Bradley Enterprises’
Property and Casualty Manual
Property and Casualty manual
This is another Bradley Enterprises’ “Classroom Proven” manual!
Revision 47
© Copyright 2002-2011.
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Page 1
Bradley Enterprises’
Property and Casualty Manual
Table of Contents
About Us .. ............................................................................................................. 3
Bradley Enterprise’s “Mastermind Learning System” ...................................... 4
Using this manual ................................................................................................ 5
Chapter 1: Basics ................................................................................................. 6
Chapter 2: Vocabulary ......................................................................................... 8
Chapter 3: General ............................................................................................... 9
Chapter 4: Application ......................................................................................... 14
Chapter 5: Policies ............................................................................................... 16
Chapter 6: Liability ............................................................................................... 22
Chapter 7: Dwelling .............................................................................................. 24
Chapter 8: Homeowners ...................................................................................... 34
Chapter 9: Auto .................................................................................................... 47
Chapter 10: Misc. Personal Insurance ............................................................... 55
Chapter 11: Misc. Commercial ............................................................................ 59
Chapter 12: Misc. Business Owners .................................................................. 60
Chapter 13: Comm. Property .............................................................................. 78
Chapter 14: Ocean and Inland Marine ................................................................ 95
Chapter 15: Comm. Liability ................................................................................ 103
Chapter 16: Comm. Auto ..................................................................................... 113
Chapter 17: Crime ................................................................................................ 123
Chapter 18: Workmen Compensation ................................................................ 131
Chapter 19: Misc. Commercial ............................................................................ 136
Practice Tests:
P&C Part 1 ........................................................................... P&C Part 1 - 1
P&C Part 2............................................................................ P&C Part 2 - 1
P&C Law............................................................................... P&C Law 1 - 1
Study/Answer Sheets:
P&C Part 1 ........................................................................... P&C 1 S/A – 1
P&C Part 2............................................................................ P&C 2 S/A – 1
P&C Law............................................................................... P&C Law S/A 1 - 1
P&C Bonus Questions ........................................................................
Rationales:
P&C Part 1 ................................................................................
P&C Part 2................................................................................
P&C Law ...................................................................................
Glossary................................................................................................
Blank Answer Sheet.............................................................................
P&C B/Q - 1
Rationales 1 - 1
Rationales 2 - 1
Rationales 1- 1
Glossary - 1
Blank A/S - 1
Online students only:
You may study the manual and take the practices exams on paper while off-line; however
you must also take the practice exams online and pass each exam with a score of 90 or
better in under an hour, then take the proctored final exam and pass it with a score of 80
or better in under 3 hours to receive your course Certificate of Completion.
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Bradley Enterprises’
Property and Casualty Manual
About us….
Bradley Enterprises operates a training school for new
insurance agents. We have a number of instructors with
varying backgrounds from insurance agents, securities brokers
and including one CPA. We have trained agents for most of
the insurance and securities companies in Alabama.
Bradley Enterprises currently has the highest pass rate in the State.*
*as of August 2004
Instructor Directed Classes:
Bradley Enterprises: See www.beagent.us for information on this
and other classes, L&H, P&C, CE seminars and Securities classes
we offer.
Online classes are also available:
A A Online Classes: See www.aaonlineclasses.com
- or -
Call Victor Bradley, at 256-679-3163
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Bradley Enterprises’
Property and Casualty Manual
Mastermind Learning System™
Bradley Enterprise’s “Secret to Passing the State Test”
Exam prep:
1.
2.
3.
4.
5.
6.
Relax!
Read the entire manual out loud at least 4 times prior to attempting any
tests!
Take each practice test until you score 90 or better in less than an hour. (If
you fail a given test; study the ones you missed and take the test again –
you will see your score go up. Once you have “scored 90 or better in less
than an hour” on a given test do not take that test again, move on to the
next test. – please use ear plugs during testing to limit distractions)
Once you have accomplished step three for all practice tests and completed
the proctored final then (and only then) schedule your appointment to take
the State exam, preferably an early morning exam.
Photo copy the “Study/Answer Sheets” including the Bonus State Exam
Prep Questions at the back of this manual.
The night before the test, study the study sheets. (Studying consist of
reading each question and related correct answer.) Starting around 5:00
pm read each question and related correct answer in the order they are
listed on each test, including the Bonus State Exam Prep Questions, over
and over again until you go to sleep.
The day of your state exam:
7.
Do Not Study Any the Day of the Exam. Eat a good meal and go take the
exam. Take a candy bar and a set of earplugs with you to the exam. Eat
the candy bar just before you take the exam. (Sugar has been shown to
sharpen the mind during testing – the ear plugs will limit distractions)
8. Read each question and all answers to the question before selecting an
answer. Watch for key words like: NOT, EXCEPT, WRONG, INCORRECT,
etc.
9. Answer each question in the order they appear on the exam.
10. If you get stuck on a question:
a. Look at a blank place on the wall and relax. (This will help clear your
mind.)
b. Use the process of elimination on the answers…. If you still have no
clue; pick the long answer…. (Test designers generally have difficulty
developing long wrong answers.)
11. Never change an answer once you have made your selection.
The average state exam score of students that follow these instructions is an 87.
Make no mistake: the insurance field is a highly competitive profession. It is entirely
up to you to become successful in this field and your success starts with passing the
state exam by effectively applying the instructions listed above!!
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Bradley Enterprises’
Property and Casualty Manual
Using this manual:

Items of particular interest are designated in bold text.

Topics of critical interest are designated by: A box around text.
You will see information contained in the Boxes again on practice tests and more
than likely on the state test.

You need to follow the instructions on page 4 to maximize your success with this
course.
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Bradley Enterprises’
Property and Casualty Manual
Chapter 1 : Basics
Risk: chance or uncertainty of loss
Exposure = Risk
Managing Risk:
 Avoid
 Control
o Loss prevention: Curtail loss frequency
o Risk prevention: Limit loss severity
 Retain risk (not insured)
 Transfer risk (insured) (Insurance is a way of transferring risk)
Definition of insurance: A contract for transferring risk from a person, business,
or organization to an insurance company that agrees, in exchange for a
premium, to pay for losses through an accumulation of premiums.
Law of large numbers: the more examples used to develop any statistic, the
more reliable the statistic will be.
Insurance can only be used to cover Pure Risk (someone may steal something).
Insurance cannot be used to cover Speculative Risk (losses in the stock
market).
Insurance contracts are Personal (the contracts insure the person or business,
not the property).
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Bradley Enterprises’
Property and Casualty Manual
Elements of insurability
 Insurable interest: You must have an insurable interest! (you can insure
your home or business, but not your neighbor’s)
 Loss must be definite (time, place, etc and difficult to falsify)
 Risk must be unexpected
 Risk must be large enough to create a financial hardship
 Loss must be calculable
 Cost of insurance must be affordable
 Must be a large number of persons with a similar potential loss
available for insurance so that overall, losses become predicable
 Loss must not happen to a large number of insureds at the same time
 Spread of risk (insuring many people over large areas, not small number
in a small area)
Peril = cause of loss (car wreck, tornado, storm, etc.)
Hazard = anything that increase chance of loss
 Three type of hazards:
 Physical hazard (hazard that arises from condition or occupancy of
property)
 Morale hazard (careless or irresponsible behavior)
 Moral hazard (person might intentionally create a situation that would
cause a loss)
Losses
 Direct (financial loss directly related to the loss of property)
 Indirect (financial loss indirectly related to the loss of property, exp: hotel burns,
the owners lost the building (direct loss) and also lost the monies (indirect loss)
that would have been made from guests staying over the next few months while
hotel is being rebuilt.)
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Bradley Enterprises’
Property and Casualty Manual
Chapter 2 :
Vocabulary
Elements of valid contract
 Competent parties (parties must be of legal age and can not be nuts)
 Legal purpose ( you can not enforce a contract for the sell of illegal drugs)
 Offer and acceptance
 Consideration (monies)
Insurance contracts are contracts of indemnity (putting the customer back where they
were financially before the loss, within the limits of the contract)
Vocabulary
 Estoppel (being prevented from asserting a right)
 Aleatory (equal values are not given by both parties)
 Contract adhesion (the policy is developed by the insurance company and
offered on a take it or leave it basis)
 Contract of utmost good faith (the insured depends on the insurance company
to fulfill its side of the contract and the insurance company depends on the
insured’s statement in the application)
 Conditional (all insurance policies list the circumstances under which a policy
will be paid or not paid)
 Unilateral Aspect of Insurance: (Only the insurance company is bound to
performance by the insurance contract. The insured may chose to pay the
premiums or not at anytime.)
 Waiver (items not covered by policy)
Parts of the insurance contract:
 Declarations (first page of policy, name of insured, address, amount of coverage,
description of property, and perils insured against)
 Insuring agreement ( heart of policy, states what is covered against what, level
of indemnification [how much they will pay if loss occurs])
 Conditions (ground rules, responsibilities, and obligations)
 Exclusions (what is not covered)
 Definitions (what the words used in the contract mean)
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Bradley Enterprises’
Property and Casualty Manual
Chapter 3 : General
Types of insurance companies:
 Stock (owned by stock holders – bought and sold on open stock market)
 Mutual (owned by policy holders – cash building policies receive dividends)
o Assessment (small number of mutual companies who provide fire and
windstorm insurance for small towns and farmers)
 Reciprocal (give and take, members of group share in losses)
 Lloyd’s associations (example Lloyd’s of London – extreme risk – space shuttle,
etc.)
 Fraternal Benefit Societies (usually mutual insurance companies, have a mock
form of government (lodge work) associated with them)
 Private, Government Insurers (this type of insurance is some times called
residual market) coverage provided includes:
o War Risk Insurance
o Nuclear Energy Liability Insurance
o Flood Insurance
o Federal Corp Insurance
Mono-line: company that writes only one line of insurance
Multi-line: company that writes more than one line of insurance
Lines of Insurance:
 Property (covers any type of property risk)
 Casualty (covers a variety of unrelated insurance products -- examples include:
aviation, auto, workers compensation, and surety bonds)
 Life (insures against premature death)
 Health and Disability (health problems and disability problems)
Individual or Business:
 Personal Lines (for individuals or family)
 Commercial Lines (for businesses)
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Bradley Enterprises’
Property and Casualty Manual
The Agent’s Duties:
 Selling insurance
 Issuing and countersigning policies
 Collecting premiums
 Providing a link between the insured and the insurance company
 Countersigning policies (signing each policy before delivery to customer)
 Field underwriting (you are the company’s first line of defense)
 Prepare quotations
 Fill-in applications
 Suspense or Dairy system (Maintain customer files)
 Service customer
 Be covered by Errors and Omission insurance ( E and O insurance covers the
insurance agent against their mistakes while writing insurance policies)
 An agent must:
o Represent the insurance company’s best interest
o Obey all legal instructions from insured
o Deposit customer funds in separate account
o Use prudent care concerning all duties
o Keep insurance company informed of all facts related to the agency
relationship
Agent Authority (Agent or agency relationship is authorized to act on behalf of a
Principle):
 Expressed (authority specifically given to an agent in writing)
 Implied (authority not formally given to an agent)
 Apparent (authority that a reasonable person assumes the agent has)
Insurance Marketing Systems:
 Exclusive agency system (or captive agency system – sell for only one company)
 Direct writer system (agents are employees of insurance company)
 Direct response system (have no agents – sold only through mail or over phone)
 Independent agency system (independent, sell for many companies, not just one
company, can bind coverage)
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Bradley Enterprises’
Property and Casualty Manual
Insurance Professionals:
 Brokers (work for the best interest of the insured, not the insurance company,
also independent, can not bind coverage)
 Solicitor (can sell insurance, collect premiums, however can not counter sign
policies or issue policies)
 Excess or surplus lines (have specialized insurance coverages not available from
other sources)
 Producer (any person that is authorized to sell insurance products: an agent,
broker, or solicitor)
 Consultant (offers insurance products for a fee, not a commission)
Insurance Company Functions:
 Underwriting department (approve, rate or reject risks)
 Policy issue and administration (the worker bees with the insurance company):
o Policy analyst or screener
o Assembly and filling areas

Claims Department:
o Claims adjusters or representatives
o Independent adjusters

Actuarial and statistical department (the numbers department, includes
actuaries that determine policies rates)
Accounting department
Investment department
Legal department
Audit department
Loss control department
Agency department
Marketing department
Reinsurance department
Support department:
o Personnel
o Training
o Information systems
o Administration, forms and filing
o Building and maintenance
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State Insurance Operations:
 Each state has an insurance department with officials to enforce state rules
o Directors
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Bradley Enterprises’
Property and Casualty Manual
o Superintends or commissionaires (commissionaires make up the
members of the National Association Of Insurance Commissionaires,
NAIC)




Areas of responsibilities:
o Companies
o Agents
o Ratification
o Enforcement (apply the rules and regulations of the state)
o Insurance companies approval
 Admitted (or authorized to do business in the state)
 Non admitted (or unauthorized to do business in a given state)
Insurance guaranty associations (provides protection for public if an insurance
company becomes insolvent and can not pay claims)
Approval or Ratification (policies forms, endorsements, and rates used doing
business in the state. Some states are file and use states where the insurance
company only has to file forms, endorsements and rates, then used them. Some
states are Open Competition states where the only requirement is the products
must be adequate, rates can not be excessive and the company must practice non
discrimination).
Rates (in some states rates are mandatory)
Location of home office affects designation of company:
 Domestic (insurance company’s home office is located within the state)
 Foreign (insurance company’s home office is located in another state)
 Alien (insurance company’s home office is located in another country)
Insurance Rating Companies (rates companies from A++ down to F):
 A. M. Best
 Standard & Poor
 Finch
 Moody’s
Legal requirements for agents:
 Must be licensed by the state.
 Fiduciary (responsible with the customer’s monies)
 Misrepresentation (enjoined from misrepresenting insurance products)
 Twisting (it is illegal to replace a policy with one of lesser quality)
 Rebating (it is illegal to split a commission with a customer)
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Bradley Enterprises’
Property and Casualty Manual

Unfair discrimination (agents can not give higher or lower rates for any reason
for policies that have identical coverages – also agents can not accept bribes to
provide lower premiums to selected customers)
Service Bureaus (compile statistics, rates, financial records, operational and loss
records):
 Insurance Service Office (ISO)
 The National Council on Compensation Insurance (NCCI)
 Surety Association of America (rates surety bonds)
 There are numerous other rating bureaus.
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Bradley Enterprises’
Property and Casualty Manual
Chapter 4 :
Application
Application (= offer)
Binders (oral or written statement made by an agent for immediate protection that is
valid for a specific time that provides temporary coverage. A binder does not guarantee
that a policy will be issued).
Underwriting (evaluating risk):
 Inspection services
 Government bureaus (such as Bureau of Motor Vehicles)
 Insurance industry bureaus (such as the Automated Property Loss
Underwriting System)
 Financial information services (such as Standard and Poor’s)
 Previous insurers
 The company’s own claim files
 Fair Credit Reporting Act (credit standing, personal character, reputation,
habits, and lifestyle):
o Regular
o Investigative (includes data gathered through personal interviews with
friends, neighbors and associates)
 Adverse Selection (underwriters do not want to insure people/property that have
an extremely high risk, they want to avoid adverse selection)
Rating Methods:
 Judgment Rating (oldest way – involves pure judgment based on experience)
 Manual Rating (or class rating – based on manuals – Rate per unit X number of
units = premium)
 Merit Rating (includes both judgment and manual rating methods)
Certificate of Insurance (proof the policy has been written)
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Bradley Enterprises’
Property and Casualty Manual
Insurance Application Facts:
 Statements on the Application (are representations, not warrants of truth)
 Misrepresentation (a representation that turns out not to be true)
 Material fact (information which the insurance company will use to base the
policy on)
 Concealment (not disclosing a material fact that could effect the issuing of a
policy)
 Fraud (misrepresentation of material fact):
o Someone deliberately lies
o The intent of the lie is for someone else to rely on that lie
o Another person relies on that lie
o The other person suffers harm as a result of relying on that lie
Cancellation and Non Renewal:
 Occurs during policy period or term (the date the policy starts and ends)
 Must be by letter
 Return of unused premiums (may be returned on short rate basis which
includes the cost of issuing the policy)
 Pro rata basis (in this case the company can only keep used premium)
 Flat cancellation (occurs when the policy is cancelled by either the insured or the
insurer on the policy anniversary date)
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Bradley Enterprises’
Property and Casualty Manual
Chapter 5 : Policies
Policy Standardization:
 Declaration Section
o This section includes the name of person or business insured; if more than
one individual is named in this section the person whose name appears
first may be assigned a higher level of duties and rights.
o Other parties’ names may be included in this section as insured as well,
such as Mortgagees, see Mortgage Condition.
o This section may also include additional insured, such as a mortgage
holding company.
o Property coverage:
 Specific Insurance: Description of property at a specific location
may also be included.
 Blanket Insurance: Description of property covered at any
location may also be included.
o Policy Period (effective dates of policy, start and stop)
o Policy Territory (the location of the property to be covered by policy,
typically included the United States, Puerto Rico and Canada)
o Policy Limit (maximum amount the company will pay):
 Limit of coverage
 Limit of insurance
 Limit of liability
 How limit is defined:
 Split (may have separate limits for BI [bodily injury] and
PD [property damage])
 Single (or Combined) (may have a single limit combined
for BI and PD)
 Per Occurrence (accident that occurs at specific time and
place)
 Per Accident (more restrictive than per occurrence, means
essentially the same thing)
 Per Person (the most that will be paid per person injured,
per accident)
 Aggregate Limit (the most that will be paid for all losses,
per accident)
 Agreed amount contract or valued (agreed upon values written
into the contract)
o Deductibles (amount of lost that the insured must pay out-of-pocket before
insurance company will cover the rest of the lost)
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Bradley Enterprises’
Property and Casualty Manual
Policy Standardization (continued)

Insuring Agreements (defines what losses are actually covered):
o Policy Coverages:
 Policy coverages (what is covered in detail)
 Additional coverages (or extended coverages or coverage
extensions, or other coverages – may have separate limits)
o Perils Insured against:
 Named peril (or Specific peril)
 Open peril (sometimes called all risk or special coverage)
o Injuries/Damages:
 Bodily Injury (BI) (injury, sickness, disease and death arising out
of injury, sickness or disease)
 Property Damages (PD) (destruction of property including the
loss of use of same)
 Personal Injury (PI) (slander, libel, false arrest, and invasion of
privacy)
o Defense Costs (covers defense costs related to defending an insured
against claims for BI, PD, and PI)
o Prejudgment Interest (at the time of judgment provides retro active
damage compensation as if judgment was made at time of accident – pays
the difference, if any. Exp: An accident in 1999 was not settled until 2004,
the value of the new 1999 car damaged is now less than in 1999 when the
accident actually occurred – prejudgment interest would cover this
difference).
o Supplementary Payments (paid in excess of policy limits) include:
 Defense cost
 Claim investigation expenses
 Bond premiums (exp. Bail bonds, appeal bonds, release of
attachment bonds)
 First aid to others at time of accident
 Expenses for investigation or defense of claim (if requested by
insurance company)
 Lost earnings
 Prejudgment interest (not included as part of damages)
 Postjudgment interest (interest accruing on the judgment after an
award, but prior to payment by the insurance company)
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Bradley Enterprises’
Property and Casualty Manual
Policy Standardization (continued)


Conditions:
o Duties following loss:
 Notice of claim (must be prompt to insurance company)
 Protect the property from further damage
 Proof of loss (must be detailed official list of damages)
 Make property available for inspection
 Submit to examination under oath
 Assist during claim investigation (if required)
o Valuation (how losses will be paid) can collect the lesser of:
 Insurable interest
 Policy value
 Actual cash value
 Cost to repair
 Replacement
o Liberalization Condition (provides for broader coverages for a specified
policy and related policies without increasing premiums)
o Assignment Condition (specifies that written consent is required to
transfer policy rights to anyone else, except in the case of death)
o No Benefit Bailee Condition (bailee is a person or organization that has
temporary possession of personal property of another – Bailee Condition
states that the bailee must be independently insured against any losses and
is not covered by any policy owned by the personal property owner)
o Mortgage Condition (or loss payable condition specifies the rights and
duties of the mortgagee under the policy)
o Contribution by equal shares (when property is covered by more than
one insurance policy the insurance companies share equally in the loss)
Exclusions:
o Named Peril Policy (any peril not specified is automatically excluded,
however additional exclusions in this section may also be listed)
o Open Peril Policy (covers all perils except the one listed in this section)
o Five broad categories (commonly in all property policies):
 Nonaccidential losses (excluded because lost is certain: wear and
tear, deterioration, rust, corrosion/mechanical or electrical
breakdown)
 Losses controllable by the insured (excluded because loss is
controllable when extra care is used: marring, scratching,
breaking, or chipping)
 Extra-hazardous perils (unique peril where additional coverage
is required, of course at a higher premium)
 Catastrophic losses (losses so broad in nature that they could
bankrupt the company)
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Bradley Enterprises’
Property and Casualty Manual
Policy Standardization (continued)
 Exclusions (continued)
 Property covered in other policies (property normally covered by
other policies, such as personal property would normal exclude
your car—your car would normally be covered by an auto policy)
 Limitations (may eliminate or reduce coverages, such as in a
building left vacant for 60 days, some losses will not be covered at
all, while other loss coverages will be reduced by 15%)
o Other exclusions include:
 Damage to property owned by the insured
 Damage to property in the insured’s care, custody or control
 Bodily injury to an insured
 Losses covered by other policies (such as Workers Compensation
laws and Nuclear Energy Liability policies)
 Injuries or damages caused intentionally by the insured
 Concurrent Causation (refers to when two or more perils are
concurrent in the loss; this creates problems when one of the perils
are not covered in the policy)
o Vacancy (absent of people and property on premises) and Unoccupied
(absent of people) (property insurance may limit or exclude coverage for
losses when the property is vacant or unoccupied.)
 Definitions (terms used in policy defined)
Determining policy liability for loss:
 Actual Cash Value (ACV) (ACV=Replacement Costs – Depreciation) (common
method of determining value of loss)
 Repair cost (when loss is less than ACV)
 Replacement Cost (insurance pays the current cost for item replacement that
was lost or destroyed)
 Functional replacement cost basis (insurance pays the amount to purchase an
equivalent item of equivalent condition prior to lost --- used cars get used parts
replaced under this method)
 Market Value (current market value of property – for example: house prices may
go up or down depending on the surrounding property usage.)
 Coinsurance
o 80% Coinsurance Condition (means the property must be covered by at
least 80% of full value – if not insured for at least 80%, partial loss
payouts may be reduced proportionally. This is called coinsurance
penalty)
o Agreed Value or Stated amount (defines the value of specified items, if
loss is within policy limits the policy pays full amount -- used to avoid
coinsurance penalty)
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Bradley Enterprises’
Property and Casualty Manual
Policy Standardization (continued)
 Lost payment (must be within a reasonable time – some policies state a specific
time frame)
Determining policy liability for loss (continued)
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Pair or set (states that in the case of a loss to an item that is part of a pair or set,
the insurance company is not obligated to pay the value of the entire set. The
company may either repair or replace part of the set or pay the difference
between the actual cash value of the property before and after the loss.)
Salvage and Abandonment Compared
o Salvage (insurance company may take possession of damaged goods after
payment of claim, salvaged goods are used to reduce the costs to the
insurance company for the payment of claim)
o Abandonment (the insured is not allowed to abandon their damaged
property to the insurance company and then demand payment)
Subrogation (the transfer of the insured’s right of recovery against others to the
insurance company) May also be called Transfer of Right of Recovery Against
Others to Us
Appraisal Condition (either party may demand an appraisal on the item in
question – if both parties choose a separate appraiser the appraisers choose an
umpire to settle any differences in the appraisals results – insured pays for his
own appraiser fees and half of the fees for the umpire)
Arbitration Condition (similar to appraisal condition, however it is not limited to
disputes of the value of the loss, such as disputes arising from liability insurance
claims between two insurance companies)
Other insurance (when two or more insurance companies cover the same loss.
Other Insurance is also called: Other Sources of Recovery or Insurance Under
Two or More Coverages)
o Primary Insurance (the company responsible for the majority of the loss)
o Excess Insurance (the secondary company or companies that pay for the
excess of the loss that the primary insurance company did not pay)
o Pro Rata Method (most common method of resolution when other
insurance companies are involved in a given claim. Example: $10,000
loss --- one insurance policy coverage is $50,000 [we will call this policy
A]; the other insurance company policy coverage is for $100,000 [we will
call this policy B]:
liability limit of policy A / (liability limit of policy A + liability limit of
policy B) X amount of loss = amount to be paid to policy A
exp solved: $50,000 / ($50,000 + $100,000) X $ 10,000 = $3,333.33
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liability limit of policy B / (liability limit of policy A + liability limit of
policy B) X amount of loss = amount to be paid to policy B
exp solved: $100,000 / ($50,000 + $100,000) X $ 10,000 = $6666.66)
Determining policy liability for loss (continued)
 Reporting Forms
o Non reporting forms (charge a flat premium. For example: auto and
home insurance)
o Reporting forms (charge a deposit premium or estimated premium and
periodically the insured submits an updated report to the insurer
concerning the status of factors on which the premium is based,
information is used to determine current/future cost of insurance – when
the deposit is used up the insured then pays premium calculated at the end
of each reporting period. Insurer may require a premium audit to making
any finial adjustment prior to determining a finial premium.)
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Chapter 6 : Liability
Liability Insurance:
 Purpose of Liability Insurance (protect an insured from financial losses arising
out of liability claims by transferring the risk to insurance company.)
 Liability losses (also known as third party losses. Losses that occur from actions
toward other people or their property.)
 Tort (civil wrong that violates the rights of another: intention or unintentional)
 Negligence (lack of reasonable care that is required to protect others from the
unreasonable chance of harm.)
Four factors required to establish negligence:
o Legal duty owed (as a general rule: each person owes a duty to another
to protect the other’s rights and property--- sometimes known as the
reasonable person rule – sometimes expressed as degree of care or
standard of care. Degree of care can vary based on who the individual is;
an invitee has much more responsibility than that of a trespasser.)
o Breach of legal duty owed
o Proximate cause (the action(s) that caused the loss)
o Damages (without damages there can be no finding of negligence)
 Defenses against Negligence:
o Contributory (in some states if a person contributes to their own
damages in any way, another party can not be held liable)
o Comparative (in other states if both parties contribute to a loss, awards
are based on the extent to which each party was negligent)
o Assumption of Risk (in some states if a person knowingly exposes
themselves to danger or injury they may not be able collect damages.
Exp: spectators injured at racing events)
o Intervening Cause (an event that changes the sequence of events leading
to a loss – intervening cause becomes the proximate cause of the loss)
o Statutes of Limitations (if lawsuits are not filed within a time specified
under law, the lawsuit will not be legally valid)
 Absolute Liability (or strict liability) (imposed by law on individuals involved in
certain activities involving:
o Dangerous materials
o Hazardous operations
o Dangerous animals)
 Vicarious Liability (or imputed liability) (liability arrived at because of the
actions of an individual under the control of another. For exp: employer being
held responsible for an accident one of their employees had while on company
time)
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Liability Insurance (continued)
The Parties Involved in the Loss:
 First Party (the insured)
 Second Party (insurance company representing the insured)
 Third Party (the person suffering the injury)
Damages/losses:
 Third Party Losses (again: liability losses are known as Third Party Losses)
 Damages (monetary compensation)
o Compensatory Damages (reimbursement for actual losses):
 Special (includes all direct and specific expenses; exp.
Medical, funeral, lost wages, etc).
 General (pain, suffering, and disfigurement; exp. Court
sometimes awards damages that are punitive or exemplary
for wantonly or willfully committed acts).
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Chapter 7 : Dwelling
Dwelling Insurance (protects individuals from financial loss resulting from loss of their
dwelling and personal property)
 Home owners policies (provides both property and liability coverages;
unendorsed Dwelling policies provide property coverage only )
 Dwelling policies (provides more limited Property coverages than Home owners
policies)
Dwelling policies may include small businesses (may include incidental business and
professional occupancy – must involve service as opposed to sales and involve no more
than two people working on premises at any one time. Exp. includes beauty parlor,
photography studios and professional offices.)
Dwelling 89 policy (issued by Insurance Services Office (ISO))
 Basic form (also known as DP-1 or DP 00 01):
o Coverage A – Dwelling (covers dwelling and other attached structures,
materials, supplies used for construction or repair and outdoor equipment
used to service premises).
o Coverage B – Other Structures (other structures on premises connected
only by fences, utility line or similar connection – separate structure may
not be used for commercial, manufacturing or farming purposes).
o Coverage C – Personal Property (personal property usually at the
dwelling place).
 Automatic removal (covers property being moved from old
location to new and is based on the amount of property at each
location).
 Exclusions include:
 Personal property owned by guest or servants.
 Money, securities, manuscripts, bullion, currency,
accounts, deeds, and evidences of debt.
 Bank notes, coins, gold other than gold ware, letters of
credit, medals, personal records, platinum, silver other
than silverware, ticket, and stamps.
 Books of accounting, drawings and other paper records,
electronic data processing tapes, wires, records, discs or
other software media (does not apply to blank recording or
storage media or prerecorded media).
 Credit cards and fund transfer cards.
 Aircraft
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Dwelling 89 policy (continued)
 Motor vehicles; other than motorized equipment used to
maintain the premises
 Boats; other than rowboats and canoes
o Coverage D (fair rental value if structure is uninhabitable and insured
can not collect normal rent on property due to damage – losses are limited
to 10% of dwelling coverage and is further limited to two weeks if civil
authority prevents use of undamaged property due to damage of other
near by property).
o Covered perils:
 Automatically covered perils include:
o Fire
o Lightning
o Internal explosion
 Extended peril coverages include:
o Riot
o Explosion
o Vehicles
o Smoke
o Hail
o Civil commotion
o Aircraft
o Windstorm
o Volcanic eruption
o Vandalism and malicious mischief (V&MM) (exclusions
include:
 Damage to glass parts of a building other than glass
building blocks
 Losses by theft [does cover building damages caused by
burglars]
 Vandalism to a building that has been vacant for more
than 90 consecutive days)
o Other coverages:
 Other Structures (provides that up to 10% of the Coverage A
limit may be used to cover losses to other structures. You may also
hear the term appurtenant structures used to describe other
structures.)
 Debris Removal (pays for the expense of removing debris
resulting from a loss that is covered by the policy.)
 Property Removed (covers loss to property that occurs while the
property is being removed to protect it from a covered peril. [This
is not the same as automatic removal, which extends personal
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




property coverage to property moved to another residence.] In the
Basic form, property removed is covered for five days.)
Reasonable Repairs (pays for the reasonable costs to make
necessary repairs to protect property from further damage
following a covered loss.)
Improvements, Alterations and Additions (provides coverage
for insureds who are tenants for improvements or alterations to the
dwelling made at the tenant’s expense. Up to 10% of the Coverage
C limit is available for this coverage.)
Fire Department Service Charge (pays up to $500 for fire
department charges incurred when the fire department is called to
save or protect covered property from a peril insured against. No
deductible applies to this coverage.)
Worldwide Coverage (provides 10% of the Coverage C limit for
personal property while it is located anywhere in the world. An
example is clothing that the insured takes on vacation.)
Rental Value (provides 10% of the Coverage A limit for loss of
fair rental value, payable at 1/12th of the 10% limit for each month
the described location is unfit for its normal use.)
o Exclusions:
 Losses resulting from ordinances or laws that require more
elaborate or expensive reconstruction or demolition than was
used in the original structure. (Replacing a dwelling’s regular
glass with safety glass is covered.)
 Losses resulting from earth movement, except for direct loss by
fire or explosion resulting from earth movement.
 Water damage in general, including flooding, water backing up
into a building and water leaking or seeping from below the
ground.
 Losses due to power interruption that occurs away from the
insured location.
 The insured’s failure to save and preserve property after a loss,
or to protect it from loss.
 War
 Nuclear hazard
 Losses caused by the insured or by someone else at the
insured’s direction.
o Conditions:
 Loss Settlement condition (states that covered property losses
are valued at actual cash value, but not to exceed the amount
necessary to repair or replace.)
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Dwelling 89 policy (continued)
 Our Option condition (gives the insurer the right to repair or
replace damaged property with equivalent property within 30
days of receiving the insured’s statement of loss.)
 Deductible clause (which is actually listed in the Declarations,
states that only the amount of loss over the deductible will be
paid, up to the limit of liability.)
 Pair Or Set condition (states that in the case of a loss to an
item that is part of a pair or set, the insurance company is not
obligated to pay the value of the entire set. The company may
either repair or replace part of the set or pay the difference
between the actual cash value of the property before and after
the loss.)
 Loss Payment condition (states that the loss will be paid
within 30 days after reaching an agreement with the insured.
 The Other Insurance condition states that if a loss is also
covered by other insurance, the insurance company will pay
only its proportion of the loss.)
 Recovered Property condition (states that if the insured or
insurer recovers property on which the insurer has made loss
payment, the other party must be notified. The insured may
have the property returned, in which case the loss payment will
be adjusted, or allow the company to have it.)


Broad form (also known as DP-2, DP 00 02) (is a named peril policy similar to
the Basic Form that lists the perils that dwellings, other structures and personal
property are insured against. The Broad form automatically covers all of the
standard and optional perils available on the Basic form—fire, lightning, the
extended coverage perils, and vandalism and malicious mischief.)
Basic Policy coverages included:
o Coverage A – Dwelling (same as DP-1)
o Coverage B – Other structures (same as DP-1)
o Coverage C – Personal Property (same as DP-1)
o Coverage D – Fair Market Value (same as DP-1)
o Coverage E – Additional Living Expenses (unique with DP-2 and DP-3)
(pays for additional living expenses the insured incurs after a covered
loss, including reasonable motel, dining, laundry, and transportation.
Covering the time needed to effect repairs or replacement. Limited to two
weeks if civil authority prevents use of undamaged property due to
damage of other near by property. Note: coverage can be added to DP-1
as an endorsement).
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Dwelling 89 policy (continued)
o Trees, Shrubs, and Other Plants (unique with DP-2 and DP-3) (pays up
to 5% of the Coverage A limit for damage to trees, shrubs, plants, or
lawns caused by a specified list of perils. Limited to $500.00 maximum per
tree, shrub or plant.)
o Collapse (pays for the collapse of the dwelling caused by a specific list of
perils.)
o Glass or Safety Glazing Materials (unique with DP-2 and DP-3) (pays for
the breakage of glass or safety glazing material and damage to covered
property caused by glass breakage.)
o Extended Property Removal Time (unique with DP-2 and DP-3) (extends
the time for property removal listed in DP-1 [5 days] to 30 days.)
o Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of
personal property are settled at actual cash value. Losses to dwelling and
other structures are settled at replacement cost [no deduction for
deprecation as long as insured carries insurance equal to 80% or more of
the full replacement cost of the building at time of loss.] If the insured
does not carry enough insurance to qualify for replacement cost coverage,
they will be paid:
 The actual cash value, or
 A portion of the replacement cost--- whichever is larger).

Broad form broadens some perils covered under the Basic form and adds
additional perils:
o Damage to covered property caused by burglars (does not apply to theft of
property)
o Weight of ice, snow or sleet
o Falling objects
o Freezing of plumbing, heating, air conditioning, or automatic fire
protective sprinkler systems and household appliances.
o Sudden and accidental tearing apart, cracking or burning of steam or hot
water heating, air conditioning, or automatic fire protective sprinkler
systems and water heaters.
o Sudden and accidental damage from artificially generated electrical
current (does not include damage to a tube, transistor or similar electrical
component).
o Accidental discharge of water or steam at the described location from
within a plumbing, heating, air conditioning, or automatic fire protective
sprinkler system or household appliance).
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Dwelling 89 policy (continued)
 The Broad form also expands coverage for two perils:
o The vehicles peril covers damage to fences, driveways and walks when
the vehicle is driven by someone who is not a resident of the insured’s
household. It also covers damage to other types of property when the
vehicle is driven by an insured or a resident of the insured’s
household.
o The smoke peril includes loss caused by fireplace smoke.

Miscellaneous:
o Ice (The weight of ice, snow or sleet peril does not cover damage to
awnings, fences, patios, pavement, swimming pools, foundations,
retaining walls, bulkheads, piers, wharves, or docks.)
o Falling Objects (The falling objects peril does not include damage to
awnings, fences, outdoor equipment, or outdoor radio and television
antennas, including their lead-in wires, masts and towers. Damage to
a building’s interior or its contents is covered only if the falling object
first damages the roof or an exterior wall.)
o Discharge and Overflow (The accidental discharge or overflow peril
does not include damage resulting from continuous or repeated
leakage/seepage, or freezing/damage to the system or appliance itself.)
o Burglar and Accidental Discharge (The burglars and accidental
discharge perils are not covered if the building has been vacant for
more than 30 consecutive days.)
o Freezing (Freezing is not covered when the dwelling is vacant,
unoccupied or under construction unless reasonable care was taken to
maintain heat in the building or to shut off the water and drain the
systems and appliances.)

Special form (DP-3, DP 00 03) (provides open peril coverage on the dwelling
and other structures, insuring against all risks of direct physical loss that are not
specifically excluded in the policy. Personal property is covered on a named peril
basis—the same perils listed in the DP-2.)

Under Coverages A and B, the Special form excludes:
o All property, losses and perils not covered due to limitations of the
general exclusions (as described earlier in relation to the Basic form) and
the insuring agreement.
o Any loss involving collapse, other than as provided in the Other
Coverages section.
o Freezing of a plumbing, heating, air conditioning, or automatic fire
protective sprinkler system or a household appliance, or overflow due to
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o
o
o
o
o
o
o
o
o
freezing while the dwelling is vacant, unoccupied or under construction,
unless reasonable care was taken to maintain heat in the building or to
shut off the water supply and drain the systems and appliances.
Freezing, thawing, pressure, or weight of water or ice to fences, pavement,
patios, swimming pools, foundations, retaining walls, bulkheads, piers,
wharves, or docks.
Theft in or to a dwelling or structure under construction, or theft of any
property that is not part of a covered building or structure.
Damage by wind, hail, ice, snow, or sleet to outdoor radio and television
antennas and aerials, including their lead-in wires, masts or towers, and
damage by these same perils to lawns, trees, shrubs, or plants.
Vandalism, malicious mischief, theft, and attempted theft if the dwelling
had been vacant for more than 30 consecutive days at the time of loss.
Constant or repeated seepage or leakage of water or steam over a period
of time from a plumbing, heating, air conditioning, or fire protective
sprinkler system or from a household appliance.
Gradual and expected losses, such as wear and tear, deterioration,
inherent vice, latent defect, mechanical breakdown, smog, rust, corrosion,
mold, wet or dry rot, and smoke from agricultural smudging or industrial
operations.
Discharge, dispersal, seepage, migration, release, or escape of pollutants,
such as smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.
Settling, shrinking, bulging, or expansion, including resulting cracking of
pavements, foundations, walls, floors, roofs, or ceilings.
Loss caused by birds, vermin, insects, and domestic animals.
Note 1: If a loss that is not otherwise excluded involves water damage from a
plumbing/heating, air conditioning, or fire protective sprinkler system or
household appliance, the policy covers the loss caused by water and the cost
of tearing out and replacing any part of a building necessary to repair the
system or appliance. Loss to the system or appliance itself is not covered.
Note 2: The DP-1, DP-2 and the DP-3 cover breakage of glass or safety
glazing material that is part of a building, storm door or storm window that
results from earth movement.
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Dwelling 89 policy (continued)
 Endorsements:
o Broad Theft coverage (adds coverage for theft of personal property to
the dwelling policy. May be written for owner-occupied dwelling or an
apartment [rental property] occupied by a tenant who is the named
insured. Covers theft, attempted theft, and Vandalism and Malicious
Mischief [V&MM] as the result of theft or attempted theft… not covered if
dwelling has been left vacant for more than 30 days prior to loss.
Property is covered on or off premises with separate limits for each…. Off
premises is only offered in conjunction with “on premises” policies. The
following property is NOT covered:
 Animals, birds and fish.
 Credit cards and fund transfer cards.
 Property while it is in the mail.
 Aircraft and parts, other than model or hobby aircraft.
 Property held as a sample or for sale or delivery after sale.
 Property separately described and specifically insured by other
insurance.
 Property of tenants, roomers and boarders that are not related to
an insured.
 Business property of an insured or residence employee.
 Property that is in the custody of a laundry, tailor or cleaner
(except for loss by burglary or robbery).
 Motor vehicles and their equipment (does not apply to vehicles
used to service the location or to assist the handicapped).
o Personal Liability and Medical Payments to Others (may be purchased
as an endorsement or separate policy.)
o Coverage L – Personal Liability (covers damages that the insured
becomes legally obligated to pay resulting from a covered bodily injury or
property damage claim).
o Coverage M – Medical Payments to Others (the insurer will pay all
necessary medical expenses incurred within three years of an accident
that causes bodily injury. This coverage applies to injuries:
 Sustained while the injured party is on the insured location with
the insured’s permission; or
 Sustained while the injured party is off the insured location if the
injury arises out of a condition:
 On the insured location
 Caused by the activities of the insured
 Caused by an animal in the insured’s care)
Note: There is a limit of $1,000 per person under this coverage. The
insured does not have to be legally liable for coverage to apply. Coverage
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does not apply to any injury sustained by the insured or the insured’s
family members.
o Additional Coverages
o Personal Liability And Medical Payments To Others (coverage also
includes three additional coverages: Claim Expenses, First Aid To
Others and Damage To Property Of Others.) Losses under these
coverages are paid in addition to the limit of liability.
Covered claim expenses include:
o Defense costs.
o Court costs charged against an insured in any suit the insurer
defends.
o Premiums on bonds that do not exceed the Coverage L limit
and that are required in a suit defended by the insurer.
o Reasonable expenses incurred by the insured at the insurer’s
request while assisting in the claim investigation or defense,
including up to $50 per day for lost earnings.
o Post judgment interest.
o Damage to Property of Others is limited to $1,000 (with losses
arising from hovercraft accidents specifically excluded).
Note: Expenses for first aid to others are covered when they are
incurred by the insured for bodily injury to others that is covered by
the policy. If the insured causes damage to the property of others, the
policy will provide replacement cost coverage of up to $500 per
occurrence.
o Exclusions (Bodily injury or property damage arising out of the following are
excluded under both Coverage L and Coverage M):
o War
o Losses that are expected or intended by the insured.
o Business pursuits or the rendering of or failure to render professional
services.
o Transmission of a communicable disease by an insured.
o Sexual molestation, corporal punishment or physical or mental abuse.
o Use, sale, or possession of controlled substances, other than the
legitimate use of prescription drugs.
o Rental of a premises that would not be eligible for coverage under the
policy.
o A premises owned by or rented to the insured or rented by the insured
to others that is not considered an insured location.
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Dwelling 89 policy (continued)
o Ownership, maintenance, use, loading, or unloading of most types of
watercraft, aircraft or vehicles.
o Additional exclusions to Coverage L (include liability):
o For damage to property owned by an insured.
o For damage to property rented to, occupied or used by, or in the care
of an insured (unless the loss is caused by fire, smoke or explosion).
o For losses that would be covered under a Workers Compensation or
similar law.
o For loss assessments charged against the insured as a member of an
association, corporation or community of property owners.
o Assumed under most contracts or agreements.
o For injury to the insured or any relative or minor who resides in the
same household.
o Coverage M does not apply to bodily injury:
o To a residence employee that occurs off the insured location and does
not arise out of or in the course of work the employee performs for the
insured.
o Due to any nuclear hazard.
o To any person other than a residence employee who regularly resides
on any part of the insured location.
o Other Optional Dwelling Endorsements:
o Automatic Increase In Insurance: Provides an annual increase in the
Coverage A amount of 4%, 6% or 8%.
o Dwelling Under Construction: When the intended occupant of a
dwelling under construction is the named insured, this endorsement is
attached to the Dwelling policy to provide coverage. The limit of
liability that applies at any given time is a percentage of the policy
limit based on the value of the partially completed home. The available
policy limit increases as construction of the home progresses.
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Chapter 8 :
Homeowners
Homeowners Policies (multi-line or package policies – provides both Property and
Liability coverage):
 Section I (property insurance):
o Coverage A – Dwelling (same as DP-1) (insured for non-business purposes
only, except incidental business described earlier).
o Coverage B – Other structures (same as DP-1)
o Coverage C – Personal Property (provides coverage for personal property
owned or used by an insured while it is anywhere in the world. At the
insured’s request, coverage will also apply to property owned by others while
in the part of the residence premises occupied by the insured or to the
property of a guest or residence employee while in any residence occupied by
the insured.
Property normally kept at a residence other than the residence premises
shown in the Declarations is covered for up to 10% of the Coverage C limit or
$1000, whichever is greater. However, this restriction does not apply to
property being moved from the residence premises to a new principal
residence or while living in a temporary residence while repairs are made to
principle residence.


Excluded Classes of Property:
 Animals, birds or fish
 Motorized vehicles or aircraft, including equipment and
accessories.
 Property of boarders
 Property in an apartment held for rental by the insured.
 Paper or electronic records containing business data, except
for prerecorded programs available on the retail market.
 Property rented to others off the residence premises.
 Credit cards
Special Limits Of Liability Certain classes of personal property have
special limits of liability that are lower than the overall policy limits
that apply to personal property. These coverage restrictions are
designed to encourage insureds with personal property of especially
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high value) or of a hard-to-value nature to insure this property on a
specific basis. Personal Property with Special Limits of Liability are:
 $200 (Money or related property, coins and precious metals
[not applicable to tableware]).
 $1,500 (Securities, manuscripts and other valuable paper
property [includes the cost to research, replace or restore the
information from the lost or damaged property]).
 $1,500 (Watercraft, including trailers and equipment).
 $1,500 (Trailers not used with watercraft).
 $2,500 (Property on the residence premises used for business
purposes).
 $500 (Property away from the residence premises used for
business purposes).
 $1,500 (Electronic apparatus while it is in, on or away from a
motor vehicle [such as a car phone or portable CD player]
provided the apparatus can be operated by both the vehicle’s
power and other power sources).
 $1,500 for theft of jewelry, watches, furs, and precious/semi
precious stones.
 $2,500 for theft of firearms.
 Limits for Theft Losses Only:
 $1,500 (jewelry, watches, furs, and precious/semi-precious
stones).
 $2,500 (sliver, gold, or pewterware)
 $2,500 (firearms)
 Property Not Covered (Hovercraft/parts and water or steam – [water
or steam are not considered property])
o Coverage D – Loss of use
 Additional Coverages (included in all Homeowners forms. Policy limit
applies unless otherwise noted.)
 Debris Removal: (Pays expenses to remove):
o Debris from covered property if a covered peril caused
the loss.
o Ash or other particles from a volcanic eruption that
caused direct loss to covered property.
o Fallen trees provided: The tree is not otherwise covered
under the policy, the tree damages a covered structure,
a covered peril caused the tree to fall (an additional 5%
of policy limit may be added for overall damages with a
per tree limit of $1,000.)
 Reasonable Repairs: (Pays the reasonable costs incurred by
the insured for repairs necessary to protect covered property
from further loss after being damaged by a covered peril.)
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Trees, Shrubs And Other Plants: (Covers trees, shrubs and
plants on the residence premises for loss by fire, lightning,
explosion, riot, aircraft, vehicles not owned or operated by a
resident, and vandalism or malicious mischief. Coverage is
limited to 5% of the Coverage A limit or a maximum of $500
for any one tree, shrub or plant. [In the HO-4 and HO-6, the
limit is 10% of the Coverage C limit or a maximum of $500 for
any one tree, shrub or plant.][Coverage D’s limit is $1,000
and also covers the removal of fallen trees that block access to
driveway or handicapped ramp at an insured’s residence]).
Fire Department Service Charge: (Pays up to $500 when
called to save or protect covered property from a covered
peril. No deductible applies to this coverage. This coverage is
not available for property located within the limits of the city
furnishing the fire department service.)
Property Removed: (Covers property against direct loss from
any peril while being removed from a premise endangered by a
covered peril, and for up to 30 days while removed.)
Credit Card, Fund Transfer Card, Forgery, And Counterfeit
Money: (Coverage does not apply to loss arising out of
business use or the dishonesty of an insured.)
 Pays up to $500 for the insured’s legal obligation to pay
losses resulting from:
o Theft or unauthorized use of these cards
o Forgery or alteration of the insured’s checks
o The insured’s acceptance in good faith of
counterfeit money.
Loss Assessment: (Pays up to $1,000 for the insured’s share of
a loss assessment charged against the insured during the
policy period by a corporation or association of property
owners as a result of direct loss to the property owned by all
members collectively and caused by a covered peril. For
instance, this coverage might pay a condominium owner’s
assessment for repair of a community clubhouse that was
damaged by lightning. [deductible only applies once regardless
of the number of assessments in a single occurrence]).
Glass Or Safety Glazing Material: (Covers the breakage of
glass that is a part of a building, including windows and storm
doors.)
Ordinance Or Law Coverage: (This additional coverage only
applies in states that have adopted the 1994 coverage
revisions. It allows payment of up to 10% of the Coverage A
limit for the increased cost to repair or rebuild a dwelling or
other structure to conform with applicable building or land use
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codes. This coverage is provided as an additional amount of
insurance.)
Additional Coverages in Selected Homeowners Forms (The
Following coverages are included in the policy limit unless otherwise
noted.):
 Collapse (HO-2, HO-3, HO-4, HO-5, HO-6) Pays for direct
physical loss to covered property involving collapse of a
building caused by a covered peril or one of the additional
perils listed for this Additional Coverage.
 Landlord’s Furnishings (HO-2, HO-3 and HO-5) Provides
$2,500 of coverage for loss to appliances, carpeting and other
household furnishings in an apartment on the residence
premises that is rented or held for rental by the insured.
 Building Additions and Alterations (HO-4 only) Covers
fixtures, installations and improvements made or acquired at
the insured’s expense. Coverage is limited to 10% of the
Coverage C amount.
 Grave Markers (HO-2, HO-3, HO-4, HO-5, HO-6) Coverage
C – limited to $5,000 for damage caused by covered perils to
grave markers or mausoleums.
 Ordinance Or Law Coverage (HO-2, HO-3, HO-4, HO-5, HO6) Pays up to 10% of the Coverage A limit for increased cost to
repair or rebuild a dwelling or other structure to conform with
local codes.
Basic Perils (Vandalism or malicious mischief losses to property are
not covered if dwelling has been vacant for 60 or more consecutive
days):
o Fire
o Lighting
o Windstorm or Hail (interior damage is only covered when an
opening is made in the building by peril).
o Explosion
o Riot or Civil Commotion
o Aircraft
o Vehicles (water craft and related equipment are covered only
when inside of fully enclosed buildings. Vehicle damage caused
by insured is not covered.)
o Smoke (including Puffback) (Smoke from fireplaces or
agricultural smudging or industrial operations is not covered.)
o Vandalism & Malicious Mischief
o Theft (or attempted theft) (Excludes: Theft by insured,
dwelling under construction, rental property, water
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craft/trailers/campers while off premises, mysterious
disappearances).
o Volcanic Eruption
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Broad Named Perils (applies to HO-2, HO-3, HO-4, and HO-6 only)
(no Coverage A or B with HO-4):
o Falling objects (Note: damage to a building’s interior or
contents by a falling object is covered only if the falling object
first damages the roof or an exterior wall.)
o Weight of ice, snow or sleet (Excluding damage to awnings,
fences, patios, pavement, swimming pools, foundations,
retaining walls, bulkheads, piers, wharves, or docks.)
o Accidental discharge or overflow of water or steam from
within appliances or plumbing or related systems; does not
include discharge or overflow of water from a sump.
o Sudden and accidental rupture of a heating, air conditioning,
fire protective sprinkler, or hot water heating system.
(Additions for HO-6: accidental discharge or overflow of water
or steam peril includes coverage for the costs to tear out and
replace any part of the building necessary to repair the faulty
system or appliance.)
o Freezing of plumbing or related systems (Excludes losses that
occur while the residence is unoccupied unless the insured has
either made an effort to maintain heat in the house or has shut
off the water supply and drained the system and appliances of
water.)
o Sudden and accidental damage from artificially generated
electrical current (Excluding damage to a tube, transistor, or
similar electrical component.)
Expanded coverages include:
o The vehicles peril includes loss to a fence, driveway or walk
caused by vehicle owned or operated by a person who lives in
the insured household.
o The smoke peril includes loss caused by fireplace smoke.
Exclusions:
o Enforcement of law or ordinance regulating construction,
repair or demolition.
o Earth movement, including earthquake and mine subsidence.
o Water damage, including flooding and overflow from a sump
pump.
o Power interruption that takes place off the residence premises
o The insured’s failure to save and preserve property after a
loss, or to protect it from loss.
o War
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o Nuclear hazard.
o Losses caused intentionally by the insured or by someone else
at the insured’s direction.
Conditions:
o Loss Settlement condition (similar to the one found in the
Dwelling Broad and Special forms. Losses are paid at actual
cash value, but not more than the cost to repair or replace for
the following:
 Personal property.
 Awnings, carpeting, appliances, outdoor antennas, and
outdoor equipment.
 Structures that are not buildings.
 Losses to the dwelling and other structures are paid at
replacement cost as long as the insured carries an
amount of insurance equal to or greater than 80% of
the building’s replacement cost. If the insured carries
less than 80% of replacement cost, they will be paid:
the actual cash value of the loss, or; a proportion of the
replacement cost, whichever is larger as long as the
amount is within the policy limit. The formula used to
determine proportional replacement cost is:
(Insurance carried / Insurance required) X Amount of
loss = Amount of reimbursement


