Property and Casualty Exam
Flashcards to help you study for the Property and Casualty Licensing exam.
Terms in this set (113)
An individual or organization who has taken into its care, custody, and/or control the property of another for servicing, repair, or storage
Something that increases the chance or likelihood of a loss occuring.
(physical or moral or morale)
A property policy provision that changes the valuation method otherwise applicable (ACV or RV) to a valuation method that allows reimbursement to the insured, according to the price a willing buyer would pay for the property purches from a willing seller
(limit of liability)
Specifies that the insurer will not be responsible for an amount which is greater than the financial interest of an insured person or more that the limit of liability stated on the Declarations Page
Actual Cash Value
The policy pays for the cost to repair or replace the damaged property at the time of loss, less depreciation
The amount of money which the insured party must pay before the insurance company's own coverage plan begins.
A property that has neither occupants nor personal property is described as vacant.
Right of Salvage
The right of the insurer to take possession of damaged property after the loss to the property has been paid. The salvage belongs to the insurer.
A condition or defect that exists within property itself that causes the property to spoil, break, become defective, or destroy itself. Insurance policies typically exclude inherent vice. Example: The quality of materials used in a painting allows the painting to fade or lose luster with time.
Aircraft Hull Insurance
Provides coverage on an open peril basis for physical loss or damage to the insured aircraft, on ground, or in flight.
In flight is from the moment it moves forward for takeoff until it completes its landing run.
Motor Carrier Act of 1980
Department of Transportaion (DOT) requires:
-Motor carrier must carry an insurance policy of certain minimum limits, or
-Post a surety bond representing certain financial stability criteria when transporting passengers or cargo.
Contribution by Equal Shares
Under this concept, when 2 or more insurers' policies cover at the same level (Primary or Excess), each insurer contributes an equal amount to the loss settlement until the loss is paid, or until each insurer has exhausted its limits of insurance, whichever comes first.
Example: If there are 3 insurers participating, each would pay 33 1/3 percent of the loss; if 4 insurers participating, each would pay 25 percent of the loss; or if 5 insurers participating, each would pay 20 percent of the loss.
Certified Act of Terrorism
Any act, certified jointly as terrorism by the Secretary of Treasury, State and Attorney General which is at least one of the following:
-Violent/dangerous to human life/property/infrastructure.
-Damaging within the U.S. or on U.S. air carrier/vessel/mission.
-Committed by persons on behalf of any foreign person/interest to coerce/influence the U.S. civilian/government policy.
Nationwide Marine Definition
Wet insurance and Dry insurance are terms that the Nationwide Marine Definition uses in specifying risks that may be written under marine insurance. The National Association of Insurance Commissioners adopted the Nationwide Marine Definition that defines 6 broad classes of property that may be insured under marine contract
The classes are:
3. Domestic Shipments
4. Instrumentalities of Transportation or Communication (i.e. bridges, tunnels, antenna towers)
5. Personal Property Floater Risks (as discussed in Chapters 3 and 9)
6. Commercial Property Floater Risks
Homeowners (liability) Endorsements (for additional premium)
-Business Pursuits - Extends liability coverage for involvement in business not owned or controlled.
-Home Day Care- Extends Section II coverage.
-Limited Fungi, Wet or Dry Rot, or Bacteria Coverage- covers insured's liability exposure from claims of others.
-Permitted Incidental Occupancies - Necessary and incidental use of premises.
-Personal Injury- Defines and adds personal injury to the policy.
-Worker's Compensation Residence Employee
HO Forms: 2,3,5,8 are for owner-occupant of a dwelling that is used principally for private residential purposes
HO Forms: 4(tenant) and 6(condominium unit-owner) are written to insure the personal property and liability of occupants, but do not cover the structure
Homeowners (property) Endorsements (for additional premium)
Home Day Care (children)
Personal Property Replacement Cost (increase coverage for full recovery)
Scheduled Personal Property (for scheduled property with a specific amount of coverage)
Limited Fungi, Wet or Dry Rot, Bacteria Coverage (testing and removal)
Permitted Incidental Occupancies (additional coverage when residence used for business)
The basic information about a policy:
Who - names of insurer and insured
What - description of insured property
Where - address and legal description of insured property
When - effective and expiration dates.
