INSURABLE INTEREST
an economic interest in a property that must exist at the time of loss (you can insure the equity interest in your own home)
UNDERWRITING
classifies the applicant based upon the underwriting requirements of the insurer; matches the risk presented with the premium charged by the insurer
LOSS RATIO
percentage of claims paid in comparison to total premiums collected during a particular period of time
RATES
set by the insurer at a level sufficient to pay claims and company expenses; in most states must be filed with Dept of Insurance
JUDGMENT RATING
underwriter uses intuition and experience instead of a manual to determine rates
MANUAL RATING
underwriter refers to rates determined by the insurer's actuaries based on the "law of large numbers
MERIT RATING
manual" rates are modified by underwriter based on past loss experience or other factors unique to the risk involved (lower premiums are given to those clients who have few prior losses)
RETROSPECTIVE RATING
the final premium is not determined until the end of the policy period and is based on the insured's own prior loss experience (subject to minimum and maximun premiums); often these are used with Workers comp and Commercial General Liability plans written
EXPERIENCE RATING
often used to calculate premiums on large group life or health insurance plans; a form of merit rating that modifies the manual premium based on the insured's own loss experience
LOSS COST RATING
used by insurers who utilize rating plans developed by the Insurance Services Office (ISO), leaving insurers free to add in their own factors relating to expense and profit
INSURANCE SERVICES OFFICE (ISO)
a "rating bureau"; develops and files rates and policy forms with the various states on behalf of their insurance co. membersd; members may choose to adopt ISO filings or not
ISO HOMEOWNERS POLICY 2000 EDITION
current industry standard
RATE
cost per unit;
PREMIUM
number of units multiplied by the rate; e.g. if rate is .25 per unit, and one unit of fire insurance is $100 of coverage, then the premium for $100,000 coverage is $250 per year
COMPONENTS OF RATE FILING
cost of claims + cost of admin. expenses - interest the insurer makes by investing pre-paid premiums
RISK
chance of loss
HAZARDS (3)
Physical; Moral; Morale
PHYSICAL HAZARD
e.g. dead tree that could fall on your house and cause roof damage
MORAL HAZARD
one presented by a dishonest person who might try to over-insure in order to profit
MORALE HAZARD
one a careless person presents who does not take care of their property
FRONT-LINE UNDERWRITERS
are agents; called this because they are usually the first to recognize a hazard
NEGLIGENCE
failure to act as a reasonable person would in the same circumstances
NEGLIGENCE
is a civil injury; considered a "tort" and the burden of proof in a negligence lawsuit (tort) rests with the party bringing the lawsuit
PLAINTIFF
injured party
STANDARD OF CARE
what a reasonable person would do to maintain their legal duty to protect others
NEGLIGENCE LAWSUIT
plaintiff (injured party) must prove the defendant violated a legal duty or generally accepted standard of care and that the injury was the direct result of the defendant's negligent act; if no direct chain of evidence exists, negligence is not establishe
PROXIMATE CAUSE
must be a direct chain of events proven to determine proximate cause
NEGLIGENCE LAWSUIT AWARDS
plaintiff must prove actual loss or damages to recover, even if negligence is proved (exception is sometimes awards for pain and suffering)
NEGLIGENCE DEFENSES
generally accepted defenses in negligence lawsuits are 1: intervening causes (for example, kids were teasing the dog and therefore negligence not proven) 2: assumption of risk (means you agreed going in to take the risk of participating in certain activit
TORT THRESHOLD
you assume the risk up to a certain level, such as driving a car (if the claim is not above a certain threshold, you must make a claim on your own insurance instead of suing the other party)
DOCTRINE OF CONTRIBUTORY NEGLIGENCE (THIS IS NOW OBSOLETE)
states if you are partly at fault, you cannot recover from the other party at all, even if your fault was minor
COMPARATIVE NEGLIGENCE (HAS REPLACED CONTRIBUTORY NEG)
a degree of fault is assigned to both parties; degree of fault is allocated on a proportionate basis to both parties; YOU CANNOT RECOVER FROM THE OTHER PARTY UNLESS THEY ARE 50% OR MORE AT FAULT
STATUTES OF LIMITATIONS
time limits during which a lawsuit may be filed after the occurrence of a claim; vary by state, but mostly range from 2-7 years
COMPENSATORY DAMAGES
what most jurisdictions permit courts to award; may be 1: special 2: general 3: punitive
SPECIAL DAMAGES
consist of medical expenses and lost wages; sometimes called out-of-pocket expenses; an exact and verifiable figure
GENERAL DAMAGES