Replacement cost is only available if the actual repair
or replacement is complete, unless the amount payable
is less than a specified amount.
Limits of Liability, Deductible for all forms except HO-4 and
HO-6: (Coverage A being Primary Limit) Because the
Homeowners policy is a package policy, the policy requires a
specific minimum limit of liability for each of the major
property coverages, which is based on the primary amount of
insurance selected by the insured. The following shows how
these limits of liability are determined:
o Coverage A -- Primary limit
o Coverage B -- 10% of Coverage A limit
o Coverage C -- 50% of Coverage A limit
o Coverage D -- HO-2 and H0-3: 20% of Coverage A
limit, and last HO-8:10% of Coverage A limit
Limits of Liability, Deductible for HO-4 and HO-6:
(Coverage C being Primary Limit)
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o Coverage A -- Not applicable (except for $1,000
Coverage A limit in H0-6)
o Coverage B -- Not applicable
o Coverage C -- Primary limit
o Coverage D -- HO-4: 30% of Coverage C limit HO-6: - 50% of Coverage C limit

The Homeowners form also provides for a deductible that
applies to coverage under Section I. Typical deductibles are
$100, $250 or $500; other deductible amounts may also be
available.
Section I Endorsements:
o Special Personal Coverage
 Jewelry
 Furs and fur-trimmed garments
 Cameras, projectors, films, and equipment
 Musical instruments
 Silverware
 Golf equipment
 Fine arts
 Postage stamps
 Coins
o Personal Property Replacement Cost endorsement
o Permitted Incidental Occupancy endorsement
o Earthquake endorsement
o Home Day Care Coverage endorsement
o Section II (Direct and indirect liability and medical coverage – same coverage for
all homeowner forms):
o Coverage E – Personal Liability (non business liability)
o Bodily injury (bodily harm, sickness or disease, including care, loss
or services and death)
o Property Damage (physical injury to or destruction of tangible
property, including the loss of use)
o Insured locations include: (premises defined in the policy
Declarations, new residence [including while under construction] ,
temporary residence locations, vacant land [owned or rented], and
cemetery lots or vaults)
o Defense costs (real or groundless -- up to policy limits)
o Standard policy limits (for BI and PD is $100,000 per occurrence)
o Coverage F – Medical Payments to Others (sometimes called Guest
Medical -- expense covered up to 3 years after bodily injury incident –
regardless of legal liability) coverage applies to:
o Injuries on location with insured’s permission
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o Injuries off location arising out of the following conditions:
 On location
 Off location but near by insured’s property location
 Caused by insured’s activities
 Caused by insured’s employee
 Caused by insured’s animal or animal under insured’s care
o Exclusions (applies to Coverage E and Coverage F):
 Liability for injury or damage that is expected or intended by
the insured.
 BI or PD arising out of business pursuits or the rendering of or
failure to render professional service.
 BI or PD arising out of the rental of any part of the premises,
except for the rental of part of an insured location as a
residence.
 Liability arising out of ownership, maintenance, use, loading,
or unloading of aircraft, watercraft and motor vehicles.
 Liability arising out of war and war-like acts, such as
insurrection and rebellion.
 Liability arising out of the transmission of a communicable
disease by an insured.
 Liability arising out of sexual molestation, corporal
punishment or physical or mental abuse.
 Liability arising out of the use, sale, manufacture, delivery,
transfer or possession of a controlled substance (does not
apply to the legitimate use of prescription drugs).
o Additional exclusions:
 for Coverage E only:
 For any loss assessment charged against the insured as
a member of an association, corporation or community
of property owners.
 Assumed under a contract or agreement, except
contracts that relate directly to the insured location or
contracts where the liability of others is assumed prior
to an occurrence.
 For property damage to property owned by, used by or
in the care of the insured.
 For BI or PD for which the insured is covered under a
Nuclear Energy Liability policy.
 for Coverage F only:
 BI to a residence employee that occurs off the insured
location and does not arise out of or in the course of
work the employee performs for the insured.
 BI due to nuclear reaction, radiation or radioactive
contamination, including any consequential injuries.
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o
o Additional Coverages:
o Claim Expenses (Reimburses the insured for expenses… these
expenses are paid in addition to the limit of liability).
 Defense Costs
 Premiums for Bonds required in a suit the insurer defends
Post judgment interest.
 Reasonable Expenses incurred by the insured at the
company’s request, including loss of earnings of up to $250.00
per day.
 First Aid Expenses (paid as part of policy limit – pays up to
$500 per occurrence regardless of liability in addition to
Section I coverages for property damaged or destroyed).
 Loss Assessment (pays up to $500.00 for loss assessment
covered under Section II).
 Maximum payable for lost time ($250 a day)
o Section II Endorsements:
 Watercraft endorsement
 Business pursuits endorsement (covers business activities
away from residence premises)
 Personal Injury endorsement
Section I and Section II Conditions:
o Policy Changes
o Assignment
o Concealment or Fraud
o Liberalization
o Subrogation
o Policy Period
o Cancellation
Homeowner Eligibility Requirements (stricter definition than dwelling):
o Named insured must be the occupant (either owner or renter of dwelling or
condo).
o Home can not contain more than two families or two additional borders per
family.
o Unless they are renters, they cannot purchase coverage for “personal property
only.”
o Dwelling must be used exclusively as a residence (except for certain
Incidental businesses, offices, professional or private schools, or studios.)
o Farms can not be covered with this policy.
o Mobile homes are only covered when the Mobile Home endorsement is
attached.
o Dwellings under construction, secondary, or seasonal residences are eligible.
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o Homes being purchased on installment plans or being occupied under life
estates arrangements are eligible.
o HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8 (provides identical liability
coverage and the only coverage that varies is the Property coverage based on
form selected.):
o The HO-2 (HO 00 02) (is the Broad form and provides broad
coverage for the dwelling and personal property. The covered perils
are similar to those provided by the DP-1 with the Extended Coverage
perils and V&MM coverage. Breakage of glass and theft are also
covered. In addition, it broadens certain perils and adds other perils.)
o The HO-3 (HO 00 03) (is the Special form and provides open peril
coverage for loss to the dwelling and other structures, unless
specifically excluded in the policy. It provides broad named peril
coverage for personal property, which is identical to the HO-2’s
coverage of personal property. Coverage A and B exclusions under
HO-3 include:
 Any loss involving collapse, other than as provided in the
Other Coverage section.
 Freezing of a plumbing, heating, air conditioning, or automatic
fire protective sprinkler system or a household appliance, or
overflow due to freezing while the dwelling is vacant,
unoccupied or under construction, unless reasonable care was
taken to maintain heat in the building or to shut off the water
supply and drain the systems and appliances.
 Freezing, thawing, pressure, or weight of water or ice to
fences, pavement, patios, swimming pools, foundations,
retaining walls, bulkheads, piers, wharves, or docks.
 Theft in or to a dwelling or structure under construction,
including theft of materials and supplies used in construction.
 Vandalism and malicious mischief when the dwelling had been
vacant for more than 30 consecutive days at the time of loss
(does not apply to dwellings under construction).
 Gradual and expected losses, such as wear and tear,
deterioration, inherent vice, latent defect, mechanical
breakdown, smog, rust, corrosion, mold, wet or dry rot, and
smoke from agricultural smudging or industrial operations.
 Discharge, dispersal, seepage, migration, release, or escape of
pollutants, such as smoke, vapor, soot, fumes, acids, alkalis,
chemicals, and waste (does not apply when caused by a peril
covered under Coverage C).
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Settling, shrinking, bulging, or expansion, including resulting
cracking of pavement, foundations, walls, floors, roofs, or
ceilings.
Loss caused by birds, vermin, insects, and animals owned by
the insured.
Note: If a loss that is not otherwise excluded involves water damage
from a plumbing, heating, air conditioning or fire protective sprinkler
system or household appliance, the policy covers the loss caused by
water and the cost of tearing out and replacing any part of a building
necessary to repair the system or appliance. Loss to the system or
appliance itself is not covered.
o The HO-4 (HO 00 04) (is the Tenants form and insures tenants
personal property-broad coverage similar to HO-2 with no coverage
for the dwelling.)
o The HO-5 (HO 00 05) (Covers both dwelling and property on open
peril basis for both Dwelling and Personal Property – covers anything
not specifically excluded in the policy)
o The HO-6 (HO 00 06) (is the Condominium form, provides broad
coverage similar to HO-2 on the personal property of condominium
owners with very limited dwelling coverage.)
 Limited Coverage A:
 Alterations, appliances, fixtures, and improvements that
are part of the building containing the residence
premises
 Items of real property pertaining solely to the residence
premises
 Property that is the insured’s responsibility under a
condo association agreement
 Structures other than the residence premises owned
solely by the insured at the location of the residence
premises
 The standard Coverage A limit for the HO—6 is
$1,000.
o The HO-8 (HO 00 08) (is the Modified Coverage form, is designed for
older homes with replacement values that may far exceed their market
values. It provides basic coverage on the dwelling and personal
property that is similar to the DP-1 with the Extended Coverage perils
and V&MM coverage, but also includes certain restrictions on
valuation of losses. In many areas, the HO-8 is no longer available.
Only insures against basic perils.)
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o Overview of Homeowners forms coverages:
 HO-2: Broad Dwelling and broad Personal Property
 HO-3: Special Dwelling and Broad Personal Property
 HO-4: Broad Personal Property
 HO-5: Open peril basis for both Dwelling and Personal
Property
 HO-6: Broad Personal Property
 HO-8: Basic Dwelling and Personal Property
o Overview of Perils Homeowners Policies Insures Against:
 HO-2: fire, lighting, windstorm, explosion, riot or civil
commotion, aircraft, vehicles, smoke, vandalism & malicious
mischief, theft, volcanic eruption, falling objects, weight of ice
& snow or sleet, discharge of water or steam, freezing of
plumbing & related systems, and artificially generated electric
current.
 HO-3: Dwelling – open peril (risk of loss not otherwise
excluded are covered), personal property: fire, lighting,
windstorm, explosion, riot or civil commotion, aircraft,
vehicles, smoke, vandalism & malicious mischief, theft,
volcanic eruption, falling objects, weight of ice & snow or
sleet, discharge of water or steam, freezing of plumbing &
related systems, and artificially generated electric current.
 HO-4: fire, lighting, windstorm, explosion, riot or civil
commotion, aircraft, vehicles, smoke, vandalism & malicious
mischief, theft, volcanic eruption, falling objects, weight of ice
& snow or sleet, discharge of water or steam, freezing of
plumbing & related systems, and artificially generated electric
current.
 HO-5: open peril basis for both Dwelling and Personal
Property.
 HO-6: fire, lighting, windstorm, explosion, riot or civil
commotion, aircraft, vehicles, smoke, vandalism & malicious
mischief, theft, volcanic eruption, falling objects, weight of ice
& snow or sleet, discharge of water or steam (includes costs to
tear out or replace area of the building to repair system or
appliance), freezing of plumbing & related systems, and
artificially generated electric current.
 HO-8: fire, lighting, windstorm, explosion, riot or civil
commotion, aircraft, vehicles (does not include losses to
fences, driveways or walks caused by vehicles owned or
operated by residents of insured household) , smoke (does not
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include damage from fireplace smoke), vandalism & malicious
mischief, theft, and volcanic eruption.
o Overview of Additional Coverages:
 HO-2: debris removal, reasonable repairs, trees/shrubs &
other plants, fire department service charge, property removal,
credit card/fund transfer card/forgery & counterfeiting money,
loss assessment, glass/safety glazing material, collapse, and
landlord’s furnishings.
 HO-3: debris removal, reasonable repairs, trees/shrubs &
other plants, fire department service charge, property removal,
credit card/fund transfer card/forgery & counterfeiting money,
loss assessment, glass/safety glazing material, collapse, and
landlord’s furnishings.
 HO-4: debris removal, reasonable repairs, trees/shrubs &
other plants, fire department service charge, property removal,
credit card/fund transfer card/forgery & counterfeiting money,
loss assessment, glass/safety glazing material, collapse, and
building additions & alterations.
 HO-5: open peril basis for both Dwelling and Personal
Property.
 HO-6: debris removal, reasonable repairs, trees/shrubs &
other plants, fire department service charge, property removal,
credit card/fund transfer card/forgery & counterfeiting money,
loss assessment, glass/safety glazing material, and collapse.
 HO-8: debris removal, reasonable repairs, trees/shrubs &
other plants, fire department service charge, property removal,
credit card/fund transfer card/forgery & counterfeiting money,
loss assessment, and glass/safety glazing material.
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Chapter 9 : Auto
Personal Auto Insurance
General Types of Coverage:
 Liability (damages to others property resulting from an accident while using a
motor vehicle).
 Damages to motor vehicle (fire, theft, or accident).
PAP (Personal Auto Policy) (policy consists of Declarations Page and Policy Form)
Policy Forms (each has its own insuring agreement, exclusions and conditions).
 Part A (Liability Coverages – may be written alone or with other coverages).
 Part B (Medical Payments Coverages – is optional but requires Part A
coverage).
 Part C (Uninsured Motorists Coverages– is optional but requires Part A
coverage and is subject to varying individual state laws).
 Part D (Collision and Other Than Collision [physical damage] -- may be written
alone or with Liability coverages).
Definitions
 You and Yours (the named insured and their spouse – spouse must reside in the
same household as the insured. In cases where there is a legal separation; the
spouse remains insured under the same policy for the lesser of:
o 90 days
o The effective date of a new policy on the spouse.
o The next effective date of the existing policy.)

Family Member (any person residing in the household who is related by blood
or by law [ward, adoption, and foster children]).

Bodily Injury (bodily harm, sickness/disease, and/or death resulting from same).

Occupying (means: in a vehicle, on a vehicle, or getting in/on/out/off a vehicle).

Property Damage (means: physical injury to, destruction of, and/or loss of use of
tangible property).
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
Named Insured’s Covered Auto includes:
o Any vehicle listed in the Declarations (limited to private passenger autos
[four wheel motor vehicles, pickup trucks, and vans under a certain weight
and not used for business – farms and ranches are NOT considered a
business] which are owned, purchased during the policy period or leased [for
6 months or more]. Replacement vehicles purchased during policy period are
covered for liability, medical payments, and uninsured motorists
automatically. Additional vehicles must be added to coverage within 14 days
of purchase. If no physical damage coverage exists in the policy it may be
added within the first 4 days after acquiring the vehicles and losses during the
first fours days are subject to a $500.00 deductible).
o Any trailers owned by the named insured (includes farm wagons and farm
implements towed by vehicles listed in the Declarations).
o Other autos or trailers used as temporary substitutes for listed vehicles
currently broken down, under repair, servicing, loss or destroyed.
Part A – Liability Coverage (covers insured for bodily injury or property damages
related to auto accident that are the legal responsibility of the insured).
 Who is the insured?
o Named insured and their immediate family while using any motor vehicle
o Anyone using an insured’s car with permission (or had a reasonable belief
they had permission).
o Other people or organizations to the extent that they share responsibility
and liability with the insured.
o Other people or organizations for their liability arising out of an
accident involving any auto or trailer used for the benefit of other people
or organization by the insured or a family member. (if the auto or trailer
is owned by the other people or organization the personal policy of the
insured does not provide coverage – coverage is provided by the policy
owned by the other people or organization).
 Supplementary Payments (pays in addition to policy liability limit):
o Up to $250 for cost of bail bonds.
o Premiums on appeal bonds or bonds to release attachments.
o Post judgment interest (per judgment is included as part of liability limit).
o Up to $200.00 per day for loss of earnings (missed work time related to
company requested hearings and/or trials).
o Other reasonable expenses incurred due to request of company.

Exclusions:
o BI or PD caused by the insured intentionally.
o Damage to property owned or being transported by the insured.
o Damage to property rented to, used by or in the care of the insured.
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o BI to an insured’s employees (these losses are covered under Workers
Compensation)
o Liability arising out of an insured’s ownership or operation of a vehicle
used as a public or livery conveyance; such as a taxi. (This exclusion does
not apply to a share-the-expense carpool.)
o Liability arising while the insured’s auto is being used in an auto business
o Use of a vehicle without permission (does not apply to family members
using covered autos owned by the insured)
o BI or PD for which an insured is covered under a Nuclear Energy Liability
policy.
o Motorized vehicles with fewer than four wheels or designed for use off
public roads (does not apply to non-owned golf carts).
o Vehicles other than covered autos that are owned by the named insured or
furnished for the named insured’s regular use.
o Vehicles other than covered autos that are owned by family members or
furnished for their regular use (does not apply to the named insured)
o Vehicles used in prearranged racing or speed contests.

Limits of Liability (ex. 30/60/30 -- $30,000 per person for bodily injury /
$60,000 per accident for bodily injury collectively per incident / $30,000 per
accident for property damage).

Financial Responsibility Laws (most states require that drivers can prove they
can meet a minimum financial liability resulting from an accident – this is
normally accomplished through the purchase of an insurance policy).

Out of State Coverage Provision (in the case of an out-of-state accident,
provision modifies the policy to meet the minimum state financial requirements in
that state).

Other Insurance clause (Liability coverage states that the company will pay only
its share of a loss that is also covered by other insurance)
Part B – Medical Payment Coverage:
 Who Is Insured (the named insured and/or family members [while occupying a
motor vehicle designed for use on public roads or trailer], and passengers [any
other person while occupying the named insured’s covered vehicle] injured in an
accident regardless who is at fault.)
 Coverages (reasonable expenses for necessary medical and funeral services
incurred within 3 years of the accident.)
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Part B – Medical Payment Coverage (continued):
 Exclusions: There is no coverage for injuries:
o Sustained while occupying a motor vehicle with fewer than four wheels.
o Sustained while using a covered auto as a public or livery conveyance.
o That would be covered under Workers Compensation.
o Sustained while the insured is occupying a vehicle without the reasonable
belief that he or she is entitled to do so (Exception: does not apply to
family members using covered autos owned by the insured).
o Sustained while occupying an uninsured auto that is owned by a family
member or furnished for the family member’s regular use (Exception:
does not apply to the named insured).
o Sustained while occupying an uninsured auto that is owned by the insured
or furnished for his or her regular use.
o Sustained while occupying a vehicle that is being used in the insured’s
business.
o Sustained while occupying a vehicle located for use as a residence or
premises.
o Sustained during prearranged racing or speed contest.
o Caused by war or nuclear hazard.


Limits of Liability (single limit of liability that applies to all injuries sustained
by each person injured in any one accident. Typical limits are $1,000, $2,000,
$5,000 or $10,000).
Other Insurance Clause (Liability coverage states that the company will pay
only its share of a loss that is also covered by other insurance).
Part C – Uninsured Motorist (UM) Coverage (In most states this coverage indemnifies
the insured from bodily injury only resulting from an accident with an uninsured
motorist. Punitive damages are excluded from this coverage. Note: some states offer
property damage coverage in addition to bodily injury coverage, this is normally added
through an endorsement to the policy):
o Uninsured Motor Vehicle defined:
o Has no liability coverage at the time of the accident.
o Does not carry the minimum amount of liability coverage required by the
state.
o An insured or family member is involved in a hit and run accident where
the at-fault driver can not be identified.
o Has invalid Liability coverage at the time of the accident due to the
insurer insolvency or the insurer denies coverage.
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Part C – Uninsured Motorist (UM) Coverage (continued)
o Indemnification: To be indemnified under Part C the following conditions must
be met:
o The loss must be caused by an auto accident and involve bodily injury (in
most states).
o The loss must be sustained by an insured.
o The insured must be legally entitled to recover for BI damages.
o The uninsured vehicle must meet the definition of an uninsured vehicle.

Who is the insured?
o Named insured and their immediate family.
o Anyone occupying the named insured’s covered auto.
o Any person entitled to recover damages because of BI caused by an
uninsured motorist to the named insured, family members or passengers in
a covered auto.

Exclusions – (losses that are not covered under Part C):
o Losses for BI sustained by an insured while occupying or when struck by
an auto that is owned by the insured, but not insured for Uninsured
Motorists Coverage under the policy.
o Losses for BI sustained by a family member while occupying or when
struck by an auto owned by the named insured that has primary Uninsured
Motorists Coverage under another policy.
o Losses that are settled without the insurer’s consent.
o Losses that occur when the auto is being used as a public or livery
conveyance.
o Losses that occur while the insured is using an auto without the
reasonable belief that he or she is entitled to do so (does not apply to
family members using covered autos owned by the insured).
o Claims which may result through disability policies and workmen’s
compensation insurance are prohibited by the policy.

Limits of Liability (similar to Part A) and the insurance company will not:
o Make duplicate payments for losses the legally responsible person or paid
on their behalf
-- Or -o Pay any part of losses that could be covered under workers compensation
or disability benefits law.

Other Insurance (similar to Parts A and B) In the case where the insured has
multiple policies the Payout is limited to the highest single policy limit for an
uninsured motorist.

Arbitration (similar to Arbitration condition previously discussed.)
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Part D – Coverage for Damage to Your Auto (commonly known as Physical Damage
coverage):


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Covered damages include direct and accidental losses to the named insured’s
vehicle or any non-owned vehicle for losses resulting from Collision and Other
Than Collision (sometimes referred to as OTC or Comprehensive). Does not
cover property in the vehicle.
Collision and Other Than Collision may be purchased separately or together
and represent the amounts of Open Peril coverage to the named insured’s vehicle.
When an insured has more than one vehicle, coverage may vary on a vehicle-byvehicle basis.
o Collision (defined as the impact of a covered auto with another object or
vehicle or the upset of a vehicle).
o Other Than Collision (pays for any accidental loss not specifically
excluded in the policy).
Covered perils include:
 Missiles or falling objects
 Fire
 Theft or larceny
 Explosion or earthquake
 Windstorm
 Hail, water or flood
 Malicious mischief or vandalism
 Riot or civil commotion
 Contact with a bird or animal
 Breakage of glass
Non-owned vehicle coverage (in the case of a named insured having multiple
policies or covered vehicles; losses involving a non-owned vehicle are cover at
the highest level of existing policies).
Transportation Expenses (pays $20.00 per day to a maximum of $600.00 for
accident related loss of use of his/her own or non-owned vehicle – subject to a 48
hour waiting period in the case of theft of vehicle – for other types of losses there
is a 24 hour waiting period and extends through a reasonable time to repair or
replace the vehicle).
Exclusions:
o Losses to an auto used for public or livery conveyance.
o Losses due to wear and tear, freezing, mechanical or electrical breakdown
or road damage to tires (does not apply if damage results from theft).
o Losses due to war or nuclear perils.
o Losses to all types of audio, visual and date electronic equipment and
accessories not mounted to the vehicle (does not apply to electronics
required for the operation of the vehicle).
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o Losses due to destruction or confiscation by government or civil
authorities.
o Losses to insured owned camper body, trailer or motor home not listed in
the Declarations.
o Losses to non-owned auto used by the insured or family member without
reasonable belief that he or she is entitled to do so.
o Losses to awnings, cabanas or equipment designed to create additional
living space.
o Losses to custom furnishing or equipment in a pick-up or van (does not
apply to caps, covers or bed-liners).
o Losses to radar or laser detection equipment.
o Losses to non-owned vehicles being used in any business .
o Losses to any auto being used in prearranged racing or speed contest.
o Losses to auto rented by the named insured or family member if rental
agency is prohibited from loss recovery by state law or rental agreement.

Other Provisions
o Physical damages limited to: actual cash value, amount needed to repair
or replace property – whichever is less subject to deductibles.
o No Benefit to Bailee Condition: bailee can not benefit from insurance if
loss occurs to vehicle while in their possession.
Parts E and F – Conditions (applies to whole policy):
 Part E -- Duties After an Accident or Loss (similar to other Property and
Liability policies.)
 Part F – General Provisions (describes obligations of insured and insurer as
well as establishes conditions for coverage.)
o Covered losses must occur within the policy territory and policy period.
o Legal Action: Insured may not take legal action against an insured until
all policy terms have been complied with (Under Part A legal action can
not be taken until the insurer agrees in writing that the insured has an
obligation to pay or unless the amount of such an obligation has been
established in court of law. No person or organization may take action
against the insurer to determine whether or not an insured is liable for a
loss).
o Policy Terms may not be Changed or Waived except in writing.
o Subrogation rights: losses caused by a person having a reasonable belief
of being entitled to use the auto (included in all coverages except Physical
Damage).
o Termination of policy:
 Insured: must give advanced notice in writing, send in the policy
and specific date to end policy.
 Insurer: must provide advance notice of cancellation (or renewal –
requires a minimum of 20 days notice) – 10 days advanced notice
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Parts E and F – Conditions (continued)
for nonpayment during the first 60 days of a new policy --- 20 days
in all other cases.
 Cancellation (after 60 day period on new policies): only reasons a
policy can be cancelled are: Nonpayment, Material
misrepresentation when obtaining a policy, or a regular operator
of a vehicle having a license suspended.
Underinsured Motorist Coverage (pays the insured the difference between the actual
damages for bodily injury and the amount of the Liability coverage of the driver that is at
fault within the limits of the Underinsured Motorist Coverage).
Personal Auto Policy Endorsements:
 Joint Ownership Coverage (covers two or more persons [other than husband
and wife] who live in same household).
 Towing and Labor Costs (basic limit of $25.00 for towing and labor directly
related to towing – higher limits are available).
 Miscellaneous Type Vehicle (covers motorcycles, mopeds, and recreational
vehicles [golf carts and motor homes]).
 Extended Non-owned Coverage for Named Individuals (expands coverage of
the Personal Auto policy concerning the driving of other individuals’ vehicles).
 Optional Limits Transportation Expense Coverage (allows insured to select
daily and maximum limits of coverage for transportation and loss of use expenses
for both scheduled and non-owned vehicles).
 Named Non-owned Coverage (covers rented or non-owned vehicles driven by
the insured for up to 14 days).
No-Fault Insurance (under these laws the insured is reimbursed by their own insurance
company for medical expenses and/or loss of wages related to an accident regardless of
who caused the accident).
Assigned Risk Plans or Automobile Insurance Plans (voluntary agreements between
insurance companies licensed in a given state. These companies agree to share the poor
risks among themselves. Each company accepts its share of assigned risk drivers
according to the size of the individual insurance company).
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Chapter 10 : Misc.
Personal Insurance
Miscellaneous Personal Insurance:
 Flood Insurance (the National Flood Insurance Program [NFIP] was created
by congress in 1968 to make Flood insurance available to eligible communities
through federal subsidization. This program is operated under the Federal
Emergency Management Agency [FEMA] and is managed by the FEMA branch:
the Federal Insurance Administration [FIA]):
o Emergency Program (building $35,000 and contents $10,000 with a
$1,000 deductible).
o Regular Program (building $250,000 and contents $100,000 with $500
deductible).
o Covers permanent homes that are insured for at least 80% of value, all
other losses on an actual cost basis. Includes debris removal as long as
the policy limits are not exceeded.
o Flood is defined as:
 An overflow of inland or tidal waters.
 Unusual or rapid accumulation or runoff of surface water from
any source, unless general flood exist.
 Mudslides caused by accumulations of water on the ground or
underground.
 Collapse of land as a result of excessive erosion due to flood.
o Flood Policies do not cover:
 Accounts, bills, currency, deeds, evidences of debt, money,
securities, bullion, and manuscripts.
 Lawns, trees, shrubs, plants, growing crops, and livestock.
 Aircraft, self-propelled vehicles and motor vehicles.
 Fences, retaining walls, outdoor swimming pools, bulkheads,
wharves, piers, bridges, docks, and other open structures on or
over water.
 Underground structures and equipment, such as wells and septic
tanks.
 Newly constructed buildings that are in, on or over water.
 Structures that are primarily containers, such as gas or liquid
storage tanks and does not cover silos, grain storage buildings or
their contents.
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Miscellaneous Personal Insurance (continued)



o Write Your Own Program FIA set rates and limitations for private
insurers to write policies—government subsidized, losses in excess of
collected premiums are covered by government – excess premium is
turned over to government.
o Application Procedures -- 30 day waiting period for coverage with the
following exceptions:
 New loans – no waiting period
 Coverage takes place at 12:01AM the following day after the
application and premium is mailed for communities that first
enters either program, if it is sent in the first 30 days of eligibility
 Existing policy assignment which occurs prior to title transfer
takes effect on title transfer date.
 Changes to existing policies take effect at 12:01 AM on the fifth
day after request (must included new premium with request).
Earthquake Insurance (sold as an endorsement to either a Dwelling or
Homeowners policy and covers structure and contents).
Mobile Home Insurance:
o Dwelling policy (Basic form) is used to cover property damage for mobile
homes which are permanently mounted to a foundation only.
o HO-4 forms can be used to cover contents of a mobile home, but not the
mobile home itself.
o Alternate Insurance Methods:
 Mobile Home Package Policy (developed by companies and
rating organizations).
 Mobile Home Endorsement (ISO has developed an endorsement
for HO-2 and HO-3 to provide coverage for mobile homes).
 Coverage provided includes:
 Mobile home, equipment and accessories originally
built into the unit.
 Equipment, additions and appurtenant structures not
originally included with the unit.
 Additional living expenses.
Personal Articles Form –open peril coverage on blanket basis (includes pair or
set condition already previously addressed) with following exclusions:
o Insects
o War
o Nuclear hazard
o Vermin
o Wear and tear
o Gradual deterioration
o Inherent vice (as built defect in property)
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Personal Property Form (coverage for 9 optional classes with automatic
coverage newly acquired items identified by [A] if category is already insured:
jewelry[A], furs, cameras[A], musical instruments[A], silverware, golf
equipment, fine arts[A], stamps, and coins).
Personal Effect Form (open peril coverage for most kinds of personal property)
similar to personal property coverage under Homeowners –Coverage C.
Personal Property Floater (open peril coverage designed for apartment or
condo dwellers who cannot obtain coverage under HO-4 or HO-6).
Personal Effects Form (open peril coverage designed to cover personal
belongings while traveling, on insured’s premises or while in storage) exclusions
include the following: valuable papers, tickets, contact lenses, artificial limbs,
and sales samples.
Personal Inland Marine Insurance:
o Personal Watercraft Insurance (limited coverage of $1,000 and for
some perils there is no coverage at all under Homeowners policy).
 Boat Owners, Outboard Motor and Boat Policies (covers
Property, Liability and Medical payments on open peril basis for
boats under specific length or under a maximum dollar value –
losses paid on an actual cash value basis).
 Outboard Motor and Boat Insurance (open peril - covers
physical damage to boats, motors, accessories and trailers with
limited coverage for damage to another vessel. Losses paid based
on actual cash value basis).
Personal Yacht Policies (Ocean Marine forms that provide a package of
Property and Liability coverages on open peril basis – used for most inboard
boats, sailboats with inboard auxiliary power and large sailboats) Coverage
included are:
o Hull Insurance
o Boat Trailer Insurance
o Protection and Indemnity
o Medical Payments
o Federal Longshore and Harbor Workers Compensation Insurance
o Conditions/Exclusions: water skiing clause (does not cover water skiers
while in water off the boat), Layup warranty provides for reduced
premium for boats while in safe storage, navigational limits (defines area
where yacht is permitted to operate – exceptions must be granted by
insurer).
Personal Umbrella Insurance (extended Liability coverage ranging from $1 to
$5 million – requires an underlying basic Liability policy coverage).
o Provides additional Liability insurance over and above the basic coverage
provided by other policies.
o Covers some losses that are specifically excluded by the underlying
Liability insurance.
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
o Exclusions (intentional acts, liability covered under Workers
Compensation and liability arising out of business pursuits).
Fair Access to Insurance Requirements Plans (FAIR Plans) (state developed
insurance plans used to insure inner city property at reasonable rates).
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Chapter 11 :
Commercial
Commercial Package Policy (CPP) (used to provide almost any commercial insurance
the insured might need – all risk):
 Common Policy Declarations:
o Name and mailing address of the insured.
o Policy period, including the time and date coverage begins and ends.
o Description of the business covered.
o Coverage parts purchased and related premiums.
o List of forms applicable to all coverage parts.
 Common Policy Conditions:
o Certain responsibilities and obligations are assigned to the First Named
Insured (First Named Insured is the only individual that can make
changes to the policy with the responsibility for premium payment being
the First Named Insured’s– policies may have any number of individuals
listed on the policy, however only one First Named Insured).
o Cancellation (requires a 30 day notice and any unused premium will be
returned on a pro rata basis).
o Examination of Books and Records (insurance company may examine
and audit the insured’s books and records at any time and may for up to 3
years after the business closes).
o Inspection and Surveys (gives the insurance company the right to make
inspections or surveys of the insured’s business at any time).
o Transfer of Your Rights and Duties Under This Policy (sometimes
called Assignment Clause) requires written consent to transfer, except in
the case of death of the Named Insured.
 Two or More Coverage Parts:
o Covered Parts (each line has its own variety of mandatory and optional
forms used to provide desired coverage).
o Eligible Commercial Coverages includes: Property, General Liability,
Auto, Crime, Inland Marine, Boiler and Machinery, Professional Liability,
Employment Practices Liability, and Farm.
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Chapter 12 :
Business Owners
Business Owners Policy (BOP) (provides Property and Liability coverages for certain
small businesses -- eligibility requirements are more stringent than those for CPP).
 Eligible Buildings
o Apartment buildings (including residential condominium associations)
 May contain offices and certain associations wholesale,
mercantile, service, or processing incidental occupancies.
o Office buildings (including office condominium associations):
 No more than six stories high.
 Contain no more than 100,000 square feet.
 May contain apartments and certain wholesale, service or
processing incidental occupancies that do not exceed 25,000 total
square feet.
o Other buildings (occupied principally for certain wholesale, mercantile,
service or processing purposes).
 Contain no more than 25,000 total square feet
 Eligible Wholesale Risk:
o Auto parts and supplies distributors.
o Heating or heating and air conditioning equipment distributors.
o Baked goods wholesalers (no baking on the premises).
o Hobby, model maker or artists’ supplies distributors.
o Barber or beauty shop supplies distributors.
o Household appliance distributors.
o Bookbinding and printers’ supplies wholesalers.
o Janitorial supplies distributors.
o Clothing or wearing apparel distributors.
o Jewelry distributors.
o Coin, stamp or rare book distributors.
o Meat, fish, poultry, or seafood distributors.
o Drug distributors.
o Office machines or appliances distributors.
o Fabric distributors.
o Optical goods distributors.
o Floor covering distributors.
o Plumbing supplies and fixtures distributors.
o Fruit or vegetable distributors.
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Business Owners Policy (continued)

o Refrigeration equipment distributor.
o Gardening and light farming supplies wholesalers.
o Stationery or paper products distributors.
o Grocery distributors.
o Tobacco products distributors.
o Hardware and tool distributors.
o Toy distributors.
o Hearing aid distributors.
o Wholesale florists.
Eligible Processing or Service Businesses
o Commercial or household appliances and accessories installation,
servicing or repair.
o Mailing or addressing companies.
o Bakeries with baking on the premises.
o Photocopy services.
o Barber shops.
o Photoengraving
o Beauty parlors and hair styling salons.
o Photographers
o Dental laboratories.
o Printing
o Engraving
o Shoe repair shops.
o Funeral homes or chapels.
o Tailoring or dressmaking.
o Laundries and dry-cleaning stores using petroleum or synthetic solvents
and having less than three receiving stations.
o Taxidermists
o Laundries and dry-cleaning or dyeing receiving stations.
o Television or radio receiving set installation or repair.
o Lithographing.
o Watch, clock and jewelry repair.
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Business Owners Policy (continued)
Restaurants (certain fast food and limited-cooking restaurants are also eligible for the
business policy).
 Limited-cooking restaurant (restaurant where food is pre-pared cold or cooked
using appliances that do not emit smoke or grease-laden vapors that require an
exhaust system.) Other eligibility requirements include:
o No more than 7,500 square feet of floor area.
o Seating capacity of 75 or less.
o Sales of beer or wine may represent no more than 25% of total sales, and
liquor may not be sold.
o Catering service may not exceed 10% of total sales.
o Seasonal risks closed for more than 30 consecutive days during the year
are not eligible.
 Fast food restaurant (restaurant may use certain appliances that emit greaseladen vapors, such as grills, enclosed broilers and deep fat fryers, but open
broiling and solid fuel [charcoal or hardwood] cooking are not permitted.
Additional requirements are the same as for limited-cooking restaurants, except
that fast food restaurants may have a seating capacity of 150 and they must have
fire extinguishing equipment appropriate for their cooking appliances.) Eligible
limited-cooking and fast food restaurants include:
o Cafes
o Drugstores
o Cafeteria-style buffets
o Hot dog or hamburger stands
o Coffee shops
o Ice cream/yogurt shops
o Concession stands
o Oriental/ethnic restaurants
o Delicatessens/sandwich shops
o Pizza shops
o Doughnut shops
o Salad bars
o Drive-ins
o Take-out only restaurants
 Certain convenience food/gasoline stores are also eligible (Gasoline sales may
account for no more than 50% of total sales. The business may not include a
restaurant, auto service or repair operations, a car wash, or tank filling
operations for propane or kerosene.)
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Business Owners Policy (continued)

Contractors may be eligible for a Businessowners policy if certain requirements
are met. The following factors make a contractor ineligible for coverages:
o Annual payroll over $300,000.
o Sales unrelated to installation, service or repair exceed 25% of
annual sales.
o Subcontracted work exceeds 10% of sales.
o Heavy construction such as building bridges, installing or rigging cranes,
pipeline, construction or sandblasting.
o Installing or dealing in hot tubs, swimming pools or wood/coal stoves.
o Insulation work.
o Rent or lease equipment to others.
o Shop-only carpentry or sheet metal.
o In compliance work.
o Use cranes in business operations.
o Demolition, blasting, wrecking, high pressure boiler, or liquid petroleum
gas work.
o Waterproofing
o Sales, service or installation of automatic opening doors or garage doors.
o Manufacture or sale of products under the contractor’s name.
o General contracting
o Annual sales over $3 million
o Repairing or painting ships.
o Lawn chemical spraying, except for landscaping gardeners in compliance
with applicable law.
o Work at heights over three stories.
o Tree services or removal.
o Hazardous material or pollution abatement operations, such as asbestos,
lead and radon.
o Repair, installation or services of boilers, burglar alarm systems, automatic
fire extinguishing systems, elevators, escalators, or computers.

Contractors working in the following trades are eligible for a Business owners
policy if none of the factors listed in the previous table apply:
o Appliances and accessories
o Masonry
o Metal ceiling or wall installation
o Carpet and furniture cleaning
o Metal door, window or assembled millwork installation
o Concrete construction
o Painting
o Decorative or artistic metal
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Bradley Enterprises’
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Business Owners Policy (continued)
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o
o

Paper hanging
Driveway, parking area or sidewalk
Plastering or stucco work
Electrical work inside buildings
Plumbing (not industrial)
Fencing
Refrigeration systems
Floor covering installation
Roofing
Furniture or fixtures installation
Septic tank cleaning
Glass and glazing
Siding installation
Heating and/or air conditioning systems
Sign painting
Interior decorating
Tile or stone work (interior)
Landscaping/gardening
Window cleaning (three or fewer stories high)
Lawn sprinkler installation
Excluded risks which cannot be covered under the Businessowners policy are
as follows:
o Auto repair or service stations
o Household personal property
o Auto, motor home, mobile home, and motorcycle dealers
o Insureds whose business operations involve one or more locations that
are used for manufacturing, processing or service risks.
o Banks, building and loan associations, savings and loan associations,
credit unions, stockbrokers, and similar financial institutions.
o One or two family dwellings
o Bars, grills and most restaurants.
o Parking lots or garages
o Buildings occupied wholly or partially for manufacturing or
processing unless the occupancy is an eligible processing risk
o Places of amusement, such as theaters and arcades.
o Wholesalers that are ineligible wholesale risks
o Condominium associations other than office or residential
condominiums.
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ISO’s Businessowners Policy consists of:
 Businessowners Declarations
 Businessowners Common Policy Conditions form - Common Policy
Conditions are as follows (similar to CPP Common Policy Conditions):
o Cancellation
o Changes
o Concealment, Misrepresentation Or Fraud
o Examination Of Records
o Inspections And Surveys
o Insurance Under Two Or More Coverages
o Other Insurance
o Liberalization
o Premiums
o Transfer Of Rights Of Recovery Against Others To The Insurance
Company
o Transfer Of Rights And Duties Under The Policy
 One of two available Businessowners Property forms (either the Standard
or Special Form).
 Businessowners Liability form (very similar to the Commercial General
Liability form):
o Liability is covered only for injury or damage that occurs during the
policy period. Includes coverage for the insured’s liability for:
 bodily injury,
 property damage and advertising
 personal injury (liability arising out of offenses such as libel,
slander and invasion of privacy).
 Medical Expense coverage.
o Standard Liability And Medical Expenses limit of $300,000 (which
is the most the insurer will pay for all damages as a result of BI, PD
and medical expenses arising out of any one occurrence, and personal
and advertising injury sustained by any one person or organization.
Separate limits apply to medical expenses and fire legal liability
[which applies to fire damage to premises rented to or temporarily
occupied by the insured].)
o Aggregate Limit (is applicable to all injury or damage during the
policy period, except injury or damage falling within the Fire Legal
Liability limit or Products-Completed Operations limit [which applies
to legal liability arising out of the use of products manufactured by the
insured]. This aggregate is twice the Liability and Medical Expenses
limit. In addition, there is a separate Products-Completed Operations
Aggregate limit.)
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ISO’s Businessowners Policy (continued)
o Supplementary Payments are (also included in the Businessowners
Liability form. Most of these are paid in addition to the policy limit.):
 Expenses the insurance company incurs in defending a claim or
suit against the insured.
 Up to $250 for the cost of bail bonds related to violations that
arise from vehicles to which BI Liability coverage applies.
 Cost of bonds to release attachments.
 Reasonable expenses the insured incurs at the insurance
company’s request to assist in investigating or defending a
claim or suit, including up to $100 per day for lost earnings
because of time off from work.
 Costs the insured is required to pay because of a suit.
 Prejudgment interest the insured is required to pay. However, if
the insurer makes an offer to pay the limit of insurance, it will
not pay prejudgment interest for the period of time after the
offer was made.
 Interest that accrues after a judgment is made and before it is
paid.
o Exclusions for liability losses (BI and PD) are as follows:
 Arising out of expected or intentional injury.
 The insured assumes under a contract or agreement.
 For those in the business of manufacturing, distributing,
selling, serving, or furnishing alcoholic beverages.
 For work-related injuries covered under Workers
Compensation or Employer’s Liability laws.
 For most pollution losses that result in bodily injury, property
damage or clean-up costs.
 Resulting from the maintenance, operation or use of aircraft,
autos or watercraft, except as specified in the policy.
 Arising out of the transportation of mobile equipment by auto
or the use of mobile equipment in any prearranged racing or
related activity, or while practicing or preparing for such an
activity (mobile equipment is specifically described as land
vehicles such as bulldozers, farm machinery and forklifts)
 Assumed under a contract for war or warlike acts.
 Arising out of rendering or failing to render professional
services.
 For damage to property owned, rented or occupied by the
insured or in the insured’s care, custody or control .
 For damage to the insured’s own product arising out of the
product itself.
 For damage to the insured’s own work.
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)

For claims based on: defects, deficiencies, inadequacies, or
dangerous conditions in the insured’s products or work; and
delays or failures to properly perform contracts. (The
exclusion for liability assumed under contract has some
important exceptions. Liability that the insured would have
incurred even without assuming it under contract and liability
assumed under insured, or incidental, contacts is covered.
Insured contracts include leases, sidetrack agreements,
easement agreements, contracts with municipalities required
by ordinance, elevator maintenance agreements, and contracts
relating to the insured’s business under which the insured
assumes another’s liability.)
 Related to recall of the insured’s products or work because of a
known or suspected defect.
o Excluded losses under Personal And Advertising Injury
 Personal And Advertising Injury losses excluded include:
 Oral or written publication of material that the insured
knows is false, but publishes anyway.
 Violation of a penal statute or ordinance.
 Liability assumed under contract, except for liability the
insured would have incurred even without assuming it
under contract.
 Advertising Injury specific losses excluded include:
 Breach of contract
 Failure of goods, products or services to conform with
advertised quality or performance.
 Incorrect price descriptions of goods, products or
services.
 Any offense committed by an insured who is involved
in the business of advertising, publishing, broadcasting,
or telecasting.
 Medical Expense Coverage losses excluded include:
 Losses related to Products-Completed Operations
Hazard (these losses would be paid under BI and PD
Liability coverage).
 Losses specifically excluded under BI and PD Liability
coverage.
 Losses related to war.
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Bradley Enterprises’
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ISO’s Businessowners Policy (continued)

Endorsements (defined: modifies the standard policy to
include additional coverage) Available endorsements for the
Businessowners’ policy include the following:



Utility Services—Direct Damage Coverage
endorsement (For coverage to apply, the property must
be scheduled for coverage on the endorsement and the
service interruption must be caused by a covered cause
of loss.) covers loss or damage to property caused by
interruption in one of the following:
o Water,
o Communication,
o Power supply service.
Utility Services—Time Element Coverage
endorsement (similar Direct Damage Coverage, except
it covers loss of business income and extra expense that
occurs due to an interruption in utility service.)
Protective Safeguards endorsement requires the
insured to maintain the protective devices or services
listed on the endorsement on specified property as a
condition of the policy. (The insurer will not pay for
fire damage losses if the insured failed to keep the
protective safeguard in working order or did not notify
the insurer that the device was not working properly.
When an automatic sprinkler system is shut off due to
breakage, leakage, freezing, or opening of sprinkler
heads, the insurer does not have to be notified if the
system can be restored within 48 hours.) The protective
safeguards are identified by the following symbols:
o P-1 Automatic Sprinkler System: Any
automatic fire protective system, including
related supervisory services and connected
sprinklers, pipes, pumps, and similar devices.
o P-2 Automatic Fire Alarm System: An
automatic fire alarm system that protects the
entire building and is connected to a central
station or reports to a public or private fire
alarm station.
o P-3 Security Service: A security service with a
guard that makes hourly rounds of the premises
while the business is closed.
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Bradley Enterprises’
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ISO’s Businessowners Policy (continued)


o P-4 Service Contract: A privately owned fire
department that provides fire protection service
to the premises.
o P-9 Any other protective system described in
the endorsement.
Hired And Nonowned Auto Liability endorsement
provides coverage for hired or nonowned autos used by
the business if the insured does not have Commercial
Auto insurance.
Businessowners Property Forms:
o Standard Forms (named perils):
 Fire
 Smoke (except smoke from an industrial or agricultural
smudging operation)
 Sprinkler leakage
 Sinkhole collapse
 Lightning
 Explosion
 Windstorm or hail
 Aircraft or vehicles
 Riot or civil commotion
 Vandalism and malicious mischief
 Volcanic action
 Transportation damage to property in transit
o Special Property Form provides open peril coverage (covers all
losses that are NOT specifically excluded).
o Building Coverages (for both Standard and Special Property forms)
includes coverages for both Building [ which includes landlord’s
personal property] and Business Personal Property [which includes
property of others to the extent of the insured’s liability] Coverage
includes:
 Completed additions
 Permanently installed machinery and equipment
 Fixtures, including outdoor fixtures
 Personal property owned by the insured that is used to maintain
or service the building, including fire extinguishing equipment,
outdoor furniture, floor coverings, and appliances used for
refrigerating, ventilating, cooking, dishwashing, or laundering.
 Personal property furnished by the insured in apartments or
rooms rented to others.
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)
The following are also usually covered if no other insurance
applies:
 Additions under construction.
 Alterations and repairs to the buildings or structures.
 Materials, equipment, supplies, and temporary structures that
are on within 100 feet of the premises and being used for
additions, alterations and repairs.
o Business Personal Property:
 Covered Business Property must meet the following
conditions in order to be covered:
 In or on the building.
 In the open or in a vehicle within 100 feet of the
premises.
 Property Covered includes:
 Furniture
 Fixtures
 Machinery
 Equipment
 Stock
 Other owned personal property used in the business
 The value of labor, parts or services on the personal
property of others
 Leased personal property that the insured has a
contractual responsibility to insure, unless it’s
otherwise covered.
 Stock is the insured’s merchandise. It includes items
stored or offered for sale, raw materials for
manufacturing, materials in the process of being
manufactured, manufactured items, and supplies used in
packaging and shipping.
 Improvements and betterments are fixtures,
alterations, installations or additions that are made a
part of a building that the insured tenant occupies but
does not own, and which are acquired by or made at the
expense of the insured but cannot legally be removed
by the insured.
 Improvements and betterments added by the insured
(If the insured is a tenant).
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)

Personal property of others pays for damage to
property of others in the insured’s care, custody or
control, regardless of whether the insured is legally
liable for that loss. The person who owns the property
receives payment the loss.

The Four Classes of Business Personal property covered are:
 Property owned and used by the insured in the business
(such as inventory).
 Property of others in the insured’s care, custody or
control (such as business equipment rented by the
insured for use in the business).
 Tenant’s improvements made at the tenant’s expense to
a building the tenant occupies but does not own, and
which cannot legally be removed (such as alterations
tenants make to buildings they rent to operate their
business).
 Leased personal property that the insured has a
contractual responsibility to insure, such as
photocopiers and computer equipment.