How Much - limits of coverage, deductible, premium
Homeowners (property) Exclusions
Ordinance or Law (loss caused during enforsement)
Earth Movement (earthquake, landslides, mine substinence, sinking)
Water Damage (flood, tidal water, overflow, or back up of sewer/drains/sump)
Power Failure (interuption away from premises)
Neglect (failure to protect)
War (civil, insurrections, rebellions, revolutions)
Nuclear Hazard (reaction or radioactive contamination)
Intentional Loss (burn your own house)
Government Action (during confiscation or seizure)
Homeowners (additional) Liability Coverages
Claim Expenses - supplementary payments - reasonable expenses at insurer's request
First Aid Expenses - first aid for others, not the insured
Damage to Property of Others - replacement costs up to limits
Loss Assessment - a homeowners association charge against insured.
A craft principally designed to be propelled on or in water by wind, engine power, or electric motor.
Truckers Coverage Form
For those firms or persons that are in the business of transporting goods or commodities for another
Section I- Covered Autos
Section II - Liability Cov
Section III- Trailer Interchange Coverage - covers trailer that ind does not own but has in his possession along with a written Trailer Interchange Agreement
Section IV - Physical Damage Coverage
Section V- Truckers Conditions
Section VI- Definitions
Personal Watercraft Insurance
Boatowners Policy - similar to HO, covers boats that can be towed, property & liability
Outboard Motorboat Policy - inland marine form, covers outboard motors and boats, direct property loss only
Yacht Policy - ocean marine form, larger vessels, property & liability
Ocean Marine Insurance
Protect against losses to property while being chipped by ocean, or inland waterways.
Unregulated in regard to forms and rates
Abandonment of Property
Specifies that the insured may not abandon or relinquish ownership of damaged property to the insurer for disposal or repair
A property that contains personal property or contents but has no occupants is described as unoccupied.
The interior of that portion of a building occupied by the insured to conduct business
Written amendments attached to the policy to broaden or restrict coverage, or to further define certain policy provisions.
An insurance agent doing business under any name other than the agent's legal name
Aircraft Hull Insurance (two deductibles)
An in-motion deductible and a not-in-motion deductible.
Aircraft is considered in motion whenever it is moving on the ground or in flight as a result of engine power
Inland Marine Insurance
Protects against losses to preoperty that is mobile in nature (across land), primarily while property is away from the owner's premises
Personal Inland Marine Insurance
Used to insure moveable personal property against direct loss
Personal Umbrella Policy
A policy covering (BI &PD) and Personal Injury Liability in excess of the insured's underlying policy limits.
This provides excess coverage over the limits of an underlying policy
Terrorism Risk Insurance Act
Funds coverage for potentially catastrophic events due to acts of terrorism.
Applies to all property insurance
Loss caused by the collapse or movement of structures resulting from the caving in of underground mines.
A distrupted chain of events, thus freeing the defendant from liability
Example: Provoking a dog, causing it to bite or defend
Direct Response Marketing
A marketing system that offers insurance contacts directly to the public through direct mail, newspaper, magazines, radio, TV, internet, vending machines, etc.
Non original equipment made by a manufacturer other than the auto maker
National Flood Insurance Program
Enables property owners to purchase federal flood insurance.
Administered by Federal Emergency Management Agency (FEMA)
Bonds (2 types)
Surety Bonds (performance bonds) - guarantee that specific obligations will be fulfilled
Fidelity Bonds (honesty bonds) - cover employers from direct loss due to fraudulent or dishonest acts (theft) by their employees
Ocean Marine Policy
Written "full value" ad will become void if certain implied warranties are violated:
Seaworthiness - seaworthy ship/competent crew
No Deviation in Voyage - sail the course filed with the insurer.
Ocean Marine Policy Coverages
Hull Insurance (ship itself)
Cargo Insurange (goods being shipped)
Freight Insurance (freight charges and import duties)
General Average (loss is apportioned or shared among all)
Particular Average (loss affects only a particular interest)
Collision/Running Down Clause (collision with another vessel)
Inchmaree Clause (burst boiler, broken propeller, crew navigation errors)
Aircraft Liability Insurance
Aircraft Liability - covers claims arising from the ownership, maintenence, or use of an aircraft
Airport Liability - coverage for private, municipal, or commercial airports.
Hangarkeepers Liability - coverage for liability arising out of damage to non-owned aircraft in the care, custody, or control of the insured.
