Property

Question 1

HO-02 FORM (BROAD FORM)

Answer 1

• The HO-02: Broad Form is for owner-occupied dwellings and offers named perils coverage for
  Coverage A- Dwelling, Coverage B – Other Structures, and Coverage C – Personal Property on
  a broad cause of loss form for all coverages.
• Fire and lightning, as well as the REVVV C SHAW coverages, are the named perils for an HO02 form.
• Regarding loss settlement under an HO-02 policy, the following apply:
  o Coverage A – Dwelling and Coverage B – Other Structures are settled on a replacement
  cost basis. A coinsurance percentage of 80% of the structure’s value at the time of loss
  must be met; and
  o Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
• Exclusions under the HO-02 form include only the nine (9) exclusions common to all
  homeowners policy forms, as follows:
  o Water Damage;
  o Earth Movement;
  o War;
  o Intentional Loss;
  o Neglect;
  o Power Failure and Interruption;
  o Ordinance or Law;
  o Nuclear Hazard; and
  o Government Action.
• The acronym WE WIN PONG can be used to easily remember the common exclusions.
• The HO-02 is now rarely used and only constitutes a small percentage of active homeowners
  policies.

Question 2

HO-03 FORM (SPECIAL FORM)

Answer 2

• Commonly considered the “standard” homeowners policy form, the HO-03 Special Form is the
  most common homeowners policy form currently in use.
• The HO-03: Special Form offers different perils coverage and loss settlement according to the
  coverage part, as follows:
  o Perils coverage:
   Coverage A – Dwelling and Coverage B – Other Structures provide open-perils
  coverage; and
   Coverage C – Personal Property provides named-perils coverage.
• The named perils include fire and lightning, the ten (10) Extended Coverage Perils
  (REVVV C SHAW), and the nine (9) Broad Form Perils (BIG AFFECTT).
  o Loss Settlement:
   Coverage A – Dwelling and Coverage B – Other Structures settle losses on a
  Replacement Cost basis (with an 80% coinsurance requirement); and
   Coverage C – Personal Property settles losses on an Actual Cash Value (ACV) basis.
  o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
  Payments to Others are also provided.
• Exclusions for HO-03 form include:
  o The nine (9) exclusions common to all homeowners policies (WE WIN PONG); and
  o The Special Form exclusions.

Question 3

HO-04 FORM (CONTENTS BROAD FORM)

Answer 3

• The HO-04: Contents Broad Form, more commonly known as renter’s insurance, is designed
  to protect the contents and personal liability needs of renters who are occupying a building as
  a non-owner.
• The HO-04: Contents Broad Form offers:
  o Perils Coverage:
   No coverage for Coverage A – Dwelling or Coverage B – Other Structures;
   Coverage C – Personal Property on a named-perils basis;
• The named-perils under Coverage C on an HO-04 form are the same as those
  under Coverage C of an HO-03 form (Extended Coverage and Broad Form).
  o Loss Settlement:
   Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
  o Coverage is also provided for improvement, alterations, additions, and fixtures that the
  tenant has paid for, with a maximum up to 10% of the Coverage C limit.
  o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
  Payments to Others are also provided.
• Exclusions for HO-04 include only the nine (9) common exclusions.

Question 4

HO-05 FORM (COMPREHENSIVE FORM)

Answer 4

• The HO-05: Comprehensive Form is the same as the HO-03 Form, but offers open-perils
  coverage for Coverage A, Coverage B, and Coverage C. The HO-05 provides:
  o Perils Coverage:
   Open-perils coverage for Coverage A – Dwelling, Coverage B – Other Structures,
  and Coverage C – Personal Property;
   The HO-05 form is the only homeowners form that provides open-perils coverage for
  Coverage C;
  o Loss Settlement:
   Coverage A – Dwelling and Coverage B – Other Structures are settled on a
  Replacement Cost Basis (with an 80% coinsurance requirement);
   Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
  o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
  Payments to Others are also provided.
• Exclusions for HO-05 include the nine (9) common homeowners exclusions (WE WIN PONG)
  and the Special Form open-peril exclusions.

Question 5

HO-06 FORM (UNIT-OWNERS FORM)

Answer 5

• The HO-06: Unit-owner Form is designed to protect contents of condominium and co-op
  owners, including townhomes.
• Coverage A will include coverage for the following:
  o Alterations, appliances, fixtures, and improvements contained within the residence
  premises;
  o Items of real property that pertain exclusively to the residence premises;
  o Property that remains the responsibility of the insured under the corporation or association
  agreement; and
  o Structures solely owned by an insured located on the residence premises.
• The HO-06 form provides:
  o Perils Coverage:
   Coverage B – Other Structures is typically not provided since this is the responsibility
  of the Corporation or Association that owns the complex;
   Coverage A – Dwelling and Coverage C – Personal Property are covered on a namedperils basis (Fire, lightning, Extended Coverage Perils, and Broad Form Perils).
  o Loss Settlement:
   Coverage A – Dwelling is settled on a Replacement Cost basis;
   Coverage C – Personal Property is settled on an Actual Cash Value (ACV) basis.
  o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
  Payments to Others are also provided
  o The policy also provides loss assessment coverage. Loss assessment occurs when damage
  occurs to the common grounds or common property that are owned collectively by the
  association. In these situations, the Association may assess a fee to each unit-owner to help
  cover replacements or repairs that are required to restore the common grounds or
  common property.