Exclusions: Property not covered by the Businessowners
Property forms:
 Aircraft
 Motor vehicles and other vehicles subject to motor
vehicle registration.
 Watercraft while afloat, including motors, and
equipment.
 Contraband and property being illegally traded or
transported.
 Land, water, growing crops, and lawns.
 Outdoor fences, trees, shrubs, and plants.
 Outdoor radio or television antennas, satellite dishes,
and lead-in wiring, masts or towers.
 Money, securities and bullion.
 Outdoor signs that are not attached to buildings.
(Except as provided under coverage extensions or
optional coverages)
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Bradley Enterprises’
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ISO’s Businessowners Policy (continued)

Additional Coverages (Both Property forms include
additional coverages that provide reimbursement for specific
situations. Normally, these coverages do not provide an
amount of insurance in addition to the policy limits.) The
following additional coverages are included in both the
Standard and Special Property forms (except as noted):
 Debris Removal: Pays expenses to remove debris of
covered property caused by a covered cause of loss
during the policy period. ([included in both] limited to
25% of amount paid for direct loss, plus deductible
Additional $10,000 available if certain conditions are
met).
 Preservation Of Property: Covers loss from any cause
of loss to property that was removed from the insured
location to protect it from damage by a covered peril.
Coverage applies while the property is being moved or
while it is temporarily stored at another location, but
only for 30 days after the property is first moved.
([included in both] included in policy limit)
 Fire Department Service Charge: Pays for fire
department service charges. ([included in both] limited
to $1,000 in addition to the limit of insurance)
 Business Income: Pays loss of income that the insured
sustains due to a direct physical loss from a covered
peril that forces the insured to suspend business
operations. Coverage is provided until the business is
repaired, rebuilt or replaced. ([included in both]
Included in policy limit)
 Extended Business Income: Pays for loss of business
income, even after operations have been resumed, until
the business has been fully restored to its previous
earnings level, but for no more than 30 days from the
date business is resumed. ([included in both] Included
in policy limit)
 Extra Expense: Reimburses the insured for additional
costs incurred to avoid or minimize suspending
business operations after a covered loss. ([included in
both] Included in policy limit)
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)







Pollutant Cleanup And Removal: Provides up to
$10,000 coverage for the costs to extract pollutants
from land or water at the insured’s premises as a result
of a covered loss. ([included in both] limited to $1,000)
Civil Authority: Pays loss of income that the insured
sustains due to actions of civil authorities that prohibit
access to the insured premises because property other
than the described premises was damaged by a covered
cause of loss. Coverage begins 72 hours after the action
by the civil authority and is available for up to three
consecutive weeks. ([included in both] Included in
policy limit)
Money Orders And Counterfeit Paper Currency:
Covers loss incurred when an insured accepts money
orders and counterfeit paper currency in good faith in
exchange for merchandise, money or services.
([included in both] Included in policy limit)
Forgery And Alteration: Covers loss from forgery or
alteration of checks, drafts and similar items made or
drawn by or on the insured or the insured’s agent.
([included in both] Included in policy limit)
Increased Cost Of Construction: Pays up to $5,000
for additional costs required to comply with ordinances
or laws related to repair or replacement of damaged
buildings. Applies only to buildings insured on a
replacement cost basis. ([included in both] limited to
$5,000)
Exterior Glass: Covers damage to exterior building
glass, including lettering and ornamentation. ([included
in both] Included in policy limit)
Additional Coverages that are only included in the Special
Property form:
 Collapse: Covers damage to covered property caused
by the collapse of an insured building if the collapse is
caused by a specified peril. ([included in Standard
form only] Included in policy limit)
 Water Or Other Liquid, Powder Or Molten
Materials: Covers loss to a building that indirectly
results from the escape of water or other liquid or
powder or molten materials, including costs to tear out
and replace any part of the building to repair damage to
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Bradley Enterprises’
Property and Casualty Manual

the system from which the material escaped. ([included
in Standard form only] Included in policy limit)
Coverage Extensions (include a separate limit of liability that
is available in addition to the policy’s limit of liability) The
following coverage extensions are included in both Property
forms:
 Business Personal Property At Newly Acquired
Premises: Covers business personal property that is
moved to a premises that the insured acquires during
the policy term. Coverage under this extension ends as
soon as any of the following occur: the policy expires,
the insured reports actual values to the insurer or 30
days expire after the date the premises is acquired or
construction begins. ([included in both] limited to
$100,000 at each premise)
 Business Personal Property Off Premises: Covers
business personal property while it is in transit or
temporarily located at premises not owned, leased or
operated by the insured. ([included in both] limited to
$5,000)
 Outdoor Property: Extends up to $2,500 in coverage
for outdoor property such as fences, signs, trees, shrubs,
plants, and radio and television antennas. ([included in
both] limited to $2,500 overall; $500 for any one tree,
shrub or plant)
 Personal Effects: Extends up to $2,500 in Business
Personal Property coverage at each described premises
for personal effects owned by the insured and his or her
employees. ([included in both] limited to $2,500)
 Valuable Papers And Records: Pays costs to research,
replace or restore information on lost or damaged
valuable papers and records for which duplicates do not
exist. ([included in both] limited to $5,000 on premises
and $2,500 off premises)
 Accounts Receivable: Reimburses the insured for
money that cannot be collected from customers due to
damage to the insured’s accounts receivable records.
([included in both] limited to $5,000 on premises and
$2,500 off premises)
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)


Optional Coverages are usually preprinted in the policy, but
apply only if they are designated in the Declarations and
normally require additional premium. They include:
 Outdoor Signs: Covers damage to all outdoor signs
owned by or in the care, custody or control of the
insured. When this optional coverage is selected, policy
limitations that apply to outdoor signs do not apply.
([included in both] separate limits defined in
Declarations)
 Interior Glass: Covers loss to glass items that are
permanently attached to walls, floors or ceilings. Each
item to be covered must be described in the
Declarations. When this optional coverage is selected,
policy limitations that apply to interior glass do not
apply. ([included in Standard form only] Included in
policy limit)
 Employee Dishonesty: Covers loss to business
personal property and money and securities that results
from dishonest acts of employees. Losses must occur
during the policy period to be covered. ([included in
both] separate limits defined in Declarations)
 Mechanical Breakdown: Covers damage to covered
property caused by sudden and accidental breakdown of
boiler and pressure vessels and certain types of air
conditioning units. ([included in both] Included in
policy limit)
 Burglary And Robbery (Standard form only): Covers
burglary and robbery to business personal property and
money and securities. ([included in Standard form
only] separate limits defined for money and securities
on and off premises. For business personal property,
25% of business personnel property limit)
 Money And Securities (Special form only): Covers
loss of money and securities from theft, disappearance
and destruction. ([included in Special form only]
separate limits defined for money and securities on and
off premises)
Exclusions for the Standard and Special forms are as
follows:
 Failure of computers to recognize a particular date or
time, such as the year 2000.
 Ordinance or law.
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners Policy (continued)


Earth movement (does not include a fire or explosion
resulting from earth movement).
 Government action.
 Nuclear hazard.
 Failure of power or other utility services occurring
away from the insured’s premises.
 War and military action.
 Water, including flood, sewer backup, mudslides, or
seepage of ground water (does not include fire,
explosion or sprinkler leakage resulting from water).
 Artificially generated electrical current.
 Rupture or bursting of water pipes (other than
automatic sprinklers).
 Leakage or discharge of water or steam resulting from
breaking of water or steam system or appliance.
 Explosion of steam boilers, pipes, engines, or turbines.
 Mechanical breakdown.
 Any consequential loss that causes extra expenses or
increases in loss of income.
 Loss to valuable papers and records and accounts
receivable records due to the insured’s dishonest or
criminal acts.
Additional Exclusions for the Special Property form only
are as follows:
 Consequential losses caused by delay, loss of use or
loss of market.
 Wear and tear.
 Rust, corrosion, fungus, decay, deterioration, and
hidden or latent defects.
 Smog
 Pollution (unless the release, discharge or dispersal is
caused by a specified cause of loss).
 Settling, cracking, shrinking, or expansion.
 Damage caused by insects, birds, rodents, or other
animals.
 Dishonest or criminal acts of the insured or his or her
employees.
 Voluntary parting with property if induced to do so by
fraud or a trick.
 Rain, snow, ice, or sleet damage to personal property
that is not in a building.
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Bradley Enterprises’
Property and Casualty Manual
ISO’s Businessowners policy (continued)

Loss resulting from acts or decisions, or the failure to
act or decide.
 Collapse
 Faulty planning, development, design, specifications,
workmanship, or repair.
 Smoke, vapor or gas.
 Frozen plumbing.
 Weather conditions that contribute to causing a loss
 Additional Features
 Replacement Cost Coverage (if the limit of insurance
is 80% or more of the full replacement cost at the time
of loss.)
 Inflation Guard Coverage provides an automatic 8%
per year increase on building coverage. (Other
percentages may be selected, but must be shown in the
Declarations.) In addition, coverage on business
personal property can be increased by 25% to cover
seasonal variations. This has a standard deductible of
$500.00.
Commercial Package Policy And Businessowners Policy Side-By-Side Comparison
Features
Eligibility
Commercial Package Policy
 Almost all commercial risks


Format of
Policy


Common Policy Declarations
Two or more coverage parts



Coverages

All eligible coverages selected
separately

Businessowners Policy
Small- to medium-sized businesses
in limited occupancy classes
Insurer specifies limitations on size
of building and specific type of
business involved
Businessowners Common Policy
Conditions
Businessowners Liability coverage
form
One of Two Businessowners
Property coverage forms
Prepackaged policy containing
Liability coverage and one of two
Property coverage forms
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Bradley Enterprises’
Property and Casualty Manual
Chapter 13 : Comm.
Property
Commercial Property Insurance:
 Property Insurance (insurance on real property – real property is defined as dirt
and the stuff attached to it… for example: office buildings, factories, and
warehouses).
 Business Personal Property (insurance on stuff – stuff is defined as property that
owned by a business… for example: furniture, fixtures, machinery, and
inventory).
Commercial Property Coverage Part policy includes:
 Common Policy Declarations
 Common Policy Conditions
 Commercial Property Declarations form (provides additional information
about premises and the specific forms that apply)
 Commercial Property Conditions form include:
o Control Of Property (states that acts of neglect beyond the direction or
control of the insured will not affect the insurance. Also if the insured
violates a condition of the policy with regard to specific location,
insurance applicable to other locations will not be affected. )
o Legal Action Against Us (gives you 2 years to bring a claim for a loss)
o Other Insurance (if other insurance, losses are paid on pro rata basis)
o Policy Period, Coverage Territory (states policy period and territory
covered)
o Transfer of Rights of Recovery Against Others to US (grants insurance
company subrogation rights)
o Concealment or Fraud (if insured intentionally conceals or
misrepresents a material fact concerning information related to a policy
or claim the policy is void.)
o Insurance Under Two or More Coverages (states that the combined loss
payout from all companies will not exceed the actual losses.)
o No Benefit To Bailee (prevents bailee from being reimbursed by
Commercial Property insurance in the case of such a loss.)
o Liberalization (states that any change in the policy that broadens
coverage which occurs 45 days prior to policy issue or within the policy
period that does not increase premium will automatically apply.)
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Bradley Enterprises’
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Commercial Property Insurance (continued)

One or More Commercial Property coverage forms (contains descriptions of
the specific coverages being provided) Coverage forms are:
o Building and Personal Property (What is insured? The building itself,
the insured’s business personal property and the personal property of
others located at the business premises within the limits defined in the
Declarations Section of the policy).
 Building coverage -- in addition to the building itself the policy
also includes:
 Completed additions
 Fixtures, including outdoor fixtures
 Permanently installed machinery and equipment
 Outdoor furniture, floor coverings and certain
appliances
 Personal property used to maintain or service the
premises, such as fire extinguishers
 Other (If not otherwise covered, additions under
construction and alterations or repairs to the building,
including materials, equipment, supplies, and temporary
structures within 100 feet of the described premises.)
 Business Personal Property
 Exclusions:
 Money, accounts, food stamps, notes, securities and related
property (lottery tickets held for sale are not securities and
are covered).
 Animals, unless they are boarded or held for sale.
 Autos for sale.
 Bridges, roads, walks, patios, and other paved surfaces.
 Contraband (property being illegally transported or
traded).
 Cost of excavations and other ground preparation.
 Foundations of buildings, structures, machinery, or boilers
if their foundation is below the basement level or below
ground level if there is no basement.
 Land, water, growing crops, and lawns.
 Personal property while it is airborne or waterborne.
 Bulkheads, pilings, piers, wharves, and docks.
 Property covered under another policy in which it is more
specifically described.
 Retaining walls that are not a part of the building described
in the Declarations.
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Bradley Enterprises’
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
Underground pipes, flues and drains.
The cost to research, replace or restore information
contained in valuable papers or records, except as provided
in the coverage extensions.
Vehicles, including watercraft and aircraft that are licensed
for use on public roads, or are principally operated away
from the premises. This exclusion does not apply to:
o Vehicles that are manufactured, processed or
warehoused by the insured
o Vehicles, other than autos, that the insured holds for
sale
o Rowboats or canoes out of water at the described
premises
The following property while outside of buildings, except
as provided in the coverage extensions:
o Grain, hay, straw, or other crops
o Fences
o Antennas (including satellite dishes)
o Signs that are not attached to the building.
o Trees, shrubs and plants.
Additional Coverages:
 Debris Removal pays expenses to remove debris of
covered property caused by or resulting from a covered
cause of loss. It does not cover extraction of pollutants
from land or water. It pays up to 25% of the amount paid
for direct loss to covered property, plus the deductible.
However, if the actual debris removal expense exceeds the
25% limitation, or if the sum of the direct loss and the
debris removal expense exceeds the limit of insurance, the
insurer will pay an additional $10,000 for debris removal
expense.
 Preservation Of Property pays for loss to property that
was removed from the insured location to protect it from a
peril insured against. Coverage only applies if the loss
occurs within 30 days after the property was removed.
 Fire Department Service Charge pays up to $1,000 for a
fire department service charge. This is paid in addition to
the limit of insurance; no deductible applies.
 Pollutant Cleanup And Removal covers the costs to
extract pollutants from land or water at the insured’s
premises if the pollution was caused by a covered cause of
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Bradley Enterprises’
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Commercial Property Insurance (continued)

loss. This coverage is subject to a $10,000 limit per policy
period that applies in addition to the policy limit. The
expenses must be reported to the insurer in writing within
180 days of the loss.
Coverage Extensions:
 Newly Acquired Or Constructed Property covers new
buildings that are being built on the described premises and
buildings the insured acquires. The most that will be paid
under this coverage extension is $250,000 per building.
This coverage also applies to business personal property at
any location acquired by the insured. The maximum the
company will pay is $100,000 per building. Coverage
under this extension applies for up to 30 days or until the
policy expires or the insured reports values to the insurer,
whichever is earlier.
 Personal Effects and Property of Others provides up to
$2,500 of coverage for personal effects of the named
insured, partners and employees (excluding loss from theft)
and personal property of others. This coverage extension is
available even if the insured has not purchased personal
property of others coverage, as long as the coinsurance
requirement is met.
 Valuable Papers And Records -- Cost Of Research pays
up to $2,500 to research, replace or restore information on
damaged valuable papers, including electronic or magnetic
media.
 Property Off-Premises extends up to $10,000 in coverage
for property temporarily off the premises. It does not apply
to:
o Stock that is temporarily at a location the insured
does not own, lease or operate
o Property in a vehicle
o Property in the care of a salesperson
o Property at a fair or exhibition
 Outdoor Property extends a limited amount of coverage
to fences, antenna, satellite dishes, signs, trees, plants, and
shrubs. The maximum payable is $1,000, with a $250 limit
applying to any one tree, plant or shrub.
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Commercial Property Insurance (continued)

Optional Coverages (only three optional coverages – coverages
are available at additional premium):
 Agreed Value coverage suspends the coinsurance
requirement for the covered property designated and
substitutes an agreement to cover any loss in the same
proportion that the limit of insurance carried bears to the
stated value. The insured is required to submit a form
stipulating the value of the property.
 Inflation Guard coverage, the insured and the insurance
company agree on one of several percentages that will
apply annually to the limits of insurance.
 Replacement Cost coverage overrides actual cash value in
the Valuation condition by agreeing to pay for loss or
damage to covered property on a replacement cost basis,
with the exception of certain property listed in the
Declarations. Replacement cost coverage is subject to the
same coinsurance provisions as the standard ACV
valuation.

Conditions (specific to Building And Personal Property Coverage
-- these conditions are in addition to conditions listed in the
Common Policy Conditions and Commercial Property Conditions
forms)
 Duties In The Event Of Loss condition states that after a
loss, the insured must:
o Notify the insurer about the loss or damage as soon
as possible. The insured must provide a description
of the property involved and describe how, when
and where the loss or damage occurred.
o Notify the police if a law may have been broken
o Take reasonable steps to protect the covered
property from further damage and keep a record of
expenses incurred to protect the property. If
possible, the insured should set the damaged
property aside for examination.
o Provide a complete inventory at the insurer’s
request.
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Commercial Property Insurance (continued)
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o Allow the insurer to inspect the property, examine
books and records and take samples of the property
at its request.
o Testify under oath with regard to the claim if
requested by the insurer.
o Send a signed, sworn statement of loss within 60
days of the insurance company’s request.
Loss Payment condition states that the insurance company
will give the insured notice of how it intends to settle the
loss within 30 days after it receives the insured’s sworn
statement of loss. As long as the insured has complied with
all of the terms of the coverage part and has reached
agreement with the company on the amount of the loss, the
insurer will pay the loss within 30 days after it receives the
sworn statement of loss.
Valuation condition describes how losses will be settled.
Most losses are paid at actual cash value. However, if the
Coinsurance conditions are met and costs are $2,500 or
less, the policy will pay the cost of building repair or
replacement without taking depreciation into account.
Stock already sold is valued at its net selling price.
Glass is valued at the cost of replacement with safety
glazing material if this is required by law.
Valuable papers and records are valued at the cost of
blank materials needed to reproduce the lost records and
labor to transcribe or copy the records.
Tenants improvements and betterments are valued at
actual cash value if the insured-tenant makes the repairs
promptly or at a proportion of the original cost of the
improvements if the repairs are not made promptly. If
someone besides the insured, such as the building owner,
pays for repairs, the insurer will pay nothing for the loss.
Vacancy condition states that if a building has been vacant
for more than 60 consecutive days before the loss, the
insurer will not pay for loss due to vandalism, water
damage, theft or attempted theft, building glass breakage,
or sprinkler leakage (unless the system has been protected
against freezing). In addition, any amount that would
otherwise be paid for a covered loss will be reduced 15%.
Note that buildings under construction are not considered
vacant.
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Commercial Property Insurance (continued)
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Mortgage Holders condition promises to pay losses to any
mortgage holders named in the Declarations as their
interest may appear. This condition protects the interest of
mortgage holders by promising advance notice of
cancellation. The insurer must provide 10 days’ written
notice if it cancels for nonpayment of premium and 30
days’ notice if it cancels for any other reason allowed by
the policy. If the insurer decides not to renew, it must give
the mortgage holder at least 10 days’ advance written
notice.
 Coinsurance condition states that when the insured’s
amount of coverage at the time of loss does not meet the
required coinsurance percentage, the company reduces the
payment it would otherwise make in the same proportion as
the insurance carried bears to the insurance required. The
standard deductible is $250.
o Builders Risk Coverage Form (covers commercial, residential or farm
buildings that are under construction -- Coverage includes both the
building under construction and its foundation. Fixtures, machinery,
equipment used to service the building, and the insured’s building
materials and supplies can be covered if they will become a permanent
part of the building and are located within 100 feet of the building. In
addition, coverage may be extended to cover building materials and
supplies owned by others but in the insured’s care, custody or control,
provided they are located within 100 feet of the described building. The
most that will be paid under this extension is $5,000.)
 Coverage begins on:
 The date construction begins if the building does not have a
basement, or;
 The date construction starts above the lowest basement
floor if there is a basement.
 Coverage Period -- Coverage is written for one year and ceases
whenever any of the following occur:
 The property is accepted by the purchaser.
 90 days have elapsed since construction was completed.
 The building is occupied or put to its intended use.
 The insured’s interest in the property ceases.
 The insured abandons the construction with no intention of
completing it.
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Commercial Property Insurance (continued)
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Exclusions (property is not covered):
 Land or water.
 Lawns, trees, shrubs or plants when outside of buildings.
 Radio and television antennas when outside of buildings,
including lead-in wiring, masts or towers.
 Signs when outside of buildings and not attached to
buildings (attached signs are covered).
 Amount of Coverage Available (based on the estimated value of
the completed property – pays the actual cash value of loss
assuming the building is insured properly, if not the claim will be
paid proportionally -- see Need For Adequate Insurance
condition).
 Miscellaneous Conditions The Builders Risk coverage form
includes most of the same conditions found on the Building And
Personal Property coverage form, and includes the following
variations:
 There is “No Vacancy” provision because buildings under
construction are not considered vacant.
 There is a clause stating that all property is valued at ACV
at the time of loss. Since actual cash value is paid for all
losses, the form does not include options for replacement
cost, agreed value or inflationary adjustment.
 There is no Coinsurance condition (the Need For Adequate
Insurance condition serves essentially the same purpose by
penalizing insureds who do not have the required amount
of insurance when a loss occurs).
o Builders Risk Reporting Form -- When this form is attached to the
Builders Risk coverage form, the insured is allowed to purchase a smaller
amount of insurance that gradually increases as the value of the building
under construction increases. (This form requires a report of value that
must be filed with the insurer each month. The insurance company will not
pay more for any loss than the proportion the values last reported before
the loss bears to the actual cash value of the covered property on the
effective date of the last report.)
o Condominium Coverage Forms (In case both the Association and UnitOwners forms apply to a specific loss, the Association form’s coverage is
primary.) There are two condominium forms available under the
Commercial Property:
 The Condominium Association coverage form (It can be used
to insure the condominium associations of residential or
commercial condominiums. The perils insured against are
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contained in the Causes Of Loss forms) insures a condominium
association against direct physical loss or damage to:
 Buildings (definition of “building” is extended to cover
items such as permanently installed machinery and
equipment. It will also cover outdoor fixtures that are a
part of the building as well as other specifically named
personal property. In general, however, the definition of
“building” does not include personal property owned, used
or controlled by a unit-owner. Business personal property
includes only property owned by the association or owned
indivisibly by all unit-owners.)
 Business personal property.
 Personal property of others in the care, custody or control
of the association while it is located at the premises.
 Condominium Commercial Unit-Owners coverage form, as its
name implies, is designed for the owner of a condominium. It
covers the condominium’s contents and is available only for the
owner of a commercial condominium. (Residential condo owners
can obtain contents coverage with an HO-6. It covers the unitowner’s business personal property and the personal property of
others in the insured’s care, custody or control. It does not cover
buildings; this coverage is typically provided under the
Condominium Association coverage form issued to the
Association.)
o Business Income coverage forms (also known as time element coverage)
(pay for loss of income that the insured sustains due to a direct physical
loss from a peril insured against that forces the insured to suspend
operations during the period of restoration. Period of restoration begins
on the date of the direct physical loss and ends on the date on which the
property can be repaired, rebuilt or replaced with reasonable speed).
 Business Income (For loss of business income to be covered, the
suspension of operations must result from direct physical loss to
property at the described premises caused by a peril insured
against in the Causes Of Loss form.) includes: net income that
would have been earned if the loss had not occurred, and; the costs
of continuing normal operations, including payroll. The two
Business Income forms are:
 Business Income With Extra Expense (includes an Extra
Expense coverage – Extra Expense coverage reimburses the
insured for losses[the additional money spent by the insured to
avoid or minimize a resulting business shutdown] resulting
from a covered peril).
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Business Income Without Extra Expense (in this form the
Extra Expense coverage is replaced with an Expenses To
Reduce Loss coverage that covers expenses the insured incurs
to reduce loss, however, reimbursement is limited to the
amount of the loss is actually reduced.)
Extra Expense form (provides no reimbursement for lost business
income, but concentrates on reimbursing the insured for extra
expenses incurred to remain in operation. The Extra Expense
coverage form is a time element coverage.) Limits are applied to
recovery depending upon the period of restoration. For instance,
limits might be stated in the Declarations as 40% / 80% / 100%.
This means that if the restoration period was:
 30 days or less (40% of the full amount of insurance would
be paid).
 31 - 60 days (80% of the full amount of insurance would be
paid).
 Over 60 days (100% of the full amount of insurance would
be paid).
The following coverages may be selected with either form:
o Business Income coverage, including Rental Value coverage.
o Business Income coverage, other than Rental Value
coverage.
o Rental Value coverage only.
(Rental Value is defined as the total anticipated rental income
from a tenant’s occupancy).
Additional Coverages:
o Extended Business Income (pays for loss of business income
[even after operations have been resumed until the business
has been restored to the previous level for up to 30 days from
the date business is resumed]).
o Order Of Civil Authority coverage (pays business income
and extra expense losses incurred when a civil authority
prohibits access to the described premises because property
other than the described premises was damaged by a covered
cause of loss. Both business income and extra expense losses
are paid for up to three consecutive weeks. Payment for
business income losses begins 72 hours after the action by the
civil authority.)
o Alterations And New Buildings coverage (pays business
income losses incurred when a covered cause of loss damages
a new building or an alteration or addition to a new building.
Damage to machinery, equipment, supplies, or building
materials located on or within 100 feet of the described
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premises is also covered if these items are being used in
construction, alterations or additions or are incidental to the
occupancy of new buildings. If the loss delays the start of the
insured’s operations, the period of restoration under this
coverage begins on the date operations would have begun if
the loss had not occurred).
Optional Coverages
o Extended Period Of Indemnity option (gives the insured
Extended Business Income coverage for the number of days
stated in the Declarations, rather than the 30 days allowed by
the Extended Business Income additional coverage).
o Maximum Period Of Indemnity optional coverage (limits
reimbursement for loss of business income to no more than the
amount of loss incurred during the first 120 days following the
direct loss).
o Monthly Limit Of Indemnity optional coverage (allows the
insured to establish the amount of reimbursement for loss of
business income during each 30-day period. The insured
selects a fraction that is multiplied by the limit of insurance to
determine the maximum that could be paid for each 30 days).
o Agreed Value optional coverage (requires the insured to
submit a business income report/worksheet every 12 months
that shows financial data for the 12 months prior to the
submission as well as estimated data for the 12 months
following. The insured is expected to carry insurance to value,
or the agreed value established by the worksheets. As long as a
new worksheet is submitted every 12 months, the Coinsurance
clause will not apply.)
Coinsurance (only applies to the Business Income losses, not to
Extra Expense losses. Coinsurance condition that applies to the
Business Income coverage forms is waived when either the
Maximum Period Of Indemnity or Monthly Limit Of Indemnity
coverages are selected by the insured.)
Business Income From Dependent Properties—Broad Form (a
variation on the Business Income forms.) It provides coverage for
the following:
o Contributing Location (Insureds who depend on another
business as their sole supply of merchandise or raw materials
may suffer a loss if their supplier is forced to cut back or
eliminate shipments because of a direct physical loss. The
Business Income From Dependent Properties—Broad Form
protects the insured against loss due to loss at such a
contributing location.)
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
o Recipient Location (Insureds who depend on a particular
business as the primary buyer for their products are covered
under this form if direct physical loss at such a recipient
location causes the insured’s earnings to suffer.)
o Manufacturing Location (Insureds may depend on a
manufacturer to deliver certain products or components to the
insured’s customers under a sales contract. Should the
manufacturing location be unable to fulfill the contract
because of direct physical loss, insureds may suffer a loss of
income that can be covered under this form.)
o Leader Location (Insureds may depend on another business to
attract customers to their own business. Loss to such a leader
location may cause insureds to suffer a loss of earnings that
can be covered under this form.)
o Legal Liability form (Liability coverage form also covers damage to
property of others while in the insured’s control, but only if the insured is
legally liable for the damage.)
o Glass coverage form (covers glass scheduled in the Declarations and can
include the cost of lettering or ornamentation. The Glass form does not
require a separate Causes Of Loss form; it contains the perils insured
against in the form itself. These include breakage or damage by chemicals
that are accidentally or maliciously applied. The form excludes loss
resulting from the perils of fire, war or nuclear incidents. Additional
coverage is provided for debris removal, the cost of temporary plates or
boarding up, repair of frames, and the cost to remove obstructions. Safety
glazing is covered only when required by law.)
Causes of Loss form (perils) (There are four Causes Of Loss forms: Basic,
Broad, Special, and Earthquake.):
o Basic (states what perils are insured against. It also lists specific
exclusions.) is a named perils form that lists 11 covered perils:
 Fire
 Lightning
 Explosion
 Windstorm or hail
 Smoke
 Aircraft or vehicles
 Riot or civil commotion
 Vandalism
 Sprinkler leakage (accidental leakage or discharge from an
automatic sprinkler system)
 Sinkhole collapse
 Volcanic action
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Commercial Property Insurance (continued)
o Clarifications and Exclusions:
 Clarifications include
 Smoke from agricultural smudging or industrial operations
are not covered.
 The windstorm or hail peril does not include damage
caused by frost, cold weather, snow, sleet, or ice other than
hail. Damage to the interior of a building or its contents is
covered only when the wind or hail first creates an opening
in the walls or roof.
 The explosion peril includes explosion of gasses or fuel
within the furnace or flues of any fired vessel.
 Vehicle damage caused by vehicles the named insured
owns or operates in the course of the insured’s business is
not covered.
 Exclusions include:
 Ordinance or law
 Earth movement (does not include a fire or explosion
resulting from earth movement).
 Government action
 Nuclear hazard
 Failure of power or other utility services occurring away
from the insured’s premises.
 War and military action.
 Water, including flood, sewer backup, mudslides, or
seepage of ground water.
 Artificially generated current.
 Rupture or bursting of water pipes (other than automatic
sprinklers).
 Leakage or discharge of water or steam resulting from
breaking of water or steam system or appliance (does not
apply to automatic sprinklers).
 Explosions of steam boilers, pipes, engines, or turbines.
 Mechanical breakdown.
o Broad form (covers all of the perils listed in the Basic form) in addition it
includes the following coverage:
 Falling objects (does not cover damage to interior property unless
the exterior of the building is damaged first).
 Weight of snow, ice or sleet.
 Water damage (accidental discharge or leakage of water or
steam as a result of the cracking or breaking of a water or steam
system or appliance).
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Commercial Property Insurance (continued)

Repair Costs (Coverage also includes the cost of tearing out or
replacing any part of a building to repair damage to the system
from which the water or steam escaped, and costs to repair the
system itself. Not covered are the costs to repair any defect that
caused the loss, loss from continuous seepage over 14 days or
more, or loss caused by freezing unless proper precautions were
taken to prevent freezing.)
o Additional Coverages
 Collapse Coverage covers collapse of a building caused by:
 Any of the perils specified in the policy
 Hidden decay.
 Insect or vermin damage
 Weight of people or property
 Weight of rain on the roof
 Defective materials or methods used in construction or
remodeling.
 Breakage Of Glass (pays for broken glass and damage caused by
broken glass when the glass was broken by another covered peril.
The glass must be part of the building to be covered. Neon tubing
is excluded. Coverage is limited to $100 per pane or $500 per
occurrence.)
o Causes of Loss – Special form (provides open peril coverage, covers any
direct physical loss that is not specifically excluded or limited in the form.)
 Exclusions:
 Wear and tear.
 Rust, corrosion, fungus, decay, deterioration, and hidden or
latent defects.
 Smog
 Pollutants (unless the release, discharge or dispersal is
caused by a specified cause of loss.)
 Settling, cracking, shrinking, or expansion.
 Damage caused by insects, birds, rodents, or other animals
 Mechanical breakdown.
 Explosion of steam boilers, pipes and engines
 Dishonest or criminal acts of the insured or the insured’s
employees.
 Voluntary parting with property if induced to do so by
fraud or a trick
 Rain, snow, ice, or sleet damage to personal property that is
not in a building.
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Commercial Property Insurance (continued)
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Loss resulting from acts or decisions, or the failure to act or
decide.
 Collapse (other than that specifically included under the
Collapse additional coverage.)
 Faulty planning, development, design, specifications,
workmanship, or repair.
 Limitations:
 Theft Limitations
o $2,500 for furs, fur garments and garments trimmed
with fur.
o $2,500 for jewelry, watches, jewels, pearls, precious
and semi-precious stones, gold, silver, and platinum
(does not apply to jewelry and watches worth less
than $100 per item.)
o $2,500 for patterns, dies, molds, and forms.
o $250 for stamps, tickets, lottery tickets held for sale,
and letters of credit.
 The following property is only covered if loss is caused
by a specific cause of loss or breakage of glass
o Valuable papers and records, abstracts, drawings,
and data processing, recording or storage media.
o Animals, and then only if killed or if it is necessary
to destroy them.
o Breakage of fragile articles, such as glassware,
statuary, marble, chinaware, and porcelain.
o Building machinery, tools and equipment that the
insured owns or is entrusted with while away from
the premises.
o Causes Of Loss—Earthquake (must be used in conjunction with one of
the above Causes of Loss forms either the Basic, Broad or Special Causes
Of Loss forms) covers the following two perils:
 Earthquake
 Volcanic eruption
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Commercial Property Insurance (continued)
o Comparison of Cause of Loss Forms
Peril
Basic
Broad
Special Earthquake*
Open Peril**
yes
Fire
yes
yes
Lighting
yes
yes
Explosion
yes
yes
Windstorm or Hail
yes
yes
Smoke
yes
yes
Aircraft or Vehicles
yes
yes
Riot or Civil
yes
yes
Commotion
Vandalism
yes
yes
Sprinkler Leakage
yes
yes
Sinkhole Collapse
yes
yes
Volcanic Action
yes
yes
Falling Objects
yes
Weight of Snow,
yes
Ice, Sleet
Collapse***
yes
Breakage of Glass
yes
Earthquake
yes
Volcanic Eruption
yes
*
Must be used in conjunction with Basic, Broad or Special Causes Of Loss form
**
Risks of loss not otherwise excluded are covered
***
Additional coverage
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Any mandatory endorsements (endorsements required by law)
Optional Endorsements (endorsements that are the insured’s option to take)
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Commercial Property Insurance (continued)
o Value Reporting (used to provide coverage based on actual value at
certain locations at specific times throughout a given year.)
o Peak Season (allows the insured to carry increased coverage during
certain seasons of the year when inventory or other covered property is
higher than usual.)
o Ordinance or Law Coverage (offsets the ordinance or law policy
exclusion which prohibits payment for increased costs due to building
regulations or demolition laws exclusion by providing coverage when an
insured’s loss is increased because of such laws. Under this endorsement
both demolition costs and increased construction costs required or
regulated by law or ordinance are covered. Loss in value of the
undamaged portion of the building as a consequence of enforcement of
such an ordinance or law is also covered. The endorsement does not cover
costs resulting from the enforcement of laws regarding pollutants, such as
laws concerning pollution cleanup or removal.)
o Spoilage (may be added to the Building And Personal Property and
Condominium Commercial Unit-Owners coverage forms to provide
coverage for the insured’s perishable stock—personal property that must
be maintained under controlled conditions to protect it from loss or
damage.)
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Chapter 14 : Ocean
and Inland Marine
Ocean and Inland Marine Insurance (Marine insurance is a type of Property insurance
that protects property on land or sea.) There are two types of Marine insurance:
o Ocean Marine (covers cargo and ships in transit over sea. It is one of the oldest
types of insurance and one of the first to provide open peril coverage for the
insured’s property. This type does not have standardized forms.) A few of the
more important characteristics of Ocean Marine insurance is it can be issued on a
Named Peril or Open Peril basis. Waterborne properties are subject to a wide
variety of perils, such as fire, explosion, pilferage, contact with other cargo, and
leakage or damage by ship sweat. Waterborne properties are also subject to a
group of perils known as Perils of the Sea, which often result from stormy
weather: Unusual wind or wave, stranding, lighting, collision, sinking, jettison
(a permitted voluntary action if done to prevent further peril and to save the
remaining property) and barratry (refers to illegal acts committed willfully by
the ship’s master or crew for the purpose of damaging the ship or its cargo;
includes hijacking, abandonment or embezzlement.) The four categories of
Ocean Marine insurance:
o Hull Insurance (provides Physical Damage coverage for the ship itself
while in transit on oceans, rivers and lakes. Coverage may be obtained for
a single vessel or an entire fleet. Limited Liability Insurance may also be
included through the Running Down Clause, which protects the owner if
he or she is held liable for the negligent operation of the vessel in
damaging another ship.)
o Cargo Insurance (covers goods while they are in transit over water.
Through the use of the Warehouse To Warehouse clause, coverage is
also extended to include coverage from the property’s point of origination
to its point of destination. This includes not only ocean travel, but any
incidental journey by land as well. For instance, the inland trip from the
warehouse to the shipping dock would be covered. Coverage may be
purchased on a trip or voyage basis or may be purchased Open Cargo. An
insured who frequently ships cargoes, such as an importer or exporter,
would arrange for open cargo coverage.)
o Freight Insurance (protects the insured against the loss of shipping costs.
This coverage can be written separately or included with Hull insurance
or Cargo Insurance, depending on how the shipping costs are handled.
When shipping is prepaid by the owner of the cargo, he or she would lose
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the shipping charges if the cargo was lost. In these cases, it is common for
the owner to purchase Freight coverage along with the Cargo insurance.
Alternately, if the freight is not prepaid and the cargo is lost, it is the
shipper or vessel owner who would stand to lose. A ship owner may
protect against the loss by adding Freight Insurance to the Hull
coverage.)
o Protection And Indemnity Insurance (P&I) (provides Marine Liability
insurance.) P&I protects against liability for:
 Job-related injuries to sailors
 Injuries to stevedores, longshore workers or harbor workers
 Damage to cargo through negligence
 Damage to other property not caused by collision
 Damage to other property or another boat resulting from collision
o Miscellaneous:
 Losses (Partial loss = Average):
 General Average Loss (partial losses resulting from a
sacrifice of cargo to save remaining property will be
shared by all other property owners, including the owners
of the ship. Each owner shares in the general average loss
in proportion to his or her total property interests
regardless of which owner’s property was actually
jettisoned.)
 Particular Average Loss (Any other partial loss that does
not arise from a general sacrifice of property.) There is no
distribution of the loss among all property owners for
particular average loss; instead, each owner bears whatever
loss his or her own property sustained.
 Implied Warranties (Due to various travels of ships and their
cargoes, Ocean Marine insurers are particularly dependent on
implied warranties. Implied warranties are not written into the
policy, but carry the same weight as those that are written. Breach
of an implied warranty can void the contract.) These warranties
include:
 Seaworthiness: The vessel must be fit for the voyage, not
overloaded and have a competent crew.
 Conditions of cargo: The cargo must be warranted to be
sound and packed properly.
 Legality: The trip must involve a lawful enterprise.
 No deviation in voyage: The ship must follow an agreed
route, with no changes in destination and no untoward
delays.
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o Inland Marine (first developed as an extension of Ocean Marine insurance to
provide coverage for cargo that travels over land instead of by sea. Domestic
shipments are covered through Inland Marine Transportation forms.)
o Classes (forms):
 Filed Forms:
 Mail (included as part of Domestic Shipment
[Transportation Forms] provides open peril coverage
against loss to property in transit by registered mail, first
class mail, certified mail, or express mail. Covered
property includes bonds, stock certificates, certificates of
deposit and other securities, stamps, money orders, checks,
and other documents and papers of value except food
stamps, unsold travelers checks and money. When sent by
registered mail, covered property also includes bullion,
platinum and other precious metals, jewelry, watches,
precious and semi-precious stones, unsold travelers checks,
food stamps, and money.)
 Physicians And Surgeons Equipment (covers medical
and dental instruments on and off the premises, as well as
furniture and fixtures at the office and the insured’s interest
in improvements and betterments. Medical and dental
equipment of others used by the insured is also covered at
the insured’s option. Radium is not covered.)
 Accounts Receivable (reimburses the insured for amounts
that can’t be collected from customers due to damage to the
company’s accounts receivable records. It also covers
extra collection expenses and interest on any loans the
insured must obtain to stay in business while collections
are impaired. Accounts receivable records in storage away
from the premises are not covered.)
 Valuable Papers And Records (reimburses the insured
for the cost of replacing damaged items such as
manuscripts, films, maps, drawings, deeds, and books that
belong to the insured or are in the insured’s care, custody
or control. Money and securities are not covered.)
 Camera And Musical Instrument Dealers (covers the
insured’s stock in trade as well as customer property in the
insured’s care, custody or control, such as an instrument or
camera that is being repaired, cleaned or adjusted.)
 Theatrical Property (covers scenery, props and costumes
used by a theater group in a specific production identified
in the Declarations. Also covered is theatrical property in
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the insured’s care, custody or control or on which the
insured has made partial payments.)
Commercial Articles (covers the interests of the owner of
commercial cameras, musical instruments and related
equipment and similar property of others that is in the
insured’s care, custody or control. Provides open peril
coverage, with essentially the same exclusions as other
Commercial Inland Marine forms. Property is covered
worldwide. Also covers collapse.)
Jewelers Block (contains two optional coverages, Show
Windows coverage covers theft of stock from a show
window when the window is cut or smashed. Money
coverage covers theft of money. Coverages:
o The insured’s stock in trade, which includes
jewelry, precious and semiprecious stones, precious
metals and alloys, and other stock used in the
business
o Such property that is sold but not delivered
o Similar property of others who are not in the
jewelry trade in the insured’s care, custody or
control
o Similar property of others in the jewelry trade in the
insured’s care, custody or control, but only to the
extent of the insured’s legal liability for the
property or the amount of money actually advanced
by the insured)
Film (provides open peril coverage for exposed motion
picture film, soundtracks, video tape and magnetic tapes
that are used in the production scheduled in the
Declarations and that the insured owns or has in his or her
custody or control. It does not cover cut-outs, unused
footage, positive prints or films, or library stock.)
Signs (insures businesses against loss to neon, fluorescent,
automatic, mechanical electric signs and lights. The form
covers the insured’s signs and similar property of others in
the insured’s care, custody or control. Breakage during
transportation or during installation, repairing or
dismantling is not covered. Also excluded is artificially
generated current that creates a short circuit or other
electric disturbance within a covered item. The standard
collapse coverage is included.)
Floor Plan (covers stock that is subject to a floor plan
arrangement, in which a dealer borrows money from a
lender with which to pay for merchandise. This
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merchandise can then be insured under a Floor Plan
policy. Coverage may be written to cover the interest of the
dealer, the lending institution or both.)
 Equipment dealers (used to cover dealers of mobile
equipment and construction equipment. It covers the
dealer’s stock in trade consisting primarily of mobile
agricultural equipment and construction equipment. It also
covers property of others in the dealer’s care, custody or
control.)
 Nonfiled Forms:
 Annual Transit policy (protects the shipper or receiver of
goods against loss to goods in transit. Coverage is
available on a named peril basis, protecting against such
losses as fire, windstorm, collision, and theft, or on an open
peril basis. The policy covers all of the insured’s incoming
or outgoing shipments during the year.)
 Trip Transit policy (similar to the Annual Transit policy.
However, it is used to insure single shipments of goods for
companies that have only occasional shipments to insure.
Coverage extends from the time and point of origination to
the time and point of destination.)
 Motor Truck Cargo policy (covers cargo while it is being
transported in a truck. It protects the carrier, instead of the
shipper, for liability for loss to domestic shipments in
transit. The carrier has a responsibility to deliver goods
entrusted to it unharmed. There are only a few things, such
as acts of God [floods, tornadoes] or the shipper’s own
neglect [poor packing], for which the carrier is not liable.
This form is sometimes called the Motor Truck Cargo—
Truckers form which provides direct damage coverage
instead of Liability coverage. Some companies issue a
Motor Truck Cargo—Combination form that provides both
Liability coverage for the shipment of another’s goods and
direct damage coverage for the shipment of the insured’s
own goods on its own trucks.)
o Risk - Nationwide Definition. The Definition lists six categories of eligible
Marine risks:
o Imports (covered by Ocean Marine)
o Exports (covered by Ocean Marine)
o Domestic shipments (covered by Inland Marine)
o Instrumentalities of transportation or communication (covered by
Inland Marine) (includes forms that cover property related to
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transportation or communication, such as bridges, pipelines and television
towers.)
o Personal property floater risks (covered by Personal Inland Marine
insurance.)
o Commercial property floater risks (covered by Inland Marine) has a
number of subcategories of Inland Marine forms including:
 Bailee’s Customer forms (Bailment is the delivery of property by
the owner to someone else to be held for some special purpose,
and then returned to the owner. The bailee is the one who receives
the property; the one who owns the property is called the bailor.
The Bailee’s Customer policy reimburses the insured for damage
to a customer’s property that is in his or her care, regardless of
whether the insured is liable for the damage, as long as the
damage resulted from a covered peril. There are several different
Bailee’s Customer policies available that are tailored to specific
businesses, such as the Cleaners, Dyers And Laundries policy.)
 Contractors Equipment floaters (covers the heavy machinery,
equipment and tools a customer needs to conduct business. It
covers the contractor on an open peril or named peril basis for
loss to all types of tools, machinery and equipment owned, rented
or borrowed by the insured. The property is protected from loss by
fire, landslide, theft, and other perils while it is on the site, on the
way to and from a job site and in temporary storage.)
 Business floaters There are two nonfiled forms in this subcategory
of Commercial property floater risks:
 Installation policy (insures against loss to machinery,
equipment, building materials, and supplies in transit to or
being used with or during the course of installation, testing,
building, renovating, or repair. It can be issued to cover
the interest of the owner, the seller or the contractor.)
 Electronic Data Processing Equipment floater (provides
open peril coverage for computer hardware, software and
data that is owned by the insured or in the insured’s care,
custody or control. Property in transit is covered. Optional
breakdown coverage insures against damage to the
equipment caused by a mechanical breakdown, electrical
disturbances and/or temperature change. Extra expense
and business interruption coverages are also included.)
 Dealers policies (can be written for a number of dealers, including
art, stamp, coin, and antique dealers. These policies are generally
written on an open peril basis and cover property on the premises,
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off the premises and while in transit, provided certain conditions
are met.)
Commercial Inland Marine Coverage Part (written under the CPP) requires the
following forms includes:
 Common Policy Declarations (Inland Marine coverage may be issued as a
monoline policy. In this case the Commercial Inland Marine Declarations form
may be combined with the Common Policy Declarations to form a single
Declarations form.)
 Common Policy Conditions (divided into two sections: Loss Conditions and
General Conditions. Many of the conditions are similar to those contained in
other policies, such as Abandonment, Pairs, Sets Or Parts, Appraisal, and No
Benefit To Bailee.)
o Insured’s Duties in the Event of Loss (similar to that found in other
policies) the insured must:
 Notify the police if a law may have been broken.
 Give the insurer prompt notice of the loss and describe the
property involved.
 Give the insurer a description of how, when and where the loss
occurred as soon as possible.
 Take reasonable steps to protect the property from further damage,
set damaged property aside if feasible, and keep a record of
expenses related to the loss.
 Make no statement that assumes any obligation or admits any
liability without the insurer’s consent.
 Permit the insurer to inspect the property and records proving loss
 Submit under oath to questioning if requested.
 Send a signed, sworn statement of loss within 60 days after it is
requested by the insurer.
 Promptly send the insurer any legal papers or notices concerning
the loss.
 Cooperate with the investigation or settlement of the claim.
o Other Insurance condition (states that if the insured has other insurance
that is written on the same basis as the Commercial Inland Marine form,
the Commercial Inland Marine form pays on a pro rata basis. If the other
coverage is not written on the same basis, Commercial Inland Marine
coverage is excess over any other insurance that applies to the loss,
regardless of whether the insured can collect under the other insurance.)
o Reinstatement Of Limit After Loss condition (provides that the limit of
insurance will not be reduced by payment of any claim, except for a total
loss of a scheduled item. When this occurs, the insurer will refund the
unearned premium on that item.)
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o Loss condition (valued on an actual cash value basis or the cost to
restore or replace the property, whichever is less. The property’s value is
determined at the time of the loss.)
Commercial Inland Marine Declarations form
Commercial Inland Marine Conditions form
One or more of the 12 filed coverage forms listed above (All of the filed
coverage forms provide open peril coverage that is typical of Inland Marine
coverages. Nonfiled forms may be written on a named peril or open peril basis.)
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Chapter 15 : Comm.
Liability
Commercial General Liability Coverage Part (policy may be included in the CPP or
issued as a stand-alone policy. The coverage provided by the Liability section of the
Businessowners policy is similar to that provided by the CGL) A Commercial General
Liability coverage part must include the following:
 Common Policy Declarations
 Common Policy Conditions
 CGL Declarations
 One or more CGL coverage forms
 Any mandatory endorsements
Commercial General Liability insurance (covers business liability exposures. Business
liability is liability that arises out of the conduct of a business):
 Premises and Operations Exposure (liability arising out of the business location
or the activities of the business. This includes liability for bodily injury, property
damage and personal and advertising injury.)
 Personal and Advertising Injury (includes such things as slander, libel,
copyright infringement, invasion of privacy, false arrest, wrongful entry onto
another’s premises, and malicious prosecution.)
 Products or Completed Operations Exposure (covers liability resulting from
defects or poor manufacturing operations of products.)
 Indirect or contingent liability (for the actions of its employees, agents,
contractors, or subcontractors.)
 Exposure Covered by Commercial General Liability Insurance:
o Work-related injuries to employees.
o Pollution
o Contractual agreements in which the insured assumes liability.
o Ownership, maintenance or use of autos, watercraft and aircraft.
o Premises and Operations.
o Products-Completed Operations.
o Indirect/Contingent Liability.
 Two Primary CGL forms (The following two forms contain basically the same
coverages, exclusions and conditions, the main difference is how each coverage is
activated, or triggered.)
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o Occurrence Form (Coverage is triggered by damage or injury that
occurs during the policy period.)
o Claims-Made Form (Coverage is triggered when a claim is first made
against the insured during the policy period, even if the actual injury or
damage occurred at another time) and includes the following:
 Retroactive Date (provides some measure of protection against
previous losses that may have occurred before the claims-made
form was written. The retroactive date is listed in the CGL
Declarations.) The insured has three options for the retroactive
date:
 Use the same date as the policy effective date.
 Use an earlier date than the policy effective date.
 Use no retroactive date.
 Extended Reporting Period (feature built into the claims-made
form that can help close potential coverage gaps. [A gap can
occur when a claims-made policy is replaced by an occurrence
form.]):
 Basic Extended Reporting Period (either 60 days or five
years is available automatically and free of charge under
specified conditions.)
 Supplemental Extended Reporting Period Endorsement
(provides an unlimited extension of the reporting period,
although the event causing the claim must still occur
between the retroactive date and the policy expiration date.
This ERP takes effect at the end of either the 60-day or fiveyear ERP, whichever applies. The insured must request this
endorsement and pay an additional premium.)
CGL Terminology:
 Auto (a land motor vehicle, trailer or semitrailer designed for travel on public
roads, including any attached machinery or equipment. It does not include mobile
equipment.) The following self-propelled vehicles are considered autos (not
mobile equipment):
o Self-propelled vehicles with permanently attached equipment designed
primarily for snow removal, road maintenance (other than construction or
resurfacing) or street cleaning.
o Cherry pickers and similar devices that are mounted on an automobile or
truck chassis and used to raise or lower workers.
o Self-propelled vehicles with attached air compressors, pumps or
generators.

