Texas Property & Casualty Textbook Questions

What is insurance?

Insurance transfers the risk of loss from an individual or business entity to an insurance company.

What is risk?

Risk is the uncertainty or chance of a loss occurring.

What is peril?

Perils are the causes of loss.

What are the three types of hazards?

Physical, moral, morale

Indemnify

To “restore” an insured to the same financial status as before the loss.

Subrogation

The acquisition by an insurer of an insureds rights against any third party for the indemnification of loss or other payment, to the extent that the insurer pays the loss.

What does subrogation prevent?

The insured from collecting twice.

How do direct losses impact indirect losses?

Direct losses can cause indirect losses.

Vacancy

An insured structure in which no people have been living or working and no property has been stored for the specific period of time.

Unoccupancy

An insured structure in which no people have been living or working within the required period of time, but some property is stored.

Accident

Sudden, unplanned event that results in injury to persons or damage to property that is neither intended nor expected.

Occurrence

Losses caused by continuous or repeated exposure to certain conditions.

What type of insurance provides coverage for multiple classes of property at one location?

Blanket insurance is a single property insurance policy that provides coverage for multiple classes of property at one location, or for one or more classes of property at multiple locations.

Actual Cash Value Valuation

A method of valuation that reinforces the principle of indemnity because it recognizes the reduction of value of property as it ages and becomes subject to wear and tear, and obsolescence.

When absolute liability is involved, does the injured party need to prove negligence?

With absolute liability, the injured party does not need to prove negligence.

If a product is unsafe, what kind of liability applies to the manufacturer?

Strict liability.

Proximate Cause

An act or event considered a natural and reasonably foreseeable cause of the damage to property or injuries to a plaintiff.

Certificate of Insurance

Written evidence showing that an insurance policy has been issued.

What are the four elements of an insurance contract?

Agreement, consideration, competent parties, and legal purpose.

Representation

Statements that are believed to be true to the best of one’s knowledge.

Warranty

An absolutely true statement upon which the validity of the insurance policy depends.

Binder

A temporary oral or written agreement issued by an agent or insurer that provides temporary coverage until a policy becomes effective.

What information is included in a policy’s declarations?

Basic underwriting information and any supplemental representations by the insured.

What are additional or supplementary payments?

The additional coverage portion of a policy that provides an additional amount of coverage for specific loss expense, at no additional premium.

What is included in the conditions section of a policy?

The general rules or procedures that the insurer and insured agree to follow under the terms of the policy.

When is an appraisal needed?

An appraisal is needed if there is a disagreement between the insured and the insurer on the value of any property loss.

How is an appraisal requested?

Either party can make a written demand for an appraisal. Each party will select a competent appraiser who will then select an umpire if they are unable to agree on a fair value.

Proof of Loss

A sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid.

Cancellation

The termination of an insurance policy by either party to the contract prior to the expiration date shown on the policy.

Nonrenewal

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

What is the purpose of the Fair Credit Reporting Act?

The act established procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used. It also protects consumers against the circulation of inaccurate or obsolete information.

What are the eligibility requirements for a dwelling property policy?

The dwelling policy can insure just the dwelling, only its contents, or both.

What are the three dwelling policy forms?

DP1 (Basic), DP2 (Broad), DP3 (Special).

What are extended covered perils on a basic policy?

ECP’s include windstorm or hail, explosion, smoke, aircraft and vehicles, riot or civil commotion, volcanic eruption, and vandalism and malicious mischief.

What perils are insured against in a special form policy?

The special form is an open peril form. All perils are insured against except those specifically excluded.

What does fair rental value include?

If property under coverage A, B, or C becomes damaged or destroyed and unfit for normal use, the policy will pay the fair rental value of the described premises under Coverage D - Fair Rental Value, or part of it used as a rental property.

When does worldwide personal property coverage apply? What is not covered?

The insured may elect to apply up to 10% of the personal property limit to pay for losses to personal property away from the premises. There is no coverage for rowboats or canoes, or for property of guests and servants if away from the insured premises.

What coverage forms are available under the homeowner’s program?