attempt to compensate the injured party for mental and physical distress, including pain and suffering, disfigurement and loss of consortium
PUNITIVE DAMAGES
awarded when the injury was caused by gross negligence; often are triple the amount of general damages awarded and are sometimes not covered by insurance
GROSS NEGLIGENCE
willful and wanton negligence (defendant knew product was faulty but continued to sell it anyway)
ABSOLUTE OR STRICT LIABILITY
some things are inherently so dangerous that liability is absolute or statutory, as in keeping a tiger as a pet, or keeping explosives in the home
VICARIOUS LIABILITY
one party may be responsible for negligent activities of another party; e.g. bar owners liable for actions of customers to whom they have served too much alcohol
DOCTRINE OF AGENCY
insurers are vicariously liable for acts of their agents
PERIL (CAUSE OF LOSS)
a cause of loss; if a peril is not named in a contract, it is not covered (for example, in fire policies, fire due to war is usually named and not covered therefore)
OPEN PERILS POLICY (ALL-RISK POLICY)
covers all perils unless excluded; perils can be sudden and unforeseen (accident) or occur over a period of time (an occurrence)
DIRECT LOSS
one that happens suddently due to a covered peril (fire, lightning, hail, wind)
INDIRECT LOSS (consequential loss)
occurs as a consequence of the direct loss; fire would be a direct loss; loss of rental dollars due to fire would be the indirect loss
INDIRECT LOSS COVERAGE
there is no coverage for an indirect loss unless the direct loss is covered first; e.g. if flood is not covered, then there is no coverage for loss of rental dollars
BLANKET PROPERTY INSURANCE
provides a single amount of insurance that may apply to different types of property or to different locations
SINGLE LIMIT OF INSURANCE
(blanket prop coverage); client may select a single limit that may apply to all types of prop at a single location, or to one type of property at multiple locations; may even select this coverage for all types of property at all locations
SPECIFIC PROPERTY INSURANCE
provides a specific amount of insurance for specific types of prop at a specific location
REAL PROPERTY
may be constructed as frame (wood), masonry (brick) or block (today some frame construction is steel and concrete, and known as fire resistive) ; generally masonry and block construction would result in lower premiums that wood framing
ACTUAL CASH VALUE
determined by finding replacement cost of the property at todays prices (not counting the land) and subtracting out any depreciation, which is based on the age of the property
ACV FORMULA
Replacement cost (RC) minus Depreciation = ACV
POLICIES THAT PAY ON AN ACV BASIS
Basic Dwelling Fire Policies always pay on this basis; contents coverage on property policies also, although replacemetn cost coverage is available for an additional premium
REPLACEMENT COST BASIS
claims are paid in full without any depreciation up to the policy limits less the deductible
POLICIES THAT PAY ON A REPL COST BASIS
(better policies); all Homeowner policies; Broad and Special Form Dwelling Fire
REPLACEMENT COST POLICIES
dwelling policies that contain replacement cost coverage require the insured insure for at least 80% of the replacement cost value in order for repl. cost coverage to apply
ACV VS REPLACEMENT COST
most clients prefer to have replacement cost coverage instead of ACV
FUNCTIONAL REPLACEMENT COST COVERAGE
in the event of a loss the insurer agrees to replace the building utilizing simpler construction methods and modern building materials instead of the original; used for older buildings or homes where the cost of replacement far exceeds the actual cash val
AGREED VALUATION CLAUSE
optional clause; insurer will cover losses in full while this clause is in effect
FINE ARTS FLOATER
clause to cover paintings, etc, which will pay the face amount or policy limit, regardless of ACV
DECLARATIONS
declarations page is 1st page of policy, includes name of insured, location of property, premium and eff. date of coverage
DEFINITIONS
state who is covered as an insured on the policy other than the insured (in an auto policy, defines what is a covered auto)
INSURING AGREEMENT OR CLAUSE
states that coverage is provided in accordance with the terms and conditions of policy; contains perils to be covered as well as insurer's promise to pay covered claims
ADDITIONAL/SUPPLEMENTARY COVERAGE
debris removal, coverage for trees, fire dept service charges; on auto policy might be bail bonds coverage
CONDITIONS
provisions in the policy that apply to both insured and insurer, such as notice of claim and proof of loss
EXCLUSIONS
provisions taking coverage away for certain claims, e.g. flood , war, nuclear hazards
ENDORSEMENTS
something added to the policy to make it better; also called riders in life insurance
PERSONAL ARTICLES FLOATER
