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NY Adj Ex - Ch1
Insurance Concepts & Principles
| Term | Definition |
|---|---|
| social device for spreading the chance of financial loss among a large number of people | insurance |
| by purchasing insurance a person __ __ with a group of others, thereby reducing the individual potential for disastrous financial consequences | shares risk |
| includes soliciting insurance, collecting premiums, and handling claims | transacting insurance |
| insurance is based on the __ of large numbers | law |
| by using this, insurers are able to calculate their probable losses & establish the rates for premiums that will cover their losses & their operating expenses | law of large numbers |
| process of selecting certain types of risks that have historically produced a profit & rejecting those risks that do not fit the criteria of the insurer | underwriting |
| good underwriting of risk selection normally produces a favorable __ __ | loss ratio |
| loss ___ is the premium collected, less loss & expenses, thus producing a profit for the insurer | ratio |
| selection against the insurance company; the tendency of insureds with a greater-than-average chance of loss to purchase insurance | adverse selection |
| insurers will sometimes use reinsurance as a means of reducing their __ of loss for a particular risk | exposure |
| contract of indemnity against liability by which an insurance company procures another insurance company to insure against loss or liability by reason of the original insurance | reinsurance |
| in reinsurance, an insurance company cedes the risk to | other companies or pools to spread the risk |
| insurance that pays a 3rd party for a claim caused by the negligence of the insured | liability insurance |
| insurance that pays the insured for loss of property that is named in an insurance policy from a peril insured against | property insurance |
| includes identiy & address of named insured, policy term/period, amount of insurance/limits of liability, policy premium, and any applicable deductibles; also includes either a property description or schedule of coverage parts & list of any endorsements | declarations |
| describes covered perils/risks assumed, or nature of coverage, or makes some reference to the contractual agreement between insurer & insured | insuring agreement |
| in __ policies each different coverage form includes its own insuring agreement | package |
| set provisions, rules of conduct, duties, & obligations for the parties | conditions |
| may describe property, perils, hazards, or losses arising from specific causes that are not covered by the policy | exclusions & limitations |
| in some case, exclusions are __ __ the wording of insuring agreements and definitions of perils. | built into |
| some policies also include limitations that are __ __ than true exclusions | less sweeping |
| may eliminate or reduce coverage but only under certain circumstances or when specified conditions apply | limitations |
| define important terms used in the policy language | definitions |
| used to add, delete, or change any of the policy parts; may alter content of the declarations and insuring agreement, and they may contain conditions, exclusions, & definitions | endorsements |
| refer to forms that have been filed by Insurance Services Offices, Inc. (ISO) to the individual insurance departments for approval | standardized policies |
| potential cause of loss; accident, fire, & theft are common ones | perils |
| anything that increases the seriousness of a loss or increases the likelihood that a loss will occur | hazard |
| loss that is a direct consequence of a particular peril; fire damages to an apartment building is an example | direct loss |
| loss that is a result of a covered peril but is not caused directly & immediately by that peril; loss of rental income as result of an apartment fire | indirect loss |
| insurer pays a loss on behalf of the insured, the insurer is entitled to ___ to reduce the claim | salvage |
| insured cannot simply abandon the property to the insurance company in exchange for the full-insured value | abandonment |
| loss settlement condition that appears in many property contracts including inland marine; states that if part of a pair is lost/damaged the loss will be valued as a fair proportion of the total value of the pair | set/pair clause |
| self-insured part of an insured loss; usually applies to 1st party claims such as property/auto; insured must bear this loss | deductible |
| building is void of contents & people; simply not being used | vacancy |
| perils such as freezing, vandalism, and malicious mischief are limited when a building is | vacant |
| insurance can purchase __ __ coverage to have some of the coverage restored for an additional premium, when a building is vacant | Vacancy Permit |
| means the premises are void of people; most cases this will not affect the coverage provided by the policy | unoccupancy |
| insurance policy cannot be assigned to another party without consent of the insurance company | assignment |
