Properties and causalities exam

transfer

risk of loss from an individual or a business entity to an insurance company, which, in turn, spreads the costs of unexpected losses to many individuals.

law of large numbers

states that the larger the number of people with a similar exposure to loss, the more predictable actual losses will be.

insurable interest

in the person or property covered by an insurance policy. In property insurance, this means the insured would incur a financial loss if the insured property was damaged

Risk

is the uncertainty or chance of a loss occurring

Pure Risk

refers to situations that can only result in a loss or no change. There is no opportunity for financial gain. Pure risk is the only type of risk that insurance companies are willing to accept.

Speculative risk

involves the opportunity for either loss or gain. An example of speculative risk is gambling. These types of risks are not insurable

Perils

are the causes of loss insured against in an insurance policy

Hazard

are conditions or situations that increase the probability of an insured loss occurring. Conditions such as slippery floors, or congested traffic are hazards and may increase the chance of a loss occurring.

Physical hazards

are those arising from the material, structural, or operational features of the risk, apart from the persons owning or managing it.

Moral Hazards

refer to those applicants that may lie on an application for insurance, or in the past, have submitted fraudulent claims against an insurer

Morale Hazard

refers to an increase in the hazard presented by a risk, arising from the insured's indifference to loss because of the existence of insurance.

indemnity

sometimes referred to as reimbursement) is a provision in an insurance policy that states that in the event of loss, an insured or a beneficiary is permitted to collect only to the extent of the financial loss, and is not allowed to gain financially because of the existence of an insurance contract.

Subrogation

is the insurer's legal right to seek damages from third parties, after it has reimbursed the insured for the loss.

Direct and Indirect Loss

Property insurance only covers direct losses. However, indirect losses are related to the direct loss, and insurance coverage to protect against these indirect losses often is added to property insurance policies. Direct losses mean direct physical damage to buildings and/or personal property.

consequential losses

are losses considered a result of direct loss.

Named peril

is a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that lists specific covered perils

open peril

is a term used in property insurance to describe the breadth of coverage provided under an insurance policy form that insures against any risk of loss that is not specifically excluded.

Negligence

is the failure to use the care that a reasonable, prudent person would have under the same or similar circumstances.

Vacancy

refers to an insured structure in which no people have been living or working, and no property has been stored for the period of time required as stated in the policy

Unoccupancy

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

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.

Specific Insurance

is a property insurance policy that covers a specific kind or unit of property for a specific amount of insurance.

Loss valuation

is a factor in determining the premium charged and the amount of insurance required.

Actual Cash Value

Usually, actual cash value is calculated as follows

Current Replacement Cost – Depreciation = Actual Cash Value

Stated Value

is an amount of insurance scheduled in a property policy that is not subject to any coinsurance requirements in the event of a covered loss

Salvage Value

is the estimated value an asset will realize upon its sale at the end of its useful life.

Strict liability

is commonly applied in product liability cases. A person or business that manufactures or sells a product makes an implied warranty that the product is safe.

Limits of liability

is the maximum amount of money the insurance company will pay for a particular loss, or for loss during a period of time.

Per occurrence

is a sublimit in a liability policy that puts a ceiling on the payment for all claims that arise from a single accident/occurrence.

Per person

is the maximum amount available for payment of bodily injury to a single person in an accident, regardless of the policy limit stated in the policy for bodily injury claims

Aggregate limit

is the maximum limit of coverage available under a liability policy during a policy year, regardless of the number of claims made or the number of accidents that occur.

Split

The limits may be stated on a per person, per occurrence, or per policy period basis, or can be split between bodily injury and property damage. Many auto liability policies are written with split limits. For example, 25/50/25 would indicate that the policy would pay up to $25,000 for the injury of a single person; up to $50,000 for bodily injury to two or more people (but not more than $25,000 to any one person); and up to $25,000 for damage to property of others.

Combined Single

a single dollar limit of liability applying to the total of damages for bodily injury and property damage combined, resulting from one accident or occurrence.