Mobile equipment (any of the following types of land vehicles, including any
attached machinery or equipment):
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o Bulldozers, farm machinery, forklifts, and other vehicles designed for use
principally off public roads.
o Vehicles maintained for use solely on or next to premises the insured owns
or rents.
o Vehicles that travel on crawler treads.
o Vehicles, self-propelled or not, maintained primarily to provide mobility
to permanently mounted power cranes, shovels, loaders, diggers, or drills,
or road construction or resurfacing equipment such as graders, scrapers or
rollers.
o Vehicles that are not self-propelled and are maintained primarily to
provide mobility to permanently attached equipment such as air
compressors, pumps and generators, or cherry pickers and similar devices
used to raise or lower workers.
o Any vehicle that does not fit any of the above descriptions and is
maintained primarily for purposes other than the transportation of persons
or cargo.
Insured’s Product (any goods or products, other than real property, that are
manufactured, sold, handled, distributed, or disposed of by the insured, others
trading under the insured’s name, or a person or organization whose business or
assets the insured has acquired.) Insured’s Product also includes:
o Containers, materials, parts, or equipment furnished in connection with the
product.
o Warranties or representations made at any time with respect to fitness,
quality, durability, or performance of any part of the product.
o The providing of or failure to provide warnings or instructions.
Insured’s Work (work or operations performed by or on behalf of the insured,
and materials, parts or equipment furnished in connection with work or
operations. It also includes warranties or representations made anytime with
respect to the fitness, quality, durability, or performance of the insured’s work
and the providing of or failure to provide warnings or instructions.)
Impaired Property (The property is impaired only if it can be restored to use by
repair, replacement, adjustment, or removal of the insured’s product or work, or
by the insured fulfilling the terms of the contract or agreement.) Tangible
property other than the insured’s product or the insured’s work that cannot be
used or is less useful because:
o It incorporates the insured’s product or work that is known or thought to
be defective, deficient, inadequate, or dangerous, or
o The insured failed to fulfill the terms of a contract or agreement.
Coverage Territory (described territory of the United States of America,
including its territories and possessions, Puerto Rico, and Canada. It also means
international waters or airspace if the injury or damage does not occur in the
course of travel or transportation to or from any place not included in the
described territory.) When the insured is determined to be responsible for
damages in a lawsuit in the described territory, or in a settlement the insurer
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agrees to, the coverage territory includes all parts of the world if injury or damage
arises out of:
o Goods or products made or sold in the described territory.
o Activities of a person whose home is in the described territory, but who is
for a short time out of the described territory on business for the insured.
Loading or Unloading (Excluding movement of property by a mechanical device,
other than a hand truck, that is not attached to the aircraft, watercraft or auto.)
means handling of property:
o After it is accepted for movement into or onto an aircraft, watercraft or
auto.
o While it is in or on an aircraft, watercraft or auto.
o While it is being moved from an aircraft, watercraft or auto to the place
where it is finally delivered.
Pollutants (any solid, liquid, gaseous or thermal irritant or contaminant,
including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste
includes materials to be recycled, reconditioned or reclaimed.)
Products-Completed Operations Hazard (includes all BI and PD occurring
away from the premises owned or rented by the insured, and arising out of the
insured’s product or work, other than products that are still in the insured’s
physical possession and work that has not yet been completed or abandoned.)
Coverage A – Injury and Property Damage Liability The CGL forms provide three
coverages:
 Coverage A—Bodily Injury And Property Damage Liability (pays those sums
the insured becomes legally obligated to pay as damages because of bodily injury
or property damage to which the insurance applies. To be covered, the BI or PD
must be caused by an occurrence, which is defined in the CGL as an accident,
including continuous or repeated exposure to the same general harmful
conditions. In addition to paying those sums the insured is legally obligated to
pay, the company has the right and duty to defend an insured against any suit
alleging liability for damages to which the policy applies.)
o Major Exclusions:
 Arising out of intentional injury.
 The insured assumes under a contract or agreement.
 For those in the alcoholic beverage business, any liability imposed
by law concerning alcoholic beverages.
 For work-related injuries covered under Workers Compensation or
Employer’s Liability laws.
 For most pollution losses that result in bodily injury, property
damage or clean-up costs.
 Resulting from the maintenance, operation or use of aircraft, autos
or watercraft, except as specified in the policy.
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o Other exclusions:
 Arising out of the transportation of mobile equipment by auto or
the use of mobile equipment in any prearranged racing or related
activity, or while practicing or preparing for such an activity.
 Assumed under a contract for war or warlike acts.
 Damage to property owned, rented or occupied by the insured or in
the insured’s care, custody or control (does not apply to property
and its contents for premises rented to the insured for seven
consecutive days or less).
 Damage to the insured’s own product arising out of the product
itself.
 Damage to the insured’s own work.
 Claims based on:
 Defects
 Deficiencies
 Inadequacies
 Dangerous conditions in the insured’s products or work.
 Delays or failures to properly perform contracts.
 Related to recall of the insured’s products or work because of a
known or suspected defect.
 Bodily injury arising out of personal and advertising injury.
o Supplementary Payments paid in addition to the amounts paid for
Liability claims – include:
 All expenses incurred by the insurance company.
 Up to $250 for the cost of bail bonds.
 Cost of bonds to release attachments.
 Reasonable expenses incurred by the insured to assist in the
investigation and defense of a claim, including up to $250 per day
for loss of earnings.
 All costs taxed against the insured in a suit.
 Prejudgment and post judgment interest.
 Defense costs for an indemnitee (indemnitee - a party who is not
an insured who is under contract to provide goods or services to
an insured.)
Coverage B—Personal And Advertising Injury Liability (covers liability arising out
of offenses such as libel or slander. Personal And Advertising Injury Liability coverage
may be offered on either an occurrence or claims-made basis):
 Exclusions are divided into two categories:
o Exclusions that apply to both personal and advertising injury:
 Liability arising out of any of the following is excluded under both
personal and advertising injury:
 Knowingly inflicting injury that violates the rights of
another
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Oral or written publication of material that the insured
knows is false, but publishes anyway.
 Material that was published before the effective date of the
policy.
 Criminal acts committed by or at the direction of the
insured.
 Assumed under contract, except for liability the insured
would have incurred even without assuming it under
contract.
 Pollution losses.
 Breach of contract.
 Failure of goods, products or services to conform with
advertised quality or performance.
 Incorrect price descriptions of goods, products or services.
 Any offense committed by an insured who is involved in
the business of advertising, publishing, broadcasting, or
telecasting.
o Exclusions that apply to pollution losses all pollution losses are
excluded!
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Supplementary Payments paid in addition to the amounts paid for Liability
claims – include:
o All expenses incurred by the insurance company.
o Up to $250 for the cost of bail bonds.
o Cost of bonds to release attachments.
o Reasonable expenses incurred by the insured to assist in the investigation
and defense of a claim, including up to $250 per day for loss of earnings.
o All costs taxed against the insured in a suit.
o Prejudgment and post judgment interest.
o Defense costs for an indemnitee (indemnitee - a party who is not an
insured who is under contract to provide goods or services to an insured.)
Coverage C—Medical Payments (pays for medical expenses incurred for bodily injury
caused by an accident on premises the insured owns or rents, on ways next to premises
the insured owns or rents, or arising from the insured’s operations. To be covered, the
expenses must be incurred and reported to the insurer within one year of the date of the
accident. Medical payments are made without regard to fault, unlike other coverages
under the CGL forms.) Excluded injuries are:
 To any insured or to a tenant or employee of the insured, including a person
injured on a part of the insured’s premises that he or she normally occupies.
 Payable under Workers Compensation or related laws.
 That occurs to a person while he or she is taking part in athletics.
 Included in the products-completed operations hazard (these would be paid under
Coverage A.)
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Anything excluded under Coverage A.
Related to war.
Names Insured (Who is insured) who is considered an insured under the policy depends
on how the named insured is designated in the CGL Declarations: as an individual,
partnership or joint venture, limited liability company, or organization other than a
partnership, joint venture or limited liability company.
Designation In
Declarations
Individual
Partnership or joint
venture
Limited liability company
(a company structured
like a corporation, but
with additional tax and
liability advantages for its
members)
Organization other than
partnership, joint venture
or limited liability
company
Who Are Insured
Named insured
Restrictions
Only in connection with
sole proprietorships
Named insured’s spouse
Named insured
Members, partners and
their spouses are insureds
Named insured’s members only in connection with
and their spouses
conducting the business
Named insured’s partners
and their spouses
Named insured
restrictions
Members
Managers
Named insured
Executive officers and
directors
Stockholders
Executive officers and
directors are insureds
only in connection with
conducting the business
Stockholders are insureds
only in connection with
liability as stockholders
Other insured include:
 The named insured’s employees for acts within the scope of their employment
or while performing duties related to the conduct of the insured’s business
(does not include executive officers of a corporation or managers of a limited
liability company.)
 A non employee or organization while acting as real estate manager for the
named insured.
 If the named insured dies:
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o Any person or organization having temporary custody of the named
insured’s property, but only with respect to liability arising out of the
maintenance or use of that property and only until a legal
representative has been appointed for the insured.
o The insured’s legal representative with respect to those duties.
Any person driving mobile equipment that is registered to the named insured
along a public highway with the insured’s permission, and a person or
organization responsible for the driver’s conduct with respect to liability
arising out of the operation of the equipment.
Newly Acquired Organizations CGL forms automatically cover newly formed or
acquired organizations as a named insured under certain circumstances:
 The named insured must maintain ownership or majority interest of the new
organization.
 There must be no other similar insurance available to the organization.
 Automatic coverage will be provided for 90 days or until the end of the policy
period, whichever is earlier -- Coverage will continue after the automatic
period expires if the insured reports the new organization to the insurer,
subject to insurer’s approval.
 Coverages A and B do not cover losses that occurred before the organization
was acquired or formed.
Limits of Insurance As defined in the Declarations, are the most that will be paid,
regardless of the number of insureds, claims made, suits brought, or persons bringing
suit. The amounts to be paid are subject to defined limits:
 General Aggregate Limit is the maximum that will be paid for the sum of losses
under Coverages A, B and C, except for damages arising out of the productscompleted operations hazard. (This limit is subject to modification by
endorsement so that it applies separately to each of the insured’s locations or
projects.)
 Products-Completed Operations Aggregate Limit that represents the most that
will be paid under Coverage A because of injury and damage arising out of the
products-completed operations hazard.
 Personal and Advertising Injury Limit represents the most that will be paid
under Coverage B for the sum of all damages due to personal injury or advertising
injury sustained by any one person or organization. This limit is also subject to
the overall General Aggregate Limit.
 Per Occurrence Limit is the most that will be paid for the sum of damages under
Coverages A and C because of all bodily injury, property damage and medical
payments arising out of any one occurrence. This limit is also subject to either the
General Aggregate Limit or the Products-Completed Operations Aggregate Limit,
whichever is applicable.
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Damage to Premises Rented to the Insured Limit represents the rent that will
be paid under Coverage A for liability for fire damage to premises rented to the
insured or occupied by the named insured with the owner’s permission arising out
of any one fire. This sub-limit is also subject to the Per Occurrence Limit and the
General Aggregate Limit.
Medical Expense Limit is the most that will be paid under Coverage C for all
medical expenses because of bodily injury sustained by anyone person. This sublimit is also subject to the Per Occurrence and General Aggregate Limits.
Conditions:
 Duties in the Event of A Claim The insured has certain duties in the event of an
occurrence, offense, claim, or suit. The insured must notify the insurer as soon as
practicable of an occurrence or offense that may result in a claim, including how,
when and where it took place, the names and addresses of any injured persons and
witnesses and the nature and location of any injury or damage arising out of the
occurrence. (Under the claims-made form, notice of an occurrence is not notice of
a claim.) If a claim is made or a suit is brought against any insured, the insured
must immediately record the specifics of the claim or suit and the date it was
received and notify the insurer as soon as practicable. The insured must also see
to it that the insurer receives written notice of any claim or suit as soon as
practicable. The insured must also:
o Immediately send the insurer copies of any demands, notices or other legal
papers received in connection with a claim or suit.
o Authorize the insurer to obtain records.
o Cooperate with the insurer in the investigation, settlement or defense of a
claim.
o At the company’s request, assist the insurer in the enforcement of any
right against someone who may be liable to the insured.
o Not voluntarily make a payment, assume any obligation or incur any
expense, other than expenses for first aid, without the insurer’s consent,
except at the insured’s own cost.
 Nonrenewal When We Do Not Renew condition states that if the insurer decides
not to renew the CGL policy, it must mail or deliver written notice of nonrenewal
to the first named insured at least 30 days before the expiration date of the policy.
 Other Insurance states that when the insured’s CGL is primary and other
primary insurance applies to the same loss, the loss will be divided between the
policies by one of two methods:
o Contribution by equal shares (all insurers contribute equally up to the
limit of the policy with the lowest limit. At that point, the insurer with the
lowest limit stops paying since it has already paid its policy’s limit, and
the other insurers share the remainder of the loss. This continues either
until the loss is paid in full or each company has paid its limit.)
o Contribution by limits (applies when all policies involved specify this
method of handling other insurance. If they don’t, contribution by limits
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applies. Contribution by limits is a method you are already familiar with
for apportioning losses. Each company pays a proportion of the loss equal
to the corporation its policy limits bear to the total amount of insurance
available.)
Your Right to Claim and Occurrence Information condition is included in the
claims-made form, but not the occurrence form. It provides that the insurer will
give the first named insured certain information relating to the current CGL
claims-made form and any previous claims-made forms the insurer has issued to
the insured during the previous three years. The information includes:
o A list or record of each occurrence not previously reported to any other
insurer of which this insurer has been notified according to policy
provisions.
o A summary, by policy year, of payments made and amounts reserved
under any applicable General Aggregate Limit and Products-Completed
Operations Aggregate Limit.
Other Commercial General Liability Coverage Forms and Endorsements
 Pollution Liability Coverage Extension endorsement overrides the Coverage A
exclusion for BI or PD claims arising out of pollution losses. It does not provide
coverage for clean-up costs associated with pollution losses.
 Owners And Contractors Protective Liability (OCP) coverage form is
specifically designed to provide liability for operations of independent
contractors. It is purchased by someone other than the named insured to protect
the insured against liability arising out of work performed for the insured by an
independent contractor. It is most frequently used to protect an owner for liability
arising out of operations being performed by a general contractor. Coverage
applies only to the specific location and contractor named in the Declarations and
is written on an occurrence basis.
 Liquor Liability Coverage Form covers insureds who are in the liquor business.
It covers liability for contributing to a person’s intoxication or for providing
liquor in violation of the law for businesses engaged in the liquor business. The
standard forms exclude this liability, which is sometimes called dram shop
liability. Coverage can be purchased on either a claims-made occurrence basis.
 Pollution Liability Coverage Form and the Pollution Liability--Limited
Coverage Form cover certain pollution losses excluded under the standard form.
Each covers pollution incidents, which are emissions of pollutants into or on land,
the atmosphere or water that cause environmental damage. The only difference is
the Pollution Liability—Limited form does not cover clean-up costs, and the
Pollution Liability form does. Both Pollution forms are only written on a claimsmade basis.
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Chapter 16 : Comm.
Auto
Commercial Auto Coverage Part (Businesses, like individuals, need both Liability and
Physical Damage coverage for losses that arise out of autos owned by or used in the
business. In this unit, we will focus on automobile coverages designed to cover the
private passenger and commercial auto exposures of businesses that can be insured
under the Commercial Auto policy.)
 Commercial Auto policies can be written as a mono-line policy or included in
the CPP. A Commercial Auto coverage part must contain:
o Common Policy Declarations
o Common Policy Conditions
o One of five separate coverage forms:
 Business Auto coverage form (used to insure the private
passenger and commercial auto exposures of all businesses other
than garages, truckers and motor carriers. Because of the
specialized nature of these businesses and their unique coverage
needs, separate forms were designed to cover these risks.)
 Business Auto coverage form includes:
o Liability coverage (similar to that provided by the
Personal Auto policy. The policy agrees to pay all
sums an insured legally must pay as damages
because of BI or PD to which the insurance applies
caused by an accident and resulting from the
ownership, maintenance or use of a covered auto.
Coverage for defense costs and supplementary
payments are also included. The insurer also agrees
to pay all sums an insured legally must pay as a
covered pollution cost or expense to which the
policy applies. The pollution cost must be caused by
an accident and result from the ownership,
maintenance or use of covered autos. The insurer
will only pay for covered pollution costs if there is
bodily injury or property damage caused by the
same accident. Coverage for liability for pollution
clean-up costs is also included under specific
circumstances.
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o Who Is An Insured (In addition to the named
insured, others have Liability coverage while using
covered auto with permission. The policy also
covers those who become liable for the conduct of
an insured.)
o Who is Not Insured
 The owner of an auto hired or borrowed
from an employee or family member.
 A person who is working in an auto-type
business.
 People besides employees or lessees while
moving property to or from a business.
 The owner of a hired or borrowed auto.
o Exclusions (Business Auto Liability coverage
contains many of the same exclusions as Personal
Auto Liability coverage) specific exclusions
include:
 For expected or intended injuries.
 Assumed under contract or agreement (does
not apply to liability the insured would have
had if there were no contract or agreement
or contracts that meet the policy’s definition
of an insured contract.)
 For work-related injuries to employees,
including those covered under Workers
Compensation and related laws and injuries
caused to an employee by another employee.
 For damage to property owned by,
transported by or in the care, custody or
control of the insured.
 For damage arising out of the movement of
property by a mechanical device.
 For bodily injury or property damage arising
out of the operation of self-propelled
vehicles with attached cherry pickers that
are used to raise or lower workers, or which
have permanently attached equipment such
as air compressors, pumps and generators.
 For completed operations.
 For pollution damage, except as specifically
provided in the policy.
 Assumed under a contract for war or warlike acts.
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For covered autos while being used for, or
while practicing or preparing for, organized
or professional racing, demolition or
stunting activities.
o Supplementary Payments additional items
include:
 Expenses the insurer incurs.
 Cost of bail bonds up to $2,000 for
violations because of a covered accident.
 Cost of bonds to release attachments, but
only within the limit of insurance.
 Expenses the insured incurs at the insurer’s
request, including the insured’s lost earnings
up to $250 a day because of time off from
work.
 Costs the insured is required to pay because
of a suit.
 Interest that accrues after a judgment and
before it is paid.
o Out of State Coverage Extensions (provides
coverage where a business’s autos are driven in
more than one state. The Out Of State Coverage
Extensions modify the policy’s Liability coverage to
meet other states’ financial responsibility
requirements and other state laws concerning outof-state drivers when the covered auto is being
driven in that state.)
Physical Damage Coverage (Comprehensive or Specified
Causes of Lost and Collision -- Uninsured Motorists,
Medical Payments and Underinsured Motorists coverage
can be added by endorsement.)
Definitions Section of the Business Auto coverage form
defines certain key terms used in the policy. These terms
help clarify the intent of various coverages and conditions:
o Auto (land motor vehicle, trailer or semi trailer
designed for travel on public roads. It generally
does not include mobile equipment. An exception is
made under the policy’s Liability coverage when
mobile equipment is being towed or carried by a
covered auto. This provision fills an insurance gap,
because the Commercial General Liability policy
excludes coverage for mobile equipment while it is
being transported by an auto that is owned or
operated by an insured. Other exposures arising out
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of mobile equipment are covered under Commercial
General Liability insurance.
o Bodily Injury (bodily injury, sickness or disease,
including death resulting from any of these.
Property damage means damage to or loss use of
tangible property.)
o Covered Pollution Cost or Expense (costs arising
out of any order by a government authority
demanding that the insured test for, monitor,
cleanup, remove, contain, treat, detoxify or
neutralize, or respond to or assess the effects of
pollutants.) Exclusions:
 Costs arising out of the escape of pollutants
that are in property being transported or
towed by, handled into, onto or from the
covered auto, or otherwise in the course of
transit by the insured, or being stored,
disposed of, treated, or processed in or on
the covered auto.
 Pollutants released before the property is
moved to the place where they are accepted
by the insured for movement into the
covered auto, and after the pollutants are
delivered by the insured. This exclusion
does not apply to fuels, lubricants, fluids,
exhaust gases, or other pollutants necessary
for or resulting from the normal operation of
a covered auto or its parts.
o Pollutants (any solid, liquid, gaseous or thermal
irritant or contaminant, including smoke, vapor,
soot, fumes, acids, alkalis, chemicals, and waste.
Waste includes materials to be recycled,
reconditioned or reclaimed.)
Business Auto Physical Damage (towing and labor costs and
transportation expenses are also available) contains three
principal coverages:
 Comprehensive: Covers any loss, other than collision or
overturn, that is not excluded by the policy.
 Specified Causes Of Loss - Covers only these perils:
o Fire
o Lightning
o Explosion
o Theft
o Windstorm
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Hail
Earthquake
Flood
Vandalism or mischief
Sinking, burning, collision, or derailment of a
conveyance transporting the covered auto (such as a
ship.)
 Collision Covers overturn of the covered auto and collision
with another object.
 Excluded Losses:
o To sound reproducing and receiving equipment,
tapes and records.
o From wear and tear, freezing, mechanical or
electrical breakdown, or road damage to tires.
o Arising out of war.
o Arising out of nuclear events.
o To covered autos while being used for, or while
practicing or preparing for, organized or
professional racing, demolition or stunting
activities.
 Conditions unique to Business Auto are as follows:
o Settling physical damage claims: The insurer has
three options for settling physical damage claims:
 Pay for, repair or replace the damaged or
stolen property.
 Return stolen property to the insured at the
company’s expense and pay for any
damages resulting from the theft.
 Take the damaged or stolen property at an
agreed or appraised value.
Garage Coverage form (automobile-type businesses such as car
dealerships, gas stations and parking garages are excluded by the
Business Auto coverage form, these risks must be covered under a
separate Garage coverage form. Uninsured Motorists,
Underinsured Motorists and Medical Payments coverage may be
added by endorsement.)
 This form provides:
o Liability coverage The Garage coverage form
covers both auto and business liability arising out
of:
 The ownership, maintenance or use of
covered autos (Garage Operations—
Covered Autos.)
o
o
o
o
o

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Garage operations (Garage Operations—
Other Than Covered Autos -- those
considered insureds include the named
insured, his or her employees and the
business’s directors and shareholders while
acting within the scope of their duties.
Contains many of the same Liability
exclusions as the Business Auto coverage
form. It also contains some general liabilitytype exclusions such as damage to property
of others in the insured’s care, custody or
control, property damage to the insured’s
own products or work and product or work
recalls. Those protected as insureds are
essentially the same as those insured for
liability under the Business Auto coverage
form, with one important exception. For
auto dealer risks, garage customers are not
covered if they have their own Liability
coverage. If customers do not have Liability
coverage of their own, the Garage form
protects them, but only up to the minimum
limits of financial responsibility. The insured
has the option of adding coverage for
customers up to the full limits of the policy.)
o Garagekeepers coverage (covers the insured’s
liability for damage to customers’ property that the
insured has for servicing, repair, parking, or
storage. The insured also has the option of
purchasing Direct Damage Garagekeepers
insurance, which pays for physical damage to
customers’ property in the insured’s custody,
whether or not the insured is liable. Direct Damage
Garagekeepers insurance can be provided on either
a primary or excess basis; the causes of loss that
can be covered include Comprehensive or Specified
Causes.)
o Physical Damage coverage (Typically, auto
dealers purchase Physical Damage coverage on a
blanket basis. It specifically excludes false pretense
coverage—coverage for losses when a dealer
voluntarily parts with a covered auto because of a
trick. [Such coverage is available by endorsement.])
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A few specialized exclusions apply to this blanket
coverage, including:
 Expected profits.
 Collision damage to autos being driven or
transported from the point of purchase or
distribution to the point of destination if this
distance is 50 miles or more.
 Covered Autos (uses a commercial system to determine
which autos are covered autos. It is similar to the one used
for the Business Auto coverage form, except the numbers
are different.) There are two symbols that are unique to the
Garage coverage form:
o Symbol 30: Customers’ autos left with the insured
for service, repair, storage, or safekeeping (this is
Garagekeepers coverage, which we’ll cover later.)
o Symbol 31: Physical Damage coverage only for the
dealers’ autos and autos held for sale by dealers,
nondealers or trailer dealers.
Truckers (a modified version of the Business Auto coverage form
that takes into consideration the special practices and regulations
that apply to the trucking industry. Is required because the
Business Auto coverage form specifically excludes businesses that
set themselves out for hire to haul the goods of others.):
 The Truckers coverage form includes three coverages:
 Liability (The Liability Damage coverages is similar to
those provided under the Business Auto coverage form.)
 Trailer Interchange (uses a numerical system to
determine which autos are covered autos. It is similar
to the one used for the Business Auto coverage form,
except the numbers are different and the “owned auto”
options do not include private passenger autos.)
o Trailer Interchange coverage:
 Symbol 48: Trailers borrowed or leased by
the named insured for which liability for
loss has been assumed under a written trailer
interchange agreement; applies to
Comprehensive, Specified Causes Of Loss
or Collision coverages of Trailer
Interchange coverage only.
 Symbol 49: Trailers owned or hired by the
named insured while the trailers are in
someone else’s possession under a written
trailer interchange agreement.
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o Borrowed or Hired Trailers (Trailer Interchange
insurance covers damage to a specific trailer under
the policy of the trucker in whose possession the
trailer is at the time of loss.) Must meet the
following requirements to be covered:
 The trucker is liable under a written
interchange agreement.
 The damage is caused by a covered peril.
 Physical Damage (Physical Damage coverages is
similar to those provided under the Business Auto
coverage form.)
 Motor Carrier Act of 1980 (The Motor Carrier coverage form is
an alternate to the Truckers coverage form. While a trucker is a
person hired to haul the goods of others. A motor carrier is anyone
who transports property by auto in a commercial enterprise,
regardless of whether they were hired for that purpose.)
 MCS-90 Endorsement (This endorsement provides public
liability coverage for bodily injury, property damage and
environmental restoration.) This endorsement is the most
common method to obtain adequate Truckers coverage to
cover the automobile exposure, as well as Commercial
Inland Marine Motor Truck Cargo insurance to cover the
liability for cargo being hauled.
 Limits (limits of liability required by the Motor Carrier Act
affect vehicles that have a gross vehicle weight of 10,000
pounds or more.) The required limits are divided into three
categories, based on the kind of hazardous cargo hauled:
o $750,000 for interstate transportation of nonhazardous property.
o $5,000,000 for interstate or intrastate transportation
of large quantities of certain hazardous materials,
such as compressed gas, radioactive materials,
explosives, or oil.
o $1,000,000 for interstate or intrastate transportation
of oil or other hazardous wastes.
o Appropriate Declarations for coverage form selected:
 Covered Autos (The insured selects what autos are to be
considered covered autos for each coverage. These selections are
based on a numerical symbol system described in the policy. If the
insured has Liability coverage, then the following vehicles are also
covered: Temporary substitute autos, Trailers with a load capacity
of 2,000 pounds or less and Mobile equipment while it is being
towed or carried by a covered auto) The insured may select from
the following list:
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Symbol
1
Type of Auto Selected
Any auto (broadest
coverage.)
Description
 Any auto the insured will use during the
policy period, including autos that are
owned, leased, hired, rented, or borrowed
 Used to designate Liability coverage only.
 Any auto the insured owns.
 Designates other coverages besides
Liability coverage.
2
Owned autos only.
3
Owned private passenger
autos only.
4
Owned autos other than
private passenger autos
only.
5
Owned autos subject to
no-fault law.
Any private passenger auto the insured
owns .
 Designates any coverage provided by the
Business Auto coverage form.
 Other types of vehicles the insured owns,
such as trucks, trailers, buses, and
motorcycles.
 Designates any coverage provided by the
Business Auto coverage form.
Designates owned autos required to have
no-fault coverage in a particular state.
6
Owned autos subject to
compulsory Uninsured
Motorists laws.
Designates owned autos required to have
Uninsured Motorists coverage in a
particular state.
7
Specifically described
autos (most restrictive.)
Applies only to autos specifically listed in
the Business Auto coverage form
Declarations.
8
Hired autos only.
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
9
Nonowned autos only.

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
Designates Liability and/or Physical
Damage coverage only.
Only used for autos the insured has
leased, hired, rented, or borrowed.
Does not include autos rented or
borrowed from employees or members
of their households.
Only used for autos used in the
insured’s business that are not leased,
hired, rented, or borrowed.
Includes autos owned by employees but
used in the insured’s business or
personal affairs.
Designates Liability coverage only.
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o Endorsements:
 Drive Other Car—Broadened Coverage For Named
Individuals (DOC) endorsement (used to extend the definition of
a covered auto to include autos the named insured does not own,
hire or borrow while being used by the person named in the
endorsement, particular in the case where the individual does not
have Personal Auto Insurance. Coverage does not apply to autos
owned by the person named in the endorsement or a family
member.)
 Individual Named Insured endorsement (used to extend
Personal Auto-type coverage to immediate family members of the
named insured, subject to certain exclusions and provides very
similar coverage to that provided by the Personal Auto policy.)
 Changes in Commercial Auto Coverage Forms endorsement (a
mandatory endorsement used with all Commercial Auto coverage
forms. It modifies the transportation expenses coverage extension
to cover loss of use expenses to rented autos for which the insured
is legally responsible under a rental contract or agreement.
Coverage is limited to $15 per day to a maximum of $450. The
endorsement also provides worldwide Liability coverage for
private passenger autos the insured hires, leases, rents, or borrows
without a driver for a period of 30 days or less. The suit against
the insured must be filed in the United States or its territories or
possessions, Puerto Rico or Canada.)
 Employees As Additional Insureds endorsement (states that any
employee is an insured while using an auto the business does not
own, hire or borrow when the autos are used in the business or
personal affairs of the named insured. This coverage insures
employees for the business use of their own autos or autos owned
by family members. It does not protect other family members who
may own a vehicle being used by an employee.)
 Medical Payments, Uninsured Motorists and Underinsured
Motorists endorsement. (These endorsements provide coverage
similar to that provided for Personal Auto coverage.)
 Additional Insured—Lessor (Leased vehicles are treated as
owned vehicles for coverage purposes with this endorsement.)
 Specified Hired Autos (used to add coverage for specified hired
autos as if they were covered autos owned by the named insured.
When attached to a policy, the hired autos scheduled in the
endorsement will be treated as if they were covered automobiles
owned by the named insured.)
 Mobile Equipment (This endorsement covers mobile equipment
as if it is a covered auto.)
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Chapter 17 : Crime
Crime Insurance
 Crime Forms (designed to protect businesses and government entities against
property loss resulting from crimes such as burglary, robbery, theft, and
employee dishonesty.)
o Commercial Crime Insurance (available as either a mono line policy or
package policy.)
o Government Crime Insurance (available as either a mono line policy or
package policy.)
 Crime Form Versions (The difference between the form versions is what triggers
coverage.)
o Loss Sustained Form (Crime insurance written under a loss sustained
form covers losses that are sustained during the policy period and
discovered either during the policy period or up to one year after the
policy expires. This one-year discovery period terminates immediately
when the insured obtains other Crime insurance. Losses that occur during
the policy period and are discovered within one year after policy
expiration are covered.)
 Loss Sustained During Prior Insurance condition (which
appears only in the loss sustained forms, states that the policy will
pay for a loss that occurred during the term of a previous policy
but was discovered during the term of the present policy. The most
that will be paid for the loss is the lesser of the current or previous
policy limit.) For coverage to apply, three conditions must be met:
 The discovery period under the previous policy has
expired.
 The current policy became effective on the date the prior
policy expired.
 The loss is covered under both the current and previous
policies.
o Discovery Form (Crime insurance written on a discovery basis covers
losses [such as extortion and embezzlement] that are sustained at anytime
and discovered either during the policy period or up to 60 days after the
policy expires [up to one year for losses related to employee benefit
plans]). A loss is “discovered” when the insured:
 First becomes aware that a loss has occurred or will occur, even if
the actual amount of loss or details concerning the loss are not
known, or
 Receives notice of an actual or potential claim for a covered loss.
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Definitions
o Burglary (the taking of property from inside the premises by a person
unlawfully entering or leaving the premises. There must be evidence of
forcible entry or exit, such as marks made by tools, explosives, chemicals,
or electricity.)
o Safe burglary (the taking of property from within a locked safe or vault
by a person unlawfully entering the safe or vault as evidenced by marks of
forcible entry on the exterior of the safe or vault. It also includes the
taking of the entire safe or vault from inside the premises.)
o Robbery (the unlawful taking of property from the care and custody of
another person. The robber must have caused or threatened to cause
bodily harm to the person being robbed or must have committed an
obviously unlawful act that is witnessed by the person being robbed.)
o Theft (the unlawful taking of money, securities or other property. This
broad term includes burglary, safe burglary and robbery. Theft also
includes the taking of property by stealth [action designed to escape
notice]).
o Forgery (is signing the name of another person or organization with the
intent to deceive.)
o Custodian (someone who has care or custody of property inside the
premises. It includes the insured, the insured’s partners or members, or
any employee. It does not include a watchperson or janitor.)
o Messenger (someone who has care and custody of property while it is
outside the premises. It can include the insured, a relative of the insured,
the insured’s partners or members, or any employee.)
o Watchperson (someone retained specifically by the insured whose sole
duty is to have care and custody of property inside the premises.)
o Employee Benefit Plan (any welfare or pension plan subject to the
Employee Retirement Income Security Act Of 1974 (ERISA), such as a
401(k), profit sharing, health, life, or disability insurance plan.
Government plans, such as Social Security, are not employee benefit
plans.)
o Money (currency, coins, bank notes, travelers checks, register checks and
money orders.)
o Other Property (any tangible property other than money or securities
that has value.)
o Securities (instruments or contracts that represent money or property.
Checks, drafts, bonds, certificates of deposit, stock certificates, stamps,
and credit card receipts are all considered securities.)
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Insuring Agreement – Commercial Crimes Forms (The insured must select the
coverages that will apply to the policy. For each insuring agreement selected, a limit of
insurance and deductible must be listed on the Declarations. The policy limit and
deductible both apply per occurrence. Any insuring agreements the insured does not
want must be designated as “Not Covered” on the Declarations page. Each insuring
agreement is subject to specific rules and has its own rating plan.)
 Includes the following insuring agreements:
o Employee Theft (coverage pays for loss of or damage to money,
securities and other property resulting from theft committed by an
employee, either acting alone or in collusion with others. The employee
does not have to be identified for coverage to apply. No deductible applies
to losses sustained by an employee benefit plan.) There is no coverage for:
 Any employee who has previously had similar insurance cancelled
and not reinstated.
 Loss resulting from trading, either in the insured’s name or in a
genuine or fictitious account.
 Loss resulting from fraudulent or dishonest use of warehouse
receipts.
o Forgery Or Alteration (coverage pays for loss from forgery or alteration
of checks, drafts, promissory notes, or similar instruments made or drawn
by or on the named insured or the insured’s agent. This includes
documents that are forged or altered with a mechanically reproduced
facsimile signature. If sued for collections on forged or altered
instruments the defense expenses are paid in addition to the limit of
liability, with no deductible required. Coverage is provided worldwide.)
o Inside The Premises—Theft Of Money And Securities (coverage pays
for theft, disappearance or destruction of money and securities while
inside the insured premises or a banking premises. If the insured owns the
premises or is liable for damage to it, it also covers damage to the interior
or exterior of the premises that results from theft or attempted theft.
Damage to a locked safe, vault, cash register, cash box, or cash drawer
that is inside the premises is also covered when the damage results from
theft, attempted theft or unlawful entry.)
o Inside The Premises—Robbery Or Safe Burglary Of Other Property
(If the insured owns the premises or is liable for damage to it, it also
covers damage to the interior or exterior of the premises that results from
actual or attempted robbery or safe burglary. Damage to a locked safe or
vault that is inside the premises is also covered when the damage results
from actual or attempted robbery or safe burglary.) Has two primary
coverages:
 Loss of other property (not money or securities) while inside the
premises from actual or attempted robbery of a custodian.
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Loss of other property from a safe or vault inside the premises
from actual or attempted safe burglary.
o Outside The Premises provides two types of coverage:
 Theft, disappearance or destruction of money and securities while
outside the premises and in the care and custody of a messenger or
an armored car company.
 Loss of other property by actual or attempted robbery while
outside the premises and in the care and custody of a messenger or
an armored car company.
o Computer Fraud (coverage covers loss of or damage to money,
securities and other property due to the use of a computer to fraudulently
transfer that property from inside the premises or banking premises to a
place or person [other than a messenger] outside the premises. Coverage
is provided worldwide. Proof of loss may not be based on an inventory
shortage or profit and loss computation.)
o Money Orders And Counterfeit Paper Currency (covers losses that
result when the insured accepts invalid money orders or counterfeit paper
currency in good faith.)
Exclusions:
o Exclusions (Applies To All Crime Coverages)
 Theft or dishonest acts committed by the insured, partners or
members, whether acting alone or in collusion with others.
 Theft or dishonest acts committed by any of the insured’s
employees, managers, directors, trustees, or authorized
representatives, except as covered under Employee Theft coverage.
The exclusion applies whether the person is acting alone or in
collusion with others and while actually working for the insured or
otherwise.
 Seizure or destruction of property by government authority.
 Indirect or consequential losses.
 Legal expenses, except as provided under Forgery Or Alteration
coverage.
 Nuclear hazard.
 War and similar actions.
o Exclusions for Selected Coverages Only (Certain Exclusions Apply Only
to the Inside of the Premises—Theft Of Money And Securities, Inside The
Premises Robbery Or Safe Burglary Of Other Property, and Outside The
Premises coverages.) These coverages exclude loss:
 Resulting from accounting or arithmetic errors or omissions.
 Resulting from giving or surrendering property in an exchange or
purchase.
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Due to fire (does not apply to safes or vaults or destruction of
money and securities under Inside The Premises—Theft Of Money
And Securities coverage.)
Of property contained in any money-operated device, unless it is
equip, with a recording instrument.
To motor vehicles, trailers or semi trailers, including attached
equipment and accessories.
Of property when it is transferred or surrendered outside the
premises or banking premises on the basis of unauthorized
instructions or as a result of a threat to cause bodily harm or
property damage.
This does not apply to loss of money, securities or other property
while outside the premises and in the custody of a messenger if the
insured was not aware of a threat at the time the property left the
premises.
To the interior or exterior of the premises or to a safe, vault, cash
register, cash box, cash drawer, or other property by vandalism or
malicious mischief.
Resulting from the insured or anyone acting with the insured’s
authority being induced by any dishonest act to voluntarily part
with title to or possession of property.
Valuation:
o For loss or damage to property other than money or securities the insurer
will pay the lesser of the property’s replacement cost, the amount needed
to repair or replace the property or the limit of insurance.
o Losses to money are paid at face value, but loss of a foreign currency may
be paid at its face value in that other currency or in the American dollar
equivalent determined by the exchange rate on the day the loss was
discovered.
o Losses to securities are paid at their value at the close of business on the
day the loss was discovered, but the insurer also has the option of
replacing them in kind.
Conditions:
o Conditions (Applies To All Crime Coverages):
 Theft Or Other Dishonest Act (Coverage for any employee is
cancelled immediately upon discovery of any theft or other
dishonest act committed [or has been previously committed] by the
employee by the named insured, partners, officers, directors,
members, or managers.)
 Cancellation (The insurance company also reserves the right to
cancel coverage for any employee.)
 Cancellation Notification (The insured must be notified in writing
at least 30 days before the effective date of cancellation.)
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Consolidation Or Merger (New employees and additional
premises obtained through a consolidation or merger are
automatically covered for 90 days. However, the insured is
required to provide written notice to the insurer and pay any
additional premium required. This condition does not appear in
Crime forms written for government entities.)
 Limit of Insurance (not cumulative, regardless of how long the
insurance remains in force.)
 Covered Under More Than One Coverage (If a loss is covered
under more than one coverage in the Crime form, the insurer will
pay the actual amount of loss or the sum of the limits of the
applicable coverages, whichever is less.)
 Other Insurance (If other insurance applies to a loss, Crime
insurance pays on an excess basis.)
 Legal Action (The insured cannot take legal action against the
insurer for 90 days after filing the proof of loss. Legal action must
be instigated within two years of the date of loss.)
 Coverage Territory (The coverage territory includes the United
States and its territories and possessions, Puerto Rico and
Canada.)
 Duties In The Event Of Loss: The insured’s duties in the event of
loss include:
 Notifying the insurer as soon as possible.
 Notifying the police if a law may have been broken (does
not apply to Employee Theft or Forgery Or Alteration
coverage.)
 Submitting to examination under oath at the insurer’s
request.
 Providing a sworn proof of loss within 120 days.
 Cooperating with the insurer in the investigation and
settlement of the claim.
o Conditions for Selected Coverages Only (Applies Only to Certain
Coverages) There are separate Crime forms for commercial businesses
and government entities. The primary difference is that a separate
Common Policy Conditions form is not required for a monoline policy
because these conditions are incorporated into the policy. For a CPP, a
separate form is required. Other conditions apply only to certain coverages
include:
 Employee Theft Coverage (Losses that occur outside the
coverage territory are covered when the employee is temporarily
outside the territory for 90 days or less.)
 Forgery Or Alteration Coverage (In addition to the proof of loss,
the insured must submit the instrument involved in the loss or an
affidavit describing the amount and cause of loss.)
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Inside The Premises—Robbery Or Safe Burglary Of Other
Property And Outside The Premises Coverages (A $5,000 per
occurrence limit applies for loss to precious metals, precious or
semi-precious stones, furs, pearls, or other articles that contain
these materials.)
Outside The Premises Coverage (The insurer will only pay the
amount of loss that cannot be recovered under the insured’s
contract with the armored car company and from any insurance
available from the armored car company.)
Computer Fraud Coverage (A $5,000 per occurrence limit
applies for loss to manuscripts, drawings or records, including the
costs of reproducing or reconstructing information in them.)
Endorsements
o Funds Transfer Fraud (covers losses resulting from fraudulent
instructions to a financial institution to pay money from an insured’s
transfer account. A transfer account is an account maintained at a
financial institution that allows money to be transferred electronically,
either by phone or in writing. Fraudulent instructions are instructions by
someone who is impersonating an insured or an employee to transfer
money without the insured’s knowledge or consent.)
o The Extortion—Commercial Entities (pays for loss of money, securities
and other property resulting from extortion. Extortion means the
surrender of property away from the premises as the result of a threat
communicated to the insured to do bodily harm to the insured, an
employee or a relative of either who is being held captive.)
Fidelity Bonds (A bond is a guarantee that a specific duty will be discharged, a
certain performance maintained or a specific obligation fulfilled. Fidelity bonds
guarantee an employee’s honest discharge of duty and are written to protect an
insured from dishonest acts by employees. The Employee Dishonesty coverage we
discussed earlier provides coverage comparable to that provided by Fidelity
bonds. Fidelity bonds are continuous and do not have expiration date, although
they may be terminated by the parties to the bond. Like Commercial Crime forms,
Fidelity bonds provide a discovery or cut-off period for losses that occurred
during the term of the bond, but were not discovered until after its termination.):
o Parties to a Bond Insurance contracts include two parties—the insured
and the insurance company while Bonds are contracts between three
parties:
 Principal (The party who promises to do [or not do] a specific
thing. This is the person or company bonded.)
 Surety (The party [often the insurance company] who agrees to be
responsible for loss that may result if the principal does not keep
his or her promise.)
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Obligee (Party to whom the principal makes the promise, and for
whose protection the bond is being written.)
o Types of Fidelity Bonds:
 Name Schedule bonds (cover each employee named on the policy
schedule for the amount listed in the schedule. The limit of liability
may be different for different employees on the list.)
 Position Schedule bonds (list positions in the company that are
covered, rather than the individuals who fill these positions. A new
employee hired in a scheduled position is automatically covered.)
 Commercial Blanket bonds (cover losses arising from the
dishonesty of one or more employees acting separately or together
[in collusion]. Neither the employees nor their positions are
specifically named. The bond’s limit of liability applies separately
to each loss, regardless of the number of employees involved in a
single loss.)
 Blanket Position bonds (similar to Commercial Blanket bonds in
that employees or positions are not specifically listed. However,
the bond’s limit applies separately to each employee involved in a
loss.)
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Chapter 18 :
Workmen
Compensation
Workmen Compensation (Workers Compensation laws [provides a fair means of
handling work-related injuries, including occupational diseases.] gives employees the
right to collect from their employers for injury, disability or death that occurs in the
course of employment regardless of who is at fault. Exclusive Remedy: Employees cannot
sue their employers in court to obtain additional compensation.)
 Method Employers Used to Avoid Liability (Prior to the enactment of Workers
Compensation laws workers had to sue his or her employer and prove the
employer negligent to be reimbursed for a work-related injury.) Employers
proved very successful at avoiding liability through the use of three common law
defenses.
o Assumption of Risk (Assumption of risk allowed the employer to deny
liability on the basis that the employee knew what the situation was like
before he or she was employed and, therefore, assumed all of the risk of
injury himself or herself.)
o Contributory Negligence (Contributory negligence was used to deny
liability on the basis that, no matter how negligent the employer was, the
employee had also been negligent, and therefore the employee should be
responsible for the consequences.)
o Fellow Servant Rule (The fellow servant rule was used to deny liability
on the basis that the injury was caused by a fellow employee and,
therefore, the employer could not be held liable.)
 Exempt Job Classifications (Every state has some exempt classifications, but the
majority of the nation’s employees are now covered under Workers Compensation
laws. In some states, the hours worked or wages earned determine whether or not
an employee is exempt. Benefits may always be voluntarily provided by
purchasing Workers Compensation insurance to cover exempt employees.)
Although the exemptions are not the same in all states, the following classes of
employees are typically exempt:
o Certain farm and agricultural workers.
o Charitable organization workers.
o Domestic employees and casual laborers.
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o Newspaper vendors.
Covered Losses (Workers Compensation laws vary from state to state, but in
general they pay benefits in four categories.):
o Disability/Loss Of Income Benefits (compensate employees who are
unable to work as the result of a work-related injury. These benefits are
intended to replace a portion of lost income.)
o Medical Benefits (pay for the cost of various types of medical services
required because of an employment-related injury. Nearly any type of
related medical expense is covered without limit amount or duration the
expenses will be paid.)
o Survivor/Death Benefits (compensate a surviving spouse, children or
other relatives of an employee whose death results from a work related
injury. In general survivor benefits usually include a weekly benefit and a
stipulated amount for funeral and burial expenses)
o Rehabilitation Benefits (include medical rehabilitation, such as physical
therapy designed to improve physical functioning, and vocational
rehabilitation, such as retraining for a different occupation. Workers
compensation rehabilitation benefits usually pay any reasonably
justifiable expenses for these purposes.)
Injuries Compensable Under Worker Compensation Laws Three factors are
used to determine if the injury arose in the course of employment:
o Time (important because a compensable injury must occur during the
time work is actually being performed for the purposes of employment)
o Place (where the injury occurred.)
o Circumstances (Must occur during the execution of employment duties.)
Level Of Disability Level Of Disability suffered by an injured worker is
categorized into one of four types:
o Permanent total (permanent total disability is one that will affect the
worker for the rest of their life without chance of recovery.)
o Permanent partial (permanent partial disability is one that will affect the
worker for the rest of their life without chance of recovery, however does
not rise to the level of total disability.)
o Temporary total (temporary total disability is one that will affect the
worker for a short period of their life with recovery.)
o Temporary partial (temporary partial disability is one that will affect the
worker for a short period of their life with recovery.)
Total/Partial (Determining the difference between a total and a partial disability
depends on what standard the state uses to determine the degree of disability.) In
different areas, the determination is made by deciding first whether the worker is:
o Industrially disabled (refers to the individual’s loss of earnings. Where
industrial disability is the standard, the difference between partial and
total disability depends on whether the individual is able to earn at least
some money by working or has completely lost the ability to work for a
living.)
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o Medically Disabled (refers to the physical condition that affects
functioning. When medical disability is the standard, partial or total
disability depends whether the individual has partial physical functioning
after the injury or having sustained a complete loss of physical
functioning– based on ADL [activities of daily living].)
Compulsory Or Elective (State Workers Compensation laws are either
compulsory or elective.):
o Compulsory States (In most states, the law is compulsory, meaning that
the employer must accept and comply with all provisions of the law.) Both
elective and compulsory states often exclude certain classes of employees,
such as farm workers or domestic servants.
o Elective States (If the state law is elective, the employer may choose not
to be subject to the law.) Exceptions: Even in elective states, there are
certain occupations or groups for which Workers Compensation is
compulsory, such as government employees. Both elective and
compulsory states often exclude certain classes of employees, such as
farm workers or domestic servants.
Fund Requirements/Methods for Workers Compensation insurance (benefits
are often extended to employees over long periods of time, it is important that
measures be taken to guarantee that the company will have the funds to pay
benefits required under the law.) There are five basic methods for funding these
benefits. Each state requires that employers provide security through at least one
of the following methods:
o Insurance Purchased From A Private Insurer (The employer transfers
compensation obligations to the insurance company from which the policy
was purchased. Then, the insurance company pays benefits required by
law.)
o Monopolistic State Funds (Some states have created monopolistic state
funds that require employers to purchase Workers Compensation
insurance from them. Private insurance companies are not allowed to
compete against these funds. To be insured against Workers
Compensation claims, the employer must buy coverage from the state
fund.)
o Competitive State Funds (Other states have created competitive state
funds that give employers a choice between purchasing Workers
Compensation insurance from a state fund or a private insurance
company. Thus, the state fund competes with private insurance.)
o Self-Insurance (Some employers assume their own Workers
Compensation liability through the self-insurance method. If this method
is chosen, the employer will set up a fund to pay Workers Compensation
claims and file evidence of its existence with the state Workers
Compensation authority. The employer must handle benefit costs and
claim expenses, as well as medical and legal services.)
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o Individual Employers To Form Groups (Many states allow individual
employers to form groups to insure the group members’ workers
compensation exposure in a particular state. Eligibility requirements vary
from state to state.)
Coverage (Workers Compensation and Employers Liability Policy -- Most states
that allow private insurance companies to offer coverage use the standardized
Workers Compensation And Employers Liability policy filed by the National
Council On Compensation Insurance [NCCI].) A complete policy contains an
Information Page (similar to the Declarations used with other types of policies)
and a policy form that contains the following sections:
o General Section (contains definitions and conditions that apply to the
policy as a whole.)
o Part One-Workers Compensation (promises to pay all compensation
and other benefits required of the insured by the Workers Compensation
law in the state or states where the insured’s business operates. No dollar
limit applies, except for those that are a part of the law. Coverage applies
to any work-related accident occurring during the policy period.)
o Part Two-Employers Liability (provides coverage to the insured for
sums the insured becomes legally obligated to pay under common law
because of a work-related injury or occupational disease. A minimum
limit of $100,000 per accident applies. There is also a per employee limit
for disease and an overall limit for additional claims.)
o Part Three-Other States Insurance (may be used to provide coverage
for states that are not specifically listed in the Information Page for Part
One coverage. The state must be listed in the Information Page for Other
States coverage and the insured must provide notice to the insurer as soon
as work begins in a new state.)
o Part Four-Your Duties If Injury Occurs (addresses the insured’s
obligations when an injury occurs for which there may be coverage. The
insurer must provide medical services required for the injured party,
report the injury to the insurer and cooperate with the insurer in the
investigation and settlement of the claim.)
o Part Five-Premium (explains how the cost of the policy is determined.)
o Part Six-Conditions (sets forth the various conditions that apply to the
policy, such as cancellation procedures, subrogation and the insurer’s
right to inspect the insured’s workplace.)
Exclusions The following exclusions apply to the Employers Liability section of
the policy:
o Liability assumed under contract.
o Punitive damages awarded because a worker was employed in violation of
the law.
o Injury to a worker while employed in violation of the law with the
insured’s knowledge.
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o Obligations imposed by any Workers Compensation, occupational disease
unemployment compensation, or disability benefits law.
o Injury intentionally caused or aggravated by the insured.
o Injury that occurs outside the U.S., its territories or possessions or Canada
(does not apply to residents of these areas who are temporarily outside
these areas).
o Damages arising out of violations of employment practices laws, such as
discrimination or harassment.
o Injury that is covered under a Federal Workers Compensation law.
o Injury to the master or member of the crew of any vessel.
o Fines and penalties imposed for violations of federal or state law.
o Damages payable under the Migrant And Seasonal Agricultural Worker
Protection Act and other federal laws awarding damages for violation of
laws or regulations.
Endorsements (Coverage for certain types of benefits or certain classes of
employees may only be provided by endorsement.):
o Federal Longshore And Harbor Workers Compensation Act (Some
workers are required to be covered under this act which takes precedence
over any state law that may cover the same workers. Under this act,
specified benefits must be paid to maritime employees injured while
working on navigable waters or shore-site areas of the United States and
its territories. Employers whose workers are subject to this act can
provide coverage by attaching the Longshore And Harbor Workers
Compensation Act Coverage endorsement to the policy.)
o Voluntary Compensation Endorsement (Some types of workers are not
covered under a state’s workers compensation laws, such as domestic
employees and farm workers. An employer can provide coverage for
excluded workers by adding the Voluntary Compensation endorsement to
the policy.)
Workers Compensation Laws – Federal:
o Federal Employers Liability Act (Awards provided under Federal
Employers Liability Act [FELA] are often more substantial than those
provided under state Workers Compensation laws because FELA does not
limit an injured employee’s remedies to scheduled benefits.) FELA allows
the injured worker or a representative of a deceased worker to sue the
employer for negligence and eliminates two of the common types of
defenses:
 contributory negligence.
 assumption of risk.
o Jones Act (The Jones Act is a federal law that allows members of ships’
crews to sue their employer/shipowner at common law for injuries caused
by the employer/shipowner negligence.)
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Chapter 19 : Misc.
Commercial
Miscellaneous Commercial Insurance
 Farmers Insurance (Farmers’ businesses and homes are often at the same
location, so they need insurance that will cover both their personal and business
exposures to loss. The Farm coverage part, which can be written as a mono-line
policy or included in the CPP, includes several Farm Property coverage forms
that cover both the personal and business property of the farmer and a Farm
Liability coverage form for the personal and business liability exposures of the
farmer. Covers both scheduled and unscheduled personal property.):
o Farm Property Coverage Forms (The Farm Property coverage forms
cover direct physical loss to a variety of properties. The insured can select
any combination of three separate forms: The Farm Dwellings,
Appurtenant Structures And Household Personal Property coverage form
are similar to Section I of the Homeowners policy. Property insured under
the Farm Property and Farm Structures forms are also covered for
collision that results in: Damage to covered farm machinery or other farm
personal property; and Death of covered livestock.) It contains the
following coverages:
 Coverage A—Dwellings (a coverage extension for Coverages A,
B and C allows limited coverage for trees, plants, shrubs, or lawns
within 250 feet of the covered residence, but only against loss by
specified perils.)
 Coverage B—Other Private Structures Appurtenant To
Dwellings (a coverage extension for Coverages A, B and C allows
limited coverage for trees, plants, shrubs, or lawns within 250 feet
of the covered residence, but only against loss by specified perils.)
 Coverage C—Household Personal Property (a coverage
extension for Coverages A, B and C allows limited coverage for
trees, plants, shrubs, or lawns within 250 feet of the covered
residence, but only against loss by specified perils.)
 Coverage D—Loss Of Use (includes additional living expenses
and fair rental value -- a limit of $250 per occurrence for loss or
damage to outdoor radio and TV antennas and satellite dishes –
growing crops, plants, shrubs and lawns are excluded.)
 Coverage E—Scheduled Farm Personal Property (covers
property for the limit shown in the Declarations. Examples of
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property that can be covered under Coverage E include grain,
farm products, poultry, livestock, machinery, and vehicles and
equipment incidental to farm use.)
Coverage F—Unscheduled Farm Personal Property (covers
farm personal property on a blanket basis both on and off the
insured premises. The Barns, Outbuildings And Other Farm
Structures coverage form covers barns, silos, fences, radio
equipment, and other farm buildings and structures that are not
dwellings.)
Cause of Loss
o The Farm Property—Causes Of Loss form (a separate document that
lists the perils property is insured against. The Declarations indicates
what level of coverage the insured has selected for each form. The insured
may obtain coverage against earthquake by Causes Of Loss form.) This
form offers three separate levels of coverage within the same form:
 Covered Causes Of Loss—Basic section Perils covered under
this form include:
 Fire
 Lightning
 Windstorm or hail
 Explosion
 Riot or civil commotion
 Aircraft
 Earthquake or flood loss to livestock
 Vehicles
 Smoke
 Vandalism
 Theft
 Volcanic action
 Sinkhole collapse
 Broad The Covered Causes Of Loss—Broad section (adds
additional perils.) Some that are unique to the farm risk include:
 Electrocution of covered livestock.
 Attacks on covered livestock by dogs or wild animals.
 Drowning of covered livestock.
 Accidents involving loading or unloading.
 Accidental shooting of covered livestock.
 Covered Causes Of Loss—Special section (provides open peril
coverage.) Among the excluded losses are:
 Dishonest or criminal acts.
 Pollutants or contaminants.
 Transfer of property due to unauthorized instructions.
 Voluntary parting with property.
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 Failure to save and preserve property from loss.
o Definitions, Conditions And Additional Coverages (applicable to the
three Property forms are contained in a separate form. They are
essentially the same as those you studied in connection with other
Property insurance policies.)
o Additional Forms (specialized coverage forms outside of the Farm
Property coverage part are available.):
 Mobile Agricultural Machinery And Equipment coverage
(covers mobile agricultural equipment and machinery separately
from other property.)
 Livestock coverage (used to insure livestock separately)
Farm Liability coverage form provides the following coverages for liability
arising out of farming operations or personal activities:
o Coverage H—Bodily Injury And Property Damage Liability
o Coverage I—Personal And Advertising Injury Liability
o Coverage J—Medical Payments
o Exclusions (similar to those found in other Liability policies.) There is no
coverage for losses arising out of:
 Pollutants
 Injury to farm employees.
 Motor vehicles, except as specifically described in the policy.
 The insured’s performance of or failure to perform custom farming
operations for others.
 The insured’s own products.
 Aircraft spraying.
o Definitions, Conditions And Additional Coverages (They are
essentially the same as those you studied in connection with other
Property insurance policies.)
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Boiler and Machinery (loss prevention insurance -- Boiler And Machinery insurance
can be written as part of a Commercial Package policy or as a stand-alone policy.)
 Boiler And Machinery coverage part (Small Business Boiler And Machinery
coverage forms are written for the specific needs of small businesses and do not
provide as much coverage as the standard Boiler And Machinery coverage form.)
consists of the Common Policy Declarations and the Common Policy Conditions,
as well as:
o Boiler And Machinery Declarations (identifies the insured and the
property to be covered. It contains a schedule that is very important to the
definition of coverage. It lists covered objects by the section of the Object
Definitions form under which they fall and the applicable coverage. There
are also spaces to list the location of covered objects.)
o One or more Boiler And Machinery coverage forms:
 Three coverage forms:
 Boiler And Machinery coverage form:
o Coverage (pays for direct damage to covered
property caused by a covered cause of loss. A
covered cause of loss is an accident to an object
shown in the Declarations. Coverage applies only
while an insured object is actually at the location
specified in the policy and in use or connected and
ready to be used.)
o Coverage Extensions The Boiler And Machinery
coverage form provides three coverage extensions:
 Expediting Expense (covers the reasonable
cost of temporary repairs and expedition, or
speeding up, of permanent repairs. This
includes the costs of expediting permanent
replacement.)
 Automatic Coverage (provides coverage at
newly acquired locations for objects of the
same type covered under the policy that are
in use or connected for use. Coverage is
available for 90 days, provided the insured
asks the insurance company to cover these
objects within the 90 days.)
 Supplementary Payments (provides
coverage similar to that found in most
Liability contracts for supplementary items
such as prejudgment interest and expenses
the insured incurs at the insurer’s request.)
o Accident Defined (means the sudden and
accidental breakdown of an object or a part of the
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object, resulting in physical damage to the object
that necessitates repair or replacement. If an
accident causes other accidents, all related
accidents will be treated as one accident. All
accidents occurring at a single location at the same
time by the same cause will be considered to be one
accident.) It does not include:
 Depletion, deterioration, corrosion, or
erosion
 Wear and tear
 Leakage at valves, joints, connections, or
fittings
 Breakdown of any vacuum tube, gas tube or
brush
 Breakdown of any computer or electronic
data processing equipment
 Breakdown of any structure or foundation
supporting the object or any of its parts
 The functioning of any safety or protective
device
o Suspension Provisions (The insurer or any
representative of the insurer may immediately
suspend coverage whenever an object is found to be
in or exposed to a dangerous condition. Suspension
applies only to that particular object. The
suspension takes effect as soon as written notice is
delivered to the insured; once in effect, coverage
can only be reinstated by adding an endorsement
for that object.)
o Exclusions (The exclusions in the Boiler And
Machinery coverage form are extensions to those
found in other Commercial Property insurance.
Loss by fire, explosion and lightning are covered,
but only to the extent that they are excluded under
other contracts. For instance, other Commercial
Property forms exclude explosion of steam boilers,
while the Boiler And Machinery coverage form
specifically covers this type of explosion.) Other
excluded losses include losses caused by:
 Lack of power, light, heat, steam, or
refrigeration
 Delay in or interruption of business
 Flood
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
Damage caused by water or other methods
used to extinguish fires
 Accidents to objects being tested
o Policy Limits (liability and payment for losses)
In addition to an overall limit of insurance that
applies per accident, there are also $25,000 sub
limits for these types of expenses or losses:
 Expenses:
 Expediting Expense (This coverage
was described earlier in the
Coverage Extensions section. The
sub limit applies only to the extent
that the amount of insurance has not
been exhausted by payment of loss to
covered property.)
 Hazardous Substance (Cleanup,
repair, replacement, or disposal of
property damaged or polluted by a
covered loss.)
 Ammonia Contamination
(Property contaminated by
ammonia.)
 Water Damage (Water damage as a
result of a covered accident to a
refrigeration or air conditioning
system.)
 Covered losses: (The insured can obtain
actual cash value coverage, rather than
replacement cost coverage, by endorsement,
otherwise.) the policy will pay the lesser of:
 The limit of insurance
 The cost to replace
 The cost to repair
 The amount actually spent to repair
or replace
o Endorsements the following endorsements may be
added:
 Extra Expense endorsement (covers the
additional expenses incurred by the business
to continue operations after a direct loss by
a covered peril, including time element
coverage.)
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

