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FI 341 Test 2 review questions
Terms in this set (83)
compesation to the injured
Special Damages (Compensatory Damages)
damages which can measured properly and documented (ex. medical expenses, expenses on lost things)
General Damages (Compensatory Damages)
damages which cannot be measured or itemized (ex. pain, time, relationships)
made to to punish people or organizations for the harsh doing towards others. award the compensation several times more than the loss occurred in order to get rid of the same thing in the future
What is the Meaning of Strict Liability?
its a potential harm caused by an individual to others or society at large. caused because of negligence or by fault. Also called absolute liability. (ex. Crop spraying, blasting works, irrigational developments, pet animals)
What is Negligence?
Type of tort that results in substantial liability to the other party
By Law: "negligence is not a following the standard of care to protect others from an unreasonable risk as required by law"
Existence of legal duty (Elements of Negligence)
the first requirement to protect others form harm. one cannot beheld liable without the legal duty imposed by the law.
Failure to preform duty (Elements of Negligence)
2nd: protect others from the harm. ther should be standard of care to protect the others. the actions of a person will be compared with the reasonably prudent person under the same circumstances
damage or injury (Elements of Negligence)
3rd: there should be damage or injury to the claimant. the damage should be cause because of the actions of the alleged tortfeasor that damages may be compensatory or punitive damages
proximate cause relationship
4th: that must exit for the existence of negligence. a proximate cause is a cause unbroken by a new and independent cause which produces an event that otherwise would not have occurred
states that if the injured persons conduc falls below the standard of care by law, the injured cannot collect damages. if they contribuated to any part of the injury he cannot collect claim damages
both the defendant and plaintiff will be responsible for their share of damage. three types: pure rule, 50% rule, 51% rule
pure rule (Comparative Negligence)
the exact percent of each persons mistake will be considered their part of the actual damage
50% rule (Comparative Negligence)
one cannot recover if they have 50% or more at fault, only claim if 49% or less
51 % rule (Comparative Negligence)
one cannot recover if they have 51% or more at fault, can claim if 50% or less
Last Clear Chance rule
plaintiff can recover damages from the defender if he had a clear chance to avoid avoid the accident but didnt try to
Assumption of Risk doctrine
if the person knows and understands the inherent risk available in an act then cannot claim damages. per doctrine the risk inherent in the activity will be the responsibility of the person doing the activity only
It is implicit negligence under which sometimes the negligence of one person can be attributed to the other person or persons.
• employer or employee relationship: The negligence of the employee will be treated as of the employer and also for the agency relationship.
• When there is a presence of family purpose doctrine: The immediate family members will be held liable for the negligence of a family member
.• Presence of joint venture business and partnership businesses: The acts of the partner in a partnership firm will be held on the partnership firm as a whole.
• There is a presence of vicarious liability law: The negligence of one will have an impact on its owner or on the person who is responsible for its occurrence.
Res ipsa Loquitar
meaning "the thing speaks for itself." Under this doctrine, the very fact that the injury or damage occurred establishes a pre-sumption of negligence on behalf of the defendant. It is then up to the defendant to refute the presumption of negligence . That is, the accident or injury normally would not have occurred if the defendant had not been careless. Examples of the doctrine of res ipsa loquitur include the following:
■ A dentist extracts the wrong tooth.
■ A surgeon leaves a surgical sponge in the patient's abdomen.
■ An operation is performed on the wrong patient or wrong limb.
To apply the doctrine:
■ The event is one that normally does not occur in the absence of negligence.
■ The defendant has exclusive control over the instrumentality causing the accident.
■ The injured party has not contributed to the acci-dent in any way.
property owners (Standard of care)
Property owners have the legal obligation to the injured party. The liability will differ depending on the following circumstances
a .• Trespassers: Trespassers are the persons who occupy the property of the owners and the property owner does not have any liability towards the injured person.
b. • Licensee: Licensee is a person who has the rights to use the property for a period through an implicit or written contract. The occupant should warn the unsafe measures of the property, but he does not have any obligation to meet the harm on the unsafe activities.
c. • Invitee: Invitee is the person who comes and acts for the benefit of the occupant. In this case, the occupant is solely responsible for the harm caused due to unsafe activity
attractive nuisance doctrine (Standard of care)
According to this doctrine, the circumstances are attractive to the children and can cause injury to them. The occupant should maintain the ordinary care to protect others. If any injury happened to children then occupants will be held liable for the damage or injury due to the unsafe measures.
Owners and operators of automobiles (Standard of care)
The owner of automobile who drives carelessly and causes injury is responsible for the liability caused to the damaged person. The owner can have the rule of last clear chance. Incase if the operator of the vehicle is not the owner then the owner is not responsible for the act of the negligence of the operator provided if there is an absence of agency relationship.
governmental units and charitable institutions (Standard of care)
Governmental units are held liable for the acts of the failure or negligence in performing the governmental functions and proprietary functions. Charitable institutions are held liable for the acts of negligence, especially the acts which have the commercial activity.
employers and employees (Standard of care)
Where there is an employer employee relationship, the employer is held responsible for the negligible acts of the employee. The employer is not responsible if there is no agency relationship.