Proximate cause

is an act or event considered a natural and reasonably foreseeable cause of the damage or event that occurs and damages property or injures a plaintiff.

direct liability

Negligence must have been the cause without which the accident would not have happened

Deductible

is a dollar amount an insured must pay on a claim before the insurance policy provides coverage

coinsurance

in consideration of a reduced rate, the insured agrees to maintain a certain minimum amount of insurance on the insured property.

coinsurance penalties

(Insurance Carried ÷ Insurance Required) X Loss Amount = Loss Payment

insurance to value

provision, usually found in homeowners policies, provides a replacement cost settlement to the policyholder who carries adequate insurance, which means that the property is insured to the exact dollar amount or percentage of value.

accident

is a sudden, unplanned and unexpected event, not under the control of the insured, resulting in injury or damage that is neither expected nor intended.

occurrence

is a broader definition of loss than accident because it includes those losses caused by continuous or repeated exposure to conditions resulting in injury to persons or damage to property that is neither intended nor expected.

property damage

the extent of the loss is usually simple to determine; it is measured by the actual monetary loss the injured party suffered, which is measured by the value of the property damaged or destroyed and the loss of use of that asset.

bodily injury

lead to claims by the injured party not only for medical expenses and lost wages, but also for disfigurement, pain and suffering, mental anguish, and loss of consortium

The two classes of compensatory damages that may be awarded are

special and general damages

punitive damages

which is a form of punishment for extreme outrageous behavior, gross negligence, or willful intent

contributory negligence

the injured party must be completely free of fault in order to collect.

comparative negligence

the other party's negligence or fault will not necessarily defeat the claim, but will be used to mitigate the damages payable to the other party

Absolute liability

is imposed upon a person or company engaged in hazardous or potentially dangerous business who, by negligence or by an omission, causes harm or injury to another person or property

Strict liability

A person or business that manufactures or sells a product makes an implied warranty that the product is safe.

vicarious liability

the master was liable for the acts of their servants.

actual cash value

method of valuation 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.

actual cash value

Current Replacement Cost – Depreciation = Actual Cash Value

Replacement cost

s defined as the cost to replace damaged property with like kind and quality at today's price, without any deduction for depreciation.

Market value

is a seldom-used method of valuing a loss based upon the amount a willing buyer would pay to a willing seller for the property prior to the loss.

Agreed value

a property policy with a provision agreed upon by the insurer and insured as to the amount of insurance that represents a fair valuation for the property at the time the insurance is written and suspends any coinsurance or other contribution clauses in the policy

Salvage value

is the estimated value an asset will realize upon its sale at the end of its useful life.

Deposit premium

is an estimated premium paid in advance at the time the policy is issued that may be adjusted based on actual exposures.

audit

determines the actual premium of the insured

Deposit premium audit

is a condition that allows the insurer to audit the insured's books or records at the end of the policy term to make sure adequate premium has been collected for the exposure.

the insurer has up to blank years from the expiration of the policy to perform the audit.

3

certificate of insurance

is written evidence showing that an insurance policy has been issued.

Binder

is defined as a temporary contract of insurance issued by an insurer or its agent that places insurance in effect prior to the policy being issued.

Representations

are statements believed to be true to the best of one's knowledge, but they are not guaranteed to be true

misrepresentations

Untrue statements on the application

material misrepresentation

is a statement that, if discovered, would alter the underwriting decision of the insurance company

warranty

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

Concealment

is the legal term for the intentional withholding of information of a material fact that is crucial in making a decision

Fair Credit Reporting Act

The purpose of the law is to protect consumers against the circulation of inaccurate or obsolete personal financial information, and to ensure that consumer reporting agencies are fair and equitable in their treatment of consumers.

