CAS DISC IA Study Flash Cards

-pure risk

-fortuitous losses,

-definite and measurable

-large number of similar exposure units

-independent and not catastrophic

-affordable

What are the 6 characteristics of an ideally insurable loss exposure?

A loss that is accidental and unexpected

What is a fortuitous loss?

contract of indemnity

Insurance policy characteristic in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss.

contract of utmost good faith

Insurance policy characteristic in which the assumption is that the insured has voluntarily revealed to the insurer all information pertinent to the risk being insured.

conditional contract

A contract that one or more parties must perform only under certain conditions.

contract of adhesion

Any contract in which one party is put in a “take-it-or-leave-it” position and must either accept the contract as written by the other party or reject the contract entirely.

-conditional contract

-contract of adhesion

-contract of indemnity

-nontransferable contract

-contract of utmost good faith

-contract involving fortuitous events and the exchange of unequal amounts

What are the 6 insurance policy characteristics?

Preprinted form

Which type of insurance form is most widely used?

self-contained only made up of one document. Modular made up of several different documents and coverages

What is the difference between a self-contained policy vs a modular policy?

the declarations, definitions, and the insuring agreement

What three provisions form the core of every insurance policy?

Declarations page

An insurance policy information page or pages providing specific details about the insured and the subject of the insurance. Outline who/what is covered and where the coverage applies.

Definitions section

What part of the insurance policy defines policy terms and helps people understand the policy and reduces confusion over what the policy does and does not cover?

Insuring agreement

What part of the insurance policy states that the insurer will, under described circumstances, make a loss payment or provide a service?

insuring agreements

The big differences between property and liability policies are found in their ________________

of unequal amounts

Ling has noticed that her neighbor has recovered money for two homeowners property claims and an auto damage claim he has filed in recent years. Ling has been paying insurance premiums for many years and has never suffered a loss or made a claim. She feels that her insurance contracts over the years have been worthless to her. What Ling does not understand is that she has been paying premiums for a contract

a contract of utmost good faith

An insurer has decided to take an extremely narrow interpretation of a property insurance policy provision to limit the number of loss payments it will need to make. It realizes that its interpretation is probably wrong, but it knows that individual insured's loss amounts will be small, such that most insureds will not take the trouble to file lawsuits against it. The insurer may be violating the principle that an insurance policy is

conditional contract

Insurance policies are written in such a way that the parties have to perform only under certain conditions, because an insurance contract is a

modular policy

The Insurance Services Office, Inc. (ISO) commercial package policy is an example of a

Indemnity

What is the principle that prevents an insured from profiting from owning an insurance policy?

-mortgageholder must pay any premiums due to the insurer

-mortgageholder must submit proof of loss within 60 days of insurer’s request

-insurer must be notified of any change in ownership or occupancy or any substantial change in risk known to the mortgageholder

What conditions must be met for the insurer to pay covered claims to the mortgageholder if the insurer has denied the insured’s claims due to the policyholder failing toc comply with policy conditions?

No, just to covered losses to buildings or structures-not personal property

Does the Mortgageholders condition apply to all property covered under a property policy?

loss payable clause

provision under ISO Loss Payable Provisions endorsement that provides the right to have payment of any loss made jointly to the loss payee and the insured

lender’s loss payable clause

provision under ISO Loss Payable Provisions endorsement that provides that a loss payee whose interest in the insured property is established by written agreements receives protection similar to that provided by the Mortgageholders condition

contract of sale clause

provision under ISO Loss Payable Provisions endorsement that provides that a purchaser or seller has the right to have payment of any loss made jointly to the loss payee and the named insured as their interests may appear

building owner loss payable clause

provision under ISO Loss Payable Provisions endorsement that provides that the owner of a building in which the insured is a tenant can be covered as a loss payee.

replacement cost and actual cash value

What are the two most common property valuation methods used by insurers?

replacement cost

the cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation

actual cash value

the cost to replace property with new property of like kind and quality less depreciation

functional valuation approach

a valuation method in which the insurer is required to pay no more than the cost to repair or replace the damaged or destroyed property with property that is its functional equivalent.

market value

the price at which a particular piece of property could be sold on the open market by an unrelated buyer and seller

policies that cover older, more ornate buildings; most often used for older material/equipment that may no longer be available

What kind of policies is the functional valuation approach most often used?

broad evidence rule

A court ruling explicitly requiring that all relevant factors be considered in determining actual cash value

-broad evidence rule

-market value

-replacement cost minus depreciation

What are the three approaches for determining ACV?