Two conditions should be satisfied for the obligation of the employee:
1. There should be legal relationship.
2. The employee must act within the scope of the employment.
parents and children (Standard of care)
As a common law, the parents are held responsible for the acts of their children. There should be two conditions needs to be met for this requirement:
1. The children must have used the dangerous weapons or things to create the damage or injury.
2. The child must have acted the negligence as an agency relationship on behalf of his parents.
owners of animals (Standard of care)
According to the doctrine of the strict liability, the owners of the wild, pet or ordinary animals are held liable for the mischief acts of the animals and to the damages or inquiries to the other party.
increase in the tort liability cost (major defects in the tort liability system in the United States)
The tort liability costs of settling lawsuits are increased much more; this includes the benefits paid to the third parties rather than for the actual expense.
settlement delays in the lawsuit (major defects in the tort liability system in the United States)
There are long delays in settling the lawsuits. They keep on postponing for the better solutions but finally that result in the delay in the settlement time. The delays may be caused due to the pre-trail examination of facts, interviews, depositions; attorneys use their tactics and these all results in increase in delays and costs.
uncertainty of legal outcomes (major defects in the tort liability system in the United States)
The uncertainty result of the lawsuits also a cause for the defect tort liability because it ends with the high burden of liability.
inefficiency in clearing the injury liabilities (major defects in the tort liability system in the United States)
The tort liability is lagging with the delay in the clearance of liability to the injured person.
rule of joint and severally liable (major defects in the tort liability system in the United States)
The effect of one will have an impact on the other, which is not correct.
Briefly describe how technological change and societal change can lead to increased litigation.
Corporate governance and financial sector units have the following problems behind the increased litigations.
• The accounting practices are dishonest. Some show the inflated values to increase the profit .
• Weak in the assessing and managing the financial risks.
• Unclear disclosure of the financial statements and reports.
• Poor internal controls and audits.
• Highly paid salaries to the executives and officers.
• Least accountability of the board of directors.
• In case of the financial institutions, the promises for the high returns over the investments of fraudulent organizations are also a problem to increase the litigation
.• No transparency in internal agreements and compromises with the outsiders.
Liability Coverage (auto)
• Liability coverage under PAP protects the insured from bodily injury and property damage arising out of operation of an auto or trailer negligently.
• The insured is also paid for the legal defense costs by the insurer.
• The PAP is typically written with split limits. Split limit means the amount of insurance of body injury and property damage are stated separately.
• Liability coverage can be single limit by adding appropriate endorsement to the policy.
• Liability coverage protects are as follows:
• The insured and any resident family member• Any other person using the vehicle covered auto policy of insured with permission
.• The PAP coverage applies to any person or organization legally responsible for any insured's use of a covered auto on behalf of that person or organization.
• The policy applies to any person or organization legally responsible for the insured or family members' use of any auto or trailer (Other than a covered auto or one owned by that person or organization).
• Supplementary payments are also paid under the liability coverage.
Example :• Mary has a PAP with liability limits$ 300,000 for each occurrence.
• Mary fails stop the van in time and hit the car in front. The other car's bumper is damaged $ 1000 , and the other driver has bodily injuries $ 1500
• Since Mary has a combined single limit (CSL) of $300,000, the total liability expenses of $2,500 are completely covered by the insurer.
Medical Payments Coverage (auto)
PAP under Medical payments coverage (Part B) protects the insured by paying the reasonable medical, dental and funeral expenses incurred by the insured for services rendered within three year from the date of accident.
• The covered expenses are like surgical, X-ray, dental, medical and funeral expenses.
• Medical coverage is not based on fault.
.• Medical payments are paid to the insured and also to the other passenger injured in an auto accident.
• John's daughter accidentally slams the car door on his hand. Fortunately, John has medical Payments coverage with a $1,000 limit in his policy
.• The total bill for an x-ray and cast is $1,500. Medical Payments coverage will cover $1,000 of the bill, and john is responsible for the remaining $500
Uninsured Motorists Coverage (auto)
:•pays for the body injuries caused by an uninsured motorist, by a hit and run driver, or by the negligent driver whose insurance company is insolvent.
• Damages include medicine bills, lost wages and any compensation for permanent disability from the accident.
• The coverage applies only when the uninsured motorist is legally liable, otherwise the insurer will not pay for the body injury.
• The Maximum limit of liability for a single accident will be as shown in the declaration page
.• If the insured is entitled to workers compensation law or disability benefits law, the insurer will not pay for the loss.• The claim is subject to arbitration if the insured and insurer disagrees with the amount of damage. Each party selects arbitrator, the two arbitrators select a third arbitrator and the decision is binding on all parties.
Coverage for Damage To your Auto (auto)
• Coverage for damage to your auto protects the insured from direct physical loss to a covered auto or non-owned auto.
• If the declaration page includes collision or other than collision, then only the coverage effects.
• Collision loss- damage to the covered auto or non-owned auto or the impact when a covered auto met with an accident with another vehicle.
• loss or damage from missiles or falling objects, fire explosion, theft or robbery, earthquake or any explosion, windstorm, floods, malicious mischief or vandalism, glass breakage.
The PAP provides coverage for your covered auto . Identify the four classes of vehicles that are considered to be covered autos.
Personal auto policy (PAP) covers only certain types of eligible vehicles. Four wheeled motor vehicle owned or leased by the insured for at least six continuous months is an eligible vehicle. A covered Auto is an important provision.
Any vehicle shown in the declarations (four classes of vehicles that are considered to be covered autos)
A private passenger auto, station wagon, sports utility vehicle, a pickup or van owned by the named insured includes in covered auto.• A pickup or van must have a gross vehicle weight of 10,000 pounds or less.• A pick up or van must not be used to transport business unless the material is incidental to the insured's business, and the insured business is like installing, maintaining, repairing.• The vehicle listed in the declaration must be at least six months used by the insured.