| clause in property/casualty insurance contracts which states that is policy/endorsement forms are broadened & no additional premium is required, then all existing similar policies/endorsements will be construed to include broadened coverage | liberalization |
| serve as temporary evidence that coverage is in effect until policy is issued; usually are either oral/written | binder |
| in cases where more than 1 policy is in force | primary policy |
| a primary policy pays __ | first |
| insurance policy that pays benefits only when coverage under applicable insurance policies have become exhausted | excess insurance |
| sudden & unforeseen events resulting in financial loss | accident |
| sudden & unforeseen event resulting in financial loss; may also be a continuous/repeated exposure to an event that results in financial loss | occurrence |
| policies must contain one/both of these clauses to facilitate an agreement when the insured & insurer cannot agree on value of claim | appraisal & arbitration |
| when dispute involves property claim, both parties select an appraiser to determine the value of the loss | appraisal clause |
| if appraisers cannot agree, then __ is selected to make the decision | umpire |
| insured and insurer each pay for __ __ appraiser and share cost of umpire | their own |
| clause usually appears in auto policies to resolve disputes for uninsured/underinsured motorist claims for BI; may also be used to settle disputes between insurance companies involving 3rd party liability | arbitration clause |
| clause is used when insurer has paid a covered claim on behalf of the insured that caused by another party; rights to recovery by insurer from negligent party | subrogation clause |
| subrogation clause is sometimes called | transfer of right of recovery against others to us |
| if insured has other sources of recovery for covered claim, this clause is activated; specifies obligations of carrier when coverage is in force | other insurance clause |
| means each insurer will pay its percentage of claim as limit bears to the total amount of coverage in force | pro-rata approach |
| evidence that coverage is in effect | certificates of insurance |
| any person who has contact with an insured involving insurance matters should be licensed; personnel that quote, sell, service, offer advice, explain coverage, or adjust claims would normally required to be licensed | transacting insurance |
| principle assumes that a claimant should only be restored to the approximate financial condition that existed prior to the loss, no better/worse | indemnity |
| if a claimant profits from their loss the principle of indemnity is | violated |
| principle of indemnity applies to __ 1st party & 3rd party liability claims | both |
| unbroken chain of events that causes a loss; event that in natural & continuous sequence produces a loss | proximate cause of loss |
| form completed by claimant listing property that has been either lost/damaged due to a covered loss | proof of loss |
| language that is vague & creates doubt | ambiguity |
| ambiguity in the policy provision will usually be resolved by the courts | in favor of the insured |
| type of "Other Insurance" condition found in liability policies; it calls for insurers to contribute equally up to the limit of their policy having the smallest limit whereupon that company stops paying | contribution by equal shares |
| in contribution by equal shares, once the smallest companies' limit is met, the other companies | still share in remainder of loss until paid in full or all limits are met |
| situation that exists when same property is covered by more than one policy, but the policies are not identical as to the extent of coverage provided | nonconcurrency |
| state perils that are to be insured against | cause of loss forms |
| form lists specific perils to be covered in the policy | named peril |
| form does not list perils but provides broader coverage | open peril |
| in open peril __ perils are covered except perils listed in Exclusions section of policy | all |
| refers to frame, masonry, metal, brick veneer, fire resistive, etc. | basic types of construction |
| the better the contraction the lower the | fire rate |
| cost of replacement minus depreciation | actual cash value (ACV) |
| current cost to purchase new, the item that was lost without depreciation | replacement cost value (RCV) |
| as reasonably close to replacement of the lost/damaged item as possible | functional replacement cost |
| usually antiques claims are adjusted on this basis | market value |
| market value is the price that the market | will support |
| value to be insured is agreed to be the insured & insurer; method is used when true value cannot accurately be determined | agreed value |
| agreed amount of insurance which is shown on the policy & that will be paid in event of a total loss regardless of ACV of property | stated amount |
| policy states that in event of total loss, specific amount will be paid, and that is set as the limit of the policy; generally used to insured fine art, jewelry, & furs | valued policy |