provides all risk coverage, including fire, theft, etc for certain types of personal property such as jewelry
POLICY STRUCTURE
so the above are the structure of the policy: Declarations, Definitions, Insuring Agreement, Additional/Supp Coverage, Conditions, Exclusions, Endorsements
NAMED INSURED
person listed on the Declarations Page, including spouse if they live together (so the spouse does not actually have to be named on the Declarations Page in order to be considered a named insured)
FIRST NAMED INSURED
the person named 1st on the Declarations Page; the insurer is only obligated to send notices to the first named insured on the declarations page
ADDITIONAL INSURED
another person listed on your policy (usually at no extra charge), eg workers at your home
POLICY TERRITORY
territory is usually restricted to USA, Puerto Rico, Canada, except on a CGL policy
POLICY PERIOD
coverage only exists during timeframe shown on Declarations page; in auto it is usually 6 months, in property 12 months
COMMERCIAL GENERAL LIABILITY POLICY
policy territory includes all parts of the world if injury or damage arises out of goods or products made or sold by the insured in the US, Puerto Rico or Canada
CANCELLATION
cancellation may be requested by either party
WHEN THE INSURER CANCELS
must specify the reason why as some states limit the reasons an insurer can cancel; must give insured advance written notice; timeframe varies by state
PRO-RATA (PROPORTIONATE)
when the insurer cancels, must refund unearned premiums to client within a specified number of days
WHEN THE INSURED CANCELS
insurer is required to process cancellation process, and permitted to apply a percentage penalty charge because of their administrative expense
SHORT-RATE PENALTY
penalty for insured cancelling policy
NON-RENEWAL
slightly different from cancellation; no refund required because insurer provided coverage for entire term of contract, just didn't renew contract
DEDUCTIBLES
higher the deductible is, lower the premium will be; property policies usually have $250 deductible for each and every claim
POLICIES COMMONLY WRITTEN WITHOUT DEDUCTIBLES
liability policies, personal auto liability and homeowners liability
OTHER INSURANCE
a clause designed to reinforce the Principal of Indemnity, keeping clients from collecting more than they actually lost
PAP
personal auto policy; the owner's policy is always considered to be the primary policy, regardless of who is driving the car
LIMITS OF LIABILITY
stated on the Declarations page; indicates the limit the insurer will pay for a single occurrence; e.g. if your dog bites repeatedly, the limit the insurer will pay per each occurrence
AGGREGATE (TOTAL) LIMIT
max the insurer will pay during the liability period; e.g. max insurer will pay out on total occurrences of dog bites
RESTORATION
coverage is restored (or starts over again) with new limits on anniv date
SPLIT LIMITS
most auto policies written with split limits; typically limits the a mount paid to any oneperson negligently injured with your car, then limits the amount for bodily injury you cause to others with your car, then limits the amount of property damage paid
COINSURANCE
usually 80% requirement on dwelling fire and HO policies
VACANCY
situtation where both the occupant and contents have been removed from premises; unoccupied means contents are still in the home,e.g. on an extended vacation
ABANDONMENT OF PROPERTY
expressly prohibited by terms of the policy; if you suffer a total loss, you must still sick around and assist the insurer in the claim settlement process
LIBERALIZATION CLAUSE
insurer is permitted to change the terms of the contract at any time as long as the change benefits the insured and no additional premium is charged
SUBROGATION CLAUSE
property policies; insurer may require from the insured an assignment of all rights of recovery against any negligent third party for loss to the extent that payment has been made by the company
BEST INTERESTS
the insurer has the right to settle a claim in their best interests; they can either pay the claim, repair the property, or replace the damaged property (regardless of your preference)
LIABILITY COVERAGE
insurer is obligated to defend all lawsuits filed against the insured, even if false, fraudulent or groundless; may settle the claim in any way they want
ARBITRATION
if insurer and insured do not agree whether insured is legally entitled to recover damages, goes to arbitration if both parties agree; each party selects an arbitrator, 2 arbitrators selected choose a 3rd, and mutual agreement of any 2 of the 3 parties is
THIRD-PARTY PROVISIONS
e.g. a mortgage company may be named on a homeowners policy
BAILEE
3rd party such as a parking lot attendant driving your car; has a legal responsibility to take care of the car while it is under their temporary control and is not covered under your policy