A Newly acquired auto (four classes of vehicles that are considered to be covered autos)
• must be acquired in the name of the insured during the policy period.•
vehicle is automatically covered for first 14 days, but the insured should notify the insurer within 14 days to continue the coverage.• If the vehicle is acquired by replacement, then the acquired vehicle is automatically covered until the policy expires. The liability coverage, medical payments and uninsured motorists' coverage apply automatically without giving notification to the insurer.• For the coverage on damage to auto the provisions apply separately to collision coverage and other than collision coverage.• If the declaration page includes collision coverage to at least one auto, then the acquired vehicle is automatically covered for 14 days and the insured should notify the insurer within 14 days to continue the coverage.• If the declaration page does not include collision coverage for at least one auto, then the newly acquired vehicle is automatically insure only for four days and the insured must notify the insurer within four days after the insured become owner to continue the coverage.•
Trailer owned by the named insured (four classes of vehicles that are considered to be covered autos)
Trailer owned by the named insured :• A trailer is a vehicle pulled by a private passenger auto, pickup or van and also includes farm wagon.• The trailer should be owned by the insured.• The loss is covered by the liability coverage in PAP.•
Temporary Substitute vehicle (four classes of vehicles that are considered to be covered autos)
Temporary Substitute vehicle:• A temporary substitute vehicle is also a covered auto.• When the insured vehicle met with breakdown, repair, servicing, loss or destruction, the temporary non owned vehicle used by the insured will be covered.
The PAP provides liability coverage to four groups. Identify the four groups of persons or parties who can be insured under the PAP.
Under Personal Auto Policy (PAP) Liability coverage is an important part. The insured is protected against law suits arising out of operation of vehicle by PAP liability coverage. The liability coverage to four groups of persons is provided by PAP. The following are the four groups:•
The insured and any resident family member :•
Any other person using the vehicle covered auto policy of insured with permission.•
The PAP coverage applies to any person or organization legally responsible for any insured's use of a covered auto on behalf of that person or organization.•
The policy applies to any person or organization legally responsible for the insured or family members' use of any auto or trailer
in addition to the policy limits and a legal defense, the PAP provides for certain supplementary payments. Briefly describe the supplementary payments that can be paid under the liability section of the PAP
Personal auto policy (PAP) pays certain supplementary payments in addition to the policy limits. The supplementary payments are stated below.•
pays the premium on bail bond to the maximum of $250 because of auto accident that result in property damage or bodily injury. However, the payment is not made if the accident is due to traffic violation.•
Premiums on appeal bonds and bonds to release any property in suit defended by the insurer.• The interest accruing after the judgment is paid as supplementary payment.•
Up to $ 200 daily for the loss of damages due to attending the hearings at insurer's request.•
PAP coverage covers for the reasonable expenses incurred by the insured at insurer's request.
List the major exclusions that apply to liability coverage (Part A) in the PAP.
\Any intentional injuries or damage to the property are specifically excluded from Personal auto policy (PAP).•
Any damage to the property owned or being transported by the insured is not covered in the liability coverage.•
The damage to the property rented or used by the insured or in the care of the insured is not covered PAP. However, when insured is rented in a home then the damage to the property of the home is covered in PAP.•
Bodily injuries to an employee of insured during the course of employment are excluded. However, the workers compensation law protects the insured from the loss. If daily labor is injured during work at insured's place and the worker compensation is not available then the insured is covered under PAP.•
If the insured makes use of the vehicle for hire to the general public. The liability arising out of the operation of vehicle or ownership is excluded from PAP.•
Liability arising out of operation of vehicle in the auto business is excluded. The auto business refers to repairing, servicing, selling, parking, testing and delivery. The intention of the exclusion is to cover the liability under auto repair firm's firm insurance• PAP excluded the liability coverage to any vehicle maintained or used in any other business. The intention of the exclusion is to exclude liability coverage for commercial vehicles.•
Liability arising out of using a vehicle without reasonable belief of permission of the insured is excluded in PAP liability coverage. However the exclusion does not apply to family members of the insured.•
PAP excludes the liability of insured who is covered under special nuclear energy contract.• The liability coverage excludes the vehicle that has less than four wheels or designed for use mainly off public roads. Thus, motorcycles, mopeds etc. are excluded.•
For the vehicle furnished or made available for the insured's regular use or by any family member of the insured the liability coverage is not covered.• Liability coverage does not apply to the racing vehicle.
Describe the major features of uninsured motorist coverage (Part C) in the PAP.
Uninsured motorists coverage pays for the bodily injuries caused by an uninsured motorist, by a hit and run driver, or by the negligent driver whose insurance company is insolvent.
Damages include medicine bills, lost wages and any compensation for permanent disability from the accident. Major features of uninsured motorists' coverage (Part C) in the PAP are as follows:• Legal liability: The coverage applies only when the uninsured motorist is legally liable, otherwise the insurer will not pay for the bodily injury.• The amount shown in the declaration page will be the maximum limit of liability for a single accident.• The insurer will not pay for the loss, if the insured is entitled to workers compensation law or disability benefits law.• The claim is subject to arbitration if the insured and insurer disagrees with the amount of damage. Each party selects arbitrator, the two arbitrators select a third arbitrator and the decision is binding on all parties.• Some states also include property damage from an uninsured motorist.Insured persons under Uninsured motorists' coverage are as follows:• The named insured.• Insured's family members.• Any other person occupying in a covered auto.• Any legally entitled persons to recover damages because of bodily injury to the insured.