| applies in some states that have valued policy law wherein cases of a total loss the insurer __ __the amount to be paid under most circumstance except for normal exceptions such as fraud | cannot dispute |
| those who have an insurable interest in the property who would suffer financial loss if property were damaged by insured peril | insured |
| in personal insurance the insured can | include family members without listing their names on dec page |
| a lien holder __ __ considered an insured | would be |
| separate limit per insured item applies | specific basis |
| one limit that applies to both building & contents | blanket basis |
| with blanket insurance, usually more than one __ is insured under single limit | location |
| blanket insurance is more often written on contents coverage with one blanket limit applying to | more than one building/location |
| blanket basis insurance assists the insured in avoiding __ at a particular location in case of loss | underinsurance |
| allows the insured to report values to company of the insured contents; allows insured to pay for coverage on what is actually reported to insurer | reporting form |
| reporting requires __ coinsurance clause | 100% |
| method of requiring insured to insure at least 80% of value of property in exchange for a premium discount | coinsurance clause |
| if insured's policy contains coinsurance clause and insured carries less than required %, a __ will occur in cases of partial losses | penalty |
| protects interest of financial institution against loss to real property caused by perils insured against | standard mortgage clause |
| as part of the standard mortgage clause, the institution can also provide | proof of loss or pay premiums in case the insured cannot/refuses to do so |
| as part of the standard mortgage clause, the financial institution must be advised if | contract is cancelled/non-renewed by insurer |
| similar to mortgage clause but applies to chattel property | loss payable clause |
| chattel property is | item of movable personal property, such as furniture, domestic animals, etc. |
| insured's property insurance policy __ __ and not bailee of insured's property | protects insured |
| in no benefit to bailee, if insured's property were destroyed by fire while at dry cleaners the insurance company would only protect | the insured |
| occurs when a person/entity is determined to have been responsible or legally liable for injury or loss to another person/liable for damage to another's property & law requires them to make financial restitution | liability loss |
| liability losses are paid by __ insurance type policies | casualty |
| occurs when damage to repair exceeds value of vehicle after repairs have been made | constructive total loss |
| constructive total loss applies to other types of __ losses as well | property |
| for liability policy to respond insured must be guilty of negligence & coverage must be | granted by the policy |
| are never covered by liability policies | intentional acts |
| defined as lack of reasonable care that is required to protects others &/or their property from unreasonable chance of harm | negligence |
| negligence can also be a __ to act or not act as a reasonable person under the same set of circumstances | failure |
| defined as willful & wonton negligence or misconduct without slightest degree of care | gross negligence |
| civil wrong that violates rights of others | tort |
| person becomes legally liable by | committing a tort |
| legal duty is owed, breach of legal duty owed, proximate cause, & damages are factors involved to | establish negligence |
| generally, but not always, court of law must __ negligence | determine |
| punitive damages are sometimes referred to as | exemplary damages |
| casualty policies cover BI & PD caused by insured as result of his/her negligence; often awarded by court & intended to punish the defendant | punitive damages |
| common law defense against negligence that states that if an individual contributes to his/her own loss in any way, then another cannot be held liable for the loss | contributory negligence |
| law that allows injured party to collect from another party for a loss, even when injured party contributed to his/her own loss; damages are reduced to extent of injured parties' negligence | comparative negligence |
| comparative negligence is the defense | used in most states |
| doctrine, applies when person knowingly exposes themselves to danger/injury | assumption of risk |
| when a person assumes risk, they may be | prevented from recovering from a negligent party |
| assumption of risk doctrine, is frequently associated with injuries incurred by | spectators at sporting events |
| independent action that breaks the chain of causation & sets in motion a new chain of events | intervening cause |
| when there is an intervening cause this becomes __ cause of loss | proximate |
| intervening cause can serve as __ law defense | common |
| states have enacted laws as to when certain types of lawsuits must be filed | statute of limitations |
| imposed by law on those participating in certain activities that are considered especially hazardous; these individuals may be held liable for damages of another, even though the individual was not negligent | absolute liability |