Question 6

HO-08 FORM (MODIFIED COVERAGE FORM)

Answer 6

• The HO-8: Modified Coverage Form is used when the replacement cost of a home is far greater
  than the market value. This can occur when rare, exotic, or otherwise expensive materials are
  used in the home’s construction.
• HO-08 settles claims based on Functional Replacement Cost.
• In the event of a claim, the HO-08 policy will pay the lesser of:
  o The policy limit; or
  o The actual cost to repair or replace a loss using common construction materials or their
  equivalents.
• The HO-08 form provides:
  o Perils Coverage:
   Coverages A, B, and C are provided on a named-perils basis. (Fire, lightning, and the
  Extended Coverage Perils);
  o Loss Settlement:
   Coverages A and B are settled on a Functional Replacement Cost basis; and
   Coverage C is settled on an Actual Cash Value (ACV) basis;
  o Coverage D – Loss of Use, Coverage E – Personal Liability, and Coverage F – Medical
  Payments to Others are also provided; and
  o Exclusions include the nine common homeowners policy exclusions.

Question 7

THE BASIC FORM (DP-01)

Answer 7

• The DP-01 Basic Form is a named-perils policy that offers:
  o Coverage A – Dwelling;
  o Coverage B – Other Structures;
  o Coverage C – Personal Property; and
  o Coverage D – Fair Rental Value.
• Loss settlements are paid on an Actual Cash Value (ACV) basis for all coverages.
• A standard DP-01 form only insures against loss from the following three (3) perils (known as
  the basic perils):
  o Fire;
  o Lightning; and
  o Internal explosions (steam explosions are not covered if they stem from equipment owned,
  leased, or operated by the insured).
• For additional premium, an insured has the option to purchase Extended Coverage (EC) perils
  (REVV C SHAW):
  o Riot;
  o Explosion;
  o Vehicles (not yours);
  o Volcanic Eruption;
  o Civil Commotion;
  o Smoke;
  o Hail;
  o Aircraft; and
  o Windstorm.
• The Basic Form may also be purchased with optional Vandalism or Malicious Mischief (VMM)
  coverage.

Question 8

THE BROAD FORM (DP-02)

Answer 8

• The DP-02 Broad Form is a named-perils policy that offers:
  o Coverage A - Dwelling;
  o Coverage B – Other Structures;
  o Coverage C – Personal Property;
  o Coverage D – Fair Rental Value; and
  o Coverage E – Additional Living Expenses.
• Loss settlements for Coverage A – Dwelling and Coverage B – Other Structures are paid on a
  replacement cost basis.
• Loss settlements for Coverage C – Personal Property is paid on an Actual Cash Value (ACV)
  basis.
• The DP-02 Broad Form includes all of the perils named in the DP-01 Basic Form, including all
  of the Extended Coverage perils and Vandalism and Malicious Mischief (VMM).
• A DP-02 “broadens” coverage with the addition of the following nine (9) Broad Form Perils
  (BIG AFFECT):
  o Burglar Damage;
  o Ice and Snow (weight);
  o Glass Breakage;
  o Accidental Discharge;
  o Falling Objects;
  o Freezing of Pipes;
  o Electrical Damage;
  o Collapse; and
  o Tearing Apart.

Question 9

THE SPECIAL FORM (DP-03)

Answer 9

• Coverage under a DP-03 is provided on both an open-perils and named-perils basis, depending
  on the coverage part:
  o Open perils:
   Coverage A – Dwelling;
   Coverage B – Other Structures;
  o Named perils:
   Coverage C – Personal Property.
   Same perils as DP-02.
• Loss settlement is paid on a replacement cost basis for Coverage A and Coverage B, subject
  to an 80% co-insurance requirement while Coverage C is paid on an Actual Cash Value (ACV)
  basis.

Question 10

COMPONENTS OF A COMMERCIAL PACKAGE POLICY (CPP)

Answer 10

• Today, modern insurance forms rely heavily upon the Commercial Package Policy (CPP)
  concept to serve the diversified needs of larger business entities.
• The creation of the CPP is the modern result of a 1980’s era project whose goal included the
  reflection of changing conditions and demands to standardize and simplify coverage forms,
  endorsements and ratings in the commercial property and casualty contract area.
• The commercial package policy (CPP) is insurance coverage that can accommodate multiple
  lines and perils simultaneously, allowing for a high level of flexibility to assure that a business
  can create coverage closely suited to their individual needs. It is well-suited to large commercial
  businesses. The coverages available are as varied and diverse as the businesses acquiring this
  contract of insurance, traversing a wide array of both property and liability risk transfer.
• Businesses that are smaller and have fairly simple business insurance needs may be eligible for
  the Business Owner Policy (BOP).
• The CPP must be used when the subject business is larger or has a more complicated insurance
  need structure than the BOP is designed to handle.
• A true commercial package policy requires that applicants select two or more of the contracts
  possible coverage parts:
  o Commercial Property coverage;
  o Commercial Inland Marine;
  o Equipment Breakdown Coverage;
  o Farm Coverage (Property and Liability for farm & ranch operations);
  o Commercial General Liability (A CASUALTY POLICY CONCEPT);
  o Commercial Crime (A CASUALTY POLICY CONCEPT);
  o Commercial Auto (A CASUALTY POLICY CONCEPT);
  o Professional Liability Coverage (A CASUALTY POLICY CONCEPT); or
  o Employment Practice Liability (A CASUALTY POLICY CONCEPT).
• To be a Commercial Package Policy, there must be at LEAST two (2) or more coverage parts
  chosen.
• Each Commercial Package Policy (CPP) consists of four (4) elements:
  o Common Policy Declarations – The common declarations page identifies the insured and
  the coverages that may be included in the package. It also lists the coverages and the
  premiums that are chosen to be included. It also identifies the various forms that apply to
  all coverage parts of the contract;
  o Common Policy Conditions – These common policy conditions apply to all the coverage
  parts selected and made a part of the Commercial Package;
  o Interline Endorsements – Interline endorsements are designed to reduce policy coverage
  redundancy. The insurer offering the package can use a single interline endorsement to
  modify some or all of the coverage parts within it, as specified in the endorsement; and
  o Coverage parts – The coverage parts are the individual coverages listed in the Common
  Declarations. Each coverage part may have its declarations page describing what is
  covered, as well as specific conditions that apply only to the coverage in questions.