Coverage for Damage to Your Auto (Part D) in the PAP provides for two optional coverages: (1) collision cov-erage, and (2) other-than-collision coverage.a. What is a collision loss? Explain your answer.b. What is an other-than-collision loss? Explain your answer.c. List the major exclusions that apply to Coverage for Damage to Your Auto (Part D).
a. Collision loss is defined as damage to the covered auto or non-owned auto or the impact when a covered auto met with an accident with another vehicle. Collision losses are paid without considering fault. A collision loss is covered only when it has been defined in the declaration page.
b.Other than collision loss is the loss that occur from any of the following perils • Missiles or falling objects• Fire explosion• Theft or robbery• Earthquake or any explosion• Windstorm• Floods• Malicious mischief or vandalism• Glass breakage
c.The exclusions that apply to the Part D coverages are as follows:• The damage or loss to a covered auto or non-owned vehicle is excluded if the vehicle is being used as public or livery conveyance.•
The damage to the vehicle from wear and tear, freezing, electrical breakdown or mechanical breakdown is excluded from Part D coverages.•
The Part D coverages excludes if there is any damage from radioactive contamination or war.• Loss to the electronic equipment that transmits audio, video signals is excluded.•
Loss to the stereo tapes, records and any other media is excluded.•
The loss to a covered auto due to destruction by a government or civil authority.•
PAP excludes the trailer, motor home which is not indicated in the declarations.•
PAP excluded the loss to a non-owned auto used without reasonable permission.•
a.A Non-owned auto is a private passenger or a pick up van that is not used by the insured and his family members regularly while it is in the custody or operation of the insured or his family members. It also include a private passenger or a pick up van that is not available for the regular use of the insured and his family members, while it is in the custody or operation of the insured or his family members.
If the insured drives a nonowned auto on a regular basis, does the insured's PAP provide coverage? Explain your answer.
b.A temporary substitute vehicle is considered as a Non-owned auto and covered in PAP. The PAP part D coverage covers the physical damage to the covered auto shown in the declaration page, and the collision loss and other than collision losses both. It applies only if the non-owned auto is not furnished or made available for the regular use of the insured or family members.
. But when the vehicle is driven for regular basis and made available for regular use of the insured or his family members, then the part D of PAP policy coverage does not apply.
Explain the duties imposed on the insured after an acci-dent or loss occurs.
If an accident or loss occurs the insured should perform his obligations based upon common sense, law of the jurisdiction and under the provisions of the Personal Accident Policy. The duties based upon all there (common sense, law of the jurisdiction and under the provisions of the Personal Accident Policy) are mentioned below.• Firstly, should check out if anyone is hurt, if yes then call the ambulance immediately.•
Notify to the police, if there are bodily injuries or property damage exceeds certain amount such as $200.• Contact details of the insured and insurer details should be given to the other driver and the same details must be taken from the other driver.
• The insured should notify the insurer company immediately.•
The insured should cooperate with the insurer while investigation and settlement of claims.•
Insured should submit to the insurer if any notices or legal papers are received in connection with the accident.•
If the insured claiming benefits are under uninsured motorists, underinsured motorists or medical payments coverages then he must take physical examination at insured's expense.•
The insured should authorize the medical reports and other reports useful to the insurer in his investigation.•
Finally, the insured should submit the proof of loss to the insurer.
Compulsory Insurance Law
as per law, a driver or motorist is required to carry auto-liability insurance at least or equal to a certain amount before the vehicle can be licensed or registered. This law provides greater protection than financial responsibility laws as motorists have to provide evidence of financial responsibility before an accident occurs.Moreover, it is believed that Compulsory Insurance laws generally are ineffective in reducing the number of uninsured drivers
No-Fault Auto Insurance
is one of the methods for compensating injured accident victims. This insurance means that after an auto accident involving body injury, each party gathers from his or her own insurer regardless of the liability.Most no-fault laws place some restrictions on the right to sue the negligent driver, who causes an accident. If a bodily injury claim is below a certain value then, an injured driver is not permitted to sue but instead collect from his or her own insurer
What is the difference between a monetary thresh-old and a verbal threshold?
• Monetary threshold is a threshold that uses quantifiable amount that must be spent on medical expenses before a lawsuit is allowed.• In monetary threshold, grievances for non-economic injuries are prohibited, unless a definite amount is reached.•
• A verbal threshold is a threshold that uses qualitative dimension and allows litigations based on severe personal damages like death, dismemberment or permanent injury.• In verbal threshold, lawsuits are restricted to serious injuries or death. Moreover, the person is precluded from bringing lawsuit against the driver unless the insurer meets the defined criteria for a serious injury.•
Describe the major types of no-fault laws
No-fault auto insurance
requires that injured person to seek compensation from their own insurance company, regardless of who was at fault for the accident. The major types of No-fault laws are as follows:
Pure no-fault plan
: It is a plan in which accident victims cannot sue at all, regardless of the claim, and no payments would be made for sufferings. Instead, injured is required to collect benefits and lost wages from their insurers.
Modified no-fault plan
: This is a plan that allows the injured person to sue only, if the damage amount exceeds either the dollar or verbal threshold. Otherwise, the accident victim gathers from his or her own insurer. Thus, this plan partly limits the right to sue.
: The plan is not considered a true no-fault plan as it allows the parties to sue for damages, including for pain-and-suffering. Injured person have the right to sue the lax driver and collect the damages from their ownership insurance companies.
Choice no-fault plan
: This plan allows the insured person to choose a no-fault coverage and pay lower premiums, or choose the right to sue under the tort liability system and pay higher premiums. Only three states have choice for no-fault plans that is Kentucky, New Jersey, and Pennsylvania
List the arguments for and against no-fault auto insurance.
:Proponents of no-fault laws argue that an alternative system is needed because of the defects in the liability system.These defects include the following:•
Difficulty in determining fault: It is often argued that auto accidents occur suddenly and unexpectedly, and determination of fault is often difficult.•
Inequality in claim payments: Under the present tort system, small claims are often overpaid, whereas serious claims may be underpaid. •
High-transaction cost and attorney fees: Critics also argue that the present tort system incurs high transaction costs and attorney fees. Arguments against No-fault insurance : It is believed by some experts that no-fault insurance is ineffective.