Motor Carrier Coverage Form
Variation of the Truckers Coverage Form:
Trucker - engaged in the business of transporting property for hire
Motor Carrier - engaged in transporting property or passengers
The insured may elect one of the following:
Legal Liability Basis - coverage applied only if the garage is legally liable
Direct Excess Basis - coverage applies regardless of liability, but only if customer has no physical damage coverage of their own
Direct Primary Basis - coverage applies regardless of liability, and regardless if customer has any physical damage coverage of their own
Terrorism Risk Insurance Act Exclusions
TRIA covers all commercial lines of property & casualty insurance except:
Federal and private crop and livestock
Common Carrier Cargo Liability
1. Legal Liability - A common carrier's liability is almost absolute for loss or damage to property in their custody from any cause, regardless of their negligence or lack of negligence, except from 5 sources:
a. Acts of God
b. Acts of a public enemy
c. Exercise of a public authority
d. Fault or neglect of a shipper
e. Inherent vice
Bill of Lading
required to be issued to the shipper of the goods being transported. 2 types.
1. Straight (regular) - carrier is responsible for the invoice cost of the goods
2. Released - carrier is only responsible for the value of the goods declared on the bill of lading
Commercial Crime Coverage Forms
Form A - Employee Theft
Form B - Forgery or Alteration
Form C - Theft, Disappearance and Destruction
Form D - Robbery and Safe Burglary - other than Money/Securities
Form E - Premises Burglary
Form F - Computer Theft and Fund Transfer Fraud
Form G - Extortion
Form H - Premises Theft/Outside - other than Money/Securities
Form I - Lessee's Safe Deposit Box
Form J - Securities Deposited with Others
Form K&L - Guest's Property
Form M&N - Safe Depository
Form O&P - Public Employee Dishonesty
Form Q - Robbery and Safe Burglary Money/Securities
Form R - Money Order and Counterfeit Paper Currency
Pollution Liability Coverage
Three options to adding pollution coverage back to a CGL policy:
Pollution Liability Coverage Form
Limited Pollution Liability Coverage Form - identical to above, but does not include clean up costs.
Pollution Extension Endorsement - deletes pollution exclusion, but continues to exclude cleanup costs
Motor Truck Cargo Forms (U)
Truckers Form - insures public truckers for legal liability arising out of loss/damage to cargo belonging to others
Shippers Form - Covers shipper's own goods
Owners Form - covers business that owns the trucks in which it transports its own goods
Garage Coverage Form
Auto liability/physical damage coverage, plus general liability protection for businesses that are engaged in the sale, service or storage of autos
Section I - Covered Autos
Section II - Liability Coverage
Section III - Garagekeepers Coverage
Section IV - Physical Damage Coverage
Section V - Garage Conditions
Sections VI - Definitions
Transit Coverage Forms (U)
Annual Transit - used to protect all property/shipments being shipped or received from other shippers during the year via any common carrier
Trip Transit - used for irregular shipments, wish to insure a single shipment
Homeowners Coverage Forms
HO-2 (broad form)
HO-3 (special form)
HO-4 (contents broad form; renters or tenants form)
HO-5 (comprehensive form)
HO-6 (condominium unit-owners form)
HO-8 (modified form for older homes)
Homeowners (additional) Property Coverages
Debris Removal (remove debris left from loss)
Reasonable Repairs (protect from further loss)
Trees, Shrubs and Plants (damage up to $500)
Property Removed (protect property 30 days off premises of insured)
CC, ETF card, Forgery, Counterfeit Money (theft, unauthorized use)
Loss Assessment (from homes association)
Collapse (hidden decay, weight, defective material)
Glass or Safety Glazing Material (breakage)
Landlord's Furnishings (contents when rented to others)
Ordinance of Law (loss caused during enforcement)
Grave Markers (theft or damage)
Specifies the general rules(obligations) that the insured and insurer have agreed to follow throughout the policy period, such as the insured's responsibilities in the event of a loss
an amendment to an individual policy that reflects any changes to the standard policy
The policy pays the full cost to replace or repair the damaged property (not exceeding policy limits) at the time of the loss without an adjustment for depreciation
Coverage applies only to lossess caused by perils that are specifically stated in the policy. Example: Fire, lightning, wind, hail, aircraft, riot, vehicles, explosion, smoke, etc
The cause of a possible loss.