Question 11

COMMERCIAL PROPERTY COVERAGE
CAUSES OF LOSS FORMS

Answer 11

• Causes of Loss Forms: Policy structure governing what perils are covered under a commercial
  property policy, similar to other personal and commercial lines policy forms. The three causes
  of loss forms include:
  o The Basic Form;
  o The Broad Form; and
  o The Special Form.
• Commercial property policy forms may be written on one of three (3) cause of loss forms, with
  a standard deductible of $500.
• The Basic Form is a named perils form which includes the following perils and exclusions:
  o Perils:
   Fire, Lightning, Explosion;
   Riot/civil commotion;
   Vandalism & Malicious Mischief (VMM);
   Falling objects;
   Windstorm and Hail;
   Aircraft/vehicle damage;
   Volcanic action;
   Sinkhole collapse; and
   Glass breakage, sprinkler leakage.
  o Exclusions:
   Theft
   Water damage
   Collapse
• The Broad Form is also a named perils form that includes all of the broad form perils as well as
  several additional commercial perils. The broad form covers:
  o All the basic perils defined in Basic Cause of Loss Form; and
  o Four additional causes of loss:
   Water damage;
   Falling objects;
   Collapse; and
   Weight ice, sleet, or snow.
• The Special Form is an open peril policy form, meaning that coverage applies unless the peril
  is expressly excluded. The primary exclusions listed in the Special Form are as follows:
  o Ordinance or Law;
  o Earth Movement;
  o Governmental Action;
  o Nuclear Hazard;
  o Utility Service (damages caused by the failure of a utility service, such as those providing
  water or power);
  o War and Military Action;
  o Water; and
  o Fungus, Wet Rot, Dry Rot, and Bacteria; and
  o Criminal or dishonest acts.

Question 12

BUILDING AND BUSINESS PERSONAL PROPERTY FORM

Answer 12

• The Building and Business Personal Property form is utilized to write protection to cover direct
  physical loss to the insured’s real and personal property as well as losses involving property
  held for others (bailments). This form one of the most common commercial property coverage
  forms to be added to a commercial package policy.
• The contract defines three classes of covered property:
  o Buildings;
  o Business personal property; and
  o Personal property of others.
• Buildings coverage is mostly for real property (buildings affixed to land). Any building materials
  intended to become a part of the building are covered if they are within 100 feet of the
  premises (including being out in the open, or in a vehicle if the vehicle is parked within 100 feet
  of the insured premises).
• Business Personal Property covers personal property (not land or items affixed to land) and
  includes the contents of the insured building such as:
  o Machinery and equipment;
  o Furniture and fixtures;
  o Stock inventory including raw materials and shipping supplies;
  o Other personal property of the insured used as part of the business;
  o Labor, materials, or services on the personal property of others;
  o The interest of the insured as a tenant for betterments and improvements;
  o Leased personal property the insured is required to insure, unless covered as personal
  property of others (i.e., covered as a bailment).
• Business personal property is covered, whether in (or on) the building listed in the Declarations,
  out in the open, or in a vehicle located within 100 feet of the described premises.
• Personal Property of Others includes personal property items that are in the care, custody, and
  control of the insured, known as the “three C’s,” which creates a legal relationship called a
  bailment.
• The policy provides insurance coverage, without additional premium, for the following types of
  losses:
  o Debris removal;
  o Preservation of property;
  o Fire department service charge;
  o Pollution cleanup, and removal;
  o Increased cost of construction; and
  o Electronic data.
• The following is a list of the coverage extensions provided under the Building and Business
  Personal Property form:
  o Newly acquired or constructed property;
  o Personal Effects;
  o Valuable Papers and Records (Other Than Electronic Data);
  o Property Off-Premises;
  o Outdoor Property;
  o Non-Owned Detached Trailers; and
  o Business Personal Property Temporarily in Portable Storage Units.

Question 13

BUSINESS INCOME FORM

Answer 13

• Two optional coverages indemnify an insured against the loss of income resulting from direct
  damage to commercial facilities and operations:
  o Business Income; and
  o Extra Expense.
• Insureds may add either one or both optional coverages to the commercial property form by
  endorsement for an additional premium.
• Both coverages are for an indirect or consequential loss to a business.
• Business Income replaces lost income when a company’s operations are halted or impaired due
  to a covered loss. Extra Expense Insurance covers the Extra Costs of avoiding a shutdown and
  remaining operational despite the damage to one’s income-producing facilities, such as the
  costs to move operations to a temporary location.
• Business income loss is paid only during the period of restoration, which begins when the direct
  loss occurs and ends when the building should be repaired with reasonable speed and using
  materials of similar quality or if the business is resumed in a new location.
• There is a 72-hour waiting period after the date a physical loss occurs before this coverage
  begins paying on loss to the insured.

