Arizona Property & Casualty Practice Flashcards

A complete set of vocabulary flashcards covering the Arizona Property & Casualty insurance exam framework, including risk management, policy structures, and legal concepts.

Risk

Uncertainty about whether a loss will occur.

Pure risk

A situation with the possibility of loss or no loss, but no possibility of gain.

Speculative risk

A situation that can result in loss, no loss, or gain.

Peril

The direct cause of a loss, such as fire, wind, theft, or collision.

Hazard

A condition that increases the frequency or severity of loss.

Physical hazard

A tangible condition that increases the chance or severity of loss.

Moral hazard

Dishonest behavior or character that increases the chance of intentional loss.

Morale hazard

Carelessness or indifference because insurance exists.

Exposure

A condition or situation that creates the possibility of loss.

Law of large numbers

As the number of similar exposure units increases, actual losses become more predictable.

Risk avoidance

Eliminating an activity so the related risk no longer exists.

Risk reduction

Taking action to reduce the frequency or severity of loss.

Risk retention

Keeping some or all of the financial consequences of a loss.

Risk transfer

Shifting the financial consequences of risk to another party.

Indemnity

The principle of restoring an insured approximately to the financial position held before a loss, without allowing profit from the loss.

Insurable interest

A lawful financial or other recognized interest in preservation of the insured property or person.

Adhesion

A contract characteristic in which one party, typically the insurer, drafts the policy and the other accepts it largely as written.

Aleatory contract

A contract in which the values exchanged may be unequal because performance depends on an uncertain event.

Unilateral contract

A contract in which only one party makes a legally enforceable promise to perform once the other party has met required conditions.

Policy parts

Declarations, definitions, insuring agreement, exclusions, conditions, and endorsements together form the insurance contract.

Actual cash value (ACV)

A loss valuation method commonly described as replacement cost minus depreciation, subject to policy wording and law.

Replacement cost

The cost to repair or replace damaged property with property of like kind and quality without deduction for depreciation, subject to policy conditions and limits.

Market value

The price property might bring in an open market between willing parties.

Salvage

Property remaining after a loss that still has value.

Subrogation

The insurer's right, after paying a covered loss, to pursue recovery from a responsible third party.

Proximate cause

The dominant or effective cause that sets a loss in motion in a way recognized by policy and law.

Direct loss

Physical damage directly caused by a covered peril.

Indirect loss

A financial consequence resulting from a direct physical loss.

Deductible

The amount of covered loss the insured must bear before the insurer pays, subject to policy terms.

Coinsurance

A property-insurance provision encouraging insurance to a stated percentage of value and potentially reducing payment when the requirement is not met.

Dwelling Coverage A

Coverage for the dwelling structure itself under a homeowners policy, subject to the form and exclusions.

Other Structures Coverage B

Coverage for structures on the residence premises separated from the dwelling by clear space, subject to policy definitions.

Personal Property Coverage C

Coverage for the insured's personal property, subject to limits, special limits, and exclusions.

Loss of Use Coverage D

Coverage for additional living expense and related loss-of-use expenses after a covered loss makes the residence unfit to live in, subject to policy terms.

Personal Liability Coverage E

Coverage for damages the insured becomes legally liable to pay because of covered bodily injury or property damage claims.

Medical Payments to Others Coverage F

No-fault-style coverage for certain medical expenses of others injured in covered circumstances, regardless of legal liability, subject to policy terms.

HO-3 concept

A commonly used homeowners form that generally provides open-peril coverage on the dwelling and named-peril coverage on personal property, subject to exclusions and policy wording.

HO-4 concept

A renters form designed primarily for tenants, covering personal property, loss of use, and liability rather than the building itself.

HO-6 concept

A homeowners form commonly used for condominium unit owners.

Named perils vs open perils

Named-peril coverage applies only to listed causes of loss; open-peril coverage applies to causes of loss unless excluded.

PAP liability coverage

Coverage for bodily injury and property damage for which an insured becomes legally responsible because of a covered auto accident.

Bodily injury liability

Liability coverage for covered claims involving injury, sickness, disease, or death of others.

Property damage liability

Liability coverage for covered damage to property of others.

Medical payments

Coverage that can pay reasonable medical expenses for covered persons after an auto accident, regardless of fault, subject to policy terms.

Uninsured motorist (UM)

Coverage designed to protect insured persons for certain bodily injury losses caused by drivers who have no applicable liability insurance, subject to law and policy terms.

Underinsured motorist (UIM)

Coverage designed to respond when an at-fault driver's liability limits are insufficient for covered bodily injury damages, subject to law and policy terms.

Collision coverage

Physical damage coverage for direct and accidental loss to a covered auto from collision with another object or overturn, subject to policy terms.

Other-than-collision coverage

Physical damage coverage for covered causes other than collision, commonly including theft, fire, hail, vandalism, and animal impact, subject to policy wording.

Temporary substitute auto

A vehicle temporarily used because the insured's covered auto is out of normal use due to breakdown, repair, servicing, loss, or destruction, subject to policy definitions.

Duties after an accident or loss

Policy conditions requiring prompt notice, cooperation, protection of property, and other reasonable steps after a claim.

Commercial Property Coverage Part

A commercial package component used to insure buildings and business personal property against covered causes of loss.

Building coverage

Commercial property coverage for the described building and certain permanently installed fixtures and equipment, subject to the form.