Consequential Damage endorsement
(covers against loss due to spoilage from
lack of power, light, heat, steam, or
refrigeration caused by a covered accident,
including time element coverage.)
 Business Interruption—Actual Loss
Sustained endorsement (covers business
income losses resulting from an accident to
a covered object. Extra expenses incurred to
reduce or prevent the interruption are also
covered.)
 Business Interruption—Valued Coverage
endorsement (similar to Actual Loss
Sustained, except it pays a specified amount
for each day that the business interruption
continues.)
Small Business Boiler And Machinery coverage form:
o Coverage Extensions (Many of the provisions
found on the Small Business Boiler And Machinery
coverage form are the same as those found on the
general Boiler And Machinery form. The
differences are found in the coverage extensions,
limits of insurance and object definitions. The Small
Business form has the same type of coverage for
covered property and the same coverage extensions
for expediting expenses, defense of suits and
supplementary payments as the general form.)
There are two differences in the coverage
extensions:
 It does not include the Automatic Coverage
extension for newly acquired locations.
 It always includes Business Interruption
and Extra Expense coverage for boilers
and pressure vessels. These coverages also
apply to air conditioning and air
compressing units, but only if this coverage
is indicated in the Declarations. (Business
Interruption and Extra Expense coverage
may be added to the general form by
endorsement.) Because Business
Interruption and Extra Expense coverage
is automatically provided, the Small
Business form contains additional
exclusions to limit coverage:
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