The 6 coverage forms available under the homeowners program are HO-2 broad form, HO-3 special form, HO-4 contents broad form, HO-5 comprehensive form, HO-6 condominium unit owners, and HO-8 modified coverage form.

What is the purpose of a homeowners policy?

Homeowners policies are designed to cover dwellings primarily used as private homes.

What homeowners form provides protection for losses from named perils?

The HO-2 broad form provides protection for losses from named perils.

What type of coverage is expanded upon from HO-2 to HO-3?

The peril of vehicles insured for the personal property is expanded from what is covered in the broad form (HO-2).

What type of coverage does the HO-4 provide?

The HO-4 tenant broad form ensures personal property for the same perils as found in the broad form.

What is covered under the HO-5?

The comprehensive form (HO-5) covers both the dwelling and other structures on an open peril basis.

Under HO-6, where may business property be stored?

HO-6 will cover a structure that contains business property solely owned by an insured or a tenant of the dwelling provided that the business property does not include gaseous or liquid fuel, other than fuel in a permanently installed fuel tank of a vehicle or craft parked or stored in the structure.

When replacement coverage cost is not reasonable, what type of HO coverage is applicable?

The HO-8 modified homeowners form is intended for use when replacement cost coverage is not practical.

What is the purpose of Coverage D - Loss of Use

The loss of use coverage in the homeowners policy will pay for either additional living expenses related to maintaining the normal standard of living of the household or fair rental value if the premises become uninhabitable due to a covered loss.

Is liability coverage provided with all HO forms?

Liability coverage is included in all the homeowners policy forms.

What type of coverage is provided by Coverage E - Personal Liability?

Personal liability (Coverage E) will respond if a claim is made or a suit is brought against an insured for damages due to bodily injury or property damage caused by an occurrence to which the coverage applies.

What additional coverages are included with the liability section of the HO policy?

The liability section of the homeowners policy includes claims expense, first aid to others, damage to the property of others, and loss assessment coverage.

What parts make up a commercial policy?

Policy cover, common policy declarations, interline endorsements, line(s) of insurance declaration page(s), line(s) of insurance coverage form(s), common policy conditions, line(s) of insurance conditions, causes of loss forms, and endorsements.

Who has the responsibility for payment of premium in a commercial package policy?

The first named insured is responsible for paying the premiums.

What are interline endorsements?

Those that apply, or could apply, to more than one coverage part.

What is covered in a building and personal property policy?

Buildings, business, personal property, and property of others on insured’s premises.

How much coverage is available on outdoor property under a building and personal property coverage form?

Up to $1,000 for fences, and radio and television antennas, or $250 for trees, shrubs, and plants.

What is the purpose of business income insurance?

To cover the loss of business income that occurs when a business must suspend operations because of a direct loss.

What coverages does the extra expense coverage form provide?

It reimburses the insured for extra expenses the insured incurs to keep a business operational after a loss.

What coverages are included in the equipment breakdown coverage form?

The policy covers loss to property owned by the insured; loss or damage to property of others in the insured’s care; up to $25,000 for expediting expenses and 90 days automatic coverage for newly acquired locations.

What business qualify for coverage under a businessowners policy?

Small to medium size businesses.

What are the advantages of prepackaging?

Property and liability coverage is packaged; options most frequently needed are included or available for a small additional premium; and the rates for the entire package are extremely favorable.

What coverage limitations are in the Business Owners Property Coverage form?

The policy will not pay for loss or damage to the water heating equipment, mysterious disappearance or property transferred to others based on unauthorized instructions. The policy will not pay for damage to fragile items. If loss or damage is caused by theft, there are limits to amounts of coverage.

How does the Protective Safeguards Endorsement modify the policy?

The endorsement adds a policy condition requiring the insured to maintain protective safeguards.

What do utility services include?

Provides coverage for direct damage caused by utility service disruption stemming from a covered peril.

What is a personal floater?

An inland marine policy designed to cover movable personal property, wherever it may be located.

What is a WYO insurance company and how is it used?