Special damages

out-of-pocket expenses for medical, miscellaneous expenses, or loss of wages

General damages

compensate for pain and suffering, mental anguish, or disfigurement

Insuring Agreement

(sometimes labeled Agreement) is the section of an insurance policy that establishes the obligation of the insurance company to provide the insurance coverages as stated in the policy

Additional (or supplementary) coverage

is a provision in an insurance policy that provides an additional amount of coverage for specific loss expense, at no additional premium

earth movement

is excluded if caused by earthquake, mudflow, or a volcanic eruption

water damage

the following perils are not covered: flood and subsurface water, water that backs up through sewers and drains or overflows from a sump pump, or water below ground that seeps through basement walls

Policy limits

(also known as limitations) are the maximum amount an insured may collect, or for which an insured is protected under the terms of the policy

Inspections

may be made as needed by the insurer. The insurance company reserves the right to inspect or examine the insured's location or books to determine the exact exposure for underwriting and rating purposes

definitions

component of an insurance policy clarifies terms used in the policy. Typically, words that are printed in bold, italics, or quotations have a definition as to their meaning in that contract.

Endorsements

are printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages

insured

is anyone who is covered under the policy, whether named or not.

Named insured

means the individual(s) whose name appears on the policy's Declarations.

First named insured

is the individual whose name appears first on the policy's declaration

Additional insureds

are individuals or businesses that are not named as insureds on the declaration page, but are protected by the policy, usually in regard to a specific interest.

In the event of a loss covered by the policy, the named insured is required to

• Protect the damaged property from further damage;

• Prepare an inventory of damaged property;

• Cooperate with the insurer in settling the loss;

• Notify the police in the case of a loss due to theft; and

• Submit to the insurer a signed sworn proof of loss within an allotted amount of time after being requested to do so.

Other insurance

is a provision in an insurance policy that defines how the policy will respond if there is other valid insurance written on the same risk.

Notice of claim

is a form or statement from an insured to an insurer, informing the insurer that events leading to a possible claim have occurred. The notice will include information as to how, when, and where the loss took place.

Proof of loss

is a sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid. This form is typically used in the settlement of first-party losses, and includes the date and description of the occurrence and the amount of indemnity claimed.

loss settlement

provision details how a claim will be paid. Depending on the type of policies, loss settlement options are actual cash value, replacement cost, and agreed value

New cards

consent to settle a loss

provision is found in professional liability insurance policies and requires an insurer to seek an insured's consent (approval) prior to settling a claim for a specific amount.

Cancellation

is the termination of an in-force insurance policy, by either the insured or the insurer, prior to the expiration date shown in the policy. Termination may be voluntary, involuntary, or in mutual accordance with provisions contained in the policy.

Nonrenewal

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

Terrorism Risk Insurance Act

was to create a temporary federal program that would share the risk of loss from future terrorist attacks with the insurance industry

act of terrorism

as an act certified by the Secretary of the Treasury, in concurrence with the Secretary of Homeland Security (as of 2015), and the Attorney General of the United States with the following characteristics:

• The act must be violent or dangerous to human life, property, or infrastructure;

• The act must have resulted in damage within the United States, to an air carrier as defined in the U.S. Code, to a U.S. flag vessel or other vessel based principally in the U.S. and insured under U.S. regulation, or on the premises of any U.S. mission;

• The act must have been committed by someone as part of an effort to coerce the U.S. civilian population, to influence U.S. policy, or to affect the conduct of the U.S. government by coercion; or

• The act must produce property and casualty insurance losses in excess of a specified amount.

The TRIA statutory definition specifically excludes the following types of insurance

• Federal or private crop insurance; 

• Private mortgage insurance or title insurance; 

• Financial guaranty insurance issued by monoline insurers; 

• Medical malpractice insurance; 

• Life and health insurance, including group life insurance; 

• Federal flood insurance;

• Reinsurance; 

• Commercial automobile insurance; 

• Burglary and theft insurance; 

• Surety insurance;

• Professional liability insurance (except for directors and officers liability); or

• Farm owners multiple peril insurance.

Appraisal

a professional assessment to determine extent of damage

Earned premium

the portion of premium paid in advance that now belongs to the insurer because it applies to the elapsed part of the policy

Liberalization

the removal or loosening of restrictions

Negligence

the failure to use the care that a reasonable, prudent person would under the same or similar circumstances