Interruption of business that could
not or would not have been carried
on if the accident had not occurred.
 Failure to make reasonable efforts to
resume business operations.
 Loss resulting from cancellation or
suspension of a contract that results
in business being suspended beyond
the time it would have resumed if the
contract had remained in force.
o Limits Of Liability (The Small Business Boiler
And Machinery coverage form provides a single
limit of coverage per accident. Within this limit, it
provides up to $25,000 of average for expediting
expenses and up to $25,000 of coverage for water
damage, just as we found on the general Boiler And
Machinery coverage form. Coverage for Business
Interruption and Extra Expense insurance is equal
to 25% of the limit of insurance. This is provided as
an additional amount of insurance.)
o Object Definitions (The Small Business Boiler And
Machinery coverage form does not require
attachment of an Object Definitions form because
the definitions of covered objects are included in the
form. In the Small Business Boiler And Machinery
coverage form, there are two categories of
objects—boiler and pressure vessels and air
conditioning units.)
Small Business Boiler And Machinery Broad form:
o Coverage Extensions (This form is similar to the
other Small Business form, except that it provides
broader coverages and some additional coverages.
Many of the provisions are the same as those found
on the general form or the other Small Business
form. There are differences in the areas of coverage
extensions, limits of insurance and object
definitions.)
o Optional Coverage for Spoilage (Business
Interruption and Extra Expense coverage includes
an optional coverage for spoilage of perishable
goods following a covered accident. It applies when
the spoilage results from lack of power, light, heat,
steam or refrigeration caused by an accident to an
insured object or to a transformer or electrical
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apparatus located on or within 500 feet of the
location, and owned by a public utility company
that uses it to supply power to that location.)
o Limit (The Small Business Broad form provides a
single limit of coverage per accident. Within this
limit, it provides the same four sublimits for
miscellaneous coverages that apply in the general
Boiler And Machinery form.)
o Object Definitions included in the Broad form.
Additional objects that may be insured include:
 Boilers
 Fired or unfired vessels subject to vacuum
or internal pressure other than weight of
contents.
 Refrigerating or air conditioning systems
 Piping and accessory equipment.
 Compressors, pumps, engines, turbines,
motors, generators, gear sets, fans, or
blowers, including shafts and items on the
shaft.
 Transformers or electrical distribution.
 Mechanical or electrical equipment used to
maintain or service the premises, but not
used for processing or manufacturing.
o One or more Object Definitions Forms from following list:
 Object Definitions Forms (forms define the items insured under
the Boiler And Machinery policy. Each of these forms contain
precise definitions as to what the object means and what it does
not mean. Note: The object definitions are written into the Small
Business Boiler and Machinery coverage forms, so they do not
require a separate Object Definitions form.) One or more of these
forms must be attached to the Boiler And Machinery coverage
form to complete the contract:
 Pressure And Refrigeration Objects form (Includes
boilers, fired vessels, electric steam generators, steam
piping and valves, unfired vessels, refrigerating and air
conditioning vessels and piping, small compressing and
refrigerating units, and air conditioning units.)
 Mechanical Objects form (Includes engines, pumps,
compressors, fans, blowers, gear wheels, enclosed gear
sets, wheels and shafting, and deep well pumps.)
 Electrical Objects form (Includes rotating electrical
machines, transformers, and induction feeder regulators.)
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
Turbine Objects form (Includes turbines and other parts
of a gas turbine unit, components on any shaft of a driving
turbine, and mechanical or hydraulic governing
mechanisms.)
 Comprehensive Coverage-Excluding Production
Machinery (Defines all boiler and machinery objects that
can be covered, except for production machinery.)
 Comprehensive Coverage-Including Production
Machinery (Defines all boiler and machinery objects that
can be covered, including production machinery.)
o Optional endorsements
Aviation Insurance (Insurance coverages for aircraft are similar to those available for
automobile exposures. The most significant differences between aircraft and automobile
insurance are the higher dollar exposure to loss and the high degree of care required by
the operator of the aircraft.):
 Coverages -- The two basic Aviation coverages:
o Aviation Physical Damage coverage,(also called Hull insurance, is
similar to Comprehensive and Collision coverages provided by auto
insurance.) It covers the complete aircraft, including its airframe, engines,
controls, and electronic navigation and communications equipment. (The
Declarations indicate what coverage applies and any special restrictions
or deductibles.) It does not cover personal effects. Either a fixed dollar or
a “percentage of the loss” deductible usually applies. Coverage can be
provided while the aircraft is:
 In the air or on the ground.
 On the ground only.
 Not in motion under its own power.
o Aviation Liability insurance for owners of aircraft includes coverage for:
 Bodily injury liability to persons other than passengers.
 Bodily injury to passengers.
 Property damage liability.
 Medical payments (payable for injuries to passengers, regardless
of whether the insured is liable for their injuries.)
Professional Liability insurance (liability arising out of rendering or failing to render
services of a professional nature—is excluded under CGL policies. Special Professional
Liability policies have been developed for many professionals, such as physicians,
surgeons, dentists, lawyers, insurance agents, architects, accountants, and directors and
officers of corporations. Each policy is tailored to fit a specific occupational need.) Most
policies are written on a claims-made basis.:
 Professionals have two kinds of legal duty to their clients:
o to perform the services for which they were hired.
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
o to perform them in accordance with the appropriate standards of conduct.
Because of their special skills, professionals are held to a higher standard
of conduct.
Professional Liability policies can go by several different names:
o Malpractice insurance (Medical Professional Liability policies written
for medical professionals or institutions, including physicians, nurses,
dentists, surgeons, opticians, optometrists, chiropractors, and
veterinarians.)
o Errors And Omissions (E&O) insurance (broad term that refers to
Professional Liability policies written for professionals, such as insurance
agents, accountants, architects, stockbrokers, engineers, consultants, and
attorneys.)
o Fiduciary Liability policy (type of Professional Liability policy that
protects those who manage private pension and employee benefit plans
against liability for violation of the federal ERISA law.
o Directors And Officers Liability (a type of E&O insurance. Some
professionals believe that settling claims out of court is an admission of an
error that may harm their professional reputations. In the past,
Professional Liability policies contained a provision that the insurer could
not settle a claim without the insured’s consent. Most policies now provide
that such consent is not required.)
Employment Practices Liability (EPL) insurance (CGL and Workers Compensation
And Employers Liability policies exclude losses arising out of wrongful termination,
discrimination, sexual harassment, and other employment-related practices. May be
issued as an endorsement to a Directors And Officers Liability policy or as a separate
policy. Although standard ISO forms are available, many companies issue their own
policies. Policy provisions differ greatly among insurers, particularly those regarding the
types of wrongful employment acts covered. Most policies cover wrongful acts
committed by the employer and its employees.)
Exclusions include:
 Wrongful termination practices committed with dishonest, fraudulent, criminal, or
malicious intent.
 Mass layoffs of employees.
 Deliberate fraud or purposeful violation of laws, rules or regulations.
 BI or PD other than emotional distress, mental anguish or humiliation.
 Liabilities of others assumed under contract, except employment contracts.
 Circumstances reported under prior EPL policies.
Difference In Conditions insurance (DIC) (used to address the gaps in insurance
caused by exclusions in Commercial Property coverage part. DIC policies are usually
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written on large risks with a high deductible. Insurance companies issue their own DIC
policies since there is no standardized form for this type of coverage.)
Umbrella insurance (provides coverage beyond the underlying polic[y/ies])
 Personal Umbrella policies (provides coverages for catastrophic liability
exposures on personal level.)
 Commercial Umbrella policies (provides coverages for catastrophic liability
exposures on business level) provides coverage for the following:
o The policy limits applying to a loss under an underlying policy have been
exhausted.
o A loss is excluded under an underlying contract but not excluded under the
Umbrella (the insured must first meet the retention limit.)
o Previous losses reimbursed under an underlying policy have reduced its
aggregate limit so that a subsequent loss is not fully covered.
Bonds
 Parties to a Bond Insurance contracts include two parties—the insured and the
insurance company while Bonds are contracts between three parties:
o Principal (The party who promises to do [or not do] a specific thing. This
is the person or company bonded.)
o Surety (The party [often the insurance company] who agrees to be
responsible for loss that may result if the principal does not keep his or
her promise.)
o Obligee (Party to whom the principal makes the promise, and for whose
protection the bond is being written.)
 Types of Bonds:
o Fidelity Bonds (A bond is a guarantee that a specific duty will be
discharged, a certain performance maintained or a specific obligation
fulfilled. Fidelity bonds guarantee an employee’s honest discharge of duty
and are written to protect an insured from dishonest acts by employees.
The Employee Dishonesty coverage we discussed earlier provides
coverage comparable to that provided by Fidelity bonds. Fidelity bonds
are continuous and do not have expiration dates, although they may be
terminated by the parties to the bond. Like Commercial Crime forms,
Fidelity bonds provide a discovery or cut-off period for losses that
occurred during the term of the bond, but were not discovered until after
its termination.)
 Types of Fidelity Bonds:
 Name Schedule bonds (cover each employee named on the
policy schedule for the amount listed in the schedule. The
limit of liability may be different for different employees on
the list.)
 Position Schedule bonds (list positions in the company
that are covered, rather than the individuals who fill these
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positions. A new employee hired in a scheduled position is
automatically covered.)
 Commercial Blanket bonds (cover losses arising from the
dishonesty of one or more employees acting separately or
together [in collusion]. Neither the employees nor their
positions are specifically named. The bond’s limit of
liability applies separately to each loss, regardless of the
number of employees involved in a single loss.)
 Blanket Position bonds (similar to Commercial Blanket
bonds in that employees or positions are not specifically
listed. However, the bond’s limit applies separately to each
employee involved in a loss.)
o Surety bonds (major differences between Fidelity and Surety bonding
lies in the face that, in Fidelity bonding, it is the obligee (the employer)
who seeks and pays for the bond. The principal (the employee) often does
not even know the bond exists. With Surety bonds, on the other hand, the
principal is always the party that both arranges and pays for the bond for
the benefit of the obligee.):
 Guarantees that:
 someone will faithfully perform whatever he or she agrees
to do, or;
 someone will make a payment as agreed upon by that
person and another party.
 Indemnity Agreement (submitted with the principal’s
application. The indemnity agreement indemnifies the surety for
any loss sustained prior to a bond being issued by the principal. In
the case where the principal default the surety company will
indemnify the obligee and then attempt to collect from the
principal.)
 Collateral Security (in some cases the surety may require that the
principal deposit money, called collateral security, to protect the
surety against possible loss.)
o Contract Bonds (guarantee the fulfillment of contractual obligations.)
Common types of Contract bonds are:
 Bid bonds (Guarantee that if a contractor’s bid is accepted, the
contractor will enter into a contract and provide the required
Performance bond.)
 Performance bonds (Guarantee that jobs will be completed by the
contractor according to contract specifications.)
 Payment bonds (Guarantee that bills for labor and materials will
be paid by the contractor as they are due. These are sometimes
called Labor And Materials bonds, and are frequently included as
part of a Performance bond.)
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
Supply bonds (Guarantee that a supplier will furnish supplies,
products or equipment at an agreed-upon price and time.)
 Completion bonds (Guarantee that when contractors borrow
money to fund construction projects, the project will be carried out
and the work will be delivered free and clear of liens or
encumbrances.)
o Judicial Bonds (guarantee that the principal will fulfill certain obligator
set forth by law.) There are two classes of judicial bonds:
 Fiduciary bonds (commonly used to bond guardians,
administrators, trustees, and executors, all of whom are
fiduciaries, or persons appointed by a court of law to manage the
property of others.)
 Court bonds (used to settle legal arguments that do not involve
monetary damages. Their primary purpose is to protect obligees
against loss in case principals are not able to prove that they are
legally entitled to the legal remedy they sought against the
obligees.)
o Miscellaneous Types of Bonds:
 Public Official bonds ([required by law] guarantee that public
officials will handle public money correctly and otherwise perform
their duties faithfully and honestly.)
 License And Permit bonds (sometimes required in connection
with the issuance of licenses by government agencies. They
guarantee that the person who posts the bond will comply with all
applicable laws pertaining to their activities.)
The following is the state laws specific to Tennessee that you
will need to know to pass your state insurance exam. These
laws are presented in an unedited form below:
56-6-101. Purpose and scope. —
(a) This part shall be known and may be cited as the “Tennessee Insurance Producer Licensing Act of 2002.”
(b) This part governs the qualifications and procedures for the licensing of insurance producers. It simplifies and organizes some
statutory language to improve efficiency, permits the use of new technology and reduces costs associated with issuing and renewing
insurance licenses.
(c) This part does not apply to surplus lines agents licensed pursuant to the Surplus Lines Insurance Act, compiled in chapter 14 of
this title, except as provided in §§ 56-6-108 and 56-6-118(b).
56-6-102. Part definitions. —
As used in this part, unless the context otherwise requires:
(1) “Business entity” means a corporation, association, partnership, limited liability company, limited liability partnership, or
other legal entity;
(2) “Commissioner” means the commissioner of the Tennessee department of commerce and insurance;
(3) “Department” means the department of commerce and insurance;
(4) “Home state” means the District of Columbia and any state or territory of the United States in which an insurance producer
maintains a principal place of residence or principal place of business and is licensed to act as an insurance producer;
(5) “Insurance” means any of the lines of authority in § 56-2-201;
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(6) “Insurance producer” means a person required to be licensed under the laws of this state to sell, solicit or negotiate insurance;
(7) “Insurer” means any insurance company authorized to transact insurance business in this state;
(8) “License” means a document issued by this state's commissioner authorizing a person to act as an insurance producer for the
lines of authority specified in the document. The license itself does not create any authority, actual, apparent or inherent, in the
holder to represent or commit an insurance carrier;
(9) “Limited line credit insurance” includes credit life, credit disability, credit property, credit unemployment, involuntary
unemployment, mortgage life, mortgage guaranty, mortgage disability, guaranteed automobile protection (gap) insurance, and any
other form of insurance offered in connection with an extension of credit that is limited to partially or wholly extinguishing that
credit obligation that the commissioner determines should be designated a form of limited line credit insurance;
(10) “Limited line credit insurance producer” means a person who sells, solicits or negotiates one or more forms of limited line
credit insurance coverage to individuals through a master, corporate, group or individual policy;
(11) “Limited lines insurance” means those lines of insurance defined in § 56-6-110 or any other line of insurance that the
commissioner deems necessary to recognize for the purposes of complying with § 56-6-108(e);
(12) “Limited lines producer” means a person authorized by the commissioner to sell, solicit or negotiate limited lines insurance;
(13) “NAIC” means the National Association of Insurance Commissioners;
(14) “Negotiate” means the act of conferring directly with or offering advice directly to a purchaser or prospective purchaser of a
particular contract of insurance concerning any of the substantive benefits, terms or conditions of the contract; provided, that the
person engaged in that act either sells insurance or obtains insurance from insurers for purchasers;
(15) “Person” means an individual or a business entity;
(16) “Sell” means to exchange a contract of insurance by any means, for money or its equivalent, on behalf of an insurance
company;
(17) “Solicit” means attempting to sell insurance or asking or urging a person to apply for a particular kind of insurance from a
particular company;
(18) “Surplus lines producer” means a person authorized by the commissioner to sell, solicit or negotiate surplus lines insurance
pursuant to the Surplus Lines Insurance Act, compiled in chapter 14 of this title. Such person shall have the same authority given to a
surplus lines agent licensed under the Surplus Lines Insurance Act, compiled in chapter 14 of this title;
(19) “Terminate” means the cancellation of the relationship between an insurance producer and the insurer or the termination of a
producer's authority to transact insurance;
(20) “Uniform business entity application” means the current version of the NAIC uniform business entity application for
resident and nonresident business entities; and
(21) “Uniform application” means the current version of the NAIC uniform application for resident and nonresident producer
licensing.
56-6-103. License required. —
A person shall not sell, solicit or negotiate insurance in this state for any class or classes of insurance unless the person is licensed
for that line of authority in accordance with this part.
56-6-103. License required. —
A person shall not sell, solicit or negotiate insurance in this state for any class or classes of insurance unless the person is licensed
for that line of authority in accordance with this part.
56-6-104. Exceptions to licensing. —
(a) Nothing in this part shall be construed to require an insurer to obtain an insurance producer license. In this section, the term
“insurer” does not include an insurer's officers, directors, employees, subsidiaries or affiliates.
(b) A license as an insurance producer shall not be required of the following:
(1) An officer, director or employee of an insurer or of an insurance producer; provided, that the officer, director or employee
does not receive any commission on policies written or sold to insure risks residing, located or to be performed in this state and:
(A) The officer, director or employee's activities are executive, administrative, managerial, clerical or a combination of these,
and are only indirectly related to the sale, solicitation or negotiation of insurance;
(B) The officer, director or employee's function relates to underwriting, loss control, inspection or the processing, adjusting,
investigating or settling of a claim on a contract of insurance; or
(C) The officer, director or employee is acting in the capacity of a special agent or agency supervisor assisting insurance
producers where the person's activities are limited to providing technical advice and assistance to licensed insurance producers and
do not include the sale, solicitation or negotiation of insurance;
(2) A person who secures and furnishes information for the purpose of group life insurance, group property and casualty
insurance, group annuities, group or blanket accident and health insurance; or for the purpose of enrolling individuals under plans;
issuing certificates under plans or otherwise assisting in administering plans; or performs administrative services related to mass
marketed property and casualty insurance; where no commission is paid to the person for the service;
(3) An employer or association or its officers, directors, employees, or the trustees of an employee trust plan, to the extent that the
employers, officers, employees, director or trustees are engaged in the administration or operation of a program of employee benefits
for the employer's or association's own employees or the employees of its subsidiaries or affiliates, which program involves the use
of insurance issued by an insurer, as long as the employers, associations, officers, directors, employees or trustees are not in any
manner compensated, directly or indirectly, by the company issuing the contracts;
(4) Employees of insurers or organizations employed by insurers who are engaging in the inspection, rating or classification of
risks, or in the supervision of the training of insurance producers and who are not individually engaged in the sale, solicitation or
negotiation of insurance;
(5) A person whose activities in this state are limited to advertising without the intent to solicit insurance in this state through
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communications in printed publications or other forms of electronic mass media whose distribution is not limited to residents of the
state; provided, that the person does not sell, solicit or negotiate insurance that would insure risks residing, located or to be performed
in this state;
(6) A person who is not a resident of this state who sells, solicits or negotiates a contract of insurance for commercial property
and casualty risks to an insured with risks located in more than one state insured under that contract; provided, that that person is
otherwise licensed as an insurance producer to sell, solicit or negotiate that insurance in the state where the insured maintains its
principal place of business and the contract of insurance insures risks located in that state;
(7) A salaried full-time employee who counsels or advises an employer relative to the insurance interests of the employer or of
the subsidiaries or business affiliates of the employer; provided, that the employee does not sell or solicit insurance or receive a
commission;
(8) Any regular salaried officer, employee or member of a fraternal benefit society which provides benefits in case of death or
disability, resulting solely from accident, and which do not obligate themselves to pay natural death or sick benefits, such officers,
employees or members procuring other members and receiving no compensation therefor other than awards or merchandise nominal
in value; or
(9) An officer, director, or employee of a vehicle rental company engaged in the sale, solicitation, or negotiation of optional
insurance sold in connection with and incidental to a motor vehicle rental agreement for a period not to exceed ninety (90) days;
(A) The insurance that may be offered pursuant to this subdivision (b)(9) is limited to:
(i) Personal accident coverage that provides protection for renters and other rental vehicle occupants for accidental death
or dismemberment, and for medical expenses resulting from an accident that occurs during the rental period;
(ii) Liability coverage that provides protection to renters and to other authorized drivers of the rental motor vehicle for
liability arising from the operation of the motor vehicle during the rental period. The liability protection, when purchased by a renter,
shall be deemed to be primary over any other coverages that may be available to the renter or other authorized driver of the rental
vehicle to the extent of the protection provided;
(iii) Personal effects coverage that provides protection to renters and other motor vehicle occupants for loss of, or damage
to, personal effects in the rental motor vehicle during the rental period; and
(iv) Roadside assistance coverage.
(B) As used in this subdivision (b)(9), “motor vehicle” or “rental vehicle” means a private passenger motor vehicle, including
passenger vans, mini vans, and sport utility vehicles, and a cargo motor vehicle, including cargo vans, pickup trucks, and trucks with
a gross vehicle weight of less than twenty-six thousand pounds (26,000 lbs.).
(C) Each person engaged in the sale of optional insurance products pursuant to this subdivision (b)(9) shall give each renter
who purchases such coverage brochures or other written materials that:
(i) Summarize, clearly and correctly, the material terms and conditions of coverage offered to renters;
(ii) Identify the insurer;
(iii) Describe the process for filing a claim in the event the renter elects to purchase coverage;
(iv) State that the purchase of the coverage is not required in order to rent a vehicle;
(v) Disclose that the coverage offered by the rental agreement may provide a duplication of coverage already provided by
a renter's personal automobile policy or by another source of coverage; and
(vi) Itemize the cost for the coverage separately.
(D) The commissioner may seek the sanctions provided in § 56-6-112(e) against a vehicle rental company upon a finding that
an officer, director, or employee of a vehicle rental company has violated § 56-6-112(a)(2), (4), (5), (7), (8), or (10) in connection
with the sale, solicitation, or negotiation of optional insurance sold in connection with and incidental to a motor vehicle rental
agreement for a period not to exceed ninety (90) days.
56-6-105. Application for examination. —
(a) A resident individual applying for an insurance producer license shall pass a written examination unless exempt pursuant to § 566-109. The examination shall test the knowledge of the individual concerning the lines of authority for which application is made, the
duties and responsibilities of an insurance producer and the insurance laws and regulations of this state. Each individual wishing to
take the state insurance examination shall first complete either an on-site or on-line preparation program approved by the
commission. A person seeking an insurance producer license shall also meet the following pre-licensing requirements:
(1) All applicants for an insurance producer license, unless otherwise exempted by law, are required to register and complete
either an on-line or classroom study program approved by the commissioner;
(2) Applicants for a license shall be at least eighteen (18) years of age or older; and
(3) All other requirements for an insurance license shall be developed and conducted under rules and regulations prescribed by
the commissioner.
(b) The commissioner may make arrangements, including contracting with an outside testing service, for administering
examinations and collecting the nonrefundable examination fee.
(c) An individual who fails to appear for the examination as scheduled or fails to pass the examination, shall reapply for an
examination and remit all required fees and forms before being rescheduled for another examination.
56-6-106. Application for license. —
(a) An individual residing in this state applying for an insurance producer license shall make application to the commissioner on the
uniform application and declare under penalty of refusal, suspension or revocation of the license that the statements made in the
application are true, correct and complete to the best of the individual's knowledge and belief. Before approving the application, the
commissioner shall find that the individual:
(1) Is at least eighteen (18) years of age;
(2) Has not committed any act that is a ground for denial, suspension or revocation set forth in § 56-6-112;
(3) Has completed a prelicensing course of study for the lines of authority for which the person has applied;
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(4) Has paid the fees set forth in § 56-6-121; and
(5) Has successfully passed the examinations for the lines of authority for which the person has applied.
(b) A business entity may obtain an insurance producer's license; however, only an individual licensed producer or limited lines
producer shall sell, solicit or negotiate a contract of insurance in this state. Application shall be made using the uniform business
entity application. An individual authorized and acting on behalf of the business entity shall declare under penalty of refusal,
suspension or revocation of the license that the statements made in the application are true, correct and complete to the best of the
individual's knowledge and belief. Before approving the application, the commissioner shall find that:
(1) The business entity has paid the applicable fees set forth in § 56-6-121; and
(2) The business entity has designated a principal or officer who also holds a current producer license responsible for the business
entity's compliance with the insurance laws, rules and regulations of this state.
(c) The commissioner may require any documents reasonably necessary to verify the information contained in an application.
56-6-107. License.—
(a) Unless denied licensure pursuant to § 56-6-112, persons who have met the requirements of §§ 56-6-105 and 56-6-106 shall be
issued an insurance producer license. A resident insurance producer may receive a license in one or more of the following lines of
insurance:
(1) Life - insurance coverage on human lives including benefits of endowment and annuities, and may include benefits in the
event of death or dismemberment by accident and benefits for disability income;
(2) Accident and health or sickness - insurance coverage for sickness, bodily injury or accidental death and may include benefits
for disability income;
(3) Property - insurance coverage for the direct or consequential loss or damage to property of every kind;
(4) Casualty - insurance coverage against legal liability, including that for death, injury or disability or damage to real or personal
property;
(5) Variable life and variable annuity products - insurance coverage provided under variable life insurance contracts and variable
annuities;
(6) Personal lines - property and casualty insurance coverage sold to individuals and families for primarily noncommercial
purposes;
(7) Credit - limited line credit insurance; and
(8) Any other line of insurance permitted under this title or regulations promulgated under this title.
(b) An insurance producer license shall remain in effect for a period of twenty-four (24) months unless revoked or suspended.
(c) At the end of the twenty-four (24) months, the insurance producer license may be renewed, subject to the limitations set forth in
§ 56-6-112, by paying the applicable fee set forth in § 56-6-121, and submitting the renewal form prescribed by the commissioner. In
addition to the foregoing, and subject to the exception found in § 56-6-118, an insurance producer license will not be renewed unless
the insurance producer has completed all continuing education requirements, as established by rule. However, the continuing
education requirements shall not apply to the following:
(1) An insurance producer who at the time of renewal is at least sixty-five (65) years of age;
(2) An insurance producer who has been continuously licensed in this state as an insurance producer or an insurance agent for no
less than the last fifteen (15) years; or
(3) An insurance producer that is a business entity.
(d) An insurance producer who allows the license to lapse may, within twelve (12) months from the due date of the renewal fee,
reinstate the same license without the necessity of passing a written examination. However, a penalty in the amount of double the
unpaid renewal fee shall be required for any renewal fee received after the due date.
(e) A licensed insurance producer who is unable to comply with the license renewal procedures of this section due to military service
or some other extenuating circumstance (e.g., a long-term medical disability) may request a waiver of such license renewal
procedures. The producer may also request a waiver of any examination requirement or any other sanction imposed for failure to
comply with such renewal procedures.
(f) The license shall contain the licensee's name, address, insurance producer number, and the date of issuance, the lines of authority,
the expiration date and any other information the commissioner deems necessary.
(g) A licensed insurance producer shall inform the commissioner by any means acceptable to the commissioner of a change of
address within thirty (30) days of the change. Failure to timely inform the commissioner of a change in legal name or address may
result in a disciplinary action pursuant to § 56-6-112.
(h) In order to assist in the performance of the commissioner's duties, the commissioner may contract with non-governmental
entities, including the NAIC or any affiliates or subsidiaries that the NAIC oversees, to perform any ministerial functions, including
the collection of fees, related to producer licensing that the commissioner and the non-governmental entity may deem appropriate.
56-6-108.Nonresident licensing. —
(a) Unless denied licensure pursuant to § 56-6-112, a nonresident person shall receive an insurance producer license if:
(1) The person is currently licensed as a resident insurance producer and is in good standing in the person's home state;
(2) The person has submitted the proper request for licensure and has paid the applicable fees required by § 56-6-121;
(3) The person has submitted or transmitted to the commissioner the application for licensure that the person submitted to the
person's home state, or in lieu of the same, a completed uniform application; and
(4) The person's home state awards insurance producer licenses to residents of this state on the same basis.
(b) The commissioner may verify the insurance producer's licensing status through any producer database maintained by the NAIC,
its affiliates or subsidiaries.
(c) A nonresident insurance producer who moves from one state to another state or a resident insurance producer who moves from
this state to another state shall file a change of address and provide certification from the new resident state within thirty (30) days of
the change of legal residence. No fee or license application is required.
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(d) Notwithstanding any other provision of this part, a person licensed as a surplus lines producer in the person's home state shall
receive a surplus lines producer license in this state pursuant to subsection (a). Except as provided in subsection (a), nothing in this
section otherwise amends or supercedes any provision of the Surplus Lines Insurance Act, compiled in chapter 14 of this title.
(e) Notwithstanding any other provision of this part, a person licensed as a limited line credit insurance producer or any other type of
limited lines insurance producer in the person's home state shall receive a nonresident limited lines producer license, pursuant to
subsection (a), as long as such a license is granted to residents of this state. Such license shall grant the nonresident the same scope of
authority as granted a resident insurance producer holding such a license in this state.
56-6-109. Exemption from examination. —
(a) An individual who applies for an insurance producer license in this state who was previously licensed for the same lines of
authority in another state shall not be required to complete any prelicensing education or examination. This exemption is only
available if the person is currently licensed in that state or if the application is received within ninety (90) days of the cancellation of
the applicant's previous license and if the prior state issues a certification that, at the time of cancellation, the applicant was in good
standing in that state or the state's producer database records, maintained by the NAIC, its affiliates or subsidiaries, indicate that the
producer is or was licensed in good standing for the line of authority requested.
(b) A person licensed as an insurance producer in another state who moves to this state shall make application within ninety (90)
days of establishing legal residence to become a resident licensee pursuant to § 56-6-106. No prelicensing education or examination
shall be required of that person to obtain any line of authority previously held in the prior state except where the commissioner
determines otherwise by regulation.
56-6-110.Limited lines producers. —
An individual who has met the requirements of § 56-6-106 shall be entitled to a limited lines producer license without examination in
one (1) or more of the following limited lines:
(1) Insurance on personal effects carried as baggage or limited travel accident insurance sold in connection with transportation
provided by a common carrier;
(2) Credit life, credit accident and health insurance, or involuntary unemployment credit insurance;
(3) [Deleted by 2006 amendment.]
(4) Mortgage guaranty insurance;
(5) Personal property insurance sold to a debtor under a master group policy issued to a creditor;
(6) Crop hail insurance;
(7) Title insurance; provided, that the limited lines producer is an attorney, duly licensed in this state, who acts as a title insurance
agent as an ancillary part of the attorney's practice of law; or
(8) [Deleted by 2005 amendment.]
(9) Any other lines which the commissioner finds by rule are essential for the transaction of business in this state and do not
require the professional competency demanded by an insurance producer's license.
56-6-111. Temporary licensing. —
(a) The commissioner may issue a temporary insurance producer license for a period not to exceed one hundred eighty (180) days
without requiring an examination if the commissioner deems that the temporary license is necessary for the servicing of an insurance
business in the following cases:
(1) To the surviving spouse or court-appointed personal representative of a licensed insurance producer who dies or becomes
mentally or physically disabled to allow adequate time for the sale of the insurance business owned by the producer or for the
recovery or return of the producer to the business or to provide for the training and licensing of new personnel to operate the
producer's business;
(2) To a member or employee of a business entity licensed as an insurance producer, upon the death or disability of an individual
designated in the business entity application or the license;
(3) To the designee of a licensed insurance producer entering active service in the armed forces of the United States of America;
or
(4) In any other circumstance where the commissioner deems that the public interest will best be served by the issuance of this
license.
(b) The commissioner may by order limit the authority of any temporary licensee in any way deemed necessary to protect insureds
and the public. The commissioner may require the temporary licensee to have a suitable sponsor who is a licensed producer or
insurer and who assumes responsibility for all acts of the temporary licensee and may impose other similar requirements designed to
protect insureds and the public. A temporary license issued under this part may also be suspended or revoked pursuant to § 56-6112. A temporary license may not continue after the owner or the personal representative disposes of the business.
56-6-112. License denial, nonrenewal, suspension or revocation. —
(a) The commissioner may place on probation, suspend, revoke or refuse to issue or renew a license issued under this part or may
levy a civil penalty in accordance with subsection (e) or take any combination of such actions, for any one or more of the following
causes:
(1) Providing incorrect, misleading, incomplete or materially untrue information in the license application;
(2) Violating any law, rule, regulation, subpoena or order of the commissioner or of another state's commissioner;
(3) Obtaining or attempting to obtain a license through misrepresentation or fraud;
(4) Improperly withholding, misappropriating or converting any moneys or properties received in the course of doing insurance
business;
(5) Intentionally misrepresenting the terms of an actual or proposed insurance contract or application for insurance;
(6) Having been convicted of a felony;
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(7) Having admitted or been found to have committed any insurance unfair trade practice or fraud;
(8) Using fraudulent, coercive, or dishonest practices, or demonstrating incompetence, untrustworthiness or financial
irresponsibility in the conduct of business in this state or elsewhere;
(9) Having an insurance producer license, or its equivalent, denied, suspended or revoked in any other state, province, district or
territory;
(10) Forging another's name to an application for insurance or to any document related to an insurance transaction;
(11) Improperly using notes or any other reference material to complete an examination for an insurance license;
(12) Knowingly directing any person to submit an application for health care benefits through the TennCare program at a time
when such person is covered by a group policy or when such policy is being renewed, and then quoting a rate for a group health
insurance policy if such insurance producer knows such person would otherwise have been eligible to participate or continue
participation in such group policy; or
(13) Knowingly accepting insurance business from an individual who is not licensed.
(b) Any action by the commissioner to put on probation, suspend, revoke or deny the renewal of a license pursuant to this section
shall be governed by the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
(c) In the event that the action by the commissioner is to deny an application for a license, the commissioner shall notify the
applicant and advise, in writing, the applicant of the denial of the applicant's application within thirty (30) days.
(d) The license of a business entity may be suspended or revoked if the commissioner finds, after a hearing, that an individual
licensee's violation was known or should have been known by one or more of the partners, officers or managers acting on behalf of
the partnership or corporation and the violation was neither reported to the commissioner nor corrective action taken.
(e) With respect to any person licensed or required to be licensed under this part, and in addition to or in lieu of any applicable
denial, suspension or revocation of a license, the commissioner may assess a civil penalty against such person in an amount not less
that one hundred dollars ($100) nor more than one thousand dollars ($1,000) for each separate violation of a statute, rule or order
pertaining to the sale, solicitation or negotiation of insurance in this state. Each day of continued violation constitutes a separate
violation.
(f) The commissioner shall retain the authority to enforce the provisions of and impose any penalty or remedy authorized by this part
and this title against any person who is under investigation for or charged with a violation of this part or this title even if the person's
license has been surrendered or has lapsed by operation of law.
(g) The commissioner may serve a notice or order in any action arising under this part by registered or certified mail to the
insurance producer or applicant at the address of record in the files of the department. Notwithstanding any provisions of law to the
contrary, service in the manner set forth herein shall be deemed to constitute actual service on such insurance producer or applicant.
56-6-113. Commissions. —
(a) An insurer or insurance producer shall not pay a commission, service fee, brokerage fee or other valuable consideration to a
person for selling, soliciting or negotiating insurance in this state if that person is required to be licensed under this part and is not so
licensed.
(b) A person shall not accept a commission, service fee, brokerage or other valuable consideration for selling, soliciting or
negotiating insurance in this state if that person is required to be licensed under this part and is not so licensed.
(c) Renewal or other deferred commissions may be paid to a person for selling, soliciting or negotiating insurance in this state if the
person was required to be licensed under this part at the time of the sale, solicitation or negotiation and was so licensed at that time.
(d) An insurer or insurance producer may pay or assign commissions, service fees, brokerages or other valuable consideration to
persons who do not sell, solicit or negotiate insurance in this state if such persons are creditors of the insurance producer, unless the
payment would violate § 56-8-104(4) or (7).
56-6-114. Liability on contracts of insurance.—
A person shall be personally liable on all contracts of insurance unlawfully made within this state by or through such person
directly or indirectly, for or on behalf of an insurance company not authorized to do business in this state.
56-6-115. Appointments. —
(a) An insurance producer shall not act as an agent of an insurer unless the insurance producer becomes an appointed agent of that
insurer. An insurance producer who is not acting as an agent of an insurer is not required to become appointed.
(b) An insurance producer who solicits or negotiates an application for insurance shall be regarded, in any controversy arising from
the application for insurance or any policy issued in connection therewith between the insured or insured's beneficiary and the
insurer, as the agent of the insurer and not the insured or insured's beneficiary. This provision shall not affect the apparent authority
of an agent.
(c) To appoint a producer as its agent, the appointing insurer shall file, in a format approved by the commissioner, a notice of
appointment within fifteen (15) days from the date the agency contract is executed or the first insurance application is submitted. An
insurer may also elect to appoint a producer to all or some insurers within the insurer's holding company system or group by the
filing of a single appointment request.
(d) Upon receipt of the notice of appointment, the commissioner shall verify within a reasonable time not to exceed thirty (30) days
that the insurance producer is eligible for appointment. If the insurance producer is determined to be ineligible for appointment, the
commissioner shall notify the insurer within five (5) days of the determination.
(e) An insurer shall pay an appointment fee, in the amount set forth in § 56-6-121, for each insurance producer appointed by the
insurer. The fees under this section may be paid by the insurer on a quarterly basis.
(f) Any insurance producer may place excess or rejected risks with an insurer lawfully doing business within this state, and shall not
be required to enter into an agency contract or agreement with the insurer accepting such excess or rejected risks or be appointed by
such insurer; provided, that only that portion of the risk in excess of the limits which such insurer will write may be placed as an
excess risk, and:
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(1) The insurance producer has an agency contract or agreement with an insurer that actually engages in the writing of such
insurance; and
(2) Such insurer has deemed such risk to be in excess of, or in noncompliance with, its underwriting standards.
(g) No insurance producer may place an application for insurance with any “residual market mechanism,” as defined by § 56-5-302,
unless such insurance producer:
(1) Has an agency contract or agreement with an insurer that actually engages in the writing of such insurance; and
(2) Makes a diligent effort to place such application for insurance with such insurer.
(h) It is unlawful for any insurer to accept applications from, or pay commissions to, an insurance producer or limited lines producer
except in accordance with the provisions of this section. Any insurer who unlawfully accepts applications from, or pays commissions
to, any insurance producer shall be deemed to have accepted and acknowledged such person as its insurance producer or limited lines
producer.
(i) An individual not duly licensed as an insurance producer or limited lines producer who solicits a policy of insurance on behalf of
an insurer shall thereby become liable for all the duties, requirements, liabilities and penalties to which an insurance producer of
such insurer is subject.
56-6-116. Fiduciary duty. —
Any money which an insurance producer receives for soliciting, negotiating or selling insurance shall be held in a fiduciary capacity,
and shall not be misappropriated, converted or improperly withheld. Any violation of this section shall be considered grounds for the
denial, suspension, or revocation of the insurance producer's license and shall subject the insurance producer to the sanctions and
penalties set forth under § 56-6-112.
Notification to be Provided to Producer.
(1) Within fifteen (15) days after making the notification required by subsections (a), (b) and (d), the insurer shall mail a copy of
the notification to the producer at the producer's last known address. If the producer is terminated for cause for any of the reasons
listed in § 56-6-112, the insurer shall provide a copy of the notification to the producer at the producer's last known address by
certified mail, return receipt requested, postage prepaid or by overnight delivery using a nationally recognized carrier.
(2) Within thirty (30) days after the producer has received the original or additional notification, the producer may file written
comments concerning the substance of the notification with the commissioner. The producer shall, by the same means,
simultaneously send a copy of the comments to the reporting insurer, and the comments shall become a part of the commissioner's
file and accompany every copy of a report distributed or disclosed for any reason about the producer as permitted under subsection
(g).
(f) Immunities.
(1) In the absence of actual malice, an insurer, the authorized representative of the insurer, a producer, the commissioner, or an
organization of which the commissioner is a member and that compiles the information and makes it available to other
commissioners or regulatory or law enforcement agencies shall not be subject to civil liability, and a civil cause of action of any
nature shall not arise against these entities or their respective agents or employees, as a result of any statement or information
required by or provided pursuant to this section or any information relating to any statement that may be requested in writing by the
commissioner from an insurer or producer; or a statement by a terminating insurer or producer to an insurer or producer limited
solely and exclusively to whether a termination for cause under subsection (a) was reported to the commissioner; provided, that the
propriety of any termination for cause under subsection (a) is certified in writing by an officer or authorized representative of the
insurer or producer terminating the relationship.
(2) In any action brought against a person that may have immunity under subdivision (f)(1) for making any statement required by
this section or providing any information relating to any statement that may be requested by the commissioner, the party bringing the
action shall plead specifically in any allegation that subdivision (f)(1) does not apply because the person making the statement or
providing the information did so with actual malice.
(3) Subdivisions (f)(1) or (f)(2) shall not abrogate or modify any existing statutory or common law privileges or immunities.
(g) Confidentiality.
(1) Any documents, materials or other information in the control or possession of the department that is furnished by an insurer,
producer or an employee or agent thereof acting on behalf of the insurer or producer, or obtained by the commissioner in an
investigation pursuant to this section shall be confidential by law and absolutely privileged, shall not be subject to § 10-7-503(a),
shall not be subject to subpoena, and shall not be subject to discovery or be admissible as evidence in any private civil action.
However, the commissioner is authorized to use the documents, materials or other information in the furtherance of any regulatory or
legal action brought as a part of the commissioner's duties.
(2) Neither the commissioner nor any person who received documents, materials or other information while acting under the
authority of the commissioner shall be permitted or required to testify in any private civil action concerning any confidential
documents, materials, or information subject to subdivision (g)(1).
(3) In order to assist in the performance of the commissioner's duties under this part, the commissioner:
(A) May share documents, materials or other information, including the confidential and privileged documents, materials or
information subject to subdivision (g)(1), with other state, federal, and international regulatory agencies, with the NAIC, its affiliates
or subsidiaries, and with state, federal, and international law enforcement authorities; provided, that the recipient agrees to maintain
the confidentiality and privileged status of the document, material or other information;
(B) May receive documents, materials or information, including otherwise confidential and privileged documents, materials or
information, from the NAIC, its affiliates or subsidiaries, and from regulatory and law enforcement officials of other foreign or
domestic jurisdictions, and shall maintain as confidential or privileged any document, material or information received with notice or
the understanding that it is confidential or privileged under the laws of the jurisdiction that is the source of the document, material or
information; and
(C) May enter into agreements governing sharing and use of information consistent with this subsection (g).
(4) No waiver of any applicable privilege or claim of confidentiality in the documents, materials, or information shall occur as a
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result of disclosure to the commissioner under this section or as a result of sharing as authorized in subdivision (g)(3).
(5) Nothing in this part shall prohibit the commissioner from releasing final, adjudicated actions including for cause terminations
that are open to public inspection pursuant to § 10-7-503(a) to a database or other clearinghouse service maintained by the NAIC, its
affiliates or subsidiaries.
(h) Penalties for Failing to Report. An insurer or the authorized representative of the insurer, or a producer that fails to report as
required under the provisions of this section or that is found to have falsely reported with actual malice by a court of competent
jurisdiction may, after notice and hearing, have its license or certificate of authority suspended or revoked. In addition to or in lieu of
the suspension or revocation of a license or certificate of authority, the commissioner may subject violators of this part to a civil
penalty in an amount not less than one hundred dollars ($100) nor more than one thousand dollars ($1,000) for each violation.
56-6-118. Reciprocity. —
(a) The commissioner shall waive any requirements for a nonresident license applicant with a valid license from the applicant's
home state, except the requirements imposed by § 56-6-108, if the applicant's home state awards nonresident licenses to residents of
this state on the same basis. However, nothing contained in this subsection (a) shall prevent the commissioner from denying,
suspending or revoking a license issued under this part pursuant to § 56-6-112.
(b) A nonresident producer's satisfaction of the producer's home state's continuing education requirements for licensed insurance
producers shall constitute satisfaction of this state's continuing education requirements if the non-resident producer's home state
recognizes the satisfaction of its continuing education requirements imposed upon producers from this state on the same basis.
56-6-119. Reporting of actions. —
(a) A producer shall report to the commissioner any administrative action taken against the producer in another jurisdiction or by
another governmental agency in this state within thirty (30) days of the final disposition of the matter. This report shall include a
copy of any order entered or other relevant legal documents.
(b) Within thirty (30) days of the initial pretrial hearing date, a producer shall report to the commissioner any criminal prosecution
of the producer taken in any jurisdiction. The report shall include a copy of the initial complaint filed, the order resulting from the
hearing and any other relevant legal documents.
56-6-120. Investigations. —
The commissioner may make such investigations as are necessary for the proper administration of this part. For the purpose of
making such investigations, the commissioner shall have inquisitorial powers and shall be empowered to subpoena witnesses and
examine them under oath; provided, that all testimony, documents and other evidence obtained by the commissioner pursuant to this
part shall be absolutely privileged and shall not be admissible as evidence in any private civil proceeding.
56-6-121.Fees. —
In addition to any other fees which may be required elsewhere in this title, the following are the nonrefundable fees which will be
paid to the commissioner under this part:
(1) Fifty dollars ($50.00) for the filing of an application for insurance producer license or limited lines producer license;
(2) Sixty dollars ($60.00) for the renewal of an insurance producer license;
(3) Thirty dollars ($30.00) for the renewal of a limited lines producer license; and
(4) Fifteen dollars ($15.00) for the appointment or termination of appointment of an insurance producer or limited lines
producer by an insurer.
56-6-122.Countersignatures. —
Notwithstanding any other provision of law to the contrary, there shall be no requirement that an insurance producer who is a
resident of this state must countersign a policy of insurance written by an insurance company.
56-6-123. Assumed names. —
An insurance producer doing business under any name other than the producer's legal name is required to notify the commissioner
prior to using the assumed name.
56-6-124.Regulations. —
(a) The commissioner may, in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5,
promulgate reasonable regulations as are necessary or proper to carry out the purposes of this part.
(b) The commissioner shall have the authority to promulgate any public necessity rules necessary to implement this part; provided,
that permanent rules shall be implemented pursuant to the requirements of the Uniform Administrative Procedures Act, compiled in
title 4, chapter 5.
(c) The commissioner shall promulgate continuing education requirements for individuals licensed under this part in accordance
with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
56-6-125. Persons licensed under previous law. —
Persons who on January 1, 2003, hold an insurance agent license issued under prior law of this state shall be entitled to convert their
insurance agent license into an insurance producer license at the time of renewal, upon the fulfillment of all the requirements for the
renewal of an insurance producer license. Such persons may act as an insurance producer without receiving an insurance producer
license, subject to an action to suspend or revoke pursuant to § 56-6-112, until such time as their insurance agent license would
expire. Any insurance agent license not so renewed shall expire one (1) year from the date it was issued or the date it was last
renewed, whichever is later. An insurance agent who allows the license to so expire may, within twelve (12) months from the due
date of the renewal fee, convert the insurance agent license into an insurance producer license without the necessity of passing a
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written examination. However, a penalty in the amount of double the unpaid renewal fee shall be required for any renewal fee
received after the due date.
56-6-126. Severability. —
If any provisions of this part, or the application of a provision to any person or circumstances, shall be held invalid, the remainder of
the part, and the application of the provision to persons or circumstances other than those to which it is held invalid, shall not be
affected.
0780-1-56-.01 PURPOSE.
The purpose of this Chapter is to:
(1) Prescribe the pre-licensing, examination, continuing education, and renewal requirements for insurance/HMO producers
licensed pursuant to T.C.A. §§ 56-6-106, 56-6-107 and 56-32-214;
(2) Establish standards by which continuing education will be evaluated for awarding of credit hours; and
(3) Ensure compliance with applicable statutes and the provisions delineated in this Chapter by requiring periodic reporting of
educational achievements.
(4) Enable the Commissioner to obtain the information necessary to determine whether to issue a license to applicants.
56-8-104. Unfair methods of competition and unfair or deceptive acts or practices defined. —
The following are hereby specifically defined as unfair methods of competition and unfair or deceptive acts or practices in the
business of insurance:
(1) False Information and Advertising. Making, publishing, disseminating, circulating or placing before the public, or causing,
directly or indirectly, to be made, published, disseminated, circulated or placed before the public, in a newspaper, magazine or other
publication, or in the form of a notice, circular, pamphlet, letter or poster or over any radio or television station, or in any other way,
an advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of
insurance or with respect to any person in the conduct of such person's insurance business, which is untrue, deceptive, misleading, or
which:
(A) Misrepresents the benefits, advantages, conditions, or terms of any insurance policy;
(B) Misrepresents the dividends or share of the surplus to be received on any insurance policy;
(C) Makes any false or misleading statements as to the dividends or share of surplus previously paid on any insurance policy;
(D) Is misleading or is a misrepresentation as to the financial condition of any person, or as to the legal reserve system upon
which any life insurer operates;
(E) Uses any name or title of any insurance policy or class of insurance policies misrepresenting the true nature of such policy
or class of policies;
(F) Is a misrepresentation for the purpose of inducing or tending to induce the lapse, forfeiture, exchange, conversion, or
surrender of any insurance policy;
(G) Is a misrepresentation for the purpose of effecting a pledge or assignment of or effecting a loan against any insurance
policy;
(H) Misrepresents any insurance policy as being shares of stock;
(I) Makes false or deceptive representations in any advertisement or solicitation for services or products that such services or
products have sponsorship, approval, affiliation or connection with a bank, savings and loan association, savings bank or subsidiary
or affiliate thereof; or
(J) Uses the name or logo of any bank, savings and loan association, savings bank or subsidiary or affiliate thereof without the
express written consent of the person whose name is used;
(2) Defamation. Making, publishing, disseminating, or circulating, or placing before the public, directly or indirectly, or aiding,
abetting or encouraging the making, publishing, disseminating or circulating of any oral or written statement or any pamphlet,
circular, article, or literature which is false, or maliciously critical of or maliciously derogatory to the financial condition of any
person, and which is calculated to injure such person;
(3) Boycott, Coercion and Intimidation.
(A) Entering into any agreement to commit, or by any concerted action committing, any act or boycott, coercion or
intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance; or
(B) By any act of boycott, coercion or intimidation, monopolizing or attempting to monopolize any part of the business of
insurance; provided, that nothing in this subdivision (3)(B) shall be interpreted as defining or determining as an unfair method of
competition or an unfair or deceptive act or practice in the business of insurance any act of boycott, coercion or intimidation on the
part of any person, unless such act is committed in connection with an intention on the part of such person to monopolize, or attempt
to monopolize, any material part of the business of insurance; and provided further, that no insurance company shall be held to have
violated the provisions of this subdivision (3)(B) because of any act of an agent of that company, which act has not been authorized
or approved or acquiesced in by the company;
(4) False Statements and Entries.
(A) Knowingly filing with any supervisory or other public official, or knowingly making, publishing, disseminating,
circulating or delivering to any person, or placing before the public, or knowingly causing directly or indirectly, to be made,
published, disseminated, circulated, delivered to any person, or placed before the public, any false material statement of fact as to the
financial condition of a person;
(B) Knowingly making any false entry of a material fact in any book, report or statement of any person, or knowingly omitting
to make a true story of any material fact pertaining to the business of such person in any book, report or statement of such person; or
(C) Knowingly making any financial statement or report whereby a contingent premium or any other contingent assessment is
included or shown as an asset of the company;
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(5) Stock Operations and Advisory Board Contract. Issuing or delivering or permitting agents, officers or employees to issue
or deliver, agency company stock or other capital stock, or benefit certificates or shares in any common law corporation, or securities
or any special or advisory board contracts or other contracts of any kind promising returns and profits as an inducement to insurance;
(6) Unfair Discrimination.
(A) Making or permitting any unfair discrimination between individuals of the same class and equal expectation of life in the
rates charged for any contract of life insurance or of life annuity or in the dividends or other benefits payable thereon, or in any other
of the terms and conditions of such contract;
(B) Making or permitting any unfair discrimination between individuals of the same class and of essentially the same hazard
in the amount of premiums, policy fees, or rates charged for any policy or contract of accident or health insurance or in the benefits
payable thereunder, or in any of the terms or conditions of such contract, or in any other manner whatsoever;
(C) Making or permitting any unfair discrimination between risks of the same class and essentially the same hazards and
having substantially the same degree of protection against fire, and fixing, charging, or collecting of any rate or premium which
discriminates unfairly between risks in the application of charges and credits, against the risk of fire and allied hazards, casualty, or
indemnity contracts. In order to secure better enforcement of this subdivision (6)(C), the commissioner may require the filing of
schedules, rates, forms, rules, regulations, and such other information as may be required of any person or its agents, and it is the
duty of every such person, or its agents, promptly to make reply to such inquiries in writing. The commissioner may also require the
insured to submit any policy of insurance to the commissioner for inspection; or
(D) Inquiring into or requiring any applicant who has reached the age of majority for a health and accident policy to reveal the
occupation of any member of such applicant's family who is not to be covered under the terms of any such policy;
(7) Rebates.
(A) Except as otherwise expressly provided by law, knowingly permitting or offering to make or making any contract of
insurance or agreement as to such contract other than as plainly expressed in the insurance contract issued thereon, or paying or
allowing, or giving or offering to pay, allow, or give, directly or indirectly, as inducement to such insurance, any rebate of premiums
payable on the contract, or any special favor or advantage in the dividends or other benefits thereon, or any valuable consideration or
inducement whatsoever not specified in the contract; or giving, or selling, or purchasing or offering to give, sell, or purchase as
inducement to such insurance contract or in connection therewith, any stocks, bonds, or other securities of any insurance company or
other corporation, association, or partnership, or any dividends or profits accrued thereon, or anything of value whatsoever not
specified in the contract;
(B) Nothing in subdivision (6) or (7)(A) shall be construed as including within the definition of “discrimination” or “rebates”
any of the following practices:
(i) In the case of any contract of life insurance or life annuity, paying bonuses to policyholders or otherwise abating their
premiums in whole or in part out of surplus accumulated from nonparticipating insurance; provided, that any such bonuses or
abatement of premiums shall be fair and equitable to policyholders and for the best interest of the company and its policyholders;
(ii) In the case of insurance policies issued on the industrial debit plan, making allowances to policyholders who have
continuously for a specified period made premium payments directly to an office of the insurer in an amount which fairly represents
the saving in collection expenses; or
(iii) Readjustment of the rate of premium for a group insurance policy based on the loss or expense experience thereunder,
at the end of the first or any subsequent policy year of insurance thereunder, which may be made retroactive only for such policy
year; and
(C) Nothing in this subdivision (7) shall prevent a company from offering a child passenger restraint system or a discount in
premium equal to the amount of the purchase price of a child passenger restraint system to policyholders, when the purpose of such
restraint system is the safety of a child and compliance with § 55-9-602;
(8) Unfair Claim Settlement Practices.
(A) Subject to the conditions set forth in subdivision (8)(B), knowingly committing or performing any of the following acts
with such frequency as to indicate, in the opinion of the commissioner, a general business practice; provided, that the commissioner
shall have sole enforcement authority for this subdivision (8) and, notwithstanding any other laws of this state, a private right of
action shall not be maintained under this subdivision (8):
(i) Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
(ii) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under
insurance policies;
(iii) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been
completed;
(iv) Offering substantially less than the amounts ultimately recovered in actions brought by such insureds; provided, that
equal consideration shall be given to the relationship between the amounts claimed and the amounts ultimately recovered through
litigation;
(v) Attempting to settle a claim for less than the amount to which a reasonable person would have believed such person
was entitled by reference to written or printed advertising material accompanying or made part of an application;
(vi) Attempting to settle claims on the basis of an application which was altered without notice to or knowledge or consent
of the insured;
(vii) Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or
claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
(viii) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician of either to
submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which
submissions contain substantially the same information; provided, that nothing herein is intended to prevent or discourage an insurer
from requiring a sworn proof of loss when in its judgment such is necessary in order to establish either the liability or amount to
which a claimant is entitled;
(ix) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance
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policy coverage in order to influence settlements under other portions of the insurance policy coverage;
(x) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has
become reasonably clear; or
(xi) Failing to make payment of workers' compensation benefits as such payment is required by the commissioner of the
department of labor and workforce development or by title 50, chapter 6.
(B) Nothing contained in subdivision (8)(A) shall be construed as obligating any insurer to make a decision upon any claim
without sufficient investigation and information to determine if such claim, or any part thereof, is false, fraudulent or for an excessive
amount;
(9) Lessening Competition by Stock Transaction. Acquisition, by a domestic insurance company of the state of Tennessee, of
stock or other share capital of another such company engaged in an insurance business of the same type or class, where the effect of
such acquisition is to substantially lessen competition between the two (2) companies, or to restrain commerce, or create a monopoly.
This subdivision (9) does not apply to companies purchasing such stock solely for investment and not using the same by voting, or
otherwise, to bring about, or attempt to bring about, the substantial lessening of competition;
(10) Dual Office Holding. Holding office, at the same time, as a director of two (2) or more domestic insurance companies of
the state of Tennessee, engaged in the same type or class of insurance business, by any individual, if such companies are or have
been theretofore, by virtue of their business and location of operation, competitors, so that the elimination of competition by
agreement between them would constitute a violation of any of the provisions of any antitrust law of the United States or of the state
of Tennessee;
(11) Unfair Replacement Transaction Practices. Replacing a life insurance policy or an annuity contract in a manner contrary
to rules promulgated by the commissioner pursuant to this part;
(12) Unfair Utilization of Proprietary Information. With respect to any policy of insurance underwritten in a pool, residual
market mechanism, joint underwriting authority or assigned risk plan, any information contained in a policy application and/or
obtained in the servicing of such a policy of insurance cannot be used in any manner by the servicing carrier or its representatives for
the purpose of soliciting any form of insurance, except when permission to use such information is granted by the commissioner on
any specific risk;
(13) Changing Classification and Rate After Policy Expiration or Renewal. With respect to commercial risk insurance,
making a change in the classification or rates more than one (1) year after the renewal or expiration date of that policy without the
written consent of the insured. This provision does not apply where the insured has failed to cooperate, given misleading information,
or made material misrepresentations or omissions. Nothing herein shall prohibit an insurer from making such change where the
policy specifically allows for such change; and
(14) Issuing declinations of accident and health coverage.
(A) With respect to any licensed agent:
(i) Issuing a letter of declination of accident and health insurance to a consumer without underwriting the risk pursuant to
the insurability guidelines of each health insurance company, hospital and medical service corporation, health maintenance
organization or other authorized person represented by such licensed agent; or
(ii) Issuing a letter of declination of accident and health coverage to a consumer if the consumer is insurable by any health
insurance company, hospital and medical service corporation, health maintenance organization, or other authorized person
represented by such licensed agent.
(B) Nothing in subdivision (14)(A) shall be construed as requiring any licensed agent to provide a letter of declination of
accident and health coverage to a consumer for the purpose of making the consumer eligible for TennCare benefits and services.
56-5-401. Part
definitions. —
As used in this part, unless the context otherwise requires:
(1) “Adverse action” means a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or
unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting
of personal insurance. An offer of placement with an affiliate insurer does not constitute adverse action, a refusal to insure,
cancellation or nonrenewal of coverage;
(2) “Affiliate” means any company that controls, is controlled by, or is under common control with another company;
(3) “Consumer” means an insured whose credit information is used or whose insurance score is calculated in the underwriting or
rating of a personal insurance policy or an applicant for such a policy;
(4) “Consumer reporting agency” means any entity that, for monetary fees, dues, or on a cooperative nonprofit basis, regularly
engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on
consumers for the purpose of furnishing consumer reports to third parties;
(5) “Credit information” means any credit-related information derived from a credit report, found on a credit report itself, or
provided on an application for personal insurance. Information that is not credit-related shall not be considered “credit information,”
regardless of whether it is contained in a credit report or in an application, or is used to calculate an insurance score;
(6) “Credit report” means any written, oral, or other communication of information by a consumer reporting agency bearing on a
consumer's creditworthiness, credit standing or credit capacity that is used or expected to be used or collected in whole or in part for
the purpose of serving as a factor to determine personal insurance premiums, eligibility for coverage, or tier placement;
(7) “Insurance score” means a number or rating that is derived from an algorithm, computer application, model, or other process
that is based in whole or in part on credit information for the purposes of predicting the future insurance loss exposure of an
individual applicant or insured; and
(8) “Personal insurance”, for the purposes of this part, means private passenger automobile, homeowners, motorcycle,
manufactured home owners, noncommercial dwelling fire insurance, boat, personal watercraft, and recreational vehicle policies
when those policies are individually underwritten for personal, family or household use.
56-5-402. Restrictions on use of credit scores. —
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An insurer authorized to do business in Tennessee that uses credit information to underwrite or rate risks for personal insurance, shall
not:
(1) Take an adverse action against a consumer based on credit information, unless an insurer obtains and uses a credit report
issued or an insurance score calculated within ninety (90) days from the date the personal insurance policy is first written or renewal
is issued;
(2) Use credit information unless no later than thirty-six (36) months following the last time that the insurer obtained current
credit information for the insured, the insurer recalculates the insurance score or obtains an updated credit report. The insurer is not
required to comply with this subdivision (2) if:
(A) The insured is in the most favorably-priced tier of the insurer or within a group of affiliated insurers, for the type of policy
covering the insured;
(B) If the insurer has determined not to use credit information in its re-evaluation of the insured upon renewal; or
(C) If the insurer provides a notice to the insured on an annual basis of the insured's right to voluntarily request that their
insurance credit score be rerun and reevaluated based on the current information available for the next effective renewal date of the
insured's policy. A notice provided under this section shall be in writing in clear and concise language and shall not contain any
information other than what is necessary to notify the insured of this right. An insurer need not recalculate the insurance score or
obtain the updated credit report of a consumer more frequently than once every twelve (12) months.
Nothing in this subdivision (2) shall be deemed to require any insurer to use credit information in rating or underwriting. The
commissioner may promulgate rules to effectuate the provisions of this section;
(3) Use the following as a negative factor in any insurance scoring methodology or in reviewing credit information for the
purpose of underwriting or rating a policy of personal insurance:
(A) Credit inquiries not initiated by the consumer or inquiries requested by the consumer for each person's own credit
information;
(B) Inquiries relating to insurance coverage, if so identified on a consumer's credit report;
(C) Multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as being from the
home mortgage industry and made within thirty (30) days of one another, unless only one (1) inquiry is considered;
(D) Multiple lender inquiries, if coded by the consumer reporting agency on the consumer's credit report as being from the
automobile lending industry and made within thirty (30) days from one another, unless only one (1) inquiry is considered; or
(E) Collection accounts with a medical industry code, if so identified on the consumer's credit report;
(4) Deny, cancel or nonrenew a policy of personal insurance solely on the basis of credit information, without consideration of
any other applicable underwriting factor independent of credit information;
(5) Base an insured's renewal rates for personal insurance solely upon credit information, without consideration of any other
applicable factor independent of credit information;
(6) Take an adverse action against a consumer solely because the consumer does not have a credit account, without consideration
of any other applicable factor independent of credit information;
(7) Consider an absence of credit information or an inability to calculate an insurance score in underwriting or rating personal
insurance, unless the insurer either treats the consumer as if the consumer had neutral credit information as defined by the insurer or
unless the insurer treats the consumer in a manner otherwise approved by the commissioner of commerce and insurance; and
(8) Use an insurance score that is calculated using income, gender, address, ethnic group, religion, marital status, nationality,
education, or occupation of the consumer as a factor. Nothing in this subdivision (8) shall preclude an insurer from underwriting
personal insurance on the basis of information in the insurance application that is not credit information.
56-5-403. Notice to consumer of adverse action. —
If an insurer takes an adverse action based on factors that include credit information, the insurer must provide notice to the consumer
that an adverse action has been taken. That notice must contain the reason or reasons for the adverse action, described in sufficiently
clear and specific language so that a person can identify the basis for the insurer's decision to take an adverse action. The notice must
include a description of up to four (4) factors that were the primary influences of the adverse action. The use of generalized terms
such as “poor credit history,” “poor credit rating,” or “poor insurance score” does not meet the explanation requirements of this
section. Standardized credit explanations provided by consumer reporting agencies or other third party vendors are deemed to
comply with this section.
56-5-404. Indemnification.—
An insurer shall indemnify, defend, and hold an insurance producer harmless from and against all liability, fees and costs arising out
of or relating to the actions, errors or omissions of an insurance producer who obtains or uses credit history or insurance scores, or
both, for an insurer, provided the insurance producer follows the instructions of or procedures established by the insurer and
complies with any applicable law or act. Nothing in this section shall be construed to provide an applicant or insured with a cause of
action that does not exist in the absence of this section.
56-5-405. Filing of credit scoring models.—
Insurers that use insurance scores to underwrite or rate risks must file their scoring models or other scoring processes with the
department of commerce and insurance. A filing that includes insurance scoring shall include loss experience justifying the use of
credit information. Such filings shall be kept confidential by the commissioner of commerce and insurance and shall not be
construed to be a public record pursuant to title 10, chapter 7.
56-5-406. Incorrect or incomplete credit information. —
If it is determined through the dispute resolution process set forth in the federal Fair Credit Reporting Act, 15 U.S.C. § 1681i(a)(5),
that the credit information of a current insured was incorrect or incomplete and if the insurer receives notice of such determination
from either the consumer reporting agency or from the insured, the insurer shall re-underwrite and re-rate the consumer within thirty
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(30) days of receiving the notice. After re-underwriting or re-rating the insured, the insurer shall make any adjustments necessary,
consistent with its underwriting and rating guidelines. If an insurer determines that the insured has overpaid the premium, the insurer
shall refund to the insured the amount of overpayment calculated back to the shorter of either the last twelve (12) months of coverage
or the actual policy period.
56-5-407. Disclosure of intention to use credit information. —
(a) If an insurer writing personal insurance uses credit information in underwriting or rating a consumer, the insurer or its agent shall
disclose, either on the insurance application or at the time the insurance application is taken, that it may obtain credit information in
connection with such application. Such disclosure shall be either written or provided to an applicant in the same medium as the
application for insurance. The insurer need not provide the disclosure statement required under this section to any insured on a
renewal policy, if such consumer has previously been provided a disclosure statement.
(b) Use of the following example disclosure statement constitutes compliance with this section: “In connection with this application
for insurance, we may review your credit report or obtain or use a credit-based insurance score based on the information contained in