| absolute liability is usually imposed to activities involving | dangerous materials, hazardous operations, &/or dangerous animals |
| absolute liability is sometimes known as | strict liability |
| strict liability usually used to describe absolute liability in reference to | products liability |
| person is held responsible for negligent acts of another person | vicarious liability |
| vicarious liability AKA | imputed liability |
| common form of vicarious liability involves relationship between | employer & employee |
| often the negligence of an employee can be __ (charged) to an employer because the employer has control over employee | imputed |
| limits of liability policy insuring agreement may be expressed as | single, split, or aggregate |
| pays single amount as maximum liability of insurer with respect to any one accident occurrence | single limit |
| there may also be ___ limit for all persons injured, and another for all PD arising from accident | single |
| split limits are expressed by | two figures |
| in split limits there may be a limit representing the __ __ for each person injured pre occurrence for BI & another limit applicable to claims of all persons injured in the accident | maximum payable |
| limit states in policy represents total amount for all claims paid during the policy period | aggregate limit |
| aggregate limit provision is found in | general & garage liability policies |
| __ liability policies contain an insuring agreement | all |
| the insuring agreement in a liability contract outlines | promises made by insurance company to the insured |
| all liability policies contain exclusions which are | exposures for which the insurer is unwilling to provide coverage |
| most liability policies contain definition in order to | clarify the terms used throughout the policy |
| the condition of a liability policy outline the __ of each party in case of a loss as well as other items that require clarification | duties |
| if a claim occurs outside the __ __ then the claim will be denied | covered territory |
| most property & casualty policies contain a policy __ limitation | territory |
| all property & casualty policies contain __ & nonrenewal provisions | cancellation |
| occurs before a policy has expires; mid-term | cancellation |
| sent prior to the expiration date of the policy advising insured that the policy will not be renewed | nonrenewal notice |
| most states have insurance laws that govern the __ __ for cancellation & nonrenewal & the time-frame in which notice must be given to insured in advance of these actions | permissible reasons |
| if an insurer cancels a policy, the __ policy premium will be returned to the insured on a pro-rata basis | unearned |
| if insured cancels policy, premium is return on __ __ | short-rate basis |
| there is a small __ when the policy is cancelled by the insured | penalty |
| the insured can cancel a policy at any time whereas the insurer is bound by the legal __ __ in any given state & the policy provisions | cancellation provisions |
| possibility/uncertainty that a loss might occur & is reason people buy insurance | risk |
| a peril is the __ cause of the loss | actual |
| hazard is any condition that __ possibility of a loss | increases |
| underlying cause of a loss may result from | physical, moral, or morale hazards |
| any hazard arising from material, structural, or operational features of the risk itself from the persons owning/managing it | physical hazard |
| condition of morals/habits that increases probability of a loss from a peril | moral hazard |
| hazard arising out of an insured's indifference to loss because of the existence of insurance | morale hazard |
| situation where there is only the possibility of loss; insurable risk | pure risk |
| situation where either profit/loss is possible; usually not insurable | speculative risk |
| these are connected with losses caused by the irregular action of nature, by the mistakes & misdeeds of human beings; similar to pure; this is insurable | dynamic risk |
| defined as risk that affects the entire economy or large number of persons/groups within the economy; not insurable | fundamental risk |
| risk that affects only the individual & not the entire community/country; this is insurable | particular risk |
| get around the hazard | avoidance |
| common method of risk management by members of insurance pools | sharing a risk |
| most common method of handling risk; involves reassigning risk to an insurance company in return for a premium charge | transfer of risk |
| assumption of risk AKA | risk retention |
| individual decides to do what creates a risk & retain the uncertainty of loss | assumption of risk |
| risk may be reduced via loss prevention methods | risk reduction/control |
| before a person can obtain an insurance policy they must | have an insurable interest |
| when an individual has a lawful, substantial, economic interest in preservation of that property | insurable interest |
| not all pure risks of loss are | insurable |
| a loss that is __ and definable creates an insurable risk | definite |