Major arguments against no-fault laws are as follows :•
There is no payment for pain and sufferings, paralysis and other economic damages.• In this type of law, claims of efficiency and savings on premium are exaggerated.•
Under no-fault laws, bad drivers are protected because they cannot be sued for the damages.• In no-fault plan, safe drivers are penalized and they provide bonus for irresponsible drivers, who cause accidents.•
Under no-fault, rates are very higher. There is no reduction in litigation costs under no-fault system. •
The time and effort insurers spent in defending litigation claims is now spent in defending lawsuits, brought by their own insurers for failure to pay no-fault benefits.
Explain the suggestions that consumers should follow when shopping for an auto insurance policy.
An Maintain good credit: One of the vital suggestions to follow while shopping for an auto insurance is to maintain good credit report. Applicants with good credit records are able to purchase insurance at lower rates than applicants with poor credit records.
Check the driving record: The other important suggestion is improving the driving record because if the applicant is a high-risk driver, then he has to pay high premiums and might face difficulties in getting insurance. Therefore, to maintain good driving record, the driver should not drive after consuming alcohol.•
Higher Deductibles: The driver should always look for higher deductibles while shopping for auto insurance because higher deductibles helps in reducing collision and comprehensive cost by 15 to 30 percent.•
Take advantage of discounts: When shopping for auto insurance, the applicant should see whether he/she is eligible for one or more discounts. All insurers do not offer same discounts. Therefore, the driver should check with all insurance companies that are providing good discounts.•
Assess Insurance company's track record: While shopping, the driver should assess the company's performance and see whether the company is financially sound or not.•
Review the policy: The other important suggestion is to properly review the policy before signing the policy. The applicant should read all the points of the policy clearly.
Identify the persons who are insured under a home owners policy
The named insured and residents of the household who are relatives of the named insured.•
Other persons under the age of 21 years who are under the care of the named insured or the residents of the household who are relatives of the named insured.•
A full-time student under the age of 24 who was a resident of the household and a relative of the named insured but is now away from home or a full-time student under the age of 21 who is under the care of the named insured or the residents of the household who are relatives of the named insured and is away from home.•
Any other person legally responsible for the covered animals or watercraft.•
A person employed by the named insured or any of the other insureds as defined above in respect of a motor vehicle covered by the policy
Dwelling (type of coverage and example of loss)
coverage A. covers all the resident premises and any structures attached there to. It does not include the land and its value. The materials attached to the repair works are also included
Other Structures (type of coverage and example of loss)
Coverage B covers all the other structures which are not part of the dwellings, i.e, separated from dwellings.The following are excluded from the Coverage B-•
Damage of land is excluded•
Structures which are rented to the tenants are excluded•
Structures under which business is carried out•
Structures which take part in the business activities such storage etc are excluded.
Personal Property (type of coverage and example of loss)
. Coverage C: y: It covers all the properties used by the insurer and it includes the borrowed property also.
In this, the coverage of insurance extends to the guest of the insurer also. The amount of insurance is limited to 50 percentage of damages in case of dwellings and 10 percent in case of off premises damages. The 10 percent limitation does not apply to personal property that is moved from the residence premises and in case of the newly acquired principal residence for 30 days from the time the named insured begins to move the property therein.
Loss of use (type of coverage and example of loss)
Coverage D provides the protection when the residence premises cannot be used because of a covered loss.
The amount of additional insurance under this covers 30 percent of the insurance on the dwellings as per coverage-A. The benefits provided under this coverage are• Additional living expense• Fair rental value• Prohibited use
Additional C overages (type of coverage and example of loss)
provided under the HO-3 insurance policy:
• Debris removal• Reasonable repairs• Trees, Shrubs, and Other plants• Fire Department Service charge• Property removal• Credit card, Electronic Fund Transfer Card or Access Device, Forgery and Counterfeit money• Loss assessment• Collapse• Glass or Safety Glazing material• Landlord's Furnishings• Ordinance or Law• Grave markers
a. Briefly describe the special limits of liability that apply to certain types of personal property.
b. Why are these special limits used?
special limits for the insurance claim are used because of moral hazard and loss adjustment problems and are desire by the insurer to limit his or her liability
Coverage A and Coverage B under a Homeowners 3 policy insure the dwelling and other structures against "direct physical loss." Explain the meaning of this phrase.
a. Meaning of direct Physical loss under the HO-3 policy: HO-3 policy provides insurance against direct physical losses to dwelling and other related structures such as garage, etc.
Under this policy, all physical losses to the property can be claimed except the following losses that are specially excluded: •
Collapse• Freezing• Fences, pavement, patio, and similar structures• Dwelling under construction• Vandalism and malicious mischief• Mold, fungus, or dry rot• Wear and tear or deterioration• Mechanical breakdown• Smog, rust or corrosion• Discharge, seepage, etc.• Birds, rodents or insects• Besting or infestation or discharge or release of waste• Animals owned or kept by an insured
Coverage C under a Homeowners 3 policy covers personal property on a named-perils basis. List the various perils that are covered.
The lists of perils covered under the policy are as follows:
• Fire or Lighting• Windstorm of Hail• Explosion• Riot or civil commotion• Aircraft• Vehicles• Smoke• Vandalism or Malicious Mischief• Theft• Falling objects• Weight of ice, snow or sleet• Unexpected discharge or overflow of water or steam• Sudden destroying, cracking, boiling of a steam, hot water, air conditioning or automatic fire protective sprinkler system or appliances for heating water• unexpected damage from an artificially generated electrical current• Volcanic eruption.
List the major exclusions that are found in Section I of the Homeowners 3 policy.
