitations.
All-risk while not in flight offers coverage to the aircraft only when it is on
the ground.
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Lesson 10:
POLICY PROVISIONS
This lesson focuses on the following topics:
Cancellation
Nonrenewal
Supplementary Payments
Proof of Loss
Notice of Claim
Arbitration
Subrogation
Other Insurance
Right of Salvage
Statute of Limitations
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D - Declarations are usually found on the first page of the policy, and
include: the kind of insurance, the name and address of the insured,
description of the property, amount of coverage, and the cost of the policy.
I - Insuring Agreements are the core of the policy. This section describes
the insured property and the perils that are covered by the policy. To use
insurance language, it describes the losses for which the insured will be
indemnified or protected.
Make all books and records pertaining to the loss available to the insurer.
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Cancellation
Either the insured or insurer may cancel provided coverage. Each property and
casualty policy details the reasons for which the insurer can cancel the policy.
These reasons must be in compliance with individual state laws.
The insurance company must give written notice as required by the state, but the
insured can request immediate cancellation, without notice.
If the insurance company cancels the policy any unearned premium will be
returned on a pro rata basis. There is no allowance for deductions such as
service fees. This allows the insured to get back all the money that has not been
used or applied to premium cost.
If the insured cancels the policy, any unearned premium will be returned on a
short rate basis, with deductions made for servicing the policy, and other fees.
With the short rate basis, the insurance company can recoup some of the costs
of underwriting and policy processing.
A flat cancellation occurs if either the insured or the insurance company cancels
the policy on its effective Date, with no financial loss to either.
Nonrenewal
Nonrenewal is a notice given by the insurance company to the insured indicating
the intention not to renew the policy upon the normal termination date. There
may be some limitations on the insurance company for nonrenewal.
Supplementary Payments
Liability policies provide certain Supplementary Payments that are paid in
addition to the policys regular limit of liability. These coverages vary from one
type of liability policy to another, but in general they include:
Premiums for certain types of bonds such as bail and appeal bonds.
Loss of earnings
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Proof of Loss
Filing a detailed proof of loss, which is an official inventory of the damages, is
one of the duties owed to the insurance company by the insured. Filing a detailed
proof of loss, which is an official inventory of the damages, is one of the duties
owed to the insurance company by the insured.
Notice of Claim
This is a responsibility of the insured after a loss. A Notice of Claim must be
given to the insurance company promptly.
Arbitration
Arbitration is used to resolve areas of disagreement between the insured and the
insurance company, between two insurers or, in the case of liability insurance,
between the company and a third party.
An arbitrator listens to both parties and makes a fair decision based on oral
evidence provided by both. Typically, both parties agree to be bound by the
arbitrators decision.
Subrogation
Subrogation is a word that means substitution. In the legal arena the process
works like this:
The insureds insurance company (Company A) pays losses that were caused by
an insured of another insurance company (Company B). In return for the claim
payment, the insured gives Company A the right to arbitrate or sue Company B
to recover the payment. This transfer of the insureds right of recovery against
others to the insurance company is called Subrogation.
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The FRCA also gives consumers the right to discover what information an
investigative agency has provided about them, and to whom such reports have
been made.
Other Insurance
When more than one insurance company insures a piece of property,
pro rata liability rules will apply, in keeping with the doctrine of indemnity. The
formula to establish settlement contributions is as follows:
Company A Coverage Amount
----------------------------------------Total Amount of Insurance
(from all companies)
SHOULD
Coverages from all companies
Example
Alice, a hard working author, purchases a retreat home in upstate Wisconsin.
Alice needs seclusion to write her blockbusters but unfortunately, the price of
seclusion is loss of convenient services like nearby fire hydrants.
Alice attempts to purchase a full coverage insurance policy for her $300,000
home from Lake in the Hills Insurance Company, but the Company will only
provide insurance for $150,000 (Policy A). Alice then goes to the Elgin Insurance
Company and picks up a policy (Policy B) for the remaining $150,000.
What will happen if there is a $50,000 loss? Will both companies pay the
$50,000?
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Well, we know for sure that both companies wont pay the $50,000 because of
the doctrine of indemnity. Lets take a look at what the companies will pay under
pro rata liability:
Policy A = $150,000
------------ x $50,000 = $25,000
$300,000
Policy B = $150,000
------------$300,000
x $50,000 = $25,000
Right of Salvage
When an insurance company settles a claim it owns a right to salvage the
property that has only been partially damaged, or which has been destroyed but
still has a salvage value.
The insurance company can reduce its losses in the matter by selling the
salvage to a salvage dealer.
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Statute of Limitations
Statutory law sets time frames during which an injured party can bring a lawsuit.
Unless legal action is brought within this time period, the right to sue for injury will
disappear. Each state has its own Statutes of Limitations.
This concludes lesson ten.
Return to your online course player to take the lesson quiz.
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