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NY Adj Ex - Ch1

Insurance Concepts & Principles

TermDefinition
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