-agreed value

-pair or set

-selling price

-invoice price

-original cost

What are other loss settlement provisions besides ACV and replacement cost?

agreed value

a method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss

jewelry, furs, cameras, musical instruments, silverware, golf equipment, fine arts, postage stamps, and valuable coins

What kinds of items/objects is the agreed value approach usually used for?

pair or set

a method of valuing property in which the insurer is required to either repair or replace the damaged portion of the set, if possible, or to pay the difference between the property’s pre- and post-loss ACV.

stock or retailer/wholesaler’s entire inventory

In what scenario might the selling price valuation be used?

annual transit policies and trip transit policies

What policies commonly use invoice price for valuation?

agreed value method

Alexis is opening a studio to display and sell fine art, including paintings and sculptures. What type of settlement method might be most appropriate for artwork held in her studio?

Applies separately to each type of property specifically insured under the policy-such as the building, personal property, and property of others in the insured’s care

Does the coinsurance provision apply on an aggregate basis or for each type of property insured under the policy?

only once per occurrence-if two or more specifically insured types of property are damaged in one occurrence, the deductible cannot be applied in full to both the building loss and the business personal property loss.

Does the BPP apply the deductible for each loss under a single occurrence or just once for a given occurrence?

agreed value optional coverage

In order to suspend the coinsurance provision, what kind of coverage must the policyholder obtain under the BPP?

-applies only to property insured on a replacement cost basis

-does not apply if the insured chooses to receive an ACV settlement on property that is otherwise covered for replacement cost

How does an insurance to value provision differ from the usual coinsurance provision?

80 percent

Under a businessowner policy, what percentage of replacement cost must the property be insured at for the insurer to pay the cost to repair or replace the property less the deductible without depreciation?

Coverage A-Dwelling and Coverage B-Other Structures

What sections of the homeowners policy does the insurance-to-value provision apply to?

-inflation guard

-peak season endorsement

-extended replacement cost coverage

-increased cost of construction coverage

What are some optional policy provisions that increase coverage?

inflation guard

Optional policy provision that increases one or more limits by an annual percentage

peak season endorsement

Optional policy provision that increases the BPP limit to an amount shown in the endorsement during a period described in the endorsement

extended replacement cost coverage

Optional policy provision which increases a homeowner’s policy limits when the cost of a severe loss exceeds the limit 

increased cost of construction

Additional coverage that can increase a loss payment to account for changes in building codes made since the policy was issued

special limits of liability

internal dollar limits on certain specified classes of property that apply regardless of the overall policy limit

flat deductible

a deductible stated in a specified dollar amount

percentage deductible

a deductible expressed as a percentage of some other amount, such as the amount of insurance, the covered property’s value, or the amount of the loss

split deductible

a deductible provision that applies one deductible for most causes of loss but a different, higher deductible for other specified causes of loss

percent deductible

What form of deductible are most earthquake, hurricane, or tornado coverages subject to?

1 percent, 2 percent, or 5 percent of Coverage A-Dwelling limit of insurance shown in the declarations

In homeowner policies, what are windstorm or hail percentage deductibles typically set at?

$500 flat deductible

What is the most common deductible for a commercial property policy?

-Fire Department service charge additional coverage

-Credit card, fund transfer card, forgery, or counterfeit money additional coverage

What coverages are deductibles not applied to under commercial and homeowners policies?

book value

an asset’s historical cost minus accumulated depreciation

historical cost

the original cost of the property

-value of stock as of last physical inventory

-value of additions to stock form last inventory to date of loss

-value of stock sold from last inventory to date of loss

What are the three values used in determining book value?

-review the facts of a claim

-review and apply the relevant law

-determine the legal obligations and defenses that apply to the facts

-determine what choices, if any, the claimant might have in applying the law

-determine what category liability falls into-clear, probable, questionable, or doubtful

-Review the facts and determine whether other potentially liable parties have been overlooked

What are the steps taken when evaluating liability by a claims representative?

compensatory damages

a payment awarded by a court to reimburse a victim for actual harm

special damages and general damages

What are the two categories in which compensatory damages fall?

special damages

a form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person’s loss, such as medical expenses or lost wages

general damages

a form of compensatory damages that awards a monetary award to compensate a victim for losses such as pain and suffering, that do not involve specific, measurable expenses

remittitur 

Occurs when a judge uses his or her discretion to reduce an excessive jury verdict award

additur

Occurs when a judge uses his or her discretion to increase a jury verdict award that is deemed insufficient

collateral source rule

a legal doctrine that provides that the damages owed to a victim should not be reduced because the victim is entitled to recovery money from other sources, such as an insurance policy

mitigation of damages rule

a duty owed by an injured party to a claim to take reasonable measures to minimize or avoid additional injury or loss

-reduction in property value

-increased expenses

-lost income

What are some financial consequences individuals and families can face if their property is damaged or destroyed?