A proportional share.
Business Auto Coverage Form
Section I - Covered Autos
Section II - Liability Coverage
Section III - Physical Damage Coverage
Section IV - Business Auto Conditions
Section V - Definitions
Apportionment (pro rata liability/other insurance)
Specifies the process to be followed when more than one policy covers the same loss.
Commercial General Liability
Section I - Coverages
Coverage A - BI and PD liability
Coverage B - Personal and Advertising Injury
Coverage C - Medical Expense
Section II - Who is an Insured
Section III - Limits of Insurance
Section IV - Conditions
Section V - Definitions
Liability Policies (misc types)
Excess Liability Policy
Medical Professional Insurance
Errors and Omissions
Employment Practices Liability Insurance
This form provides for the defense and payment of claims, for which the insured is legally liable.
Same coverage as an Occurrence Form, but is of particular significance to risks that have the potential to generate claims years after an occurrence that caused injury or damage.
Commercial Property Causes of Loss
4 causes of loss forms:
Earthquake (only when used with one of the above)
Boiler and Machinery Equipment Breakdown Protection Coverage (Form)
Business Income and Extra Expense
Newly Aquired Premises
Ordinance or Law
Errors and Omissions
Brands and Labels
Contingent Business Income and Extra Expense
Commercial Ocean Marine Liability Insurance
aka. Protection and Indemnity
Covers legal libaility imposed on the insured for damages arising out of the operation of the insured vessel
Commercial General Liability coverage forms
Boiler and Machinery (coverage)
Boiler and Machinery Declarations Page
Equipment Breakdown Protection Coverage (form)
Any applicable endorsements
Boiler and Machinery Insurance
Any machine subject to accidental breakdown that could destroy or damage a large part of the machine is eligible for coverage, in addition to steam boilers
Worker's Compensation Selected Endorsements
Voluntary Compensation Endorsement - extends Worker's Comp coverage to employees even if the law doesnt require the employer to provide coverage.
Foreign Coverage Endorsement - around the clock, continuous for those employed in foreign operations
Worker's Compensation Assigned Risk Plan
Aka: Residual Market Plan or State Insurance Fund
Insurers who write Workers' Comp in states voluntary market must participate
Offers Workers' Comp coverage for employers who are unable to purchase Workers Comp in voluntary market
Workers' Compensation Disability Income Benefits
Temporary Total - expected to recover and return to work, but unable to work while recovering
Permanent Total - unable to do any work for the res of life
Temporary Partial - able to do some work, but is unable to earn usual wage until full recovery.
Permanent Partial - able to do some work, but will never fully recover
Scheduled Injuries - listing of benefits that apply for each specific permanent partial injury (loss of eye, hand etc)
Workers' Compensation types of laws
Compulsory - employers required to provide Workers' Comp benefits to employees or demonstrate the ability to provide
Elective - employers have choice to accept or reject workers comp laws
Monopolistic-workers comp insurance only available through state fund
Competitive - workers comp insurance abailable through private insurance
Commercial Property Basic Loss (form)
Coverage includes: firem lightning, windstorm, hail, aircraft riot or civil commotion, vehicles, vandalism, volcanic action (above ground) explosion, smoke, sprinkler leakage, sinkhole collapse
Commercial Property Building and Personal Property Coverage Form (extensions of coverage)
If coinsurance threshold of 80% or more is met:
Newly Acquired or Constructed Property
Personal Effects and Property of Others
Valuable Papers and Records
Property Off Premises
Non-Owned Detached Trailers
Commercial Property Building and Personal Property Coverage Form (additional coverages)
Included with no additional premium:
Preservation of Property
Fire Department Service Charge
Pollutant Clean Up and Removal
Increased Cost of Construction
Functional Replacement Cost
A property policy provision that changes the valuation method otherwise applicable (actual cash value or replacement cost) to valuation that allows replacement with less costly property that is functionally equivalent. Example: the replacement of damaged property with identical property is impossible die to some technological or environmental change.