WYO stands for Write Your Own insurance company. The private insurers that participate in a WYO program write and service policies on a no risk-bearing basis through a special arrangement with the Federal Insurance Administration. They retain part of the flood insurance premium to pay for commissions and admin. costs. The remaining premiums, plus investment, are used to cover losses.

What types of vehicles are covered under a personal auto policy?

The following vehicles are covered under a personal auto policy: any vehicle listed on the declaration page; newly acquired vehicles for 30 days; trailers owned by the insured; and temporary substitute vehicles.

Define a newly acquired auto.

A newly acquired auto is any vehicle acquired by the insured during the policy period. Please review the definitions above for the types of newly acquired autos.

What losses are excluded from coverage in the liability section of the personal auto policy?

Excluded losses include intentional injury or damage, bodily injury to an employee during the course of employment, and use of a vehicle as a public or livery conveyance.

What does the liability section of the Personal Auto Policy protect the insured against?

Liability coverage of the PAP protects the insured against loss arising from legal liability when an automobile that the insured owns, operates or maintains is involved in an accident.

What are the 4 ways that a motor vehicle can be classified as uninsured?

(1) No insurance or liability bond; (2) insurance is less than what the state requires in the state the accident occurred; (3) The accident was a hut and run, and the driver cannot be identified; (4) The insurer denies the coverage or is insolvent.

When is uninsured motorist coverage applicable?

If the at fault motorist has insurance, but the limits are not suffiecent to cover the bodily injury.

What coverages are available in the physical damage section of the PAP?

Phys. dam. coverage includes both collision and other than collision coverage.

How much will a phys. dam. policy pay for transportation expenses due to a theft of a covered auto?

The policy will pay up to $20 per day up to a max of $600 for transportation expenses incurred by the insured because of theft of a covered auto and loss of use expenses the insured is legally obligated to pay because of theft of a nonowned vehicle.

What symbols are used in the business auto coverage form?

Symbols 1-9 and 19 are used in the business auto coverage form.

Explain the 2 parts of the Garage coverage form liability section.

“Garage Operations - Covered Autos” protects the insured from losses resulting from the ownership or use of covered autos. “Garage Operations - Other than Covered Autos” protects against loss that is a direct result from the insured’s garage operations.

How is insured defined for the Garage coverage form?

The person named in the declarations; people who operate a covered auto; people liable for the conduct of the insured; or an employee of the insured.

What does Coverage A of the commercial liability policy provide coverage for?

It provides protection for injury or death suffered by third parties and protection for damage to property of others.

What is the difference between personal injury and advertising injury?

Both are non physical injuries, but advertising injuries occur when the insured inadvertently injures another person during the course of advertising a product or service.

What does Coverage C - Medical Payments provide?

It provides necessary medical or funeral expenses for third parties injured because of the insured’s business operations.

Name the 3 types of legal entities.

Sole proprietor, partnerships, and corporations.

Per Occurrence Limit

The maximum amount payable per occurrence or accident.

Aggregate Limit

The most the insurer will pay for all losses that occur during a policy period.

What coverages are provided by a business liability coverage form?

Business liability coverage covers bodily injury, property damage, personal injury, advertising injury, and medical expenses.

How are compulsory laws different from elective laws?

Compulsory laws require employers to provide workers compensation coverage for employees. Elective laws do not.

What are the 2 main parts of workers compensation insurance?

Part I is workers compensation, and Part II is employers liability.

What are the two forms of commercial crime insurance?

Discovery Loss and Loss Sustained Form.

Who would want professional liability coverage, and why?

Professional liability coverage is beneficial to individuals who provide professional services to others for a fee. It protects them against legal liability, that can result from negligence, errors and omissions, and the rendering or failure to render professional service.

Who are the parties to a bond?

The parties to a bond are the principal (obligor), the obligee (insured), and the gurantor (Surety).

What is another name for umbrella liability?

Catastrophe insurance.

What is a self insured retention, and when is it applicable?

Self insured retention is retained limits that the insured must satisfy before the umbrella policy will respond to certain kinds of losses. The self insured retention comes into play only for losses that are not covered by any underlying insurance.