that credit report. We may use a third party in connection with the development of your insurance score.”
56-7-801. Inspection of property insured against fire — No insurance exceeding fair value of property. —
Every agent, within ninety (90) days after making or writing any contract of fire insurance on any building or structure in this state,
shall cause the building or structure to be personally inspected; and no company, and no officer or agent thereof, and no insurance
broker, shall knowingly issue, negotiate, continue or renew or cause to permit to be issued, negotiated, continued or renewed any fire
insurance policy upon property or interests therein within the state of an amount which, with any existing insurance thereon, exceeds
the fair value of the property.
56-7-802. Measure of damages for loss by fire — Insured reimbursed for excess premiums. —
If buildings within the state insured against loss by fire are totally destroyed by fire, the company shall not be liable beyond the
actual value of the insured property at the time of the loss or damage; and if it appears that the insured has paid premiums on an
amount in excess of the actual value, the insured shall be reimbursed the proportionate excess or premiums paid on the difference
between the amount named in the policy and the actual value, with interest at six percent (6%) per annum from the date of issue; and
the excess of premiums, and interest thereon, shall be allowed the insured from the time any companies carrying the insurance at the
time of the loss have continuously carried the insurance on the destroyed buildings, whether under policies existing at the time of the
loss or under previous policies in the same companies.
56-7-803. Measure of damages in case of agent's failure to inspect property. —
If the agent fails to place a reasonable value on any such insured property within the ninety (90) days, as provided in § 56-7-801,
and which is agreed to by the insured, and a loss occurs, in that event the value as shown by the policy or application shall be
conclusively presumed to be reasonable, and settlement shall be made on that basis.
56-7-1901. Notice of intention not to renew. —
Except as provided in § 56-7-1304, if an insurance company does not intend to renew a contract of any kind of personal risk
insurance identified in § 56-5-302(5), the company shall mail or deliver to the named insured, at the address shown in the policy,
notice of its intention not to renew at least thirty (30) days prior to the expiration of the policy.
56-7-1902. Statement of reasons for nonrenewal — Liability of information providers. —
(a) Unless the nonrenewal notice contains a reason for such nonrenewal action, such notice shall advise the insured that upon written
request of the named insured, mailed or delivered to the insurer not later than fifteen (15) days after the effective date of the
nonrenewal, the insurer will within twenty (20) days mail to the named insured a written statement specifying a reason for such
nonrenewal action.
(b) There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer, its authorized
representative, its agents, its employees, or against any firm, person or corporation furnishing information to the insurer, as to the
reason for nonrenewal.
56-7-1802.Definitions. —
As used in this part, unless the context otherwise requires:
(1) (A) “Commercial risk insurance” means insurance within the scope of this part which is not “personal risk insurance,” as
defined in § 56-5-302, and subject to the exclusions set out in § 56-5-301; and
(B) “Commercial risk insurance” does not include fidelity and surety bonds, or insurance written by a surplus lines insurer;
and
(2) “Nonpayment of premium” means failure of the named insured to discharge when due any of its obligations in connection
with the payment of premiums on a policy of commercial risk insurance or any installment of such premium, whether the premium
is payable directly to the insurer or its agents or indirectly under any premium finance plan or extension of credit.
56-7-1803. Prerequisites for effective notice of cancellation. —
After a commercial risk insurance policy has been in effect for sixty (60) days, or, if the policy is a renewal, effective immediately,
no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one (1) or
more of the following:
(1) Nonpayment of premium, including nonpayment of any additional premiums, calculated in accordance with the current rating
manual of the insurer, justified by a physical change in the insured property or a change in its occupancy or use;
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(2) Conviction of the named insured of a crime having as one (1) of its necessary elements an act increasing any hazard insured
against;
(3) Discovery of fraud or material misrepresentation on the part of either of the following:
(A) The insured or the insured's representative in obtaining the insurance; or
(B) The named insured in pursuing a claim under the policy;
(4) Failure to comply with written loss control recommendations;
(5) Material change in the risk which increases the risk of loss after insurance coverage has been issued or renewed;
(6) Determination by the commissioner that the continuation of the policy would jeopardize a company's solvency or would place
the insurer in violation of the insurance laws of this state or any other state;
(7) Violation or breach by the insured of any policy terms or conditions; or
(8) Such other reasons that are approved by the commissioner.
56-7-1804. Prerequisites for effective notice of cancellation — Contents of notices of cancellation — Delivery of notice. —
(a) No notice of cancellation of a commercial risk insurance policy shall be effective unless mailed by the insurer, its authorized
agent, or employee, to the named insured as shown in the policy declarations at the address shown in such declarations.
(b) If the cancellation is due to any of the items set forth in § 56-7-1803, or if the policy has been in effect less than sixty (60) days
and is not a renewal policy, such cancellation shall be effective not less than ten (10) days after the date of mailing.
(c) The mailing of notice shall be sufficient proof of notice. The effective date and hour of cancellation stated in the notice shall
become the end of the policy period unless the insured shall surrender the policy and request cancellation prior to the date and hour
specified in the cancellation notice.
(d) Delivery of such written notice either by the agent or by the company shall be the equivalent of mailing.
(e) All notices of cancellation shall state which of the grounds set forth in § 56-7-1803 are relied upon, and that upon written request
of the named insured, the insurer shall furnish the facts on which the cancellation is based.
(f) There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer, its authorized
representative, its agents, its employees, or any firm, person or corporation furnishing to the insurer information as to reason for
cancellation, for any statement made by any of them in any written notice of cancellation, for the providing of information pertaining
thereto, or for statements made or evidence submitted at any hearings conducted in connection therewith.
56-7-1805. Failure to comply with notice requirements — Policy extension — When notice of nonrenewal not required. —
(a) Unless the insurer, at least sixty (60) days in advance of the end of the policy period, mails or delivers to the named insured and
agent at the address shown in the policy, notice of its intention not to renew the commercial risk policy or to condition its renewal on
reduction of limits or elimination of coverages, the insurer is required to extend the existing policy sixty (60) days from the date such
notice is provided. The premium for the policy provided in such circumstances shall be no more than a pro rata basis of the existing
policy. Any commercial risk policy written for a term of less than one (1) year shall be considered as if written for a term of one (1)
year. Any commercial risk policy written for a term longer than one (1) year, or any commercial risk policy with no fixed expiration
date, shall be considered as if written for specific policy periods or terms of one (1) year.
(b) Notice of nonrenewal is not required if:
(1) The insurer has offered to issue a renewal policy; or
(2) Where the named insured has obtained replacement coverage or has agreed in writing to obtain replacement coverage.
(c) If an insurer provides the notice described in this section, and thereafter the insurer extends the policy for ninety (90) days or
less, an additional notice of nonrenewal is not required with respect to the extension.
56-7-1806. Revision of rates. —
(a) In the event an insurance company intends to increase the premiums of a commercial risk policy by an amount that is more than
twenty-five percent (25%) and the increase in premium is the result of comparing policies of equivalent exposures, the insurance
company shall mail or deliver to the named insured and producer at the address shown on the policy, not less than sixty (60) days
prior notice of its intention to increase the premiums, specifying the percentage of the increase.
(b) Unless notice is provided as described in subsection (a), the insurer is required to extend the existing policy sixty (60) days from
the date such notice is provided.
(c) The premium for the policy provided in such circumstances shall be not more than a pro rata basis of the existing policy.
56-7-1101. Priority and applicability of coverages. —
(a) (1) In all cases arising out of the use of a motor vehicle on which the owner of the motor vehicle has any insurance coverages,
the owner's policy is primary if the vehicle is being operated with the permission of the owner and within the scope of the permission
granted.
(2) Any other coverages which may be available to the permittee are not applicable unless and until the limits of all coverages
provided by the owner's policy first are exhausted.
(b) Any provision of subsection (a)(1) or (a)(2) to the contrary notwithstanding, where the only insurance coverage provided by the
owner of such vehicle is under a garage policy, then any coverage which may be available to the permittee shall be primary and the
coverage under the owner's garage policy shall not be applicable unless and until the limits of all coverage available to the permittee
shall be first exhausted; provided, that when any nonowned vehicle is in the possession, custody or control of a person who is in the
business of storing, parking, servicing or repairing vehicles, then any insurance available to the owner shall not be applicable unless
and until all insurance that is available under a garage policy of such person in possession has been exhausted.
(c) When a claim arises out of the operation of a motor vehicle which is leased, under a written lease agreement, and pursuant to
which agreement the lessee provides coverage for the vehicle, then any other coverage which may be available for the vehicle
through the lessor is not applicable unless and until the limits of all coverage provided by the lessee for the vehicle first are
exhausted.
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(d) Subsections (a) and (c) are effective as to all policies written after May 7, 1973, and to all renewals of existing policies made
after May 7, 1973. Subsection (b) is effective as to all policies written after April 5, 1974, and to all renewals of existing policies
made after April 5, 1974.
56-7-1102. Automobile liability insurance — Noncancellable and guaranteed renewable policies. —
(a) Any insurer licensed to write automobile liability insurance in this state may issue a noncancellable and guaranteed renewable
automobile liability insurance policy, which shall not be cancelled by the insurer and may be renewed at the option of the insured for
so long as:
(1) The insurer remains licensed to write automobile liability insurance in this state;
(2) The insured and all other operators of the insured motor vehicle maintain valid operator's licenses;
(3) All premiums, premium balances and renewal premiums are paid when due; and
(4) Insured motor vehicle is used for any purpose for which the insurer has a valid rate approved by the commissioner.
(b) If membership in any organization is a prerequisite for the issuance of all policies by an insurer, then such insurer may require
active membership and continuation of active membership for the issuance of any such policy or renewal of such policy issued by
such insurer.
(c) Any insurer who issues an automobile liability insurance policy with noncancellable and/or guaranteed renewable restrictions,
using rates or rating plans filed with and approved by the commissioner, may not be bound by such restrictions if any rates or rating
plans which have been filed for the specific use of such policies are subsequently rejected by the commissioner.
56-7-1201. Requirements and types of coverage — Presumptions — Limitations of liability. —
(a) Every automobile liability insurance policy delivered, issued for delivery or renewed in this state, covering liability arising out of
the ownership, maintenance, or use of any motor vehicle designed for use primarily on public roads and registered or principally
garaged in this state, shall include uninsured motorist coverage, subject to provisions filed with and approved by the commissioner,
for the protection of persons insured thereunder who are legally entitled to recover compensatory damages from owners or operators
of uninsured motor vehicles because of bodily injury, sickness or disease, including death, resulting therefrom.
(1) The limits of such uninsured motorist coverage shall be equal to the bodily injury liability limits stated in the policy.
(2) However, any named insured may reject in writing such uninsured motorist coverage completely or select lower limits of such
coverage but not less than the minimum coverage limits in § 55-12-107. Any document signed by the named insured or legal
representative which initially rejects such coverage or selects lower limits shall be binding upon every insured to whom such policy
applies, and shall be conclusively presumed to become a part of the policy or contract when issued or delivered, irrespective of
whether physically attached thereto. Unless the named insured subsequently requests such coverage in writing, the rejected coverage
need not be included in or supplemental to any continuation, renewal, reinstatement, or replacement of such policy, or the transfer of
vehicles insured thereunder, where the named insured had rejected the coverage in connection with a policy previously issued by the
same insurer; provided, that whenever a new application is submitted in connection with any renewal, reinstatement or replacement
transaction, the provisions of this section shall apply in the same manner as when a new policy is being issued.
(3) No uninsured or underinsured motorist coverage need be provided in this state by an excess or umbrella policy of insurance.
(b) (1) With respect to bodily injury to an insured, at a time when such insured is not occupying any motor vehicle, the insurance on
the vehicle under which the injured party is an insured with the highest limits of uninsured motorist coverage shall apply, and no
other uninsured motorist coverage shall apply. In no instance shall uninsured motorist coverage from more than one (1) policy be
available as primary coverage, nor shall the injured party be an occupant of more than one (1) vehicle at one (1) time.
(2) With respect to bodily injury to an insured while occupying a motor vehicle owned by such insured, only the limits of
uninsured motorist coverage on the vehicle in which the insured was an occupant shall apply. The limits of uninsured motorist
coverage shall not be increased because of multiple motor vehicles whether covered under a single policy or multiple policies, and in
no event shall the total amount of recovery from all policies and bonds, including any amount recovered under the insured's
uninsured motorist coverage, exceed the limits of the insured's uninsured motorist coverage.
(3) With respect to bodily injury to an insured while occupying an automobile not owned by the insured, the following priorities
of recovery under uninsured motorist coverage apply:
(A) The uninsured motorist coverage on the vehicle in which the insured was an occupant shall be the primary uninsured
motorist coverage;
(B) If uninsured motorist coverage on the vehicle in which the insured was an occupant is exhausted due to the extent of
compensatory damages, then the uninsured motorist coverage provided by a policy under which the insured is a named insured shall
be applicable as excess coverage to the policy described in subdivision (b)(1); provided, that if the insured is covered as a named
insured under more than one (1) policy, then only such policy with the highest limits of uninsured motorist coverage shall apply;
(C) If the uninsured motorist coverage provided under the policies described in subdivisions (b)(3)(A) and (B), if applicable,
is exhausted due to the extent of compensatory damages, then the uninsured motorist coverage provided by a policy under which the
insured is covered other than as a named insured shall be applicable as excess coverage to the policies listed in subdivisions (b)(3)(A)
and (B); provided, that if the insured is covered by more than one (1) such policy, then only such policy with the highest limits of
uninsured motorist coverage shall apply; and
(D) In no instance shall the insured be entitled to receive total benefits from all policies listed in subdivisions (b)(3)(A)-(C) in
an amount greater than the limits of the policy providing the highest limits of uninsured motorist coverage.
(c) Every insured purchasing uninsured motorist bodily injury coverage shall be provided an opportunity to include uninsured
motorist property damage coverage, subject to provisions filed with and approved by the commissioner, applicable to losses in excess
of two hundred dollars ($200). However, the deductible of two hundred dollars ($200) shall not apply if:
(1) The vehicle involved in the accident is insured by the same insurer for both collision and uninsured motorist property damage
coverage; and
(2) The operator of the other vehicle has been positively identified and is solely at fault.
No insurer shall be required to offer limits of such property damage coverage greater in amount than the property damage liability
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limits purchased by the insured. After such uninsured motorist property damage coverage has been made available to an insured one
(1) time and has been rejected in writing, it need not again be made available in any continuation, renewal, reinstatement, or
replacement of such policy, or the transfer of vehicles insured thereunder, unless the insured makes a written request for such
coverage; provided, that whenever a new application is submitted in connection with any renewal, reinstatement, or replacement
transaction, the provisions of this section shall apply in the same manner as when a new policy is being issued. As used in this
section, “property damage” means damage to either the insured vehicle or property owned by an insured while in the insured vehicle.
(d) The limit of liability for an insurer providing uninsured motorist coverage under this section is the amount of that coverage as
specified in the policy less the sum of the limits collectible under all liability and/or primary uninsured motorist insurance policies,
bonds, and securities applicable to the bodily injury or death of the insured. With regard to a claim against a governmental unit,
political subdivision or agency thereof, the limitations of liability established under applicable law shall be considered as limits
collectible under a liability insurance policy.
(e) If the owner or operator of any motor vehicle which causes bodily injury or property damage to the insured is unknown, the
insured shall have no right to recover under the uninsured motorist provision unless:
(1) (A) Actual physical contact shall have occurred between the motor vehicle owned or operated by such unknown person and
the person or property of the insured; or
(B) The existence of such unknown motorist is established by clear and convincing evidence, other than any evidence
provided by occupants in the insured vehicle;
(2) The insured or someone in the insured's behalf shall have reported the accident to the appropriate law enforcement agency
within a reasonable time after its occurrence; and
(3) The insured was not negligent in failing to determine the identity of the other vehicle and the owner or operator of the other
vehicle at the time of the accident.
(f) No insurer shall increase the automobile insurance rate or premium of an insured with uninsured motorist coverage nor cancel
such coverage due solely to the payment of any claim under uninsured motorist coverage.
(g) Failure of the motorist from whom the insured is legally entitled to recover damages to file the appropriate forms required by the
department of safety pursuant to the Financial Responsibility Law, compiled in title 55, chapter 12, within ninety (90) days of the
accident date shall create a rebuttable presumption that such motorist was uninsured at the time of such accident. After the ninety
(90) days and upon paying a fee as set by the department, the commissioner shall issue a certified affidavit indicating whether such
forms have been filed.
(h) An insurer's proof of compliance with the provisions of this section may be accomplished by the capture of the named insured's
signature or initials, or that of the insured's legal representative, by means of electronic imaging. However, the provisions of this
subsection shall not be construed to authorize utilization of an electronic image of such signature or initials for any purpose other
than demonstrating insurer compliance with the requirements of this section. In accordance with the Uniform Administrative
Procedures Act, compiled in title 4, chapter 5, the commissioner of commerce and insurance shall promulgate rules prescribing fines
and/or other disciplinary actions to be imposed for insurer misuse of an electronic image of such signature or initials.
56-7-1202. “Uninsured motor vehicle” defined — Coverage of government vehicles. —
(a) For the purpose of this coverage, “uninsured motor vehicle” means a motor vehicle whose ownership, maintenance, or use has
resulted in the bodily injury, death, or damage to property of an insured, and for which the sum of the limits of liability available to
the insured under all valid and collectible insurance policies, bonds, and securities applicable to the bodily injury, death, or damage
to property is less than the applicable limits of uninsured motorist coverage provided to the insured under the policy against which
the claim is made.
(b) “Uninsured motor vehicle” does not include a motor vehicle:
(1) Insured under the liability coverage of the same policy of which the uninsured motor vehicle coverage is a part;
(2) Owned by, or furnished for the regular use of, the insured or any resident spouse or resident relative in the same household;
(3) Self-insured within the meaning of the Tennessee Financial Responsibility Law, compiled in title 55, chapter 12, or any
similar state or federal law;
(4) Designed for use mainly off public roads except while on public roads; or
(5) While located for use as premises.
(c) Notwithstanding any other provision of law, the applicable limits of liability for a governmental unit, political subdivision or
agency thereof for claims arising out of the operation of a motor vehicle shall be considered as liability coverage available under a
valid and collectible insurance policy.
56-7-1203. Insolvency protection limitation — More favorable protection not precluded. —
An insurer's insolvency protection shall be applicable only to accidents occurring during a policy period in which its insured's
uninsured motorist coverage is in effect where the liability insurer of the tort-feasor becomes insolvent within one (1) year after such
an accident. Nothing herein contained shall be construed to prevent any insurer from affording insolvency protection under terms
and conditions more favorable to its insureds than is provided hereunder.
56-7-1204. Payment by insurer —
Subrogation. —
(a) In the event of payment to any person under the coverage required by this part, and subject to the terms and conditions of such
coverage, the insurer making such payment shall, to the extent thereof, be subrogated to all of the rights of the person to whom such
payment has been made, and shall be entitled to the proceeds of any settlement or judgment resulting from the exercise of any rights
of recovery of such person against any person or organization legally responsible for the bodily injury or property damage for which
such payment is made, including the proceeds recoverable from the assets of an insolvent insurer.
(b) Payment by an insurer under the coverage required by this part shall not constitute a satisfaction of the liability of the party or
parties responsible for such bodily injury or property damage under the financial responsibility laws of this state.
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56-7-1205. Minimum policy limits not increased. —
Nothing contained in this part shall be construed as requiring the forms of coverage provided pursuant to this part, whether alone or
in combination with similar coverage afforded under other automobile liability policies, to afford limits in excess of those that would
be afforded had the insured thereunder been involved in an accident with a motorist who was insured under a policy of liability
insurance with the minimum limits described in § 55-12-107, or the uninsured motorist liability limits of the insured's policy if such
limits are higher than the limits described in § 55-12-107. Such forms of coverage may include such terms, exclusions, limitations,
conditions, and offsets, which are designed to avoid duplication of insurance and other benefits.
56-7-1206. Service of process — Actions by insurers — John Doe warrants — Arbitration. —
(a) Any insured intending to rely on the coverage required by this part shall, if any action is instituted against the owner and operator
of an uninsured motor vehicle, serve a copy of the process upon the insurance company issuing the policy in the manner prescribed
by law, as though such insurance company were a party defendant. Such company shall thereafter have the right to file pleadings and
take other action allowable by law in the name of the owner and operator of the uninsured motor vehicle or in its own name;
provided, that nothing in this subsection shall prevent such owner or operator from employing counsel of the owner's own choice;
and provided further, that the evidence of service upon the insurance carrier shall not be made a part of the record.
(b) If the owner or operator of any motor vehicle which causes bodily injury or property damage to a person insured under this part
is unknown and if such insured satisfies all of the requirements of § 56-7-1201(e), should suit be instituted the insured shall issue a
John Doe warrant against the unknown owner or operator in order to come within the coverage of the owner's uninsured motorist
policy. If the uninsured motorist's identity and whereabouts are discovered during the pendency of the proceeding, the provisions of
subsection (e) shall govern the proper course of action following such discovery.
(c) The uninsured motorist provision shall not require arbitration of any claim arising thereunder nor shall the insured be restricted
or prevented in any manner from employing legal counsel or instituting legal proceedings.
(d) In the event that service of process against the uninsured motorist, which was issued to the motorist's last known address, is
returned by the sheriff or other process server marked, “Not to be found in my county,” or words to that effect, or if service of
process is being made upon the secretary of state for a nonresident uninsured motorist and the registered notice to the last known
address is returned without service on the uninsured motorist, the service of process against the uninsured motorist carrier, pursuant
to this section, shall be sufficient for the court to require the insurer to proceed as if it is the only defendant in such a case.
(e) In the event the uninsured motorist's whereabouts is discovered during the pendency of the proceedings, an alias process may
issue against the uninsured motorist. In such a case, the uninsured motorist shall be allowed a reasonable time within which to plead
to the original process, and then the case may proceed against the uninsured motorist as if the motorist was served with process in the
first instance.
(f) Notwithstanding subsection (c), if a party or parties alleged to be liable for the bodily injury or death of the insured offers the
limits of all liability insurance policies available to such party or parties in settlement of the insured's claim, the insured or the
insured's personal representative may accept the offer, execute a full release of the party or parties on whose behalf the offer is made
and preserve the right to seek additional compensation from the insured's uninsured motorist insurance carrier upon agreement of the
insured or the insured's personal representative to submit the insured's uninsured motorist claim to binding arbitration of all issues of
tort liability and damages, provided:
(1) (A) The offer must be for the sum of the limits of all liability insurance policies providing coverage to the party or parties on
whose behalf the offer is made and in an aggregate amount which is less than the uninsured motorist coverage applicable to the
bodily injury or death of the insured; or
(B) If, by payments to other injured parties, the limits of all liability insurance policies providing coverage to the party or
parties on whose behalf the offer is made have been reduced to an amount which is less than the limits of the insured's uninsured
motorist coverage, the offer must be for the total amount of coverage that remains available to the party or parties on whose behalf
the offer is made; and
(2) If the settlement does not release all parties alleged to be liable to the insured, arbitration of the uninsured motorist claim shall
not be conducted until the claims against all such other parties have been fully and finally disposed of by settlement, final judgment
or otherwise.
(g) Parties proposing to accomplish a settlement pursuant to this section shall comply with the following requirements and
conditions:
(1) Upon request, the insured or the insured's personal representative or attorney shall provide the liability insurance company or
companies providing coverage to the party or parties to be released, the name and address of the insurance company or companies
providing the insured with uninsured motorist coverage, the policy number or numbers and the limits of uninsured motorist coverage
available to the insured;
(2) The liability insurance company or companies providing coverage to the party or parties to be released shall give written
notice of the offer to the insured's uninsured motorist insurance carrier or its attorney, provide verification of the coverage upon
request and confirm to the uninsured motorist insurance carrier or its attorney that the party or parties to be released will agree in
writing to cooperate with the uninsured motorist insurance carrier in connection with the arbitration of the uninsured motorist claim;
provided, that the uninsured motorist insurance carrier will agree to waive its subrogation rights against the party or parties to be
released;
(3) The insured or the insured's personal representative or attorney shall give written notice to the uninsured motorist insurance
carrier or its attorney of the insured's intent to accept the offer and agreement to submit the uninsured motorist claim to binding
arbitration;
(4) After receipt of both of the notices referred to in subdivisions (g)(2) and (3), the uninsured motorist insurance carrier shall
have thirty (30) days to give notice to its insured or the insured's personal representative or attorney and the liability insurance carrier
or carriers or their attorneys that it consents to the settlement; that it will agree to binding arbitration of the insured's uninsured
motorist claim and will waive its subrogation rights against the party or parties to be released in exchange for their written agreement
to cooperate in connection with the arbitration;
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(5) Upon receipt of the notice required by subdivision (g)(4), the insured may proceed to execute a release of the party or parties
on whose behalf the offer was made and upon execution of the release, receive payment of the settlement proceeds; and
(6) The notices required by subdivisions (g)(2), (3) and (4) shall be given by certified mail, return receipt requested, or by some
other method pursuant to which the sender receives written verification that the notice was received.
(h) (1) The arbitration provided for in this section shall be conducted pursuant to this section and, pursuant to the Uniform
Arbitration Act, compiled in title 4, chapter 5, part 3 and the provision in title 29, chapter 5, parts 1 and 3.
(2) The arbitrator shall be selected by agreement of the parties. Notwithstanding § 29-5-304, if the parties are unable to agree,
either party may request a judge of a court of record in the county in which the arbitration is pending to designate three (3) potential
arbitrators. The parties shall then agree upon one (1) of the three (3) arbitrators so designated.
(3) Unless the parties agree otherwise, the arbitration will take place in the county in which the insured resides and the rules of
evidence applicable to the state courts where the arbitration is conducted shall apply.
(4) The arbitrator shall not be informed as to the amount or amounts collected by the insured by way of settlement or judgment
prior to the conclusion of the arbitration. Disclosure of such information prior to the conclusion of the arbitration will result in
disqualification of the arbitrator.
(5) Coverage issues shall be decided by a court of competent jurisdiction; the arbitrator shall decide issues of tort liability and
damages only. The arbitrator shall first decide issues of liability and the apportionment of fault and, if fault is found, the amount of
damages sustained by the insured.
(6) If the arbitrator's award to the insured is less than or equal to the total amount collected by the insured by way of settlements
or judgments plus the amount of any settlement offer made by the uninsured motorist carrier at least fifteen (15) days prior to the
arbitration, the insured will pay the arbitrator's fee. In the event the arbitrator's award to the insured exceeds the total amount
collected by the insured by way of settlements or judgments plus the amount of any settlement offer made by the uninsured motorist
carrier at least fifteen (15) days prior to the arbitration, the uninsured motorist insurance carrier will pay the arbitrator's fee.
(i) The uninsured motorist insurance carrier shall be entitled to credit for the total amount of damages collected by the insured from
all parties alleged to be liable for the bodily injury or death of the insured whether obtained by settlement or judgment and whether
characterized as compensatory or punitive damages.
(j) Nothing contained in this section shall prohibit or preclude the uninsured motorist insurance carrier and the insured or the
insured's personal representative from settling the insured's uninsured motorist claim at any time and upon such terms and conditions
as are acceptable to the parties.
(k) Notwithstanding the provisions of this section relating to binding arbitration, after receipt of both of the notices referred to in
subdivisions (g)(2) and (3), the uninsured motorist insurance carrier, at its option, may elect to decline binding arbitration and
preserve its subrogation rights; provided, that within thirty (30) days after receipt of both of the notices it pays the insured the full
amount of the offer made by the liability insurance company or companies providing coverage to the party or parties seeking the
release. Acceptance of the amount by the insured shall not operate as a release of the liability insurance carrier's insureds, nor shall it
prevent or preclude the insured from seeking additional compensation from the insured's uninsured motorist insurance carrier. Upon
acceptance by the insured, the uninsured motorist insurance carrier shall be subrogated to the extent of its payment and further
subrogated to the extent it is required to make further payments of compensatory damages under the uninsured motorist coverage of
its policy. Upon final disposition of the case, the liability insurance carrier or carrier, shall reimburse the uninsured motorist
insurance carrier in the amount of policy limits applicable to the defendant or defendants on whose behalf the offer was made or in
the amount of the judgment rendered against the defendant or defendants, whichever is less. In the event the judgment is in favor of
the defendant or defendants, the uninsured motorist insurance carrier shall not be entitled to reimbursement for any amounts paid its
insured pursuant to this subsection. In the event the judgment exceeds the liability insurance coverage available to the defendant or
defendants, the uninsured motorist insurance carrier shall be subrogated against the defendant or defendants to the extent of
payments it is required to make in excess of such liability insurance coverage. The uninsured motorist insurance carrier shall be
entitled to credit for the total amount of damages collected by the insured from all parties alleged to be liable for the bodily injury or
death of the insured whether obtained by settlement or judgment and whether characterized as compensatory or punitive damages.
56-7-1107. Accident prevention course for older drivers — Reductions in premiums. —
(a) The rates and premiums for every policy of automobile insurance shall include a provision for appropriate reductions, as
determined by the insurer to be actuarially justified, for any motor vehicle when the regular operators are over fifty-five (55) years of
age and have successfully completed a motor vehicle accident prevention course which is approved by the commissioner of safety.
However, there shall be no reduction in premiums for a self-instructed course.
(b) (1) The premium reduction shall remain in effect for the qualifying insured for a period of three (3) years from the date of
successful completion of the accident prevention course, except that the insurer may elect to apply the premium reduction beginning
at the next renewal date of the policy and continuing for a three-year period.
(2) The period of premium reduction for an operator who has repeated the accident prevention course shall be based only upon
the last such course the operator has successfully completed.
(c) Any accident prevention course approved under this section shall be taught by an instructor approved by the commissioner, and
such course shall consist of at least eight (8) hours of classroom instruction. Each operator who successfully completes an approved
motor vehicle accident prevention course shall be issued a certificate by the course's sponsoring agency. Records of such completion
shall be maintained in a manner acceptable to the commissioner and shall be the basis of qualification for the premium discount.
(d) Any person claiming eligibility for a rate or premium reduction shall be responsible for providing to such person's insurance
company the information necessary to determine eligibility.
(e) This section does not apply to:
(1) Any motor vehicle which is a part of a fleet or is used for commercial purposes unless there is a regularly assigned principal
operator;
(2) Any motor vehicle subject to a higher rate or premium because of an operator's previous motor vehicle claims experience, or
to any motor vehicle whose operator has been convicted or forfeited bond for the violation of any of the motor vehicle laws of this
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state, until that operator shall have maintained a driving record free of at-fault accidents or violations for a continuous period of three
(3) years;
(3) Any motor vehicle whose operator has had an operator's license revoked or suspended for any reason within the previous
three (3) years; or
(4) Any motor vehicle whose operator is required by any court to take a defensive driver training course.
(f) The department of safety is authorized to promulgate rules and regulations to effectuate the purposes of this section. Such rules
and regulations shall include establishing the criteria for the motor vehicle accident prevention course and providing a means of
certification for instructors of the motor vehicle accident prevention course. All such rules and regulations shall be promulgated in
accordance with the provisions of the Uniform Administrative Procedures Act, compiled in title 4, chapter 5.
56-7-1302. Cancellation of automobile insurance policies — Grounds. —
(a) Every private passenger automobile liability insurance policy shall hereafter be subject to the provisions of this part.
(b) Unless the policy has been in effect less than sixty (60) days at the time notice of cancellation is mailed, and it is not a renewal
policy, the company shall not exercise its right to cancel the insurance afforded in the policy unless such cancellation is based on one
(1) or more of the following reasons:
(1) Nonpayment of premium;
(2) (A) The policy was obtained through a material misrepresentation;
(B) The named insured failed to disclose fully the insured's motor vehicle accidents and moving traffic violations for the
preceding thirty-six (36) months if called for in the application; or
(C) The named insured failed to disclose in the written application or in response to inquiry by the insured's broker or by the
insurer or its agent information necessary for the acceptance or proper rating of the risk;
(3) (A) Any insured violated any of the terms or conditions of the policy;
(B) Any insured made a false or fraudulent claim or knowingly aided or abetted another in the presentation of such a claim; or
(C) If, after the effective date of the insurance, the policy is extended, with or without charge, to provide coverage for the
operation of an automobile by a person or persons not listed on the original application, or a supplement thereto, the company shall
be allowed sixty (60) days, after written request to the company for insurance on such driver or drivers, to accept or reject the
additional risk and, if the additional risk is not acceptable to the company, the policy may be cancelled; provided, that notice shall be
mailed within sixty (60) days from the date of such request;
(4) The named insured or any other operator, either resident in the same household, or who customarily operates an automobile
insured under the policy:
(A) Has had a driver's license or motor vehicle registration suspended or revoked within the thirty-six (36) months prior to
notice of cancellation;
(B) Is or becomes subject to epilepsy or heart attacks, and cannot produce a certificate from a physician testifying to such
person's unqualified ability to operate a motor vehicle; or
(C) Is or has been convicted of or forfeits bail, during the thirty-six (36) months immediately preceding the effective date of
the policy or during the policy period, for:
(i) Any felony;
(ii) Criminal negligence resulting in death, homicide or assault, arising out of the operation of a motor vehicle;
(iii) Operating a motor vehicle while in an intoxicated condition or while under the influence of drugs;
(iv) Leaving the scene of an accident without stopping to report;
(v) Theft of a motor vehicle;
(vi) Making false statements in an application for a driver license; or
(vii) A third violation, committed within a period of thirty-six (36) months, of:
(a) Any ordinance, law or regulation limiting the speed of motor vehicles; or
(b) Any of the provisions in the motor vehicle laws of any state, the violation of which constitutes a misdemeanor,
whether or not the violations were repetitions of the same offense or were different offenses; or
(5) The insured automobile is:
(A) Altered so as to increase the risk substantially;
(B) Used as an authorized emergency vehicle; or
(C) Subject to an inspection law and has not been inspected or, if inspected, has failed to qualify.
(c) No automobile liability insurance policy may be cancelled solely because the driver was involved in a collision not
adjudicated the driver's fault.
56-7-1303. Notice of cancellation. —
(a) (1) No notice of cancellation of a policy shall be effective unless mailed or delivered by the insurer, its authorized agent or
employee, to the named insured as shown in the policy declarations at the address shown in such declarations, stating when not less
than twenty (20) days thereafter such cancellation shall be effective; provided, that:
(A) If the cancellation is due to nonpayment as hereinbefore defined; or
(B) If the policy has been in effect less than sixty (60) days and is not a renewal policy;
the policy may be cancelled by the company by mailing to such insured written notice stating when not less than ten (10) days
thereafter such cancellation shall be effective.
(2) The mailing of such notice shall be sufficient proof of notice.
(3) The effective date and hour of cancellation stated in the notice shall become the end of the policy period unless the insured
surrenders the policy and requests cancellation prior to the date and hour specified in the cancellation notice.
(4) Delivery of such written notice either by such insured or by the company shall be equivalent to mailing.
(b) If the reason or reasons for such cancellation are not included in the notice of cancellation, then at the written request of the
named insured, mailed or delivered to the insurer not later than fifteen (15) days subsequent to the effective date of cancellation, the
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insurer shall specify any and all reasons for such cancellation. The above cancellation provisions of this subsection only apply to
policies which have been in force sixty (60) days beyond the initial effective date. Every renewal policy shall be presumed to be in
effect for at least sixty (60) days. Any notice of cancellation shall advise the insured that insured may request the reasons for such
cancellation by written request mailed or delivered to the insurer not later than fifteen (15) days subsequent to the effective date of
cancellation.
(c) There shall be no liability on the part of, and no cause of action of any nature shall arise against, any insurer, its authorized
representative, its agents, its employees, or any firm, person or corporation furnishing to the insurer information as to the reason for
cancellation, for any statement made by any of them in any written notice of cancellation, for the providing of information pertaining
thereto, or for statements made or evidence submitted at any hearings conducted in connection therewith.
56-7-1304. Notice of intention not to renew. —
(a) Nothing in this part applies to nonrenewal, except that in the event the company does not intend to renew the contract, it shall
mail or deliver to the named insured, at the address shown in the policy, not less than thirty (30) days' notice of its intention not to
renew. Proof of mailing of notice shall be sufficient proof of notice.
(b) Unless the nonrenewal notice contains a reason for such nonrenewal action, such notice shall advise the insured that upon
written request of the named insured, mailed or delivered to the insurer not later than fifteen (15) days after the effective date of the
nonrenewal, the insurer will within twenty (20) days mail to the named insured a written statement specifying a reason for such
nonrenewal action. There shall be no liability on the part of and no cause of action of any nature shall arise against any insurer, its
authorized representative, its agents, its employees, or against any firm, person or corporation furnishing information to the insurer,
as to reason for nonrenewal.
56-7-1305. Notice of eligibility for assigned risk plan.—
When a policy of automobile liability insurance is cancelled, other than for nonpayment of premium, or in the event of failure to
renew a policy of automobile liability insurance, the insurer shall notify the named insured of the insured's possible eligibility for
automobile liability insurance through the automobile liability assigned risk plan. Such notice shall accompany or be included in the
notice of cancellation or the notice of intent not to renew.
56-5-313. Agreements between insurers or with other organizations — Application for deductible plan. —
(a) Except as provided in this chapter, no insurer may agree with any other insurer or with a rate service organization or an advisory
organization to adhere to or use any rate or supplementary rate information. The fact that any insurer adheres to or uses such material
is not sufficient in itself to support a finding that an agreement to adhere or use exists but may be used for the purpose of
supplementing other evidence as to the existence of such agreement. Two (2) or more insurers having common ownership or
operating in this state under common management or control may act in concert between or among themselves in the same manner as
if they constitute a single insurer.
(b) Any workers' compensation insurer may make written application to the commissioner for approval on its behalf of a deductible
plan where the insurer can be reimbursed by the policyholder, effective for a period of not less than one (1) year, to be applied to the
rates and/or premiums produced by the rating system. Such application shall specify the basis for the modification and a copy thereof
shall also be sent simultaneously to the rate service organization. The commissioner shall approve the modification for such insurer if
the commissioner finds it to be justified. The commissioner shall not approve such modification if the commissioner finds that the
resulting premiums would be excessive, inadequate or unfairly discriminatory.
For students testing ON or AFTER August 1, 2008, the following new law additions will
apply to the state exam content.
56-2-305. Violations — Commissioner's orders — Penalties. —
(a) If, after providing notice consistent with the process established by § 4-5-320(c) and providing the opportunity for a
contested case hearing held in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5,
part 3, the commissioner finds that any insurer, person, or entity required to be licensed, permitted, or authorized by the
division of insurance has violated any statute, rule or order, the commissioner may, at the commissioner's discretion,
order:
(1) The insurer, person, or entity to cease and desist from engaging in the act or practice giving rise to the violation;
(2) Payment of a monetary penalty of not more than one thousand dollars ($1,000) for each violation, but not to
exceed an aggregate penalty of one hundred thousand dollars ($100,000), unless the insurer, person, or entity knowingly
violates a statute, rule or order, in which case the penalty shall not be more than twenty-five thousand dollars ($25,000)
for each violation, not to exceed an aggregate penalty of two hundred fifty thousand dollars ($250,000). This subdivision
(a)(2) shall not apply where a statute or rule specifically provides for other civil penalties for the violation. For purposes of
this subdivision (a)(2), each day of continued violation shall constitute a separate violation; and
(3) The suspension or revocation of the insurer’s, person’s, or entity's license.
(b) (1) In determining the amount of penalty to assess under this section, or in determining whether the violation was a
knowing violation for the purpose of subdivision (a)(2), the commissioner shall consider any evidence relative to the
following criteria:
(A) Whether the insurer, person or entity could reasonably have interpreted its actions to be in compliance with the
obligations required by a statute, rule or order;
(B) Whether the amount imposed will be a substantial economic deterrent to the violator;
(C) Whether the amount imposed would put the violator in a hazardous financial condition;
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(D) The circumstances leading to the violation;
(E) The severity of the violation and the risk of harm to the public;
(F) The economic benefits gained by the violator as a result of noncompliance; and
(G) The interest of the public.
(2) In addition, the commissioner may consider the insurer's, person's, or entity's efforts to cure the violation.
(c) Notwithstanding the limitations set forth in subdivision (a)(2), no aggregate penalty limits shall apply to the following:
(1) Failure to file audited statements required pursuant to § 56-1-501(h) and rules promulgated under § 56-1-501(h);
(2) Failure to file quarterly financial statements as required by statute or regulation;
(3) Failure to file actuarial opinions pursuant to § 56-1-501(d) and rules promulgated under § 56-1-501(d);
(4) Failure to file annual reports pursuant to §§ 56-19-119, 56-28-111, 56-29-113, 56-30-117, 56-31-116, 56-43-108,
and 56-44-104;
(5) Failure to file a risk-based capital report pursuant to § 56-46-103; and
(6) Violations of orders issued after a contested case hearing held in accordance with the Uniform Administrative
Procedures Act, compiled in title 4, chapter 5, part 3, and pursuant to subdivision (a)(1).
(d) This section does not apply to individual or business entity insurance producers licensed pursuant to chapter 6, part 1
of this title.
(e) Notwithstanding any law to the contrary, civil penalties received under the authority of this section shall be utilized by
the department of commerce and insurance, at the discretion of the commissioner, to either defray its expenses related to
the liquidation of insurance companies as provided by chapter 9 of this title, to promote consumer awareness of
insurance, or to provide training or educational opportunities to employees of the division of insurance. Any subaccount
currently used by the department for training and education may also be used for the promotion of consumer awareness.
56-5-305. Filing by personal risk insurers. —
(a) Every insurer of personal risk insurance shall file with the commissioner all rates, supplementary rate information,
supporting information, policy forms, and endorsements at least thirty (30) days before the proposed effective date.
(b) The commissioner may give written notice, within thirty (30) days of the receipt of the filing, that the commissioner
needs additional time, not to exceed thirty (30) days from the date of such notice, to consider the filing.
(c) Upon written application by the insurer, the commissioner may authorize rates to be effective before the expiration of
the waiting period or an extension thereof.
(d) (1) A filing shall be deemed to meet the requirements of this part and to become effective unless disapproved by the
commissioner before the expiration of the waiting period or an extension thereof.
(2) Whenever a filing made pursuant to this section is not accompanied by sufficient supporting information, the
commissioner shall inform the insurer as to what information is required to complete the filing.
(3) The filing shall not be deemed to be made until such information is furnished.
56-5-306. Filing by commercial risk insurers. —
(a) (1) Except as provided in subsections (b) and (c), every insurer of commercial risk insurance shall file with the
commissioner all rates, supplementary rate information, policy forms and endorsements, not later than fifteen (15) days
after the effective date; provided, that such rates, supplementary rate information, policy forms and endorsements need
not be filed for inland marine risks which by general custom of the business are not written according to manual rules of
rating plans. Upon request of the commissioner, supporting information shall also be filed.
(2) The commissioner may, after a hearing providing not less than twenty (20) days' written notice to the insurer,
disapprove any policy form or endorsement already in effect if it does not comply with the law or with rules adopted
pursuant to this part or if it contains any provision which is unfair, deceptive or misleading. Any such disapproval order
shall specify the reasons for the commissioner's findings and the date, not less than thirty (30) days after issuance of the
order, when the disapproval is effective, and it shall thereafter be unlawful for the insurer to use the form or endorsement
in this state.
(b) With respect to workers' compensation insurance, a rate service organization designated by one (1) or more insurers
shall develop and file for approval with the commissioner in accordance with the provisions of this section, a filing on
behalf of authorized insurers containing advisory prospective loss costs and supporting actuarial and statistical data for
workers' compensation insurance. An advisory prospective loss costs filing shall become effective only when approved
pursuant to § 50-6-402.
(c) Each workers' compensation insurer, or group of insurers under common ownership, shall individually file with the
commissioner the multiplier and supporting information not later than fifteen (15) days after the effective date, and at least
annually thereafter on March 1. Multipliers shall apply to the most recently approved, currently effective advisory
prospective loss cost.
(d) All multipliers filed pursuant to subsection (c) shall be actuarially justified and shall be certified by a member in good
standing of the Casualty Actuarial Society.
56-2-305. Violations — Commissioner's orders — Penalties. —
(a) If, after providing notice consistent with the process established by § 4-5-320(c) and providing the opportunity for a
contested case hearing held in accordance with the Uniform Administrative Procedures Act, compiled in title 4, chapter 5,
part 3, the commissioner finds that any insurer, person, or entity required to be licensed, permitted, or authorized by the
division of insurance has violated any statute, rule or order, the commissioner may, at the commissioner's discretion,
order:
(1) The insurer, person, or entity to cease and desist from engaging in the act or practice giving rise to the violation;
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(2) Payment of a monetary penalty of not more than one thousand dollars ($1,000) for each violation, but not to
exceed an aggregate penalty of one hundred thousand dollars ($100,000), unless the insurer, person, or entity knowingly
violates a statute, rule or order, in which case the penalty shall not be more than twenty-five thousand dollars ($25,000)
for each violation, not to exceed an aggregate penalty of two hundred fifty thousand dollars ($250,000). This subdivision
(a)(2) shall not apply where a statute or rule specifically provides for other civil penalties for the violation. For purposes of
this subdivision (a)(2), each day of continued violation shall constitute a separate violation; and
(3) The suspension or revocation of the insurer’s, person’s, or entity's license.
(b) (1) In determining the amount of penalty to assess under this section, or in determining whether the violation was a
knowing violation for the purpose of subdivision (a)(2), the commissioner shall consider any evidence relative to the
following criteria:
(A) Whether the insurer, person or entity could reasonably have interpreted its actions to be in compliance with the
obligations required by a statute, rule or order;
(B) Whether the amount imposed will be a substantial economic deterrent to the violator;
(C) Whether the amount imposed would put the violator in a hazardous financial condition;
(D) The circumstances leading to the violation;
(E) The severity of the violation and the risk of harm to the public;
(F) The economic benefits gained by the violator as a result of noncompliance; and
(G) The interest of the public.
(2) In addition, the commissioner may consider the insurer's, person's, or entity's efforts to cure the violation.
(c) Notwithstanding the limitations set forth in subdivision (a)(2), no aggregate penalty limits shall apply to the following:
(1) Failure to file audited statements required pursuant to § 56-1-501(h) and rules promulgated under § 56-1-501(h);
(2) Failure to file quarterly financial statements as required by statute or regulation;
(3) Failure to file actuarial opinions pursuant to § 56-1-501(d) and rules promulgated under § 56-1-501(d);
(4) Failure to file annual reports pursuant to §§ 56-19-119, 56-28-111, 56-29-113, 56-30-117, 56-31-116, 56-43-108,
and 56-44-104;
(5) Failure to file a risk-based capital report pursuant to § 56-46-103; and
(6) Violations of orders issued after a contested case hearing held in accordance with the Uniform Administrative
Procedures Act, compiled in title 4, chapter 5, part 3, and pursuant to subdivision (a)(1).
(d) This section does not apply to individual or business entity insurance producers licensed pursuant to chapter 6, part 1
of this title.
(e) Notwithstanding any law to the contrary, civil penalties received under the authority of this section shall be utilized by
the department of commerce and insurance, at the discretion of the commissioner, to either defray its expenses related to
the liquidation of insurance companies as provided by chapter 9 of this title, to promote consumer awareness of
insurance, or to provide training or educational opportunities to employees of the division of insurance. Any subaccount
currently used by the department for training and education may also be used for the promotion of consumer awareness.
56-5-305. Filing by personal risk insurers. —
(a) Every insurer of personal risk insurance shall file with the commissioner all rates, supplementary rate information,
supporting information, policy forms, and endorsements at least thirty (30) days before the proposed effective date.
(b) The commissioner may give written notice, within thirty (30) days of the receipt of the filing, that the commissioner
needs additional time, not to exceed thirty (30) days from the date of such notice, to consider the filing.
(c) Upon written application by the insurer, the commissioner may authorize rates to be effective before the expiration of
the waiting period or an extension thereof.
(d) (1) A filing shall be deemed to meet the requirements of this part and to become effective unless disapproved by the
commissioner before the expiration of the waiting period or an extension thereof.
(2) Whenever a filing made pursuant to this section is not accompanied by sufficient supporting information, the
commissioner shall inform the insurer as to what information is required to complete the filing.
(3) The filing shall not be deemed to be made until such information is furnished.
56-5-306. Filing by commercial risk insurers. —
(a) (1) Except as provided in subsections (b) and (c), every insurer of commercial risk insurance shall file with the
commissioner all rates, supplementary rate information, policy forms and endorsements, not later than fifteen (15) days
after the effective date; provided, that such rates, supplementary rate information, policy forms and endorsements need
not be filed for inland marine risks which by general custom of the business are not written according to manual rules of
rating plans. Upon request of the commissioner, supporting information shall also be filed.
(2) The commissioner may, after a hearing providing not less than twenty (20) days' written notice to the insurer,
disapprove any policy form or endorsement already in effect if it does not comply with the law or with rules adopted
pursuant to this part or if it contains any provision which is unfair, deceptive or misleading. Any such disapproval order
shall specify the reasons for the commissioner's findings and the date, not less than thirty (30) days after issuance of the
order, when the disapproval is effective, and it shall thereafter be unlawful for the insurer to use the form or endorsement
in this state.
(b) With respect to workers' compensation insurance, a rate service organization designated by one (1) or more insurers
shall develop and file for approval with the commissioner in accordance with the provisions of this section, a filing on
behalf of authorized insurers containing advisory prospective loss costs and supporting actuarial and statistical data for
workers' compensation insurance. An advisory prospective loss costs filing shall become effective only when approved
pursuant to § 50-6-402.
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(c) Each workers' compensation insurer, or group of insurers under common ownership, shall individually file with the
commissioner the multiplier and supporting information not later than fifteen (15) days after the effective date, and at least
annually thereafter on March 1. Multipliers shall apply to the most recently approved, currently effective advisory
prospective loss cost.
(d) All multipliers filed pursuant to subsection (c) shall be actuarially justified and shall be certified by a member in good
standing of the Casualty Actuarial Society.
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P&C Part 1
1.
A hazard is
A.
B.
C.
D.
2.
the chance of loss
the uncertainty about whether or not a loss might occur
anything that increases in the possibility that a loss might occur
the cause of loss
Insurance is used to
A. eliminate risk by accumulating funds from enough individuals so the risk of loss no
longer exists.
B. reduce risk by transferring funds from individuals posing little moral, morale or
physical hazard to those who pose greater hazards.
C. retain risk through the law of large numbers.
D. transfer risk from a person, business or organization to an insurance company that
agrees to pay for losses in exchange for a premium.
3.
What type of insurance company considers the policyholder as an owner, with the rights
to vote and share in company profits?
A.
B.
C.
D.
4.
stock company.
reciprocal company.
Lloyd’s Association.
mutual company.
Sue Smith’s home is insured by ABC Insurance Company. Last year she made the final
mortgage payment to XYZ Mortgage Company. Sue is considering selling her home to
her niece, Dee. Which of the following has an insurable interest in the home?
A.
B.
C.
D.
ABC Insurance Company
Sue Smith
XYZ Mortgage Company
Dee Smith
5.
Which of the following is NOT an element of insurability?
A. Loss must be calculable
B. Risk of loss is a speculative risk
C. Risk of loss must represent a financial hardship
D. Cost of insurance must be affordable
6.
The principle that states that an insured should be restored to the same financial position
after a loss as before is known as
A. insurability.
B. adhesion.
C. subrogation.
D. indemnity.
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P&C 1 - Page 1
P&C Part 1
7.
What section of an insurance policy personalizes the policy as to who and what are
insured?
A.
B.
C.
D.
8.
An insurance policy is prepared by the insurance company, with little or no input from the
insured. This is an example of a/an
A.
B.
C.
D.
9.
HO-2
HO-3
HO-4
HO-6
The purpose of Fair Credit Reporting Act is
A.
B.
C.
D.
11.
unilateral contract.
personal contract.
adhesion contract.
contract of utmost good faith.
An individual who owns and lives in a condominium can obtain broad coverage for
personal property under which Homeowners form?
A.
B.
C.
D.
10.
Insuring Agreements
Conditions
Declarations
Exclusions
to allow the use of installment payments for insurance premiums
to limit the number of outside sources an underwriter may use when evaluating a risk
to give the consumer recourse if insurance is denied on the basis of a credit report
to prevent insurers from using credit reports to evaluate risks
Of the following which is a liability loss?
A. A fire destroys the insured’s building.
B. As a result of a fire, the insured’s business is closed while rebuilding takes place. The
insured loses three months’ of income.
C. A fire damages the insured’s building. While firefighters managed to save part of the
inventory from the fire, some of it was damaged by the chemicals used to extinguish
the flames.
D. A fire that was caused by the insured’s negligence burns a neighboring building. The
owner of the building sues the insured.
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P&C 1 - Page 2
P&C Part 1
12.
Which of the following methods involves modifying the premium based on the insured’s
loss experience over a specified period of time?
A.
B.
C.
D.
13.
Flood insurance coverage is primarily provided by
A.
B.
C.
D.
14.
Rehabilitation
Disability
Medical
Pain and suffering
Which of the following describes an insurance company that is doing business in a state
in addition to the one where it is incorporated?
A.
B.
C.
D.
17.
Big Time Bank & Trust
Kids ‘R’ Us Amusement Park
Trader Vic’s Bar And Grill
Spry Funeral Home
Which of the following types of benefits is generally not provided by a state’s workers
compensation law?
A.
B.
C.
D.
16.
private insurance companies.
state-run programs.
surplus lines insurers.
a federal government program.
Which of the following businesses operations would be eligible for a Businessowners
policy?
A.
B.
C.
D.
15.
Merit rating
Experience rating
Manual rating
Judgment rating
Domestic
Foreign
Alien
Non admitted
The main purpose of a binder is to
A. guarantee that an insurance policy will be issued provided the insured has made no
misrepresentations on the application.
B. provide temporary protection for the insured between the time the application is made
and the policy is issued or the binder expires.
C. provide the insurance company with the information about the insured required to
decide whether or not to issue the policy.
D. eliminate the need for the policy to be countersigned when it is issued.
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P&C 1 - Page 3
P&C Part 1
18.
Agent Bradley is under contract with the ABC Insurance Company to represent and sell
insurance only for ABC. This is an example of what type of agency system?
A.
B.
C.
D.
19.
The type of insurance policy that insures against all risks of loss that are not specifically
excluded by the policy is a/an
A.
B.
C.
D.
20.
eligible for Personal Inland Marine insurance.
eligible for Commercial Inland Marine insurance.
not eligible for Marine insurance.
eligible for Ocean Marine insurance.
Which of the following Surety bonds guarantees that bills for labor and materials will be
paid by the contractor as they are due?
A.
B.
C.
D.
23.
use and file state
prior approval state
file and use state
open competition state
Based on the Nationwide Definition, imports and exports are
A.
B.
C.
D.
22.
named peril policy
specified peril policy
open peril policy
Binder policy
In a particular state, if an insurance company must file policy forms and rates with the
state insurance department and wait for official approval before using the new forms and
rates, the state would be referred to as:
A.
B.
C.
D.
21.
Direct writer
Independent
Direct response
Exclusive/captive
Supply bond
Bid bond
Performance bond
Payment bond
Which of the following statements describes actual cash value?
A.
B.
C.
D.
Market value minus depreciation
Replacement cost minus depreciation
Agreed amount
Cost to repair or replace
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P&C 1 - Page 4
P&C Part 1
24.
The condition that provides a means to settle the amount of a loss when the insured and
the insurance company cannot agree is the
A.
B.
C.
D.
25.
An insured purchased new furniture for $5,000. At the time of a fire loss, it had
depreciated $1,000. The same furniture will cost $6,000 to replace. What is the actual
cash value of the destroyed furniture?
A.
B.
C.
D.
26.
discovery period condition.
appraisal condition.
assignment condition.
subrogation condition.
$5,000
$6,000
$7,000
$8,000
Of the following which can be insured under an unendorsed Homeowners policy?
A. Farm
B. Mobile home
C. Private residence in which the owner-occupant also maintains an office for her
accounting business
D. Dwelling that the owner rents to his cousin
27.
The main purpose of the Business Income coverage forms is to reimburse the insured for
A.
B.
C.
D.
28.
Coverage for sums an employer becomes legally obligated to pay under common law as
a result of a work-related injury is provided by
A.
B.
C.
D.
29.
damage to accounts receivable records.
loss of income resulting from property damage at the insured’s property.
the costs of debris removal following loss from a covered peril.
loss due to employees’ work-related injuries.
Part One—Workers Compensation section of the Workers Comp policy.
Part Two—Employers Liability section of the Workers Comp policy.
the Commercial General Liability policy.
the Businessowners policy.
Of the following which Homeowners form provides open peril coverage on the dwelling
and broad coverage on personal property is the
A.
B.
C.
D.
HO-2.
HO-3.
HO-4.
HO-6.
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P&C 1 - Page 5
P&C Part 1
30.
Which one of the following coverage extensions is available in the Building And Personal
Property coverage form?
A.
B.
C.
D.
31.
Of the following which losses to cover equipment would be covered under the Equipment
Breakdown Protection coverage form?
A.
B.
C.
D.
32.
Damage that occurs while the equipment is undergoing a pressure test
Damage from an explosion caused by the centrifugal force of moving parts
Damage caused by fire
Damage resulting from a windstorm
In a PURE contributory negligence state, when an individual is found to have contributed
to their own loss in any way, the other party
A.
B.
C.
D.
33.
Monthly limit of indemnity
Business personal property
Property off-premises
Animals
may be held liable only in the case of vicarious liability.
may not be held liable.
may be held liable, but to a reduced extent.
may be held liable for full damages despite the other party’s negligence.
Which of the following would NOT generally be included in the Supplementary Payments
portion of a Liability policy?
A. Loss of earnings
B. First aid to others at the time of an accident
C. Expenses the insured incurs at the company’s request as part of an investigation or
defense
D. Damage to property owned by the insured
34.
According to the cancellation condition in the Common Policy Conditions form, if the
insurance company is canceling a Commercial Package policy for nonpayment of
premium, the insured must be given at least _______ days’ notice of cancellation.
A.
B.
C.
D.
10
14
30
60
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P&C 1 - Page 6
P&C Part 1
35.
Which of the following coverages is not included in an unendorsed Dwelling policy?
A.
B.
C.
D.
36.
Of the following coverages which includes Trailer Interchange coverage?
A.
B.
C.
D.
37.
owners and contractors protective hazard
products-completed operations hazard
premises and operations hazard
contractual liability hazard
Under the Personal Inland Marine form which of the following is used to provide open
peril coverage on a blanket basis for personal property?
A.
B.
C.
D.
40.
HO-2
HO-3
HO-4
HO-5
Commercial General Liability policy includes a separate Aggregate Limit which applies to
the
A.
B.
C.
D.
39.
Business Auto coverage form.
Garage coverage form.
Truckers coverage form and Motor Carrier coverage form.
Personal Auto policy.
Open peril coverage for either the dwelling or personal property is provided by the
A.
B.
C.
D.
38.
Dwelling
Liability
Other Structures
Personal Property
Floater form
Personal Effects form
Personal Property form
Personal Articles form
The insured’s home is covered by a DP-3. Two years ago, the insured bought the home
for $68,000. Today, its replacement value is $70,000. How much Coverage A does the
insured need to qualify for replacement cost coverage?
A.
B.
C.
D.
$70,000
$52,400
$56,000
$59,100
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P&C 1 - Page 7
P&C Part 1
41.
Which of the following coverages is excluded by a Dwelling policy?
A.
B.
C.
D.
42.
Of the following lines of insurance which CANNOT be included in the Commercial
Package policy?
A.
B.
C.
D.
43.
Coin collection
Improvements, alterations or additions made by an insured at his or her own expense
Detached garage on the insured’s premises
Rent an insured was unable to collect because rental property was damaged
Crime
Boiler And Machinery
Ocean Marine
Inland Marine
Which one of these Commercial Inland Marine forms CANNOT be included in the
Commercial Inland Marine coverage part of the Commercial Package policy?
A. Commercial Articles coverage form
B. Valuable Papers And Records coverage form
C. Signs coverage form
D. Parcel Post policy
44.
Coverage provided by the Extra Expense coverage form is
A. additional money to pay for property damage losses at a covered location.
B. coverage that will permit the insured to continue in business without interruption
following a property damage loss.
C. payment for unforeseen expenses an insured may incur while the business is shut
down following a property loss.
D. extra money for an insured whose accounts receivable records have been damaged.
45.
Regarding the Businessowners policy, the policy
A. gives the insured great flexibility in picking coverages that can be included in the
policy.
B. provides only property coverage
C. can be written for almost any commercial insured.
D. provides a prepackaged policy property and liability coverage for certain types of
small businesses
46.
Glass damage and theft of money and securities are Optional coverages for employee
dishonesty included in
A.
B.
C.
D.
the Special Businessowners Property form.
the Standard Businessowners Property form.
both Businessowners Property forms.
neither of the Businessowners Property forms
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P&C 1 - Page 8
P&C Part 1
47.
The type of Ocean Marine insurance which provides physical damage coverage for the
ship while it is in transit?
A.
B.
C.
D.
48.
The party to a Surety bond who promises to do or not do a specific thing is the
A.
B.
C.
D.
49.
Loss due to power interruption that occurs off the premises
Sudden and accidental rupture of a heating system
Flood
War
Liability assumed under the Commercial General Liability coverage form is
A.
B.
C.
D.
51.
obligee
surety
custodian
principal
Of the following perils which is covered by the HO-2 and HO-3?
A.
B.
C.
D.
50.
Cargo
Hull
Freight
Protection And Indemnity
always excluded.
covered, except for contracts specifically defined as insured.
covered, except for property leases.
excluded, except for contracts specifically defined as insured.
Identify the individual that would be considered an insured for Liability coverage under
the Personal Auto policy?
A. The named insured’s neighbor while taking the named insured for a drive in the
neighbor’s new car
B. The named insured’s cousin who, while visiting from another state, drives a car the
named insured borrows from a neighbor
C. The named insured’s son, who lives with the insured, while driving a neighbor’s car
D. The named insured’s neighbor, who borrows the named insured’s car without
permission
52.
With a pure no-fault plan each party to an auto accident
A. has the right to seek pain and suffering compensation.
B. is reimbursed by his or her own insurance company, but could seek additional
compensation if damages were higher than a certain amount.
C. is reimbursed by his or her own insurance company.
D. is reimbursed by the other party’s insurance company
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P&C 1 - Page 9
P&C Part 1
53.
If the insured’s property insurance policy has a deductible clause, the clause means that
A.
B.
C.
D.
54.
the insured must deduct a claim payment from the policy limit.
the insured deducts any claim payment received from the next insurance premium.
any losses paid to a third party are deducted from the policy limit.
the insured must pay a certain amount for each loss incurred under the policy.
Of the following which coverages is not included in the Commercial Crime insuring
agreements but can be added by endorsement?
A.
B.
C.
D.
Theft of money and securities
Employee Dishonesty
Computer Fraud
Extortion
55.
Additional losses that results from a direct loss to property are called a/an
A. proximate loss
B. indirect/consequential loss
C. liability loss
D. punitive loss
56.
Of the following which is NOT one of the components of a Commercial Package policy?
A.
B.
C.
D.
57.
Under the Commercial Crime forms, new employees and additional premises obtained
through a consolidation or merger
A.
B.
C.
D.
58.
are automatically covered until the end of the policy period.
are automatically covered for 90 days.
are only covered if the insured provides immediate notification to the insurer.
cannot be covered under the current policy but can be added at the next policy
effective date.
With the claims-made Commercial General Liability coverage form, the first date that a
loss may occur and still be covered under the policy is the
A.
B.
C.
D.
59.
Coverage parts
Object Definitions form
Common Policy Conditions
Common Policy Declarations
policy expiration date.
extended reporting period inception date.
retroactive date.
policy inception date.
If the following items were stolen from the insured’s home which one of these losses
would be fully covered under Coverage C of the Homeowners policy, assuming the loss
was for the full value of the property described?
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P&C 1 - Page 10
P&C Part 1
A.
B.
C.
D.
60.
An antique gun valued at $5,000
A $3,000 mink stole
A $2,000 laptop computer the insured uses for her in-home accounting business
A $1,500 ruby and diamond ring
The insured, Trader Vic’s Bar, wants coverage for liability arising out of selling and
serving alcoholic beverages. Such coverage can be provided by purchasing
A. an unendorsed Commercial General Liability coverage form.
B. a Commercial General Liability coverage form with the Amendment Of Liquor Liability
Exclusion endorsement attached.
C. a Liquor Liability coverage form.
D. a Businessowners policy.
61.
Both the contents and the structure of mobile homes can be insured by purchasing
A. an unendorsed HO-3.
B. a Businessowners policy
C. either a Mobile Home package policy or an HO-2 or HO-3 with the Mobile
Homeowners endorsement.
D. an unendorsed DP-3.
62.
Of the following losses which one would be paid under Part D of the Personal Auto
policy?
A. An awning attached to the insured’s camper trailer was destroyed by hail.
B. The insured’s pickup truck was contaminated by radioactive materials and had to be
destroyed.
C. A permanently installed tape player was damaged when thieves attempted to remove
it from the car.
D. The insured collided with a telephone pole while he was using the car as a taxi to
earn extra money.
63.
Professional liability protection for insurance agents can be obtain by purchasing
A.
B.
C.
D.
an unendorsed Commercial General Liability coverage form.
an Errors And Omissions insurance policy.
an unendorsed Homeowners policy.
an unendorsed Dwelling policy
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P&C 1 - Page 11
P&C Part 1
64.
The difference between the loss sustained and discovery versions of the Commercial
Crime coverage forms is
A.
B.
C.
D.
65.
In ALL states, an UNENDORSED Personal Auto policy’s Uninsured Motorists coverage
applies to what type of loss caused by an uninsured motorist?
A.
B.
C.
D.
66.
Bodily Injury And Property Damage Liability
Personal And Advertising Injury.
Pollution Liability
Medical Payments.
Who may cancel the policy in writing and make changes to the policy with the consent of
the insurer under the Commercial Package policy?
A.
B.
C.
D.
68.
Property damage
Personal injury
Bodily injury
Comprehensive
Which is of the following is not a primary coverage provided under the Commercial
General Liability policy
A.
B.
C.
D.
67.
Property covered
Coverage trigger
Eligibility
Perils covered
Last named insured
Any named insured
Any insured
First named insured
Which part of the Workers Compensation And Employers Liability policy pays all
compensation and other benefits required by the state’s Workers Compensation law?
A.
B.
C.
D.
Part One—Workers Compensation
Part Two—Employers Liability
Part Four—Your Duties If Injury Occurs
Either Part One or Part Two, depending on the type of loss
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P&C 1 - Page 12
P&C Part 1
69.
Of the following accidents which one would NOT be covered under the Uninsured
Motorists coverage of the Personal Auto policy?
A. An accident in which a hit-and-run driver hits the insured’s covered auto
B. An accident with a driver who carries the minimum liability limits required by law, but
whose insurance is not adequate to cover the damages
C. An accident with a motorist who has less Liability insurance than required by the
state’s financial responsibility law
D. An accident with an at-fault driver whose insurance company declines coverage
70.
Under the Business Auto coverage form, employers that want to cover employees’ use of
their own cars in the employer’s business should opt to have Liability coverage apply to
which of the following groups of autos?
A.
B.
C.
D.
71.
Personal Auto policy’s Medical Payments coverage would provide protection for all of the
following except?
A.
B.
C.
D.
72.
apparent authority.
compensated authority.
implied authority.
express authority.
Of the following which is responsible for the licensing of insurance agents?
A.
B.
C.
D.
74.
The insured
Occupants of a car that was struck by the insured
Passengers in the insured’s car
The insured’s family members
The authority specifically given to an agent, either orally or in writing, by the principal is
called
A.
B.
C.
D.
73.
Hired
Nonowned
Miscellaneous
Owned
Individual State Insurance Departments
American Council Of Insurers
Interstate Commerce Commission
Federal Trade Commission
Of the following which one covers a carrier for liability for loss to cargo while it is being
transported in a truck?
A.
B.
C.
D.
Truckers coverage form
Motor Truck Cargo policy
Motor Carrier coverage form
Trip Transit policy
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P&C 1 - Page 13
P&C Part 1
75.
For monopolistic states, an employer purchases Workers Compensation insurance from
A.
B.
C.
D.
76.
The insured has a property covered by two separate Dwelling policies: Policy A for
$50,000 and Policy B for $100,000. The insured has a $21,000 loss. If both policies use
the pro rata method to handle other insurance, how much will Policy B pay for this loss?
A.
B.
C.
D.
77.
payable in addition to the policy limit of liability.
subject to the overall policy limit of liability.
only available by endorsement.
subject to a flat limit of 10% of the overall policy limit.
Bradley’s home sustains $50,000 damage in an electrical fire. The home is insured under
a Homeowners policy for $75,000, with the home’s replacement cost at the time of the
loss of $125,000. How much will Bradley’s Homeowners policy pay for this loss?
A.
B.
C.
D.
80.
Legal duty owed, deliberate attempt to cause harm, damages
Breach of reasonable person rule and proximate degree of care
Legal duty owed, proximate cause, intervening cause, damages
Legal duty owed, breach of legal duty owed, proximate cause, damages
Under Liability policies, Supplementary Payments are
A.
B.
C.
D.
79.
$21,000
$-0$10,500
$14,000
Of the following which lists all the required elements for establishing a charge of
negligence?
A.
B.
C.
D.
78.
a private insurance company.
either a state fund or a private insurance company
a state fund.
the federal government.
$75,000
$37,500
$50,000
$125,000
Of these Homeowners endorsements which one is used to schedule separate coverage
for one or more of nine categories of personal property?
A.
B.
C.
D.
Scheduled Personal Property
Personal Property
Personal Articles
Personal Effects
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P&C 1 - Page 14
P&C Part 1
81.
The insured has a $1,000,000 Personal Umbrella policy with a retention limit of $1,000.
The insured suffers a $20,000 loss that is excluded by the underlying policy, but not the
Umbrella. How much of this loss would be paid under the umbrella?
A.
B.
C.
D.
82.