Question 14

Business Income and/or extra expense

Answer 14

where “business income” coverage must be
designated to be covered;

Question 15

Proof of Loss

Answer 15

means the insured must submit a written and signed proof of loss form to
the insurer within a time specified in the policy from the date of loss or insurer’s request.

Question 16

Immediate Notice of Claim

Answer 16

to the company in writing is specified, but telephoning the
insurer’s agent is also deemed to meet this criterion under modern interpretation;

Question 17

APPRAISAL

Answer 17

• The appraisal clause of a property contract is a condition in a property policy that addresses a
  situation in which the insured and the insurer cannot agree on the value (amount) of the loss.
  When either party demands appraisal, each party then selects a disinterested third-party
  appraiser to assess the loss value. Both parties are responsible for hiring and paying for their
  own appraisers; in turn, the appraisers appoint one (1) additional appraiser (known as the
  umpire) whose fee is split evenly between the parties.
• Each of the initial two (2) appraisers then creates their own estimate of the loss. If the appraisers
  cannot agree on the value of the loss between themselves, then the umpire will proceed to
  determine the correct value of the loss.

Question 18

OTHER INSURANCE/LOSS PAYMENT PROVISIONS

Answer 18

• There are many situations in which two (2) active policies may cover the same loss. There are
  provisions that dictate how losses will be paid in these situations.

Question 19

SUBROGATION (TRANSFER OF RECOVERY RIGHTS)

Answer 19

• Under the subrogation clause of an indemnity contract, the insurance company has the right to
  recover amounts it has paid directly to its insured as a result of damages caused by a third
  party. This clause also prevents the insured from collecting more than one time on a single loss.

Question 20

CONTRACTS

Answer 20

• There are two (2) parties to an insurance contract: the insured and the insurance company.
• The following four essential elements must be contained in every contract for it to be
  enforceable by law:
  o Offer and acceptance;
  o Consideration;
  o Competent parties; and
  o Legal purpose.
• To be legally enforceable, a contract must be made with a definite, unqualified offer by one
  party followed by the other’s acceptance of the exact terms of the offer.
• Consideration is the main element of a contract, defined as the benefit each party receives in
  exchange for the promises they agree to or the obligations they assume under the contract.
• To be enforceable, a contract must be entered into by competent parties who are legally
  capable of entering into agreements on their own behalf.
• Contracts must have a legal purpose to be enforceable.

Question 21

Concealment

Answer 21

is defined as the failure or neglect of a party to a contract to disclose a known
fact to the other party.

Question 22

representation

Answer 22

is a statement made by an applicant that is considered to be true and accurate
to the best of the applicant’s knowledge.

Question 23

warranty

Answer 23

s a statement made by an applicant that is guaranteed to be true in the eyes of the
contract.

Question 24

SOURCES OF INSURABILITY INFORMATION

Answer 24

• Studies have shown that an individual’s credit score is predictive of future accidents and
  insurance claims. As such, most insurers use an applicant’s credit information to develop an
  insurance score.
  o The Fair Credit Reporting Act (FCRA) governs the use of consumer credit information and
  ensures that applicant’s information remains safe and is not obtained or used in an unfair
  manner.
• Most insurance companies will want to inspect any property an applicant is seeking to insure
  to determine if it meets the company’s eligibility guidelines. If the inspection is not completed,
  the insurer withholds the right to cancel the policy or remove any policy discounts that were
  contingent upon a satisfactory inspection.

Question 25

e Fair Credit Reporting Act (FCRA)

Answer 25

federal legislation created for the purpose of promoting the accuracy, fairness, and privacy of consumer information that is held and provided by credit reporting agencies. o The FCRA places the following responsibilities upon companies that use credit information:  Users can only obtain consumer reports for permissible purposes under the FCRA;  Users must notify the consumer when an adverse action is taken on the basis of such reports (such as a higher insurance rate); and  Users must identify the company that provided the report, so that the accuracy and completeness of the report may be verified or contested by the consumer. o Because insurers also provide information back to credit reporting agencies, they must also:  Provide complete and accurate information to the credit reporting agencies;  Investigate consumer disputes received from credit reporting agencies;  Correct, delete, or verify information within 30 days of receipt of a dispute; and  Inform consumers about negative information which is in the process of or has already been placed on a consumer's credit report within one month.

Question 26

Gramm-Leach-Bliley (GLB) Privacy Protection

Answer 26

Act of 1999, also known as the Financial Modernization Act of 1999, dictates how financial institutions such as banks and insurance companies are to handle the private information of consumers. o Under the GLB Act, financial institutions are also required to deliver privacy policy notices that detail the institution's information-sharing practices and inform consumers of their rights.

Question 27

policy application

Answer 27

is a printed form used to apply for insurance coverage and represents an offer from the insured to pay premium to the insurer in exchange for the insurer assuming the applied for risk. * If the insurer issues a contract to the applicant, the policy application is attached to and becomes part of the insurance contract.

Question 28

Terrorism Risk Insurance Act (TRIA)

Answer 28

was initially enacted as a temporary three-year program to calm insurance markets through the creation of a government reinsurance program that would share in terrorism-related losses. The TRIA will pay certain claims in the event of a loss due to a certified act of terrorism.

Question 29

POLICY TERRITORY

Answer 29

* The physical areas and regions where coverage applies is known as the policy territory, which defines the geographical limits of a policy’s coverage.