Business Personal Property (BPP)

Commercial property coverage for covered business-owned furniture, machinery, stock, and similar property at the described premises, subject to form.

Business Income

Coverage for certain lost income and continuing normal operating expenses resulting from a covered suspension caused by direct physical loss, subject to policy wording.

Extra Expense

Coverage for necessary expenses incurred to avoid or minimize suspension of operations or continue operations after a covered loss, subject to form.

Causes of Loss Basic Form

A commercial property causes-of-loss form providing a relatively limited list of named perils.

Causes of Loss Broad Form

A commercial property causes-of-loss form that adds certain named perils beyond the Basic Form.

Causes of Loss Special Form

A commercial property form that generally covers direct physical loss unless excluded or limited.

Businessowners Policy (BOP)

A package policy combining property and liability coverages for eligible small and medium-sized businesses, subject to underwriting rules.

Inland marine

A class of property insurance commonly used for property in transit, mobile property, certain instrumentalities of transportation/communication, and other specialized property.

CGL Coverage A

Commercial general liability coverage for covered bodily injury and property damage liability, subject to exclusions and conditions.

CGL Coverage B

Coverage for covered personal and advertising injury offenses, subject to exclusions.

CGL Coverage C

Medical payments coverage for certain medical expenses arising from bodily injury on or next to the insured premises or from operations, without regard to fault, subject to exclusions.

Occurrence

An accident, including continuous or repeated exposure to substantially the same general harmful conditions, under standard CGL wording.

Products-completed operations

CGL exposure arising from products after they leave the insured's possession or work after completion, subject to policy definitions.

Premises and operations

Liability exposure arising from ownership/maintenance of premises and ongoing business operations.

Contractual liability

Liability assumed under certain contracts, with CGL coverage subject to exclusions and exceptions such as insured contracts.

Commercial Auto liability

Coverage for covered bodily injury and property damage liability arising from ownership, maintenance, or use of covered autos designated by symbols.

Covered auto symbols

Numbers used in the Business Auto Coverage Form to identify categories of covered autos, such as any auto, owned autos, hired autos, or nonowned autos.

Hired vs nonowned auto

Hired autos are leased, hired, rented, or borrowed by the business subject to definitions; nonowned autos are vehicles not owned, leased, hired, rented, or borrowed by the business but used in connection with it, often including employees' autos.

Workers compensation

A statutory system providing covered employees specified benefits for work-related injury or occupational disease without requiring proof of employer negligence, subject to state law.

Employers liability

Coverage for certain employer liability arising from employee injury that is not payable as workers compensation benefits, subject to policy terms and exclusions.

Occupational disease

A disease arising out of employment conditions and covered under applicable workers compensation law when statutory requirements are met.

Fidelity bond

A bond/coverage protecting an employer or organization against dishonest acts of employees, depending on form.

Surety bond

A three-party agreement in which the surety guarantees the principal's performance or obligation to the obligee.

Principal

In a surety bond, the party whose performance or obligation is guaranteed.

Obligee

In a surety bond, the party to whom the principal owes the guaranteed obligation.

Surety

The party guaranteeing the principal's obligation to the obligee.

Umbrella liability

Liability coverage providing excess limits and, in some cases, broader coverage than underlying policies, subject to its own terms.

Excess liability

Coverage that provides limits above specified underlying insurance, generally following the underlying coverage more closely than a traditional umbrella may.

Negligence

Failure to exercise the degree of care a reasonably prudent person would use under similar circumstances.

Duty

A legal obligation to conform to a certain standard of conduct toward another.

Breach

Failure to meet the applicable duty of care.

Causation

The required connection between the defendant's conduct and the plaintiff's injury.

Damages

Legally recognized loss or injury for which compensation may be awarded.

Compensatory damages

Damages intended to compensate an injured party for actual loss, including economic and certain noneconomic loss.

Punitive damages

Damages intended primarily to punish especially wrongful conduct and deter similar behavior.

Vicarious liability

Liability imposed on one party because of the relationship with another, such as an employer for certain acts of an employee within the scope of employment.

Strict liability

Liability that can arise without proof of negligence in certain activities or product-liability situations defined by law.

Comparative negligence

A system in which a plaintiff's recovery may be reduced according to the plaintiff's share of fault, subject to state law.

Arizona DIFI

The Arizona Department of Insurance and Financial Institutions, the state agency responsible for insurance regulation and producer licensing.

PSI

Arizona's current insurance examination administrator according to DIFI.

Insurance producer

A person required to be licensed to sell, solicit, or negotiate insurance under applicable law.

Property line

A major line of insurance authority involving insurance against loss of or damage to property and certain related risks as defined by state law.

Casualty line

A major line involving liability and other casualty coverages as defined by state law.

Unfair trade practice

A prohibited insurance-business practice defined by state law, such as certain misrepresentations or unfair discrimination.

Misrepresentation

A false or misleading statement about policy terms, benefits, or other material insurance facts.

Fiduciary handling of premiums

Producers must handle premium funds and other money received in an insurance transaction according to applicable fiduciary and statutory duties.

Continuing education concept

Licensed producers may be required to complete state-approved continuing education for renewal, subject to exemptions and current Arizona rules.

Exam strategy

Use the official PSI content outline to prioritize topics, then combine active recall, scenario questions, and repeated practice testing.