| a loss that is __ creates an insurable risk | accidental |
| insurance company should be able to calculate the __ __ __ creating an insurable risk | chance of loss |
| when the __ of large numbers applies it creates an insurable risk | law |
| when the loss is great enough to create __ __ it creates an insurable risk | economic hardship |
| when insurance is offered at __ cost it creates an insurable risk | reasonable |
| when the loss is not ___ in nature it creates an insurable risk | catastrophic |
| in parties to the insurance contract the insured is the | 1st party |
| in parties to the insurance contract the insurance company is | 2nd party |
| for liability insurance under parties to the insurance contract the party that is damaged by the 1st party is | 3rd party |
| intent the part of both parties to enter into a legal relationship (to be considered valid by a court of law) | contract |
| capacity to contract, legal purposes/object, offer & acceptance. and consideration are what a contract must ___ in order to be considered legal | possess |
| in order for the contract to be binding, all parties must have the __ __ to enter into the contract | necessary capacity |
| cases where capacity has been deemed insufficient include | minors, mental incompetents, & those who sign a contract while under influence of drugs/alcohol |
| an exception to necessary capacity for a minor to contract for life insurance, they need to be at least | 15 years old |
| an insurance contract must not be written to cover an illegal activity/immoral purposes | legal purposes/object |
| something that has value in eyes of the law in which a promise receives something in return for a promise | consideration |
| when dealing with consideration, the insured gives the application & premium to the agent/company in return for their | promise to pay in the future |
| contingent on an uncertain event | aleatory |
| insurance company is the __ of the contract | author |
| one party has greater power over the other in drafting the contract | contract of adhesion |
| both sides must perform certain acts to make the contract legally enforceable | executory |
| promises action in event of a future occurrence; insured's obligations are based on conditions specified in the contract | conditional |
| both parties bargain in good faith | utmost good faith |
| insurance contract is bound to the insurable interest of the insured person | personal aspect |
| contract must restore insured to financial position previously held before the loss | principle of indemnity |
| principle of indemnity AKA | indemnification |
| pays stated amount in event of a claim | valued contract |
| pays only the amount of the loss | reimbursement contract |
| insured has agreed to pay a premium in exchange for insurers promise | to act in the future |
| an insurance policy is __ because only the insurer is legally bound to perform its part of the agreement | unilateral |
| insureds are not __ __ to pay premiums | legally bound |
| if the insured stops paying premiums, the insurer can cancel the contract, but it cannot __ the insured for breaking the contract | sue |
| if an insured fails to comply with conditions & duties specified in the contract, the insurer may __ an insured's claim | deny |
| the insurer may not have to perform in case of a loss when an insured is guilty of | breach of warranty, misrepresentation, or concealment |
| is a policy condition, based on either information given by insured or inserted by insurer in the policy | warranty |
| an incorrect statement by the insured may | void coverage |
| untrue statement(s) made by insured, usually at time of app | misrepresentation |
| failure of the insured to reveal relevant facts known to the insured when applying for insurance | concealment |
| intentional act designed to deceive & induce another party to part with something of value | fraud |
| fraud may occur __ the policy has been issued | before/after |
| fraud may also include some misrepresentation &/or concealment but not all acts if misrepresentation/concealment are | acts of fraud |
| something that becomes part of the contract & is a statement that is considered to be a guarantee | warranty |
| states that a policy includes coverage that an average person would reasonably expect it to include regardless of what the policy actual provides | reasonable expectations |
| courts have given __ __ to doctrines of waiver & estoppel when deciding insurance cases | great prominence |
| generally defined as voluntary/intentional relinquishment of a know right | waiver |
| occurs when insurer or its rep purposely gives up a know right under the contract | expressed waiver |
| types of waivers | expressed & implied |
| may result from some kind of neglect on the part of the agent/adjuster | implied waiver |
| if someone intentionally creates the impression that a certain fact exists, and an innocent party relies on that impression & is damaged as a result; the guilty part may be legally prohibited from asserting that the fact does not exist | estoppel |
Created by:
lfrancois74
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