Question 30

Equipment Breakdown Insurance,

Answer 30

also referred to as Boiler and Machinery Insurance, covers equipment that is energized or transmits energy. * The most basic coverage provided by this form is for the equipment itself and the physical damage caused to other property should the equipment explode or otherwise fail. * What we today define as Equipment Breakdown Insurance was historically referred to as a "Boiler and Machinery" policy because steam boilers were one of the earliest methods for generating mechanical energy that required insurance coverage. This policy form now covers many types of machinery including mechanical and electrical equipment, computers, communication equipment, refrigeration systems, air conditioning systems, and especially boilers and equipment operating under internal pressure. * Today, equipment breakdown insurance is coverage for business equipment breakdowns caused by motors burning out, utility interruptions, boiler or machinery malfunction or explosion, and operations errors. * Some of the following coverages may be selected and will only apply to that portion of the loss or damage that is considered a direct result of a covered cause of loss:

Question 31

BUILDERS RISK FORM

Answer 31

* A builder is financially responsible for the structure and all materials on the building site until the building is finished and put to its intended use. Unlike most property policies, the coinsurance requirement for the Builder’s Risk Form is one hundred percent (100%) of the building’s completed value. * Builders risk coverage terminates when any one of the following conditions first occur: o The policy expires or is canceled; o The purchaser accepts the property; o The builder's interest in the property ceases; o The builder abandons the construction with no intention to complete it; o 90 days after construction is complete; or o 60 days after any building described in the Declarations is occupied in whole or in part or put to its intended use. * Examples of property covered by a Builders Risk form include: o Foundations; o Fixtures and machinery; o Equipment used to service the building; and o Building materials and supplies of the builder used for construction provided such property is intended to be permanently located in or on the structure and is located within 100 feet of its premises. * Coverage Extensions are provided for the following types of property under the Builders Risk form: o Building Materials and Supplies:  Property Owned by others;  In your care, custody or control;  Located in or on the building described in the Declarations, or within 100 feet of its premises; and  Intended to become a permanent part of the building. o Loss or damage to sod, trees, shrubs, and plants outside of buildings on the described premises, if the loss or damage is caused by or results from any of the following causes of loss:  Fire  Lightning  Explosion  Riot or Civil Commotion  Aircraft.  The maximum payable for loss or damage under this extension is $1,000, but not more than $250 for any one tree, shrub, or plant. o Outdoor Signs attached to buildings will pay a maximum of $2,500 per sign for any one occurrence.

Question 32

CYBER COVERAGE

Answer 32

* A Commercial Cyber Insurance Policy covers first-party losses and liability exposures o The first-party coverages are as follows:  Expenses related to the breach, cyber extortion events, and the restoration of data  Business Income and Extra Expense coverage during a period of restoration o The policy’s liability coverage applies to the following  liability losses due to a wrongful act,  defense costs and regulatory losses mandated by courts or agencies due INFORMATION SECURITY PROTECTION CYBER POLICY * In addition to coverages of the Commercial Cyber Insurance Policy, this policy adds coverage for liability claims related to the wrongful use of payment cards, and the dissemination of untrue information

Question 33

COMMERCIAL INLAND MARINE

Answer 33

* Qualifying marine insurance property must generally be moveable, be in transit, or bear some other relationship to transportation or communication. This definition is how marine insurance is classified. * Ocean marine describes covered property traveling or located upon the water, while inland marine refers to covered property that is stored on or moving by land. * Types of risks insured and defined under nationwide inland marine:

Question 34

Personal floater

Answer 34

– Can be referred to as a personal article floater, where the coverage applies to property while being moved or transported. May be a separate policy or endorsement to a base policy to include most types of valuable personal possessions. Examples of property covered under a personal article floater include:  Jewelry;  Furs;  Cameras;  Musical Instruments;  Silverware;  Personal Computers;  China and Crystal;  Electronic Equipment;  Fine Art items (Books, Rugs, Antiques);  Postage Stamps; and  Rare and Current Coins

Question 35

Commercial property floater

Answer 35

Since commercial property policies cover business personal property only on premises (or within 100 feet of the premises), commercial floaters are necessary for coverage off-premises. Inland Marine insurance protects against physical damage or loss by covered perils while property is transported other than by sea (inland waters, land, or air). Examples of property under a commercial property floater include:  A commercial property floater is a rider added to a business insurance policy to manage risk for a company's property that may be used in many different locations;  An example of a company that would need a commercial property floater would be a construction company that has bulldozers, cranes, and other equipment that it moves from one construction site to another;  Another example would be a company that has a sales team that uses company cars and laptops when they travel;  The commercial property floater is added to the standard or base insurance policy, covering claims for the damage or loss of these special property assets;  While business owners will pay an additional premium for commercial property floaters, they may be able to deduct the cost of the insurance on their taxes as a business expense