-cost of legal investigation and defense

-money damages awarded if the defense isn’t successful or if the claim is settled out of court

What types of financial consequences can individuals or families face as a result of a liability claim against them?

punitive damages (exemplary damages)

A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party’s actual damages.

tort

A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right.

negligence

The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others.

intentional tort

A tort committed by a person who foresees (or should be able to foresee) that his or her act will harm another person

strict liability (absolute liability)

Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate.

slip and fall injuries

What is the most common personal liability loss exposure for property owners?

Coverage A-Dwelling

Would a garage attached to a dwelling be covered under Coverage A—Dwelling, Coverage B—Other Structures, Coverage C—Personal Property, or Additional Coverages?

10 percent of Coverage A limit

For Coverage B-Other Structures of the HO3 policy, what is the Coverage B limit?

30 percent of Coverage A

In an HO3 policy, how much is the Coverage D-Loss of Use Limit?

-additional living expenses

-fair rental value

-loss of use due to civil authority

What are the three coverages grouped under Coverage D?

Debris removal coverage

Additional coverage to HO3 policy that covers reasonable expenses for removing debris of covered property that has been damaged by an insured peril or by ash, dust, or particles from a volcanic eruption that has caused direct loss to a covered building or property in the building. It also covers, subject to special conditions, the cost to remove fallen trees, not to exceed $1,500 for any one tree or $3,000 in any one loss.

reasonable repairs coverage

Additional coverage to HO3 policy that covers reasonable costs incurred to protect covered property or repair other property damaged by an insured peril.

Trees, Shrubs, and Other Plants Coverage

Additional  coverage to HO3 policy that covers loss caused by fire or lightning, explosion, riot or civil commotion, aircraft, vehicles not owned or operated by a resident, vandalism or malicious acts, or theft up to an additional 5 percent of the dwelling limit with a maximum of $1,500 for any one item. Property grown for business purposes is excluded.

-Coverage A-Dwelling

-Coverage B-Other Structures

-Coverage C-Personal Property

-Coverage D-Loss of Use

What are the property coverages that are covered under HO3-Section I?

-Named perils coverage applies only if a loss occurs as a result of a cause of loss (peril) specifically listed (named) in the policy

-Open perils coverage applies if a loss occurs as a result of a cause of loss that isn't specifically excluded by the policy.

What's the difference between named perils coverage and open perils coverage?

named perils coverage

coverage applies only if a loss occurs as a result of a cause of loss (peril) specifically listed (named) in the policy

open perils coverage

coverage applies if a loss occurs as a result of a cause of loss that isn't specifically excluded by the policy.

open peril coverage

With the HO3 policy, is Coverage A provided on a named peril basis or an open peril basis?

open peril coverage

With the HO3 policy, is Coverage B provided on a named peril basis or an open peril basis?

named peril coverage

With the HO3 policy, is Coverage C provided on a named peril basis or an open peril basis?

-promptly notify insurer

-notify the police

-protect the property form further damage

-cooperate with the insurer’s investigation

-prepare an inventory

-verify the loss

-sign a sworn proof of loss

What are the duties of the insured following a property loss under the HO3 policy?

-fire department service charges

-credit cards and other types of money cards

What two additional coverages under the HO3 policy do not have the deductible applied to them?

maximum of ACV at the time of loss or amount required to repair or replace the items

How are losses under Coverage C-Personal Property generally settled?

-if the limit of insurance is greater than or equal to 80 percent of the replacement cost to the building, then replacement cost is used up to the limit of insurance

-if the limit of insurance is less than 80 percent of the replacement cost of the building, the insurer pays the maximum of ACV of the damage or the coinsurance penalty times replacement cost

What are the methods for determining loss settlement for a dwelling?

180 days

If ultimately intending to complete the repairs and make settlement on a replacement cost, rather than ACV, basis, the insured must notify the insurer within how many days of the loss?

the insurer will repair or replace an item to restore it to restore pair to its pre-loss value or pay the difference between ACV of the property before and after the loss

How is property repaired or replaced under the loss to a pair or set condition of the HO3 policy?

Other Insurance and Service Agreement

What policy condition states that the loss will be shared proportionally by all policies if two or more policies cover the same loss?