Special Form Perils
Dwelling and Homeowners Policy:
The dwelling and other structures are covered for all direct physical damage (open peril), except for perils specifically excluded
Dwelling (other coverages available)
Impreovements, Alterations, and Additions
Trees, Shrubs and other Plants
Fire Department Service Charge
Glass or Safety Glazing Material
Condominium Commercial Unit- Owners Coverage (form)
This form is used for commercial unit-owners instead of the HO-6 (which is used for residential unit-owners)
Federal Workers' Compensation Laws
Federal Employers Liability Act - interstate railroad workers
U.S. Longshorement and Harbor - those who load, unload, build, or repair ships (not crew)
Jones Act - crews on ocean vessels
Federal Employees Compensation Act - U.S. civilian government employees
Workers' Compensation Laws
Benefits must be paid for employee on-the-job injuries, regardless of negligence on anyone's part
Workers Compensation Benefits
Disability Income Benefits
Death and Survivor Benefits (funeral expenses)
Workers Comp premium computation
Manual Rating - rates based upon job classification
Experience Rating - rates based on employers prior loss experience
Premium Discount - larger employers receive discount, as credit for expenses which do not increase proportionately
Participating Plans - premum refunded, if loss experience falls w/in guidelines
Retrospective Rating - initial premium is charged, then adjusted at end of policy period to reflect actual loss experience
Workers Comp Self Insurance Plans (employer groups)
Some states allow employers to self-insure when able to guarantee their ability to meet their workers comp obligations
Usually required a self-insurance certificate and surety bond
Commercial Property Building and personal Property Coverage (form)
Building or structure described in declarations
Business personal property
personal property of others
Commercial Property Broas Loss (form)
includes basic coverages plus:
Weight of Ice, Snow or Sleet
Water damage caused by accidental discharge
Pair and Sets Clause
A personal articles floater provision that allows the insurer to pay for a loss in proportion to the actual loss when a part of a pair or set is damaged or destroyed.
In no case will a loss of 1 article be considered a loss of a whole
Personal Articles Floater (examples)
Personal Jewelry Floater
Personal Effects Floater (items worn by travelers)
Fine Arts Floater (paintings, manuscripts, antiques)
Musical Instrument Floater
Commercial Package Policy (4 key components)
Conditions (legal obligations of insured and insurer)
Interline Endorsements (coordinate coverage between parts)
One or more of Coverage Parts
Law of Large Numbers
The larger the number of exposures considered, the more closely the losses reported will equal the underlying probability of loss. Only applies to homogeneous groups
The ceding company must transfer the amount of insurance in excess of the retention level immediately and automatically upon receipt of the premium
Allow the ceding insurer and the reinsurance companies an opportunity to exchange advice about the underwriting of each case
File and Use (rate approval)
Rates must be filed with the state insurance regulatory authority (Dept or Division of Insurance), and may be used as soon as they are filed
Insurers cannot use rates until approved by the DOI, or until a specific time has passed after the filinf without being disapproved
Some states require that mandatory rates be used for certain lines of insurance.
A state relies on competition between insurers to produce fair and adequate rates
Contract of Adhesion
One party prepares a contract and submits it to the other party on a "take-it-or-leave-it" basis (without negotiation)
Parties to a contract exchage unequal amounts of money. In insurance, the premium paid is less than the potential benefit to be received in the event of a loss. Performance depends on an uncertain future event. The exchange in values may be unequal.
Insurance policies cover the insurable interest of the insured. The insured cannot transfer or assign any policy, except life insurance
Only one party is legally bound to contractual obligations after the premium is paid to the insurer. Only the insurer has made a promise of future performance, and only the insurer can be charged with breach of contract
Parole Evidence Rule
A written contract is the final expression of agreement and may not be altered by prior or simultaneous oral or written negotiations without the written consent of both parties
Those exempted from Workers Comp
Domestic Servants (maid/butler)
Casual Workers (work is nonrecurring.. not part time employees)
Workers Comp Limits of Liability
$100,000 per accident for injuries
$100,000 per employee for disease
$500,000 aggregate for disease
Defenses (2 types)
Common Law (judicial/court decisions)
Statutory Law (enactment of legislatures
Prevents recovery for damages caused by a negligent party if the claimant was also negligent (common law)
Assumption of Risk
The plaintiff who consciously exposes himself to danger assumes some risk of possible injury
example: A river rapids excursion participant (common law)
A disrupted chain of events, thus freeing the defendant from liability
example: Children provoking to teasing a dog, causing it to bite or defend itself (common law)
Damages are reduced in proportion to the degree of negligence (statutory law)
Statute of Limitations
Length of time in which a person may file suit
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