Question 36

NATIONAL FLOOD INSURANCE PROGRAM

Answer 36

The Federal Insurance and Mitigation Administration (FIMA), a division of the Federal Emergency Management Agency (FEMA), administers the National Flood Insurance Program (NFIP). * Homes and buildings in high-risk flood areas with mortgages from federally regulated or insured lenders are required to have flood insurance. If a borrower does not purchase flood insurance within 45 days of receiving notification to do so, then: o The lender has the authority to buy flood insurance for the borrower; and o The law prohibits federal agencies from approving any financial assistance to any flood victim for reconstruction if that individual has not purchased the required flood insurance. * Today all flood policies are sold by private insurers through the NFIP’s "write-your-own" (WYO) program. Private carriers perform the servicing function for the government and retain part of the premium to cover costs, pay agent commissions, and make a profit. There is no loss potential to a private carrier participating in the WYO. * Producers are required to complete either a pre-licensing training course (for new licensees) or complete a 3-hour continuing education course (for current licensees) before submitting their first application through the NFIP. * New flood policies are rated based on a flood insurance rate map (FIRM). * Flood insurance may only be written on a structure with two or more outside rigid walls and a fully secured roof that is affixed to a permanent site. Buildings must resist flotation, collapse, and lateral movement. * The only appurtenant structure covered by a flood policy is a detached garage at the described location, however the detached garage cannot be used for residential, business, or farming purposes. * Other eligible buildings include: o Manufactured (mobile) homes and travel trailers without wheels;  The NFIP includes travel trailers without wheels in the definition of “manufactured home, provided that they are affixed to a permanent foundation and, if located in a Special Flood Hazard area, are properly anchored to the foundation; o Silos and Grain Storage Buildings; o Cisterns; o Buildings Entirely or Partially Over Water; o Boathouses Located Partially Over Water; o Buildings in the Course of Construction; and o Repetitive Loss Target Group Properties. * Once a community agrees to adopt the FEMA land use controls, they are eligible for the "emergency program" while approval for their community is pending. * The regular program can be available when a detailed flood risk study has been completed or waived by FEMA, and the community adopts floodplain management ordinances. * Policies settle most types of losses for actual cash value, except for policies covering singleprincipal residence family dwellings, which offer replacement cost coverage. * Landscape, including lawns, trees, shrubs and plants, outdoor swimming pools, fences, and water structures. Walks, driveways, and any paved surface outside the building are specifically excluded from flood coverage. * Personal property which could be covered includes air conditioning units, portable dishwasher, carpeting installed on a finished floor, clothes dryers and clothes washers. A cap of $100,000 applies to both the regular program for residences and a renters' content. * Increased Cost of Compliance (ICC) coverage provides payment, up to $30,000, to help pay the costs of repairing a building damaged by flood to meet floodplain requirements in Special Flood Hazard Areas (SFHAs). * The deductible for flood insurance is applied separately to the building and the contents. o Emergency programs have a $2,000 deductible for both buildings and contents. o Regular program deductibles can be selected from within a range from $1,000 to $10,000. * Once a consumer applies for coverage and pays the initial premium, there is a 30-day waiting period before a flood insurance policy becomes effective. * In all cases, there is a 60-day deadline for an insured to submit proof of loss for a claim. * Business income and extra expense losses are specifically excluded from flood insurance. * The coverages for commercial flood policies mirror those provided for personal flood, but with higher limits of up $500,000 for both the buildings and contents coverages. * The Residential Condominium Building Association Policy (RCBAP) is issued by FEMA for residential condominiums

Question 37

EARTHQUAKE COVERAGE

Answer 37

* The cost of the premium for earthquake coverage depends on several factors: o The described property’s distance from major earthquake fault lines; o The age of the structure; and o The type of construction. * Multiple earthquakes that happen within a short period of time of volcanic action, known as aftershocks, 72 hours are deemed to be a single occurrence if they occur within the period of time stated in the policy. o In a personal lines form, the contract deems tremors occurring within 72 hours to be a single volcanic action o Commercial lines endorsements consider a single event to include any tremors that occur within 168 hours. * Earthquake claims are subject to a special deductible defined as a percentage of the Coverage A or Coverage C amount, whichever is greater. This deductible can range from 2% to 20%

Question 38

WINDSTORM

Answer 38

* In some areas, the homeowner policy forms in use specifically exclude the windstorm peril. Typically, the exclusion appears in areas which are most susceptible to tornadoes, cyclones and/or hurricanes. * Windstorm policies usually have a deductible between 1% and 10% of the coverage on the dwelling coverage amount. Windstorm coverage can vary greatly from one state to the next. * The definition of a windstorm is a storm with heavy or high winds but little or no precipitation.

Question 39

MOBILE HOMEOWNER

Answer 39

* A Mobile home Coverage endorsement may be added to the policy form, altering the base HO form to include a mobile home as a covered property. SECTION I — PROPERTY COVERAGES * Section I contains the following coverage parts: o Coverage A: Dwelling; o Coverage B: Other Structures; o Coverage C: Personal Property; o Coverage D: Loss of Use; and o Additional Coverages. * Coverage limits are determined as follows: o Coverage A – Dwelling is based on the replacement cost of the dwelling; o Coverage B – Other Structures is 10% of the Coverage A limit; o Coverage C – Personal Property is 50% of the Coverage A limit; and Copyright © XCEL Solutions. All rights reserved | Review Notes: Property and Casualty | Page 46 of 150 o Coverage D – Loss of Use is 30% of the Coverage A limit (there are a few exceptions to this, but we will discuss that in the section dedicated to Coverage D) * Typically, most insurers will offer deductibles of $1,000. However, some companies may offer deductibles as low as $500

Question 40

WATERCRAFT INSURANCE (WATERCRAFT COVERAGE FORM)

Answer 40

* The Watercraft Coverage Form is a comprehensive policy in that it provides liability insurance, coverage for medical payments, and physical damage. The main watercraft policy coverage sections are Part A – Liability, Part B – First party coverage for Medical Payments, and Part D - Coverage For Damage To The Insured Watercraft * Unlike a boatowners policy, it covers inboard as well as outboard craft. Like a boatowners policy, it does not cover exposures that arise out of any commercial activity. Also, the Watercraft form excludes "personal watercraft," which the policy defines as a jet ski.