• Concurrent Causation Losses:Concurrent causation losses means that losses which occurs due to the two perils concurrently or in any sequence. These entire losses are excluded from the claim.•
Ordinance or Law:This policy excludes the loss occurred due to ordinance or law. However, if the loss is covered under the additional coverages, higher amounts can be claimed as per the policy.•
Earth Movement:Damages caused due to the earthquake, shock waves etc are excluded from claiming the loss. However, if there is a direct loss like fire, explosion or theft etc are covered.•
Water Damage:Property damage that occurs due to the water are excluded under this policy.•
Power failure:This policy does not cover the losses which occur due to the power failure or other service failures. However, if the failure is due to the natural disaster like thunder or lightning there is coverage.•
Negligence:If the loss occurs due to the insurer's negligence, there is no coverage under the policy.•
War:Damages caused due to the war are specifically excluded.•
Nuclear Hazard:The accidental loss due to the nuclear hazard does not cover under the policy
.• Intentional Loss:If the insurer makes the property loss with an intention for the insurance it is excluded under the coverage.•
Governmental Actions:Actions taken by the government or change of law and regulations does not cover under the coverage.•
Faulty and defective planning or designs• Loss due to weather conditions are excluded.
Briefly describe the duties imposed on the insured under a homeowners policy after a property loss occurs.
If the insured does not comply with his or her duties, and such noncompliance is prejudicial to the insurer, the insurer has a right to deny the coverage.
Give prompt notice:The insured must give the prompt notices to the insurer or the agent of the insurer.•
Protect the property:The insurer must take care of the property from the further damage and make the repairs if required necessarily.•
The insured must prepare a report on the inventory of damaged personal property with the details of quantity, item details, cash value etc.•
Exhibit the damaged property• The insured must file a proof of loss within 60 days from date of the insurer's request.
How is the amount paid for a covered loss to per-sonal property determined?
a. Amount paid under the covered loss to personal property The to be paid for a covered loss to personal property is settled on the basis of actual cash value of the property at the time of loss. The actual cash value is computed by subtracting depreciation from the replacement cost of the property
actual cash value=replacement cost-deprecation
How is the amount paid for a covered loss to the dwelling and other structures determined?
b. Amount paid under the covered loss to dwelling and other structures The damage occurred to the dwellings and other structures are paid on the basis of insured percentage of replacement cost. The replacement cost of the value at which the dwelling or structure can be replaced at the current market prices. If the insurance is carried for less than 80 percent of the replacement cost value, then the value of claim can be calculated as the larger of the following two:
1. Actual cash value of that part of the building damaged (or)
2. (amount of insurance carried/(80%x Replacement cost))x 100
Describe the extended replacement cost endorsement that can be added to a Homeowners 3 policy.
(a) Extended replacement cost Major catastrophes such as a hurricane or a tornado may damage a house beyond repairs. In such an event, insurance of the 80 percent of the replacement cost may not be sufficient to provide complete protection. For such events, some insurers offer the extended replacement cost endorsement that pays an extra 20 percent above the policy limits. However, the insured needs to agree to insure the dwelling for full replacement cost and to notify the insurer if the value of the dwelling is increased by alterations or remodeling.
What is a guaranteed replacement cost policy?
(b) Guaranteed replacement cost policy Under the guaranteed replacement cost coverage, the insured agrees to insure the 100 percent of the estimated replacement cost. The insurer, in the event of total loss, agrees to replace the home exactly as it was before the loss even if the cost of replacement exceeds the amount of insurance stated in the policy.
A home buyer may obtain a mortgage loan to purchase a house. Explain briefly how the mortgage clause pro-tects the insurable interest of the lending institution (mortgagee).
• Mortgage clause is designed to protect the interest of the mortgagee from the risk of nonpayment from the insurer
.• The mortgagee is usually a financial institution or lending company which gives loan to the mortgagor (buyer).
• If the damage occurred to the property, the loss occurred to the mortgagor will be paid directly to the mortgagor because he is not in a position to pay.
• Even if the insurer intention makes damage to the property, the mortgagee gets benefitted because of this clause.
• The policy period begins and ends at 12.01 A.M.
In exchange for the guarantee of payment, mortgage clause imposes certain conditions on the mortgagee:
• The mortgagee should make a notice to the insurer of any change in the ownership, occupancy or change in the risk.
• To pay any premium due if the insured neglects to pay.
• To provide the proof of loss statement if the insured fails to do so.
• To give subrogation rights to the insurer in those cases where the insurer denies liability.
What is the meaning of occurrence under Section II of the homeowners policy?
occurrence is an event, an accident or a series of the incidents that occur over the policy period which results in bodily injury or property damage caused by the insured by his personal acts.•
Section II of the homeowner's policy protects the insured from legal liability arising out of their personal acts.•
The Section II of the homeowner's policy covers the following two coverages:•
Coverage E: Personal liability, $ 100,000 per occurrence.•
Coverage F: Medical payments to other, $ 1000 per person.
Briefly explain the personal liability coverage (Cover-age E) in Section II of the homeowners policy.
• Section II of the homeowner's policy protects the insured from legal liability arising out of their personal acts.• The Section II of the homeowner's policy covers the following two coverages:• Coverage E: Personal liability, $ 100,000 per occurrence.• Coverage F: Medical payments to other, $ 1000 per person.
(Coverage E) is explained as follows:• The insured and their family members are protected by the personal liability insurance against legal liability when a claim or suit for damages is raised because of bodily injury or property damage caused by negligence.•
Minimum amount of liability insurance is $ 100,000 for each occurrence. It is a single limit that applies to both injury and property damage on a pre- occurrence basis.• Occurrence is an event, an accident or a series of the incidents that occur over the policy period which results in bodily injury or property damage caused by the insured by his personal acts.• Personal liability insurance is based on legal liability. • The insured must be legal liable to receive the sums for damage.• The insurer has a right to provide legal defense if the suit is groundless, false or fraudulent.• The insurer of the policy has the right to investigate and settle the claim.