Question 41

Insurance

Answer 41

e is a means of managing financial risk by transferring the risk from one party to another through a legal contract or other arrangement. o Insurance spreads the risk of loss from one person to a large number of persons through the pooling of premiums collected from the group as a whole.

Question 42

LAW OF LARGE NUMBERS/ SPREAD OF RISK

Answer 42

* The Law of Large Numbers is a probability theory stating that as a sample size grows larger, the average of the sample results will begin to approach the expected value more closely. * The Law of Large Numbers also applies to insurance. As an insurance company increases the number of policyholders it has issued policies to, its estimated losses in the form of claims payments become closer to what is estimated or expected.

Question 43

Insurable interest

Answer 43

describes the financial stake an individual has in an object of insurance. An individual must have insurable interest at the time of loss to receive loss payment from an insurer.

Question 44

Risk

Answer 44

is the chance or uncertainty that a loss will occur.

Question 45

A pure risk

Answer 45

is the only type of risk considered to be potentially insurable. To be considered a “pure risk,” the risk must only present the chance for loss.

Question 46

speculative risk

Answer 46

is any kind of risk that could result in either loss or gain and is typically not insurable.

Question 47

A hazard

Answer 47

is a condition, circumstance, or situation that increases the chance of a loss occurring or increases the severity of a loss.

Question 48

moral hazard

Answer 48

exists when an insured begins to behave in a riskier way because they know that their insurance will have to pay any losses that occur. Moral hazards are purposeful behavioral changes that increase the risk of loss.

Question 49

morale hazard

Answer 49

is an insured’s indifference to loss because they know they are covered by insurance. This indifference towards loss results in unintended behavioral changes that increase the risk of loss.

Question 50

PHYSICAL HAZARDS

Answer 50

A physical hazard is a physical or tangible condition surrounding a risk that increases the probability or severity of loss.

Question 51

A peril

Answer 51

is a specific event or circumstance that causes loss (perils are also commonly referred to as causes of loss).

Question 52

A loss

Answer 52

s defined as an unintended, unforeseen reduction or destruction of financial or economic value. A loss can be further classified as either a direct loss or an indirect loss.

Question 53

Direct loss

Answer 53

refers to damage inflicted to property directly by a peril.

Question 54

ndirect losses

Answer 54

also called consequential losses, are losses that arise as the consequence of a peril; they are not a direct result of the peril itself.

Question 55

Loss valuation

Question 56

Actual cash value (ACV)

Answer 56

is defined as a property’s replacement cost minus depreciation.

Question 57

Replacement cost

Answer 57

is the amount needed to replace or repair damaged property with items or materials of like kind and quality, with no deduction to account for the property’s depreciation in value.

Question 58

Market value

Answer 58

is the price at which property will sell in the regular marketplace.

Question 59

Stated amount (or stated value)

Answer 59

refers to a property amount stated by the insured when purchasing an insurance policy. Under a stated value policy, the insurer can choose to pay either the stated value or the actual cash value of the property, whichever is less.

Question 60

Agreed value

Answer 60

is when the value of insured property is agreed upon between the insured and the insurance company.

Question 61

RIGHT OF SALVAGE

Answer 61

* Salvage value is the value of insured property after its useful life has ended, and the right to salvage provision states that the insurer has the right to the salvage value of property when a total loss claim has been paid for that property. * In essence, when there is a total loss, the insurer has effectively “bought” the property that was deemed a total loss from the insured

Question 62

PROXIMATE CAUSE

Answer 62

For a person to be held liable for damages, their negligence must be the proximate cause that led to the damages. * Efficient proximate cause is the action or inaction that most directly led to a loss occurring.

Question 63

deductible

Answer 63

provision makes the insured responsible for paying a portion of covered losses before the insurer pays any remaining loss amount to settle the claim. * If the insured is able to choose their deductible amount, then the deductible is acting as a form of risk retention. If the insured is not able to choose the deductible amount (the insurer requires a certain deductible be present on the policy), then the deductible is acting as a form of risk sharing.

Question 64

Indemnity

Answer 64

refers to compensation that is paid or promised to be paid to a party for losses that have already occurred or may occur in the future

Question 65

LIMITS OF LIABILITY (POLICY LIMITS)

Answer 65

* Policy limits are the stated maximum amounts of coverage that will be provided and are stated in the policy declarations.

Question 66

COINSURANCE/INSURANCE TO VALUE

Answer 66

* The coinsurance clause, also known as insurance to value, states how much insurance an insured must carry on a property to receive the full value of the property when a loss occurs. * Generally, an insured must have coverage on a property that is equal to at least 80% of the replacement cost of the property.

Question 67

Occurrence

Answer 67

: An accident, including continuous or repeated exposure to substantially the same general harmful conditions

Question 68

CANCELLATION

Answer 68

* Cancellation means a policy ends early, before the expiration date stated in the declarations. * Insurers earn their premiums as the policy period progresses toward the policy expiration date. * The insurance company will refund unearned premiums either on a pro rata or short-rate basis, depending on whether the cancellation was initiated by the insured or the insurer. * If the insurance contract is rescinded, then the insurer must issue a flat-rate refund. * When the insurance company cancels a policy, the insured receives a pro rata refund. * If an insured initiates a policy’s cancellation, then the insurer is only required to pay a short-rate refund.

Question 69

Nonrenewal

Answer 69

occurs if an insurance company decides it will not continue to provide coverage to an insured after the current policy period expires.