With regard to medical payments to others (Coverage F) in Section II of the homeowners policy: a. Briefly explain the coverage that is provided. b. Identify the people who are covered for medical payments.
• Section II of the homeowner's policy protects the insured from legal liability arising out of their personal acts.• The Section II of the homeowners policy covers the following two coverages:• Coverage E: Personal liability, $ 100,000 per occurrence.• Coverage F: Medical payments to other, $ 1000 per person.Under section II of the homeowner's policy medical payments to others (Coverage F) is explained as follows:• Medical payments to others coverage is a mini- accident policy.• A medical payment to others is not based on legal liability or negligence.• The reasonable medical expenses of other person who is accidently injured at insured premises or by the activities of an insured, resident employee or by an animal owned by or by in the care of an insured are paid by the insurer.• The insurer pays for the necessary medical expenses ascertained within 3 years from the date of accident.• The medical expenses covered are the reasonable charges for medical and surgical procedures , X-rays, dental care, ambulances, hospital stays, professional nursing, prosthetic devices and funeral services.• Medical payments coverage does not apply to insured or to the regular residents in household, other than a residence employee.Under section II of the homeowners policy the people covered for medical payments to others (Coverage F) are as follows:• The people covered in the policy are only others i.e. outsiders who are not residents of the insured. • The coverage F does not apply to insured person or to the regular household of the insured.• The Medical payments to others (Coverage F) apply and pay to the residence employee like babysitter if injured at insured premises.• A person injured at insured location with the permission of an insured.• A person bodily injured off the insured location• Immediately adjoining.• By the activities of an insured.• By a residence employee.• By any animal owned by or in the care of an insured.
Personal liability (Coverage E) and medical payments to others (Coverage F) provide protection to insureds at various insured locations. Identify the insured loca-tions under Section II in the homeowners policy.
Under Section II homeowner's policy, Personal liability (Coverage E) and Medical payments to others (Coverage F) protects the insured at below mentioned locations:The insured locations are as mentioned:• Residence premises of the insured.• If any acquired residence during the policy period.• Garage or storage unit.• Premises where an insured is residing even if it is rented.• Vacant land of the insured other than farmland.• Owned land or rented of the insured on which a residence is built,• Cemetery plots or other plots built at insured premises.
List the major exclusions that apply to personal liabil-ity (Coverage E) and medical payments to others (Cov-erage F) in the homeowners policy.
Section II homeowners policy coverages contain many exclusions. Some exclusion applies to both personal liability (Coverage E) and medical payments to others (Coverage F). Some exclusion apply separately to Coverage E and Coverage F. The following exclusions apply to both Coverage E and Coverage F :• Motor Vehicle Liability: The liability arising out by the use of cars. Trucks, mopeds, motorcycles are not covered in Section II homeowners policy.• Watercraft liability: The boats used in an organized race or speed contest, rented to others, used as a cargo for fee or used for any business purpose are excluded in Section II coverages.• Aircraft Liability: This liability is excluded from Section II coverages. Aircrafts which are designed to carry people, flight such as helicopter, airplanes, hot balloons, and glider are excluded.• Hovercraft Liability: Section II coverages exclude hovercraft liability. A Hovercraft is defined as a self-propelled motorized vehicle.• Expected or Intentional Injury: The Section II homeowner's policy coverages do not apply if the bodily injury or property damage is expected or intended by an insured.• Business Activities:• Professional services: Section II coverages exclude legal liability raised out of professionals failing to render their services. Some examples of professional services are accountants, architects, engineers, physicians etc.• Uninsured Locations: Section II coverages exclude liability arising out of the premises of insured.• War: Section II homeowner's policy excludes liability arising out of discharge of nuclear weapons even if accidentally.• Communicable Disease exclusion: Section II Coverages exclude the liability arising out of the transmission of communicable disease by insured.• Controlled substance exclusion: Section II Coverages exclude the liability arising out of use, sale, manufacture, transfer, deliver. Exclusions that apply to coverage E :• Contractual liability :• Property owned by an insured.• Property in care of an insured.• Workers compensation.• Nuclear energy.• Bodily injury to an insured. Exclusions that apply to coverage F :• Any bodily injury to a residence employee off an insured location.• Workers compensation.• Nuclear energy• Any bodily injury or property damage to the persons regularly residing on the insured location.
Section II of the homeowners policy provides several additional coverages. One additional coverage is called damage to the property of others. Briefly describe this coverage.
A Homeowner's policy automatically includes some additional coverage. Damages to the property of others are one among the additional coverages. Damage to the property of others: • The homeowner's policy pays up to $ 1000 per occurrence for the property damage that caused by an insured.• The damaged property is valued as per the replacement cost.• The insured is not required to be legally liable for the coverage; the loss is paid even if there is no legal obligation.• This additional coverage is provided to preserve personal friendships and peace between neighbors.• Parents responsible for the damage caused by the young child.• The maximum amount is $ 1000 under the coverage, even excess is paid only by proving the occurrence is by negligence and legal liability by the person who caused the damage. Exclusions:Damage to the property of others has the following exclusion:• Property covered under Section I of the homeowner's policy.• If the property is damages intentionally or deliberately by an insured age 13 or older.• Property owned by an insured.• Property rented to a tenant.• Business Liability• Omission of any act in connection with the premises.• Loss of damage arising out of motor vehicles, aircraft watercraft or hovercraft.
:• Earthquake endorsement can be added to the homeowner's policy. • Earth quake is a natural disaster; this coverage also includes short waves, tremors which are related to volcanic eruption. • A deductible must be satisfied. • The base deductible is a percentage of the limit, dwelling (coverage A) or personal property (coverage C), whichever is greater.• Minimum deductible is $500. The deductible may be increased with a reduction in premiums.• In the locations where earthquakes are frequent, the deductibles of 10 to 20 percent are used.
Inflation guard Endorsement
:• Due to inflation many homeowners are underinsured, the replacement cost of the home is increased.• Insured will be penalized if a loss occurs and the insurance do not carry at least by 80 percent of the replacement cost as the full replacement cost is not paid.• The Inflation guard endorsement is designed with the ISO homeowner policy.• It provides annual pro rata increase in the limits of insurance under coverages A, B, C and D.• The percentage increase can be selected by the insured such as 3 percent or 5 percent.
Personal Property replacement cost loss settlement endorsement
:• Under this endorsement claims are paid on the basis of replacement basis without depreciation deduction.• The endorsement applies to personal property, domestic appliances, carpets and outdoor equipment.• The replacement amount is limited to the lower of the following :o Full repair costo Replacement cost at the time of losso The limit of liability that applies to the item for any loss to the item.o Any special dollar limits in the policy.o If applicable coverage C limit.• The actual full cost of repair or replacement cost is paid if the cost of repair or replace exceeds $500, otherwise only actual cash value is paid
Scheduled personal property endorsement (with agreed value loss settlement)
:• The Homeowners policy limits certain personal property losses such as theft of jewelry. • Insureds desire for broader coverage. If the insured own valuable jewelry, musical instruments etc., he can insure the list of the property for a specific agreed amount by the insurer.• Additional coverages for nine classes of property are provided by scheduled personal property endorsement. The nine classes of property are as follows:1. Jewelry2. Furs3. Cameras4. Musical Instruments5. Silverware6. Golfer's equipment7. Fine arts8. Postage stamps9. Rare and current coins Identify theft endorsement
Briefly explain the suggestions that consumers should follow when shopping for a homeowners policy.
Suggestions for buying a homeowner's policy :
Carry adequate Insurance :
• First suggestion is to carry adequate amounts of property insurance on both home and personal property.• Consideration of adequate amount of insurance is important if property is substantially increased.• The property should be insured for at least 80 percent to avoid penalty if partial loss is occurred.• It is always good to insure the home to 100 percent.
• Add Necessary Endorsements:• It is better to add necessary endorsements to the insurance policy depending on the needs, local property conditions or high values for certain property.• There are many endorsements like Earthquake endorsement, Inflation guard endorsement, personal property replacement endorsement.
• Shop around for a Homeowners policy:• Consider price variation among insurers, policy premium can be reduced by shopping around for homeowner's policy.• The information about insurers is known through internet source.
A Higher property insurance deductible should be considered: • The premium can be reduced by purchasing higher deductible property insurance.• The standard homeowner's deductible is $ 500.• The premium can be reduced by 20 to 30 percent when the policy amount is doubled the standard deductible. Take advantage of discounts:
• Usually insurers provide discounts to attract customers.• It is better to inquire the discounts when shopping homeowner's policy, because it can reduce premium.• Insurers offer wide variations of discounts based on many factors home, fire etc.
Don't ignore the perils of flood and earthquake:
• Floods and earthquakes are specifically excluded in homeowner's policy.• However, homeowner's policy includes hurricanes, tornadoes, windstorms and fire accidents.• Flood insurance and earthquake endorsement can be added to homeowner's policy.• People residing in flood or earthquake zone should seriously insure the home and personal property to avoid financial risk when there is flood or earthquake.
improve your credit record : • It is a suggestion to maintain good credit record to the insured.• Insurers consider applicant's credit record and insurance score for the purpose of rating.• Applicants with good credit record can purchase homeowners policy with lesser amount.• A good credit record applicant can also get low interest loans, credit cards etc.
Purchasing a personal umbrella policy to be considered:
• An additional amount of $ 1 Million to 10 Million of liability insurance can be covered in personal umbrella policy even after the underlying coverage is exhausted.• It also covers liability arising out of personal injury.• The homeowner's policy does not cover personal injury without endorsement.• A personal umbrella policy provides insurance on cars, boats and recreational vehicles.i
Briefly explain the basic characteristics of a personal umbrella policy
Personal Umbrella Policy - It is the type of insurance policy that provides coverage above and below liability coverage amount in a standard insurance policy. It provides protection against a catastrophic lawsuit or judgment. It provides basic coverage in different types of liability coverage including home, boat and tenant policies. This policy provides broader coverage i.e. it covers all the claims that ae not covered under standard policy. That is why.it is also known as excess liability insurance policy.
The basic characteristics of personal umbrella
• Excess liability insurance - The policy provides excess liability coverage over underlying insurance contracts that apply. The excess coverage is provided in three ways:
• It provides higher limits with a combined blanket single limit over other existing liability policies.
• The insurer is required to pay only the certain amount of on the underlying contracts.
• It provides automatic replacement of existing coverages which have been paid out due to losses.
• Indemnity - indemnity policy as it protect the insurer with a wide variety of losses for which the insurer is legally liable.
• Broad coverage - The policy provides broader coverage of personal liability loss exposures. It covers bodily injury, property damage liability as well as personal injury. It covers all that claims that are not covered under auto and home insurance.
• Self-insured retention - applied to the losses covered by the umbrella policy but not to any underlying contract. The self-insured retention is basically $250 but can be higher.
• Reasonable cost - The actual cost depends on several variables like number of cars, boats and motorcycles to be covered. Generally, the annual premium for $1 million policy is less than $350.
Thus, the personal umbrella policy covers liability judgments that exceeds the limits of auto and homeowners' policy and includes protection against all losses that are not covered by the underlying contracts.
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