Question 70

VACANCY OR UNOCCUPANCY

Answer 70

Language is written into property contracts, known as the vacancy or unoccupancy provision, to reduce loss exposure to an insurance company when insured buildings go for extended periods of time with no people and/or property items found inside. * Once a property remains vacant or unoccupied for a certain period of time, certain coverages are either reduced or eliminated completely. * Vacancy describes a dwelling or other structure that has no people and no personal property or contents within it. * Unoccupancy describes a dwelling or other structure that has no people inside it but still contains personal property or contents within it

Question 71

LIABILITY

Answer 71

* When a person (the first party) causes injuries or damage to another person (the third-party) or their property through negligence, they are said to be legally liable for the losses the other person has incurred. * Liability insurance (also referred to as casualty insurance) is insurance that protects an insured from claims resulting from injuries or damages the insured inflicts upon a third party.

Question 72

Absolute liability

Answer 72

is assigned to a person who, through their negligence, causes injury or damage to another person because they have created a hazardous or potentially dangerous situation. Because the liability is considered absolute, no proof of fault or negligence is required for the injured party to hold a person liable for their damages.

Question 73

STRICT LIABILITY

Answer 73

* Strict liability differs from absolute liability because it allows the person who caused damages certain defenses to prove that they are not liable for those damages, where there are no defenses allowed under absolute liability. When defending strict liability cases, the following four defenses are allowed: o Plaintiff’s fault: If damages are caused due to the injured third party’s fault; o Act of God: If damages are caused by an event beyond the activity of humans; o Act of third party: If damages are caused by impossible to foresee actions of a third party; and o Consent of the plaintiff: If damages were caused by an activity the injured was willingly participating in.

Question 74

VICARIOUS LIABILITY

Answer 74

applies when one person (the “principal”) is legally responsible for the actions of another person or entity (the principal’s “agent”). In a vicarious liability situation, the principal will be held liable if their agent’s actions cause damages to a third party.

Question 75

NEGLIGENCE

Answer 75

* In most cases, a person must have displayed negligence in their actions to be held liable for damages caused. Negligence is defined as the failure to use reasonable care or due diligence under a certain set of circumstances

Question 76

binder

Answer 76

is temporary coverage which allows that coverage to be put in force by agents who have a binding authority from an insurance company. A binder is the acknowledgment that immediate coverage is in effect pending the future issuance of a policy.

Question 77

Insurance endorsements

Answer 77

(also called riders) are amendments made to an existing insurance contract that change the terms of the original policy, typically by adding or removing coverages.

Question 78

BLANKET VERSUS SPECIFIC INSURANCE

Answer 78

Specific insurance covers real and personal property at one, specific location. Blanket insurance covers multiple locations under one contract and one set of contract terms. * Specific insurance is most commonly seen in personal lines insurance. * Blanket insurance is primarily utilized in commercial lines insurance.

Question 79

Declarations page

Answer 79

is the first page (also called the “face”) of the policy. Each policy issued by an insurance company contains a custom declarations page specifying the unique contractual relationship between the named insured and the insurer.

Question 80

The insuring clause (also known as the insuring agreement)

Answer 80

is the section of an insurance policy that contains the promise that the insurance company will make payment either to or on behalf of the insured under certain loss conditions in exchange for premium paid by the insured. o The insuring agreement commonly outlines the broad scope of the coverages provided under the insurance policy

Question 81

duties of the insured

Answer 81

Below are duties of the insured when liability claims or lawsuits are involved: o The insured must notify the insurer as soon as practicable of any event or occurrence that could result in a claim. The insurer needs the following information:  Details such as where and when the occurrence took place and how it happened;  Identification and contact information for anyone who was injured as well as any witnesses; and  Details regarding any injuries or property damage that occurred. o In the case of a claim or a lawsuit, the insurer requires the insured to take down the details of the claim or the lawsuit as well as the date it was filed and notify the insurer; o The insured also needs to authorize their insurer to act on their behalf to obtain records and other information needed for the insured’s defense; o The insured needs to cooperate with the insurer in the investigation and defense of any claim. This includes forwarding any relevant documents such as demands and summonses or other legal papers. This could mean helping to enforce the insured’s rights against other third parties, which might relate to any claim or suit; and o Finally, the insured agrees not to make any voluntary payments or take on responsibility for anything, (except for providing first aid) without the consent of the insurer.

Question 82

Named insureds

Answer 82

s are those individuals or entities that an insurance contract lists by name or title as being covered on its declarations page.

Question 83

STANDARD MORTGAGE CLAUSE/LIENHOLDER’S RIGHTS/ADDITIONAL INSURED/ADDITIONAL NAMED INSURED

Answer 83

* When a lender is involved in the purchase of property that is insured, the lender creates a “lien”; therefore, the lender is known as the lienholder and has essentially the same rights under a property insurance contract as the insured does. * The standard mortgage clause gives special protection for the interest of a mortgagee when a loan is made. * A mortgagee has a financial interest in the mortgaged property and is entitled to certain rights under the property policy bought by the mortgagor to cover the property. Such distinct rights are separate from the property owner’s and enjoyed by the lender, referred to as third-party property rights. * Third-party rights exist directly between the insurer and the mortgagee until the mortgage is fully repaid by the insured. To facilitate this, mortgage companies normally require the insured to add the mortgagee onto the policy as an additional named insured. Copyright © XCEL Solutions. All rights reserved | Review Notes: Property and Casualty | Page 29 of 150 * The mortgagee is expected to notify the insurer of any changes in ownership, occupancy, or exposure, pay any due premium, and submit a signed, sworn statement of loss within the appropriate time frame.

Question 84

Conditions

Question 85

Exclusions

Question 86

Obligation of the insurance company