Of the following which would be covered under the building coverage of the Building And
Personal Property coverage form?
A.
B.
C.
D.
83.
medical expense limit.
products-completed operations limit.
personal and advertising injury limit.
per occurrence limit.
Under Personal Auto policy the Physical Damage section excludes
A.
B.
C.
D.
85.
Land
Fixtures
Indoor furniture
Inventory
Under CGL all of the following reduce the general aggregate limit EXCEPT the
A.
B.
C.
D.
84.
$-0$19,000
$20,000
$21,000
mechanical breakdown.
theft of the entire auto.
earthquake.
flood.
Vic has a Personal Auto policy with all cars insured by one company. Vic sells one of the
cars and buys a new one to replace it. Must the he take any action for the Liability portion
of his current policy to apply to the replacement vehicle?
A. Yes, the insured must notify the company within 30 days to have Liability coverage
apply to the replacement vehicle.
B. Yes, the insured must contact his agent to have a new policy issued.
C. Yes, the insured must sign a notarized form proving he is still insurable.
D. No, the insured does not have to do anything; Liability coverage for a replacement
vehicle is automatic.
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P&C 1 - Page 15
P&C Part 1
86.
With the Business Auto coverage form, the insured’s liability arising out of which of the
following situations would be covered?
A.
B.
C.
D.
87.
With the Commercial Property coverage part, the Causes Of Loss—Broad form insures
against
A.
B.
C.
D.
88.
Bodily injury due to the insured’s operation of mobile equipment
Bodily injury resulting from loading or unloading a covered auto
Damage to property in the insured’s custody
Injury to an employee of the insured while the employee is working for the insured
all risks of direct physical loss unless specifically excluded.
the perils in the Causes Of Loss—Basic form and additional perils.
a list of basic named perils only.
earthquake only.
Coinsurance is best defined as
A. Two or more policies that apply to the same property
B. Two or more buildings that are covered under a single policy
C. A requirement that the insured carry insurance equal to a specified percentage of the
property’s value to qualify for replacement cost coverage under the policy
D. A condition that allows the insurer to take action against a third party for
reimbursement of loss settlements made with the insured
89.
All of the following about Farm coverage part is correct EXCEPT?
A.
B.
C.
D.
90.
Which Commercial Property coverage form covers damage to the property of others in
the insured’s care, custody or control for which the insured is legally liable?
A.
B.
C.
D.
91.
It provides both property and liability insurance
It covers the farmer’s growing crops
It covers the farmer’s business and personal loss exposures
It can be included in the Commercial Package policy
Legal Liability coverage form
Builders Risk coverage form
Extra Expense coverage form
All Commercial Property coverage forms provide this type of coverage
Of the following losses which would be paid under the Business Auto coverage form’s
Comprehensive coverage?
A. The grillwork on a covered auto gradually corroded due to continuous exposure to
salt air.
B. A covered auto was damaged when it was hit by a car that ran a stop sign.
C. A covered auto was stolen and never recovered.
D. A covered auto skidded on icy pavement and overturned.
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P&C 1 - Page 16
P&C Part 1
92.
The owners of a parking lot want coverage for their liability for damage to vehicles left in
their custody. They need
A.
B.
C.
D.
93.
The Causes Of Loss—Special form of the Commercial Property coverage part insures
against which of the following?
A.
B.
C.
D.
94.
$13,000
$27,000
$29,000
$7,000
With the Workers Compensation system, who is responsible for the expenses resulting
from work-related injuries and occupational diseases?
A.
B.
C.
D.
96.
a list of basic named perils only.
earthquake only
all risks of direct physical loss unless specifically excluded.
all risks of loss to the insured building and specified causes of loss to business
personal property
Wanda has a Personal Auto policy with limits of 20/40/20 for Liability coverage. She
causes an accident that results in $22,000 bodily injury damages to the other driver and
$7,000 in property damage to the other driver’s car. How much would Wanda’s policy pay
for both the BI and PD losses?
A.
B.
C.
D.
95.
Garagekeepers coverage.
Business Auto coverage.
Garage Liability coverage.
both Garage Liability and Garagekeepers coverage.
The employee
The employer, but only if it was at fault for the injury or disease
The employee and employer in equal shares
The employer, regardless of whether it was at fault for the injury or disease
Concerning the claims-made CGL, the supplemental extended reporting period
A. automatically extends coverage to include claims made within 5 years of policy
expiration, provided the losses occurred during the policy period.
B. provides an unlimited extension for making claims for losses that occurred during the
policy period, but the insured must pay an additional premium.
C. automatically provides an unlimited extension for losses that occurred during the
policy period but for which a claim is not made until after policy expiration.
D. automatically extends coverage for losses that occurred during the policy period and
are claimed within 60 days following policy expiration.
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P&C 1 - Page 17
P&C Part 1
97.
Basic Dwelling policies automatically provide coverage against fire, lightning and
A.
B.
C.
D.
98.
Coverage for medical instruments while they are on and off the premises could obtain it
by purchasing the
A.
B.
C.
D.
99.
Malpractice policy.
Personal Effects form.
Physicians And Surgeons Equipment coverage form.
Commercial General Liability coverage form.
Bradley Enterprises wants property insurance for a new warehouse it is building. Bradley
Enterprises also wants the policy’s limit of insurance to gradually increase as the value of
the building under construction increases. Which of the following Commercial forms does
Bradley Enterprises need?
A.
B.
C.
D.
100.
windstorm.
falling objects.
riot.
internal explosion.
Building And Personal Property coverage form
Business Income coverage form
Businessowners coverage form
Builders Risk Reporting form
When applying for Homeowners insurance, Mr. Liealot tells his agent that the home is
used strictly as a residence. Actually, he manufactures fireworks in the basement of the
home. What will happen if the insurance company discovers Mr. Liealot’s
misrepresentation after the policy is issued?
A.
B.
C.
D.
It must wait until the policy’s expiration date to cancel the coverage.
Nothing. Mr. Liealot did not misrepresent a material fact.
It will void the policy because Mr. Liealot misrepresented a material fact.
Nothing. A policy cannot be voided on the basis of a misrepresentation of a material
fact.
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P&C 1 - Page 18
P&C Part 2
1.
All of the following are included in an insurance contract EXCEPT
A.
B.
C.
D.
2.
The Dwelling Special form provides
A.
B.
C.
D.
3.
first party.
second party.
third party.
fourth party.
Of the following which is NOT a possible defense against negligence?
A.
B.
C.
D.
6.
The house you own but have rented to a tenant
The car on which you are still paying
Neither A nor B
Both A and B
During a liability loss, the person the insured caused damage to is referred to as the
A.
B.
C.
D.
5.
open peril coverage on the dwelling and personal property.
open peril coverage on the building and named peril coverage on personal property.
open peril coverage on personal property.
named peril coverage on the dwelling and personal property.
Of the following which would you have an insurable interest?
A.
B.
C.
D.
4.
Insuring Agreement.
Conditions.
Exclusions.
floater.
Statute of limitations
Intervening cause
Comparative negligence
Doctrine of reasonable expectations
Of the following which provides coverage against an indirect loss under Section I of the
Homeowners policy?
A.
B.
C.
D.
Coverage C - Personal Property
Coverage A -Dwelling
Coverage D - Loss Of Use
Coverage B - Other Structures
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P&C 2 - Page 1
P&C Part 2
7.
Of the following losses which would be covered under the Personal Auto policy’s Liability
coverage?
A. Wanda breaks a rented carpet cleaning machine while trying to get it out of the back
seat of her car.
B. Vic falls asleep at the wheel of his car and strikes and injures a pedestrian.
C. Teresa rides her all-terrain vehicle through her neighbor’s yard and damages the
yard.
D. In a fit of temper, Bill throws his golf clubs through the windshield of his neighbor’s
car.
8.
The insurance contract is considered to be a contract of indemnity because
A. an insured may collect no more than the limit of liability stated in the Declarations.
B. an insured may collect up to 10% more than his or her insurable interest.
C. an insured may collect no more than the amount required to restore him or her to the
same financial condition that existed prior to the loss.
D. in cases of total loss, an insured can collect the appraised value of the property.
9.
The Builders Risk Reporting form insures a building under construction for
A.
B.
C.
D.
10.
its completed value.
10% of its completed value during the entire construction period.
its completed value, but at a reduced rate.
an amount that increases at intervals to correspond with the increasing value of the
building.
If a homeowner wants the maximum protection for home and contents, which form should
be purchased?
A.
B.
C.
D.
HO-2
HO-4
HO-5
HO-8
11.
Insurance is a means of
A. eliminating risk.
B. transferring risk.
C. avoiding risk.
D. retaining risk.
12.
The Commercial Inland Marine transportation form used to insure a carrier’s liability for
damage to transport cargo is the
A.
B.
C.
D.
Trip Transit policy.
Annual Transit policy.
Motor Truck Cargo policy.
Motor Carrier coverage form.
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P&C 2 - Page 2
P&C Part 2
13.
The Commercial General Liability coverage part can be used to insure against all of the
following exposures EXCEPT
A.
B.
C.
D.
14.
Premises liability.
Products liability.
Auto liability.
Completed Operations liability.
Of the following which is NOT one of the required elements of a legal contract?
A. Offer and acceptance
B. Written instrument
C. Competent parties
D. Legal purpose
15.
The DP-1 form covers personal property off premises (with the exception of rowboats and
canoes and property belonging to guests or servants)
A. only while it is in the United States.
B. for up to the full amount of coverage that applies to personal property on the
premises.
C. anywhere in the world for up to 10% of the Coverage C amount.
D. as described in both A and B.
16.
Concerning the Business Auto coverage form, the nonowned auto category represents
A.
B.
C.
D.
17.
What category of bonds would bid bonds, payments bonds and performance bonds fall
under?
A.
B.
C.
D.
18.
customers’ autos.
autos hired by the insured.
autos owned by the insured but furnished to the employee.
autos owned by employees but driven in the insured’s business.
Fiduciary bonds.
Labor bonds.
Contract bonds.
Judicial bonds.
Where states that have competitive Workers Compensation funds,
A.
B.
C.
D.
the employer must purchase insurance from a private insurer.
the employer must purchase insurance from the state.
the employer may purchase insurance from either the state or a private insurer.
the employer is expected to self insure.
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P&C 2 - Page 3
P&C Part 2
19.
Of the following which is an insurable risk?
A.
B.
C.
D.
20.
The action that produces a loss is known as the
A.
B.
C.
D.
21.
proximal causation.
proximate cause.
primal causation.
approximate cause.
Concerning Personal Inland Marine form which of the following provides open peril
coverage on a blanket basis for most kinds of property found in a typical home?
A.
B.
C.
D.
22.
Wear and tear on a valuable oriental rug
Hail damage to the roof of a car
Theft of a paperback book
All of the above
Personal Articles floater
Scheduled Personal Property endorsement
Personal Effects floater
Personal Property floater
Of the following which loss would be covered under the Personal Auto policy’s Physical
Damage coverage?
A. State officials confiscated the insured’s auto after it failed to meet the state’s auto
emissions standards.
B. An awning attached to the insured’s camper trailer was ruined in a windstorm.
C. Vandals damaged a custom mural painted on the insured’s van.
D. The on-board computer system used to monitor the operation of the insured auto was
destroyed in a fire.
23.
Concerning a legal contract which of the following represents an insurance premium
payment?
A.
B.
C.
D.
24.
Acceptance
Legal instrument
Offer
Consideration
Concerning the Commercial General Liability claims-made coverage form and a
retroactive date. The retroactive date is the date
A. the policy takes effect.
B. before which the Commercial General Liability claims-made form will not cover a
claim.
C. the policy expires.
D. by which a claim must be made to be covered.
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P&C 2 - Page 4
P&C Part 2
25.
Workers Compensation laws in most states are
A.
B.
C.
D.
26.
elective.
monopolistic.
competitive.
compulsory.
Coverage for loss of income due to a covered loss to a boiler or other defined object
A. is included in the Boiler And Machinery coverage form.
B. is covered under the Commercial Property coverage form.
C. is available under a Business Interruption endorsement to the Boiler And Machinery
coverage form.
D. is available only in conjunction with the Difference In Conditions form.
27.
A peril is defined as
A.
B.
C.
D.
28.
Nonexclusive agent is defined as individual who
A.
B.
C.
D.
29.
A delivery man trips over a toy left on the porch of the insured’s dwelling.
The named insured’s dog damages the front screen door of a neighbor’s house.
The named insured’s son damages the family’s garage with his car.
The named insured’s small daughter hits a friend with a stick, severely injuring the
other party’s eye.
Of the following policies which is specifically designed to cover business property?
A.
B.
C.
D.
31.
represents only direct writers.
works for a solicitor.
is a captive agent.
represents more than one insurance company.
Of the following losses which would NOT be recoverable under the Liability coverage of
the Homeowners policy?
A.
B.
C.
D.
30.
the uncertainty of loss.
something that increases the chance of loss.
the result of a loss.
the cause of loss.
Dwelling policy
Extended Coverage endorsement
Vandalism And Malicious Mischief endorsement
Commercial Property coverage part
Of the following all are time element coverages EXCEPT
A.
B.
C.
D.
Business Income coverage form.
Valuable Papers coverage form.
Business Income From Dependent Properties form.
Extra Expense coverage form.
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P&C 2 - Page 5
P&C Part 2
32.
Binder is defined as
A.
B.
C.
D.
33.
Glass Or Safety Glazing Material other coverage is included in which Dwelling form(s)?
A.
B.
C.
D.
34.
is always a written agreement.
guarantees that a policy will be issued.
may only be issued by the insurance company.
None of the above
DP-1
DP-3 only
DP-1 and DP-2
DP-2 and DP-3
Ocean Marine Protection And Indemnity insurance provides
A. physical damage coverage for the ship’s hull.
B. property coverage for goods in transit over water.
C. marine liability coverage.
D. protection against the loss of shipping costs.
35.
The Workers Compensation policy provides coverage for
A. amounts the employer is required to pay under state Workers Comp laws.
B. amounts for which the employer becomes legally obligated to pay for an employee’s
work-related injuries.
C. Neither A nor B
D. Both A and B
36.
The tendency for people with a greater-than-average exposure to loss to want to purchase
insurance to cover their risk is called
A.
B.
C.
D.
37.
the law of large numbers.
adverse selection.
subrogation.
a morale hazard.
It will cost Vic $5,000 to put a new roof on his home to replace a roof destroyed in a
winter storm. Assume that the original roof, which Vic paid $3,500 for 10 years ago,
depreciated $300 per year. What was the actual cash value of the roof that was
destroyed?
A. $5,000
B. $3,500
C. $2,500
D. $2,000
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P&C 2 - Page 6
P&C Part 2
38.
Flood insurance is
A.
B.
C.
D.
39.
For states that require prior approval, the rates and policy forms insurance companies
use must be approved by
A.
B.
C.
D.
40.
Exports
Instrumentalities of transportation
Commercial Property floater risks
Excess liability
Workers Compensation policy Medical benefits are
A.
B.
C.
D.
43.
a police report.
a tax audit.
a credit report.
All of the above
Of the following which is NOT a category of the Nationwide Definition?
A.
B.
C.
D.
42.
a rating bureau.
the federal government.
the Better Business Bureau.
the insurance department of the state where they will be used.
The Fair Credit Reporting Act applies to applicants who are rejected for insurance
coverage on the basis of
A.
B.
C.
D.
41.
available through any insurance company.
purchased directly from the federal government.
not available.
available from the federal government or private companies who are reimbursed for
losses by the government.
subject to a $100,000 limit per injury.
paid for up to three years after the injury occurred.
not paid unless the employer was liable for the employee’s injury.
not subject to time or dollar limits unless they are specified in the state law.
Negligence is defined as
A.
B.
C.
D.
a criminal act.
an intentional tort,
an unintentional tort.
a proximate cause.
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P&C 2 - Page 7
P&C Part 2
44.
If a home owner insures his home equal to at least 80% of the replacement cost of the
dwelling, then what is the rule of indemnification that applies if the home is destroyed?
A.
B.
C.
D.
45.
Which Commercial Crime insuring agreement includes coverage for defense costs?
A.
B.
C.
D.
46.
private insurance.
a monopolistic or competitive state fund.
self insurance.
an employee tax.
The type of bond that individuals who are appointed by the court to manage the property
of another might require is called a
A.
B.
C.
D.
49.
loss of money from robbery of a custodian.
loss of money from safe burglary.
loss of other property from robbery of a custodian.
All of the above
Which of the following is not a way of funding Workers Compensation benefits?
A.
B.
C.
D.
48.
Computer Fraud
Forgery Or Alteration
All Crime coverages
None of the Crime coverages
The Inside The Premises-Robbery Or Safe Burglary insuring agreement in the
Commercial Crime policy covers
A.
B.
C.
D.
47.
The insured will be indemnified 80% of the replacement cost.
The insured is indemnified for the actual cash value of the loss.
The insured is indemnified for 80% of the actual cash value of the loss.
The insured may be indemnified for the replacement value of the property, up to the
policy limits.
License And Permit bond
Fiduciary bond
Court bond
Performance bond
Businesses can obtain coverage for their liability arising out of discrimination and sexual
harassment by purchasing
A.
B.
C.
D.
Commercial General Liability insurance.
Difference In Conditions insurance.
Employment Practices Liability insurance.
Workers Compensation insurance.
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P&C 2 - Page 8
P&C Part 2
50.
Under the Dwelling Basic form automatically provides coverage against fire, lightning and
A.
B.
C.
D.
51.
Of the following which is not an Extended Coverage perils
A.
B.
C.
D.
52.
hail.
smoke.
windstorm.
internal explosion.
aircraft.
fire.
riot.
hail.
Under the Broad and Special Dwelling forms the Additional Living Expense coverage that
is included protects the insured against
A. depreciation on the house.
B. smoke damage to personal property.
C. extra living costs incurred when the home becomes uninhabitable due to damage by
a peril insured against.
D. loss of rental income that occurs when rental property becomes uninhabitable
because of damage caused by a peril insured against.
53.
Assigned Risk Plans for Auto insurance do which of’ the following?
A. Provides free auto insurance to those who cannot afford it
B. Makes insurance available to drivers who are unable to obtain it through normal
channels
C. Both A and B
D. Neither A nor B
54.
Comprehensive Physical Damage coverage under the Personal Auto policies covers
which of the following?
A.
B.
C.
D.
55.
Damage caused by hitting an animal
Flood
Theft
All of the above
A Commercial Package policy must include
A. Commercial Causes Of Loss form and Common Policy Conditions.
B. Common Policy Conditions and Commercial Property coverage part.
C. Common Policy Declarations, Common Policy Conditions, two or more coverage
forms.
D. Common Policy Declarations, Common Policy Conditions, Special Commercial
Conditions.
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P&C 2 - Page 9
P&C Part 2
56.
If a hardware store is insured under a Business Income coverage form with the Special
Causes Of Loss form. Which of the following lose would be covered?
A. Income lost when another hardware store opens down the street
B. Income lost when the store closes for a week while the owner is in the hospital
C. Income lost when the store closes for a week to repair damage caused by an
earthquake
D. Income lost when the store closes for a week while damage from a burst water pipe
is repaired
57.
Garagekeepers coverage insures against
A.
B.
C.
D.
58.
Under the Commercial Crime policy what type of property loss is covered under The
Employee Theft insuring agreement?
A.
B.
C.
D.
59.
surety.
principal.
obligee.
bonder.
The insured has $20,000 insurance with Company A and $40,000 with Company B.
Assume both policies contain an “other insurance clause” specifying pro rata. What would
Company A pay if there was a $24,000 loss?
A.
B.
C.
D.
61.
Money
Securities
Property other than money and securities
All of the above
For Fidelity bonds, the party to whom the promise is made and for whose protection the
bond is written is the
A.
B.
C.
D.
60.
physical damage to the insured’s own autos.
liability for bodily injury to customers while on the premises.
medical expenses.
liability for damage to autos of others that are in the care, custody or control of the
insured.
$-0$8,000
$12,000
$20,000
An insured’s home is covered by the DP-3 form. The policy provides $20,000 in coverage
on a $50,000 home. When high winds destroy the roof, it is determined it will cost the
insured $3,000 to replace it. Assuming the actual cash value of the roof is $750, how
much would the insured collect for this loss?
A.
B.
C.
D.
$800
$1,500
$1,800
$3,000
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P&C 2 - Page 10
P&C Part 2
62.
Which of the following is not an area of law under which a person can be found liable for
injury or damage to another?
A.
B.
C.
D.
63.
The right to request an appraisal belongs to
A.
B.
C.
D.
64.
Property Damage Liability coverage
Bodily Injury Liability coverage
Medical Payments coverage
Both A and B
All of the following must be included in a Commercial Property policy written under the
Commercial Package policy program with the exception being
A.
B.
C.
D.
66.
the insured.
the insurance company.
Neither A nor B
Both A and B
Of the following which Personal Auto coverage reimburses the insured without regard to
fault, regardless of whether or not the state is subject to no-fault laws?
A.
B.
C.
D.
65.
absolute liability.
negligence.
assumption of risk.
vicarious liability.
Causes Of Loss form.
one or more Commercial Property coverage forms.
Commercial Property Conditions form.
Value Reporting form.
When a building insured under the Building And Personal Property coverage form is
vacant for three months,
A. there would be no coverage for either a vandalism loss or a fire loss.
B. a vandalism loss would not be covered; a fire loss would be covered, subject to a
15% penalty.
C. both vandalism and fire losses would be covered, subject to a 15% penalty.
D. a vandalism loss would be covered subject to a 15% penalty; a fire loss would be
covered in full.
67.
Coverage for products and completed operations is provided under which of the following
contracts?
A.
B.
C.
D.
Occurrence CGL
Claims-made CGL
Neither A nor B
Both A and B
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P&C 2 - Page 11
P&C Part 2
68.
Assume there are no endorsements attached to the policy, of the following which type of
company would have coverage for liquor liability losses under the Commercial General
Liability policy?
A.
B.
C.
D.
69.
With Surety bonding, which party seeks and pays for the bond?
A.
B.
C.
D.
70.
CGL with a Professional Liability endorsement.
Employment Practices Liability policy.
Errors And Omissions policy.
standard CGL, which includes coverage for professional liability.
On what basis are losses to dwellings and other structures paid under either DP-2 and
DP-3?
A.
B.
C.
D.
73.
a two-party contract.
a three-party contract.
a four-party contract.
not considered a contract.
For insurance agents who need insurance for their professional liability exposure they
should purchase a/an
A.
B.
C.
D.
72.
Obligee
Surety
Principal
Fiduciary
A Surety bond is
A.
B.
C.
D.
71.
A convenience store that sells beer and wine
An advertising agency that serves liquor at a holiday party
Both A and B
Neither A nor B
Actual cash value
Stated value
Replacement cost
Valued policy
The insured has a $1 million Personal Umbrella policy with a $5,000 deductible. For a
$7,000 loss not covered by an underlying contract but covered under the Umbrella, the
insurance company would pay
A.
B.
C.
D.
$2,000.
$5,000.
$7,000.
nothing.
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P&C 2 - Page 12
P&C Part 2
74.
For Ocean Marine insurance, a general average loss is
A. any loss that is not total.
B. a partial loss arising from a sacrifice of cargo to save remaining property.
C. a loss in which the property is not completely destroyed, but the cost of salvage or
repair would exceed the value of the property.
D. a partial loss that does not arise from jettison.
75.
A company that frequently rents autos and trucks for business use should include which
symbol in the Business Auto policy Declarations?
A.
B.
C.
D.
76.
The Owners And Contractors Protective form covers the insured for liability
A.
B.
C.
D.
77.
crops.
farm buildings.
personal liability.
household personal property.
Of the following which coverages are included in the Dwelling policy? Assume there are
no endorsements attached to the policy.
A.
B.
C.
D.
80.
burglary.
theft.
robbery.
forgery.
Of the following all can be covered under the Farm coverage part of the Commercial
Package policy EXCEPT
A.
B.
C.
D.
79.
arising out of products or completed operations.
arising out of the operations of independent contractors or subcontractors.
arising out of the insured’s premises.
arising out of contractual liability.
In Crime insurance, the taking of property by stealth is included in the definition of
A.
B.
C.
D.
78.
8
2
9
5
Property coverage for homes, other structures and personal property
Fair rental value coverage
Both A and B
Liability coverage
Who of the following is an insured for Liability coverage Under the Personal Auto policy?
A.
B.
C.
D.
The named insured and family members for the use of any auto
Anyone who uses the insured’s covered auto with the named insured’s permission
Both A and B
Anyone who is riding with the insured at the time of the accident
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P&C 2 - Page 13
P&C Part 2
81.
Which of the following losses would be paid under the Commercial General Liability
policy’s Medical Payments coverage?
A.
B.
C.
D.
82.
Vic needs Liability, Property and Medical Payments coverage for his 30-foot speedboat
with a 75 hp engine. This boat could be covered under a
A.
B.
C.
D.
83.
A mannequin tips over and injures the store owner.
A mannequin tips over and injures a customer.
A mannequin tips over and injures a store employee.
All of the above
Boatowners or Watercraft package policy.
Homeowners policy with no endorsements.
Homeowners policy that includes the Watercraft endorsement.
Personal Inland Marine form.
Of the following who would have a need for the Personal Inland Marine Personal
Property form?
A. A condominium or apartment dweller who cannot obtain open peril coverage for
personal property under the H0-4 or R0-6
B. An insured who needs additional insurance for valuable personal property
C. An insured who needs to insure her personal belongings while traveling
D. An insured who owns a small boat that cannot be covered under the Homeowners
policy
84.
Mutual insurance companies are owned by
A.
B.
C.
D.
85.
their stockholders.
the insurance department in the state where it is incorporated.
the federal government.
their policyholders.
An insurance policy is considered a unilateral contract since
A. the policy does not provide any benefit to the insured unless a claim is paid.
B. the insured must comply with certain conditions in the policy for a claim to be paid.
C. the insurance company is the only party that is legally obligated to perform under the
insurance contract.
D. the insurance company writes the policy provisions, with little or no input from the
insured.
86.
An insurance policy has a $35,000 per occurrence limit. If the insured has a $5,000
covered loss during the policy period, how much coverage is available for other covered
losses that occur during the remainder of the policy period?
A.
B.
C.
D.
$30,000
$35,000
$20,000
$5,000
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P&C 2 - Page 14
P&C Part 2
87.
Several valuable trees on the insured’s property are destroyed by lightning. This loss is
A. excluded in all Homeowners forms.
B. covered in the HO-3 only for up to 5% of the Coverage A limit or a maximum of $500
per tree.
C. covered in all Homeowners forms, with no limit on the amount of coverage provided.
D. covered for up to 5% of the Coverage A limit in the HO-2, HO-3 and HO-8 and up to
10% of the Coverage C limit in the HO-4 and HO-6, with a maximum of $500 per
tree.
88.
Of the following who would be covered under the Medical Expenses coverage of the
Businessowners policy?
A. A tenant of the insured who fell off the roof of the rented building
B. A customer who was injured while shopping in the insured’s store
C. An employee of the insured who was injured in a fall off a stepladder in the insured’s
store
D. A marathon runner who was injured while running past the insured’s premises
89.
For the CGL, the products-completed operations hazard is subject to
A.
B.
C.
D.
90.
a products-completed operations aggregate limit.
a per occurrence limit.
Both A and B
the general aggregate limit.
A morale hazard
A. is the tendency for people with a higher-than-average risk of loss to seek insurance
coverage.
B. is the tendency to create a loss on purpose to collect from the insurance company
C. arises through an individual’s carelessness or irresponsible actions.
D. arises from the condition, occupancy or use of the property itself.
91.
Of the following losses which would be covered by a Flood policy?
A. Water backs up through a sewer system and floods the insured’s bathroom.
B. Heavy rains cause a lake to overflow and flood the basement and first floor of a
house.
C. A tornado blows out all the windows in the insured’s home, and the house is flooded
when it rains the next day
D. The insured incurs additional living expenses when flooding forces her to evacuate
her home.
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P&C 2 - Page 15
P&C Part 2
92.
FAIR Plans prohibit the insurance company from
A.
B.
C.
D.
93.
charging higher rates due to environmental hazards.
requiring the insured to make improvements to the property
rejecting a risk solely because of environmental hazards.
All of the above
When comparing a Commercial Package policy and a Businessowners policy, what is the
primary difference?
A. The eligibility requirements for a Business-owners policy are less stringent than the
CPP’s.
B. With a CPP, the insured can pick and choose the coverages included in the policy.
C. The CPP is specifically designed for smallbusinesses.
D. There are fewer coverage options in the CPP.
94.
Furniture inside a building that burns down is an example of what kind of loss
A.
B.
C.
D.
95.
Of the following business occupancies each would be permitted in a dwelling insured
under a Dwelling form EXCEPT
A.
B.
C.
D.
96.
a photographic studio.
a small shop carrying merchandise for sale.
a beauty shop run by the insured and her daughter.
a professional office providing services to clients.
What constitutes an agreement to enter into a valid contract?
A.
B.
C.
D.
97.
Direct
Indirect
Consequential
Residual
An exchange of consideration
An unconditional and unilateral promise to perform a duty
A specific offer by one party and acceptance by the other
An exercise of utmost good faith in disclosing all pertinent information
The Business Income coverage form applies to loss of
A.
B.
C.
D.
income as the result of destruction of accounts receivable records.
cash receipts because of burglary or robbery
loss of revenue while operations are suspended due to property damage.
money because of employee dishonesty
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P&C 2 - Page 16
P&C Part 2
98.
Under the Building and Personal Property coverage form, what obligation, if any does an
insurer have to a mortgagee in the event of policy cancellation?
A. The company has no obligation
B. The company must give the mortgagee 10 days written notice for cancellation due to
non payment of premium and 30 days notice in the case of a cancellation
C. The company must give the mortgagee 10 days written notice of cancellation in all
cases.
D. The company must notify the insured, who then is responsible for informing the
mortgagee
99.
Under the Business Auto coverage form, which of the following is not considered to be
mobile equipment?
A.
B.
C.
D.
100.
Forklift
Self-propelled snow plow
Farm machinery
Bulldozer
Of the following kinds of property each may be covered under a Building And Personal
Property coverage form EXCEPT
A.
B.
C.
D.
permanently installed fixtures and machinery
account records and evidences of debt.
the insured’s stock held for sale.
an insured tenant’s use interest in improvements and betterments.
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P&C 2 - Page 17
P&C Law Exam
1. The Commissioner of Insurance may do all of the following except
A.
B.
C.
D.
enforces the provisions of the insurance law.
conducts examinations of insurance companies.
supervises and administers the insurance department.
change insurance laws for the good of the general public.
2. An applicant must be at least _________ years old to receive a license as a resident insurance producer.
A.
B.
C.
D.
25
21
18
16
3. In order to take the Tennessee state insurance exam for a resident P&C producer license the applicant must
complete how many hours of instructor led classroom instruction or equivalent?
A.
B.
C.
D.
10
20
40
100
4. After failing the resident insurance producer license exam how long will they have to wait to take the same
exam again?
A.
B.
C.
D.
30 days
six months
nine months
one year
5. Temporary insurance producer license is issued for up to
A.
B.
C.
D.
three months.
none
nine months.
one year.
6. The normal time an insurance producer license will remain in effect is for
A.
B.
C.
D.
as long as the license renewal fee is paid, the continuing education requirements are met and the
license is not revoked/suspend.
one year.
two years.
five years.
7. Complete records pertaining to insurance transactions must be kept for at least
A.
B.
C.
D.
five years.
three years.
two years.
one year.
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Law Test - Page 1
P&C Law Exam
8. Unless exempt, an agent must complete __________ hours of continuing education (CE) per renewal period
(every 2 years).
A.
B.
C.
D.
30
24
18
12
9. An offer to give a prospect anything of value not specified in the contract to persuade the prospect to purchase
the insurance is
A.
B.
C.
D.
twisting.
embezzlement.
rebating.
coercion.
10. An insurance agent represents?
A.
B.
C.
D.
the best interest of the customer.
all insurance companies at once
only securities products
the best interests of the insurance company.
11. An insurance broker represents?
A.
B.
C.
D.
the best interest of the customer.
all insurance companies at once
only securities products
the best interests of the insurance company.
12. What are the Insurance Commissioner duties?
A.
B.
C.
D.
authority to administer state law (not create it.)
functions as a representative of the insurance companies
only manages office personnel
creates insurance law
13. The Department of Commerce and Insurance is involved with what responsibility?
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for Tennessee.
issuing drivers licenses
levying fines to business other than insurance companies
creates insurance law
14. The state legislature…
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P&C Law Exam
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for Tennessee.
is authorized to administer state law
functions as a representative of the insurance companies
creates insurance law
15. Producers that write an insurance contract with a company that is not authorized to do business in Tennessee,
would be
A.
B.
C.
D.
paid a higher commission on those sales
is automatically appointed as an agent for that company
not responsible for any resulting problems with that policy
held personally liable
16. An insurance company appointing a producer as an agent must file a notice of this appointment with the
Department of Commerce and Insurance within ________ days.
A.
B.
C.
D.
10
15
20
31
17. The following statements about a non-resident producer’s license which is correct:
A.
B.
C.
D.
never expires
limited to 180 days, unless renewed
A producer who lives in Alabama and has a non-resident Tennessee license will lose their Tennessee
license if their Alabama license expires.
a non-resident producer’s license can only be obtained if the home state of the agent borders directly
to Tennessee and that state has a current reciprocal agreement with Tennessee
18. Which of the following best describes an authorized insurer?
A.
B.
C.
D.
A producer authorized by the Commissioner to transact business in Tennessee
A company authorized by the Commissioner to transact insurance business in Tennessee
A producer who has the authority to represent an insurance company
A policyholder who has a legal contract with an insurance company
19. An insurance company’s license to do business in the state of Tennessee is called a
A.
B.
C.
D.
licenses of authority
DBA certificate
Tennessee Department of Insurance – “Quality Approval” certificate
certificate of authority
20. If a licensed nonresident producer moves to Tennessee and applies within 90 days of arrival to become a
resident producer, they are exempt from
A.
B.
C.
D.
CE requirements for 4 years
state’s minimum income requirements
the states’ insurance licensing examinations requirements.
nothing – they are required to take the state insurance exam and then complete 5 hours of CE
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P&C Law Exam
21. The insurance Commissioner may issue all of the following penalties to producers who engage in unfair or
deceptive practices, except:
A.
B.
C.
D.
order violators to cease and desist from the prohibited practice
suspend willful violators’ licenses
order payment of a $1,000 fine for each willful violation
order drug testing for license agents
22. Tennessee temporary insurance licenses, if issued, are issued for the maximum term of
A.
B.
C.
D.
90 days
180 days and renewable (only in special circumstances)
360 days
30 days
23. All the following are unfair trade practices, except:
A.
B.
C.
D.
Rebating premiums
Discriminating against a blind applicant for insurance
Issuing company stock to induce people to purchase insurance
Being honest and straight forward with the customer
24. All of the following are considered to be unfair methods of competition, except:
A.
B.
C.
D.
making statements that could lead insureds to believe that, by purchasing a policy, they may gain
stock ownership interest in the company
providing competitive quotes on new insurance
stating that each stockholder is given the right to purchase a specific number of policies
stating that a company makes a profit as a result of policy lapses or surrenders
25. An individual must meet all of the following requirements to obtain a license to sell insurance in Tennessee,
except:
A.
B.
C.
D.
be competent and have a good business reputation
have experience or instruction in the general insurance business or specific class of license
pass the licensing exam
be a property owner in the state of Tennessee
26. All of the following individuals are exempt from the continuing education requirements, except:
A.
B.
C.
D.
A person on extended active duty in the US armed forces
A person holding a current producer’s license issued before January 1, 1997
A person holding a license as a limited insurance representative
A person holding a current producer’s license issued after January 1, 1997
27. An agents’ insurance license for Tennessee will remain valid for ________ after the date of issue
A.
B.
C.
D.
1 year
2 years
3 years
Every other odd number year
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P&C Law Exam
28. All of the following statements about reinstating a producer’s expired Tennessee insurance license are
correct, except:
A.
B.
C.
D.
the producer must submit a request for reinstatement to the Commissioner
the producer must pay a renewal fee
the producer must pay a nonrefundable reinstatement fee equal to 50% of the renewal fee
the producer must pay a fine of $1,000
29. The insurance Commissioner may deny, suspend, or revoke an agent’s insurance license for all of the
following reasons, except:
A.
B.
C.
D.
violating any Tennessee insurance law
making a false statement in the license application
misusing funds belonging to insurers or policyholders
producers acting in the best interest of the insurance company
30. The minimum age to be licensed as a insurance producer in Tennessee is ______ .
A.
15
B.
18
C.
19
D.
21
31. An insurance agent represents?
A.
B.
C.
D.
the best interests of the insurance company.
the best interest of out of state companies, only
the best interest of the customer
all of the above
32. An insurance broker represents?
A.
B.
C.
D.
the best interests of the insurance company.
the best interest of out of state companies, only
the best interest of the customer
all of the above
33. The state legislature…
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for Tennessee.
is authorized to administer state law
functions as a representative of the insurance companies
creates insurance law
34. An individual must meet all of the following requirements to obtain a license to sell insurance in Tennessee
except
A.
B.
C.
D.
be competent and have a good business reputation
have experience or instruction in the general insurance business or specific class of license
pass the licensing exam
hold a college degree in business administration
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P&C Law Exam
35. Which of the following are considered to be unfair methods of competition?
A. making statements that could lead insureds to believe that, by purchasing a policy, they may gain stock
ownership interest in the company
B. stating that each stockholder is given the right to purchase a specific number of policies
C. stating that a company makes a profit as a result of policy lapses or surrenders
D. all of the above
36. Without passing an insurance examination, applicants can receive limited insurance representative license
in all of the following lines of insurance except
A.
B.
C.
D.
credit life and health
mortgage guaranty insurance
property and casualty insurance
limited travel accident insurance
37. All of the following may be granted a temporary producer’s license except
A.
B.
C.
D.
an applicant holding an associates degree in business administration
a widow of a deceased producer
a designee of a licensed producer who is entering active service in the US armed forces
an employee of a licensed producer who becomes disabled
38. A person who, for compensation, investigates and negotiates settlement of claims arising under insurance
contracts on behalf of an insurer is a/an
A.
B.
C.
D.
consultant
adjuster
service claims representative
financial planner
39. Workers compensation benefits for temporary total disability will be paid for up to a maximum of
A.
B.
C.
D.
52 weeks
400 weeks
3 years
7 years
40. Making misleading or incomplete comparisons to induce a policy holder to exchange an insurance policy is
called
A.
B.
C.
D.
Misrepresenting
Forfeiting a commission
Twisting
Coercion
41. The prohibited act of combining several partiers with the only purpose for the group obtaining insurance is
called forming a
A.
B.
C.
D.
Fictitious Group
Forbidden Group
False Group
Rebating Group
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P&C Law Exam
42. An oral or written statement made by an agent for immediate protection that is valid for a specific time that
provides temporary coverage is called
A.
B.
C.
D.
Temporary Policy
Binder
Provisional Policy
Impermanent Policy
43. In Tennessee, the minimum requirements for automobile insurance is:
A.
B.
C.
D.
25/50/15
25/45/10
25/50/10
15/30/5
44. Which of the following does not help to determine the premiums for workers compensation?
A.
B.
C.
D.
The payroll
The employer’s classification
The accident and injury history of the company
The number of employees
45. When must an employee report a work related injury?
A.
B.
C.
D.
Within the first 30 days
Within the first 20 days
Within the first 10 days
Within the first 60 days
46. If an insurance company does not intend to renew a contract of any kind of personal risk insurance, the
company must mail or deliver the named insured notices of its intention not to renew within how many
days prior to the expiration of the policy?
A.
B.
C.
D.
10 days
20 days
30 days
45 days
47. Boycott, coercion, and intimidation are terms used to describe
A.
B.
C.
D.
Prohibit selling actions
Unfair methods of competition
Fair methods of competition
Illegal campaigning
48. What is a result of the accident prevention course?
A.
B.
C.
D.
An insurance rate or premium reduction
A permanent driver’s license
A free 6-month automobile insurance policy
The right to drive without insurance
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P&C Law Exam
49. How old must a driver be in order to participate in the accident prevention course?
A.
B.
C.
D.
40
45
50
55
50. What is the meaning of having proof of “Financial Responsibility of Owners and operators?”
A. Proof that the driver of the vehicle has a job
B. Proof the owner of the vehicle has a job
C. Proof that, when at fault in an accident, the driver of the vehicle can and will be responsible for all
damages
D. Proof that, when at fault in an accident, the owner of the vehicle can and will be responsible for all
damages
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Law Test - Page 8
P&C Part 1 (Study/Answer Sheets)
1.
A hazard is
A.
B.
C.
D.
2.
the chance of loss
the uncertainty about whether or not a loss might occur
anything that increases in the possibility that a loss might occur
the cause of loss
Insurance is used to
A. eliminate risk by accumulating funds from enough individuals so the risk of loss no
longer exists.
B. reduce risk by transferring funds from individuals posing little moral, morale or
physical hazard to those who pose greater hazards.
C. retain risk through the law of large numbers.
D. transfer risk from a person, business or organization to an insurance company
that agrees to pay for losses in exchange for a premium.
3.
What type of insurance company considers the policyholder as an owner, with the rights
to vote and share in company profits?
A.
B.
C.
D.
4.
stock company.
reciprocal company.
Lloyd’s Association.
mutual company.
Sue Smith’s home is insured by ABC Insurance Company. Last year she made the final
mortgage payment to XYZ Mortgage Company. Sue is considering selling her home to
her niece, Dee. Which of the following has an insurable interest in the home?
A.
B.
C.
D.
ABC Insurance Company
Sue Smith
XYZ Mortgage Company
Dee Smith
5.
Which of the following is NOT an element of insurability?
A. Loss must be calculable
B. Risk of loss is a speculative risk
C. Risk of loss must represent a financial hardship
D. Cost of insurance must be affordable
6.
The principle that states that an insured should be restored to the same financial position
after a loss as before is known as
A. insurability.
B. adhesion.
C. subrogation.
D. indemnity.
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P&C 1 S/A - Page 1
P&C Part 1 (Study/Answer Sheets)
7.
What section of an insurance policy personalizes the policy as to who and what are
insured?
A.
B.
C.
D.
8.
An insurance policy is prepared by the insurance company, with little or no input from the
insured. This is an example of a/an
A.
B.
C.
D.
9.
unilateral contract.
personal contract.
adhesion contract.
contract of utmost good faith.
An individual who owns and lives in a condominium can obtain broad coverage for
personal property under which Homeowners form?
A.
B.
C.
D.
10.
Insuring Agreements
Conditions
Declarations
Exclusions
HO-2
HO-3
HO-4
HO-6
The purpose of Fair Credit Reporting Act is
A. to allow the use of installment payments for insurance premiums
B. to limit the number of outside sources an underwriter may use when evaluating a risk
C. to give the consumer recourse if insurance is denied on the basis of a credit
report
D. to prevent insurers from using credit reports to evaluate risks
11.
Of the following which is a liability loss?
A. A fire destroys the insured’s building.
B. As a result of a fire, the insured’s business is closed while rebuilding takes place. The
insured loses three months’ of income.
C. A fire damages the insured’s building. While firefighters managed to save part of the
inventory from the fire, some of it was damaged by the chemicals used to extinguish
the flames.
D. A fire that was caused by the insured’s negligence burns a neighboring
building. The owner of the building sues the insured.
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P&C 1 S/A - Page 2
P&C Part 1 (Study/Answer Sheets)
12.
Which of the following methods involves modifying the premium based on the insured’s
loss experience over a specified period of time?
A.
B.
C.
D.
13.
Flood insurance coverage is primarily provided by
A.
B.
C.
D.
14.
Rehabilitation
Disability
Medical
Pain and suffering
Which of the following describes an insurance company that is doing business in a state
in addition to the one where it is incorporated?
A.
B.
C.
D.
17.
Big Time Bank & Trust
Kids ‘R’ Us Amusement Park
Trader Vic’s Bar And Grill
Spry Funeral Home
Which of the following types of benefits is generally not provided by a state’s workers
compensation law?
A.
B.
C.
D.
16.
private insurance companies.
state-run programs.
surplus lines insurers.
a federal government program.
Which of the following businesses operations would be eligible for a Businessowners
policy?
A.
B.
C.
D.
15.
Merit rating
Experience rating
Manual rating
Judgment rating
Domestic
Foreign
Alien
Non admitted
The main purpose of a binder is to
A. guarantee that an insurance policy will be issued provided the insured has made no
misrepresentations on the application.
B. provide temporary protection for the insured between the time the application
is made and the policy is issued or the binder expires.
C. provide the insurance company with the information about the insured required to
decide whether or not to issue the policy.
D. eliminate the need for the policy to be countersigned when it is issued.
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P&C 1 S/A - Page 3
P&C Part 1 (Study/Answer Sheets)
18.
Agent Bradley is under contract with the ABC Insurance Company to represent and sell
insurance only for ABC. This is an example of what type of agency system?
A.
B.
C.
D.
19.
The type of insurance policy that insures against all risks of loss that are not specifically
excluded by the policy is a/an
A.
B.
C.
D.
20.
eligible for Personal Inland Marine insurance.
eligible for Commercial Inland Marine insurance.
not eligible for Marine insurance.
eligible for Ocean Marine insurance.
Which of the following Surety bonds guarantees that bills for labor and materials will be
paid by the contractor as they are due?
A.
B.
C.
D.
23.
use and file state
prior approval state
file and use state
open competition state
Based on the Nationwide Definition, imports and exports are
A.
B.
C.
D.
22.
named peril policy
specified peril policy
open peril policy
Binder policy
In a particular state, if an insurance company must file policy forms and rates with the
state insurance department and wait for official approval before using the new forms and
rates, the state would be referred to as:
A.
B.
C.
D.
21.
Direct writer
Independent
Direct response
Exclusive/captive
Supply bond
Bid bond
Performance bond
Payment bond
Which of the following statements describes actual cash value?
A.
B.
C.
D.
Market value minus depreciation
Replacement cost minus depreciation
Agreed amount
Cost to repair or replace
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P&C 1 S/A - Page 4
P&C Part 1 (Study/Answer Sheets)
24.
The condition that provides a means to settle the amount of a loss when the insured and
the insurance company cannot agree is the
A.
B.
C.
D.
25.
An insured purchased new furniture for $5,000. At the time of a fire loss, it had
depreciated $1,000. The same furniture will cost $6,000 to replace. What is the actual
cash value of the destroyed furniture?
A.
B.
C.
D.
26.
discovery period condition.
appraisal condition.
assignment condition.
subrogation condition.
$5,000
$6,000
$7,000
$8,000
Of the following which can be insured under an unendorsed Homeowners policy?
A. Farm
B. Mobile home
C. Private residence in which the owner-occupant also maintains an office for her
accounting business
D. Dwelling that the owner rents to his cousin
27.
The main purpose of the Business Income coverage forms is to reimburse the insured for
A.
B.
C.
D.
28.
Coverage for sums an employer becomes legally obligated to pay under common law as
a result of a work-related injury is provided by
A.
B.
C.
D.
29.
damage to accounts receivable records.
loss of income resulting from property damage at the insured’s property.
the costs of debris removal following loss from a covered peril.
loss due to employees’ work-related injuries.
Part One—Workers Compensation section of the Workers Comp policy.
Part Two—Employers Liability section of the Workers Comp policy.
the Commercial General Liability policy.
the Businessowners policy.
Of the following which Homeowners form provides open peril coverage on the dwelling
and broad coverage on personal property is the
A.
B.
C.
D.
HO-2.
HO-3.
HO-4.
HO-6.
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P&C 1 S/A - Page 5
P&C Part 1 (Study/Answer Sheets)
30.
Which one of the following coverage extensions is available in the Building And Personal
Property coverage form?
A.
B.
C.
D.
31.
Of the following which losses to cover equipment would be covered under the Equipment
Breakdown Protection coverage form?
A.
B.
C.
D.
32.
Damage that occurs while the equipment is undergoing a pressure test
Damage from an explosion caused by the centrifugal force of moving parts
Damage caused by fire
Damage resulting from a windstorm
In a PURE contributory negligence state, when an individual is found to have contributed
to their own loss in any way, the other party
A.
B.
C.
D.
33.
Monthly limit of indemnity
Business personal property
Property off-premises
Animals
may be held liable only in the case of vicarious liability.
may not be held liable.
may be held liable, but to a reduced extent.
may be held liable for full damages despite the other party’s negligence.
Which of the following would NOT generally be included in the Supplementary Payments
portion of a Liability policy?
A. Loss of earnings
B. First aid to others at the time of an accident
C. Expenses the insured incurs at the company’s request as part of an investigation or
defense
D. Damage to property owned by the insured
34.
According to the cancellation condition in the Common Policy Conditions form, if the
insurance company is canceling a Commercial Package policy for nonpayment of
premium, the insured must be given at least _______ days’ notice of cancellation.
A.
B.
C.
D.
10
14
30
60
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P&C 1 S/A - Page 6
P&C Part 1 (Study/Answer Sheets)
35.
Which of the following coverages is not included in an unendorsed Dwelling policy?
A.
B.
C.
D.
36.
Of the following coverages which includes Trailer Interchange coverage?
A.
B.
C.
D.
37.
owners and contractors protective hazard
products-completed operations hazard
premises and operations hazard
contractual liability hazard
Under the Personal Inland Marine form which of the following is used to provide open
peril coverage on a blanket basis for personal property?
A.
B.
C.
D.
40.
HO-2
HO-3
HO-4
HO-5
Commercial General Liability policy includes a separate Aggregate Limit which applies to
the
A.
B.
C.
D.
39.
Business Auto coverage form.
Garage coverage form.
Truckers coverage form and Motor Carrier coverage form.
Personal Auto policy.
Open peril coverage for either the dwelling or personal property is provided by the
A.
B.
C.
D.
38.
Dwelling
Liability
Other Structures
Personal Property
Floater form
Personal Effects form
Personal Property form
Personal Articles form
The insured’s home is covered by a DP-3. Two years ago, the insured bought the home
for $68,000. Today, its replacement value is $70,000. How much Coverage A does the
insured need to qualify for replacement cost coverage?
A.
B.
C.
D.
$70,000
$52,400
$56,000
$59,100
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P&C 1 S/A - Page 7
P&C Part 1 (Study/Answer Sheets)
41.
Which of the following coverages is excluded by a Dwelling policy?
A.
B.
C.
D.
42.
Of the following lines of insurance which CANNOT be included in the Commercial
Package policy?
A.
B.
C.
D.
43.
Coin collection
Improvements, alterations or additions made by an insured at his or her own expense
Detached garage on the insured’s premises
Rent an insured was unable to collect because rental property was damaged
Crime
Boiler And Machinery
Ocean Marine
Inland Marine
Which one of these Commercial Inland Marine forms CANNOT be included in the
Commercial Inland Marine coverage part of the Commercial Package policy?
A. Commercial Articles coverage form
B. Valuable Papers And Records coverage form
C. Signs coverage form
D. Parcel Post policy
44.
Coverage provided by the Extra Expense coverage form is
A. additional money to pay for property damage losses at a covered location.
B. coverage that will permit the insured to continue in business without
interruption following a property damage loss.
C. payment for unforeseen expenses an insured may incur while the business is shut
down following a property loss.
D. extra money for an insured whose accounts receivable records have been damaged.
45.
Regarding the Businessowners policy, the policy
A. gives the insured great flexibility in picking coverages that can be included in the
policy.
B. provides only property coverage
C. can be written for almost any commercial insured.
D. provides a prepackaged policy property and liability coverage for certain types
of small businesses
46.
Glass damage and theft of money and securities are Optional coverages for employee
dishonesty included in
A.
B.
C.
D.
the Special Businessowners Property form.
the Standard Businessowners Property form.
both Businessowners Property forms.
neither of the Businessowners Property forms
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P&C 1 S/A - Page 8
P&C Part 1 (Study/Answer Sheets)
47.
The type of Ocean Marine insurance which provides physical damage coverage for the
ship while it is in transit?
A.
B.
C.
D.
48.
The party to a Surety bond who promises to do or not do a specific thing is the
A.
B.
C.
D.
49.
Loss due to power interruption that occurs off the premises
Sudden and accidental rupture of a heating system
Flood
War
Liability assumed under the Commercial General Liability coverage form is
A.
B.
C.
D.
51.
obligee
surety
custodian
principal
Of the following perils which is covered by the HO-2 and HO-3?
A.
B.
C.
D.
50.
Cargo
Hull
Freight
Protection And Indemnity
always excluded.
covered, except for contracts specifically defined as insured.
covered, except for property leases.
excluded, except for contracts specifically defined as insured.
Identify the individual that would be considered an insured for Liability coverage under
the Personal Auto policy?
A. The named insured’s neighbor while taking the named insured for a drive in the
neighbor’s new car
B. The named insured’s cousin who, while visiting from another state, drives a car the
named insured borrows from a neighbor
C. The named insured’s son, who lives with the insured, while driving a
neighbor’s car
D. The named insured’s neighbor, who borrows the named insured’s car without
permission
52.
With a pure no-fault plan each party to an auto accident
A. has the right to seek pain and suffering compensation.
B. is reimbursed by his or her own insurance company, but could seek additional
compensation if damages were higher than a certain amount.
C. is reimbursed by his or her own insurance company.
D. is reimbursed by the other party’s insurance company
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P&C 1 S/A - Page 9
P&C Part 1 (Study/Answer Sheets)
53.
If the insured’s property insurance policy has a deductible clause, the clause means that
A.
B.
C.
D.
54.
the insured must deduct a claim payment from the policy limit.
the insured deducts any claim payment received from the next insurance premium.
any losses paid to a third party are deducted from the policy limit.
the insured must pay a certain amount for each loss incurred under the policy.
Of the following which coverages is not included in the Commercial Crime insuring
agreements but can be added by endorsement?
A.
B.
C.
D.
Theft of money and securities
Employee Dishonesty
Computer Fraud
Extortion
55.
Additional losses that results from a direct loss to property are called a/an
A. proximate loss
B. indirect/consequential loss
C. liability loss
D. punitive loss
56.
Of the following which is NOT one of the components of a Commercial Package policy?
A.
B.
C.
D.
57.
Under the Commercial Crime forms, new employees and additional premises obtained
through a consolidation or merger
A.
B.
C.
D.
58.
Coverage parts
Object Definitions form
Common Policy Conditions
Common Policy Declarations
are automatically covered until the end of the policy period.
are automatically covered for 90 days.
are only covered if the insured provides immediate notification to the insurer.
cannot be covered under the current policy but can be added at the next policy
effective date.
With the claims-made Commercial General Liability coverage form, the first date that a
loss may occur and still be covered under the policy is the
A.
B.
C.
D.
policy expiration date.
extended reporting period inception date.
retroactive date.
policy inception date.
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P&C 1 S/A - Page 10
P&C Part 1 (Study/Answer Sheets)
59.
If the following items were stolen from the insured’s home which one of these losses
would be fully covered under Coverage C of the Homeowners policy, assuming the loss
was for the full value of the property described?
A. An antique gun valued at $5,000
B. A $3,000 mink stole
C. A $2,000 laptop computer the insured uses for her in-home accounting
business
D. A $1,500 ruby and diamond ring
60.
The insured, Trader Vic’s Bar, wants coverage for liability arising out of selling and
serving alcoholic beverages. Such coverage can be provided by purchasing
A. an unendorsed Commercial General Liability coverage form.
B. a Commercial General Liability coverage form with the Amendment Of Liquor Liability
Exclusion endorsement attached.
C. a Liquor Liability coverage form.
D. a Businessowners policy.
61.
Both the contents and the structure of mobile homes can be insured by purchasing
A. an unendorsed HO-3.
B. a Businessowners policy
C. either a Mobile Home package policy or an HO-2 or HO-3 with the Mobile
Homeowners endorsement.
D. an unendorsed DP-3.
62.
Of the following losses which one would be paid under Part D of the Personal Auto
policy?
A. An awning attached to the insured’s camper trailer was destroyed by hail.
B. The insured’s pickup truck was contaminated by radioactive materials and had to be
destroyed.
C. A permanently installed tape player was damaged when thieves attempted to
remove it from the car.
D. The insured collided with a telephone pole while he was using the car as a taxi to
earn extra money.
63.
Professional liability protection for insurance agents can be obtain by purchasing
A.
B.
C.
D.
an unendorsed Commercial General Liability coverage form.
an Errors And Omissions insurance policy.
an unendorsed Homeowners policy.
an unendorsed Dwelling policy
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P&C 1 S/A - Page 11
P&C Part 1 (Study/Answer Sheets)
64.
The difference between the loss sustained and discovery versions of the Commercial
Crime coverage forms is
A.
B.
C.
D.
65.
In ALL states, an UNENDORSED Personal Auto policy’s Uninsured Motorists coverage
applies to what type of loss caused by an uninsured motorist?
A.
B.
C.
D.
66.
Bodily Injury And Property Damage Liability
Personal And Advertising Injury.
Pollution Liability
Medical Payments.
Who may cancel the policy in writing and make changes to the policy with the consent of
the insurer under the Commercial Package policy?
A.
B.
C.
D.
68.
Property damage
Personal injury
Bodily injury
Comprehensive
Which is of the following is not a primary coverage provided under the Commercial
General Liability policy
A.
B.
C.
D.
67.
Property covered
Coverage trigger
Eligibility
Perils covered
Last named insured
Any named insured
Any insured
First named insured
Which part of the Workers Compensation And Employers Liability policy pays all
compensation and other benefits required by the state’s Workers Compensation law?
A.
B.
C.
D.
Part One—Workers Compensation
Part Two—Employers Liability
Part Four—Your Duties If Injury Occurs
Either Part One or Part Two, depending on the type of loss
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P&C 1 S/A - Page 12
P&C Part 1 (Study/Answer Sheets)
69.
Of the following accidents which one would NOT be covered under the Uninsured
Motorists coverage of the Personal Auto policy?
A. An accident in which a hit-and-run driver hits the insured’s covered auto
B. An accident with a driver who carries the minimum liability limits required by
law, but whose insurance is not adequate to cover the damages
C. An accident with a motorist who has less Liability insurance than required by the
state’s financial responsibility law
D. An accident with an at-fault driver whose insurance company declines coverage
70.
Under the Business Auto coverage form, employers that want to cover employees’ use of
their own cars in the employer’s business should opt to have Liability coverage apply to
which of the following groups of autos?
A.
B.
C.
D.
71.
Personal Auto policy’s Medical Payments coverage would provide protection for all of the
following except?
A.
B.
C.
D.
72.
apparent authority.
compensated authority.
implied authority.
express authority.
Of the following which is responsible for the licensing of insurance agents?
A.
B.
C.
D.
74.
The insured
Occupants of a car that was struck by the insured
Passengers in the insured’s car
The insured’s family members
The authority specifically given to an agent, either orally or in writing, by the principal is
called
A.
B.
C.
D.
73.
Hired
Nonowned
Miscellaneous
Owned
Individual State Insurance Departments
American Council Of Insurers
Interstate Commerce Commission
Federal Trade Commission
Of the following which one covers a carrier for liability for loss to cargo while it is being
transported in a truck?
A.
B.
C.
D.
Truckers coverage form
Motor Truck Cargo policy
Motor Carrier coverage form
Trip Transit policy
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P&C 1 S/A - Page 13
P&C Part 1 (Study/Answer Sheets)
75.
For monopolistic states, an employer purchases Workers Compensation insurance from
A.
B.
C.
D.
76.
The insured has a property covered by two separate Dwelling policies: Policy A for
$50,000 and Policy B for $100,000. The insured has a $21,000 loss. If both policies use
the pro rata method to handle other insurance, how much will Policy B pay for this loss?
A.
B.
C.
D.
77.
payable in addition to the policy limit of liability.
subject to the overall policy limit of liability.
only available by endorsement.
subject to a flat limit of 10% of the overall policy limit.
Bradley’s home sustains $50,000 damage in an electrical fire. The home is insured under
a Homeowners policy for $75,000, with the home’s replacement cost at the time of the
loss of $125,000. How much will Bradley’s Homeowners policy pay for this loss?
A.
B.
C.
D.
80.
Legal duty owed, deliberate attempt to cause harm, damages
Breach of reasonable person rule and proximate degree of care
Legal duty owed, proximate cause, intervening cause, damages
Legal duty owed, breach of legal duty owed, proximate cause, damages
Under Liability policies, Supplementary Payments are
A.
B.
C.
D.
79.
$21,000
$-0$10,500
$14,000
Of the following which lists all the required elements for establishing a charge of
negligence?
A.
B.
C.
D.
78.
a private insurance company.
either a state fund or a private insurance company
a state fund.
the federal government.
$75,000
$37,500
$50,000
$125,000
Of these Homeowners endorsements which one is used to schedule separate coverage
for one or more of nine categories of personal property?
A.
B.
C.
D.
Scheduled Personal Property
Personal Property
Personal Articles
Personal Effects
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P&C 1 S/A - Page 14
P&C Part 1 (Study/Answer Sheets)
81.
The insured has a $1,000,000 Personal Umbrella policy with a retention limit of $1,000.
The insured suffers a $20,000 loss that is excluded by the underlying policy, but not the
Umbrella. How much of this loss would be paid under the umbrella?
A.
B.
C.
D.
82.
Of the following which would be covered under the building coverage of the Building And
Personal Property coverage form?
A.
B.
C.
D.
83.
medical expense limit.
products-completed operations limit.
personal and advertising injury limit.
per occurrence limit.
Under Personal Auto policy the Physical Damage section excludes
A.
B.
C.
D.
85.
Land
Fixtures
Indoor furniture
Inventory
Under CGL all of the following reduce the general aggregate limit EXCEPT the
A.
B.
C.
D.
84.
$-0$19,000
$20,000
$21,000
mechanical breakdown.
theft of the entire auto.
earthquake.
flood.
Vic has a Personal Auto policy with all cars insured by one company. Vic sells one of the
cars and buys a new one to replace it. Must the he take any action for the Liability portion
of his current policy to apply to the replacement vehicle?
A. Yes, the insured must notify the company within 30 days to have Liability coverage
apply to the replacement vehicle.
B. Yes, the insured must contact his agent to have a new policy issued.
C. Yes, the insured must sign a notarized form proving he is still insurable.
D. No, the insured does not have to do anything; Liability coverage for a
replacement vehicle is automatic.
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P&C 1 S/A - Page 15
P&C Part 1 (Study/Answer Sheets)
86.
With the Business Auto coverage form, the insured’s liability arising out of which of the
following situations would be covered?
A.
B.
C.
D.
87.
With the Commercial Property coverage part, the Causes Of Loss—Broad form insures
against
A.
B.
C.
D.
88.
Bodily injury due to the insured’s operation of mobile equipment
Bodily injury resulting from loading or unloading a covered auto
Damage to property in the insured’s custody
Injury to an employee of the insured while the employee is working for the insured
all risks of direct physical loss unless specifically excluded.
the perils in the Causes Of Loss—Basic form and additional perils.
a list of basic named perils only.
earthquake only.
Coinsurance is best defined as
A. Two or more policies that apply to the same property
B. Two or more buildings that are covered under a single policy
C. A requirement that the insured carry insurance equal to a specified percentage
of the property’s value to qualify for replacement cost coverage under the
policy
D. A condition that allows the insurer to take action against a third party for
reimbursement of loss settlements made with the insured
89.
All of the following about Farm coverage part is correct EXCEPT?
A.
B.
C.
D.
90.
Which Commercial Property coverage form covers damage to the property of others in
the insured’s care, custody or control for which the insured is legally liable?
A.
B.
C.
D.
91.
It provides both property and liability insurance
It covers the farmer’s growing crops
It covers the farmer’s business and personal loss exposures
It can be included in the Commercial Package policy
Legal Liability coverage form
Builders Risk coverage form
Extra Expense coverage form
All Commercial Property coverage forms provide this type of coverage
Of the following losses which would be paid under the Business Auto coverage form’s
Comprehensive coverage?
A. The grillwork on a covered auto gradually corroded due to continuous exposure to
salt air.
B. A covered auto was damaged when it was hit by a car that ran a stop sign.
C. A covered auto was stolen and never recovered.
D. A covered auto skidded on icy pavement and overturned.
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P&C 1 S/A - Page 16
P&C Part 1 (Study/Answer Sheets)
92.
The owners of a parking lot want coverage for their liability for damage to vehicles left in
their custody. They need
A.
B.
C.
D.
93.
The Causes Of Loss—Special form of the Commercial Property coverage part insures
against which of the following?
A.
B.
C.
D.
94.
$13,000
$27,000
$29,000
$7,000
With the Workers Compensation system, who is responsible for the expenses resulting
from work-related injuries and occupational diseases?
A.
B.
C.
D.
96.
a list of basic named perils only.
earthquake only
all risks of direct physical loss unless specifically excluded.
all risks of loss to the insured building and specified causes of loss to business
personal property
Wanda has a Personal Auto policy with limits of 20/40/20 for Liability coverage. She
causes an accident that results in $22,000 bodily injury damages to the other driver and
$7,000 in property damage to the other driver’s car. How much would Wanda’s policy pay
for both the BI and PD losses?
A.
B.
C.
D.
95.
Garagekeepers coverage.
Business Auto coverage.
Garage Liability coverage.
both Garage Liability and Garagekeepers coverage.
The employee
The employer, but only if it was at fault for the injury or disease
The employee and employer in equal shares
The employer, regardless of whether it was at fault for the injury or disease
Concerning the claims-made CGL, the supplemental extended reporting period
A. automatically extends coverage to include claims made within 5 years of policy
expiration, provided the losses occurred during the policy period.
B. provides an unlimited extension for making claims for losses that occurred
during the policy period, but the insured must pay an additional premium.
C. automatically provides an unlimited extension for losses that occurred during the
policy period but for which a claim is not made until after policy expiration.
D. automatically extends coverage for losses that occurred during the policy period and
are claimed within 60 days following policy expiration.
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P&C 1 S/A - Page 17
P&C Part 1 (Study/Answer Sheets)
97.
Basic Dwelling policies automatically provide coverage against fire, lightning and
A.
B.
C.
D.
98.
Coverage for medical instruments while they are on and off the premises could obtain it
by purchasing the
A.
B.
C.
D.
99.
Malpractice policy.
Personal Effects form.
Physicians And Surgeons Equipment coverage form.
Commercial General Liability coverage form.
Bradley Enterprises wants property insurance for a new warehouse it is building. Bradley
Enterprises also wants the policy’s limit of insurance to gradually increase as the value of
the building under construction increases. Which of the following Commercial forms does
Bradley Enterprises need?
A.
B.
C.
D.
100.
windstorm.
falling objects.
riot.
internal explosion.
Building And Personal Property coverage form
Business Income coverage form
Businessowners coverage form
Builders Risk Reporting form
When applying for Homeowners insurance, Mr. Liealot tells his agent that the home is
used strictly as a residence. Actually, he manufactures fireworks in the basement of the
home. What will happen if the insurance company discovers Mr. Liealot’s
misrepresentation after the policy is issued?
A.
B.
C.
D.
It must wait until the policy’s expiration date to cancel the coverage.
Nothing. Mr. Liealot did not misrepresent a material fact.
It will void the policy because Mr. Liealot misrepresented a material fact.
Nothing. A policy cannot be voided on the basis of a misrepresentation of a material
fact.
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P&C 1 S/A - Page 18
P&C Part 2 (Study/Answer Sheets)
1.
All of the following are included in an insurance contract EXCEPT
A.
B.
C.
D.
2.
Insuring Agreement.
Conditions.
Exclusions.
floater.
The Dwelling Special form provides
A. open peril coverage on the dwelling and personal property.
B. open peril coverage on the building and named peril coverage on personal
property.
C. open peril coverage on personal property.
D. named peril coverage on the dwelling and personal property.
3.
Of the following which would you have an insurable interest?
A.
B.
C.
D.
4.
During a liability loss, the person the insured caused damage to is referred to as the
A.
B.
C.
D.
5.
first party.
second party.
third party.
fourth party.
Of the following which is NOT a possible defense against negligence?
A.
B.
C.
D.
6.
The house you own but have rented to a tenant
The car on which you are still paying
Neither A nor B
Both A and B
Statute of limitations
Intervening cause
Comparative negligence
Doctrine of reasonable expectations
Of the following which provides coverage against an indirect loss under Section I of the
Homeowners policy?
A.
B.
C.
D.
Coverage C - Personal Property
Coverage A -Dwelling
Coverage D - Loss Of Use
Coverage B - Other Structures
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P&C 2 S/A - Page 1
P&C Part 2 (Study/Answer Sheets)
7.
Of the following losses which would be covered under the Personal Auto policy’s Liability
coverage?
A. Wanda breaks a rented carpet cleaning machine while trying to get it out of the back
seat of her car.
B. Vic falls asleep at the wheel of his car and strikes and injures a pedestrian.
C. Teresa rides her all-terrain vehicle through her neighbor’s yard and damages the
yard.
D. In a fit of temper, Bill throws his golf clubs through the windshield of his neighbor’s
car.
8.
The insurance contract is considered to be a contract of indemnity because
A. an insured may collect no more than the limit of liability stated in the Declarations.
B. an insured may collect up to 10% more than his or her insurable interest.
C. an insured may collect no more than the amount required to restore him or her
to the same financial condition that existed prior to the loss.
D. in cases of total loss, an insured can collect the appraised value of the property.
9.
The Builders Risk Reporting form insures a building under construction for
A.
B.
C.
D.
10.
its completed value.
10% of its completed value during the entire construction period.
its completed value, but at a reduced rate.
an amount that increases at intervals to correspond with the increasing value
of the building.
If a homeowner wants the maximum protection for home and contents, which form should
be purchased?
A.
B.
C.
D.
HO-2
HO-4
HO-5
HO-8
11.
Insurance is a means of
A. eliminating risk.
B. transferring risk.
C. avoiding risk.
D. retaining risk.
12.
The Commercial Inland Marine transportation form used to insure a carrier’s liability for
damage to transport cargo is the
A.
B.
C.
D.
Trip Transit policy.
Annual Transit policy.
Motor Truck Cargo policy.
Motor Carrier coverage form.
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P&C 2 S/A - Page 2
P&C Part 2 (Study/Answer Sheets)
13.
The Commercial General Liability coverage part can be used to insure against all of the
following exposures EXCEPT
A.
B.
C.
D.
14.
Premises liability.
Products liability.
Auto liability.
Completed Operations liability.
Of the following which is NOT one of the required elements of a legal contract?
A. Offer and acceptance
B. Written instrument
C. Competent parties
D. Legal purpose
15.
The DP-1 form covers personal property off premises (with the exception of rowboats and
canoes and property belonging to guests or servants)
A. only while it is in the United States.
B. for up to the full amount of coverage that applies to personal property on the
premises.
C. anywhere in the world for up to 10% of the Coverage C amount.
D. as described in both A and B.
16.
Concerning the Business Auto coverage form, the nonowned auto category represents
A.
B.
C.
D.
17.
What category of bonds would bid bonds, payments bonds and performance bonds fall
under?
A.
B.
C.
D.
18.
customers’ autos.
autos hired by the insured.
autos owned by the insured but furnished to the employee.
autos owned by employees but driven in the insured’s business.
Fiduciary bonds.
Labor bonds.
Contract bonds.
Judicial bonds.
Where states that have competitive Workers Compensation funds,
A.
B.
C.
D.
the employer must purchase insurance from a private insurer.
the employer must purchase insurance from the state.
the employer may purchase insurance from either the state or a private insurer.
the employer is expected to self insure.
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P&C 2 S/A - Page 3
P&C Part 2 (Study/Answer Sheets)
19.
Of the following which is an insurable risk?
A.
B.
C.
D.
20.
The action that produces a loss is known as the
A.
B.
C.
D.
21.
proximal causation.
proximate cause.
primal causation.
approximate cause.
Concerning Personal Inland Marine form which of the following provides open peril
coverage on a blanket basis for most kinds of property found in a typical home?
A.
B.
C.
D.
22.
Wear and tear on a valuable oriental rug
Hail damage to the roof of a car
Theft of a paperback book
All of the above
Personal Articles floater
Scheduled Personal Property endorsement
Personal Effects floater
Personal Property floater
Of the following which loss would be covered under the Personal Auto policy’s Physical
Damage coverage?
A. State officials confiscated the insured’s auto after it failed to meet the state’s auto
emissions standards.
B. An awning attached to the insured’s camper trailer was ruined in a windstorm.
C. Vandals damaged a custom mural painted on the insured’s van.
D. The on-board computer system used to monitor the operation of the insured
auto was destroyed in a fire.
23.
Concerning a legal contract which of the following represents an insurance premium
payment?
A.
B.
C.
D.
24.
Acceptance
Legal instrument
Offer
Consideration
Concerning the Commercial General Liability claims-made coverage form and a
retroactive date. The retroactive date is the date
A. the policy takes effect.
B. before which the Commercial General Liability claims-made form will not cover
a claim.
C. the policy expires.
D. by which a claim must be made to be covered.
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P&C 2 S/A - Page 4
P&C Part 2 (Study/Answer Sheets)
25.
Workers Compensation laws in most states are
A.
B.
C.
D.
26.
elective.
monopolistic.
competitive.
compulsory.
Coverage for loss of income due to a covered loss to a boiler or other defined object
A. is included in the Boiler And Machinery coverage form.
B. is covered under the Commercial Property coverage form.
C. is available under a Business Interruption endorsement to the Boiler And
Machinery coverage form.
D. is available only in conjunction with the Difference In Conditions form.
27.
A peril is defined as
A.
B.
C.
D.
28.
Nonexclusive agent is defined as individual who
A.
B.
C.
D.
29.
A delivery man trips over a toy left on the porch of the insured’s dwelling.
The named insured’s dog damages the front screen door of a neighbor’s house.
The named insured’s son damages the family’s garage with his car.
The named insured’s small daughter hits a friend with a stick, severely injuring the
other party’s eye.
Of the following policies which is specifically designed to cover business property?
A.
B.
C.
D.
31.
represents only direct writers.
works for a solicitor.
is a captive agent.
represents more than one insurance company.
Of the following losses which would NOT be recoverable under the Liability coverage of
the Homeowners policy?
A.
B.
C.
D.
30.
the uncertainty of loss.
something that increases the chance of loss.
the result of a loss.
the cause of loss.
Dwelling policy
Extended Coverage endorsement
Vandalism And Malicious Mischief endorsement
Commercial Property coverage part
Of the following all are time element coverages EXCEPT
A.
B.
C.
D.
Business Income coverage form.
Valuable Papers coverage form.
Business Income From Dependent Properties form.
Extra Expense coverage form.
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P&C 2 S/A - Page 5
P&C Part 2 (Study/Answer Sheets)
32.
Binder is defined as
A.
B.
C.
D.
33.
Glass Or Safety Glazing Material other coverage is included in which Dwelling form(s)?
A.
B.
C.
D.
34.
is always a written agreement.
guarantees that a policy will be issued.
may only be issued by the insurance company.
None of the above
DP-1
DP-3 only
DP-1 and DP-2
DP-2 and DP-3
Ocean Marine Protection And Indemnity insurance provides
A. physical damage coverage for the ship’s hull.
B. property coverage for goods in transit over water.
C. marine liability coverage.
D. protection against the loss of shipping costs.
35.
The Workers Compensation policy provides coverage for
A. amounts the employer is required to pay under state Workers Comp laws.
B. amounts for which the employer becomes legally obligated to pay for an employee’s
work-related injuries.
C. Neither A nor B
D. Both A and B
36.
The tendency for people with a greater-than-average exposure to loss to want to purchase
insurance to cover their risk is called
A.
B.
C.
D.
37.
the law of large numbers.
adverse selection.
subrogation.
a morale hazard.
It will cost Vic $5,000 to put a new roof on his home to replace a roof destroyed in a
winter storm. Assume that the original roof, which Vic paid $3,500 for 10 years ago,
depreciated $300 per year. What was the actual cash value of the roof that was
destroyed?
A. $5,000
B. $3,500
C. $2,500
D. $2,000
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P&C 2 S/A - Page 6
P&C Part 2 (Study/Answer Sheets)
38.
Flood insurance is
A.
B.
C.
D.
39.
For states that require prior approval, the rates and policy forms insurance companies
use must be approved by
A.
B.
C.
D.
40.
Exports
Instrumentalities of transportation
Commercial Property floater risks
Excess liability
Workers Compensation policy Medical benefits are
A.
B.
C.
D.
43.
a police report.
a tax audit.
a credit report.
All of the above
Of the following which is NOT a category of the Nationwide Definition?
A.
B.
C.
D.
42.
a rating bureau.
the federal government.
the Better Business Bureau.
the insurance department of the state where they will be used.
The Fair Credit Reporting Act applies to applicants who are rejected for insurance
coverage on the basis of
A.
B.
C.
D.
41.
available through any insurance company.
purchased directly from the federal government.
not available.
available from the federal government or private companies who are
reimbursed for losses by the government.
subject to a $100,000 limit per injury.
paid for up to three years after the injury occurred.
not paid unless the employer was liable for the employee’s injury.
not subject to time or dollar limits unless they are specified in the state law.
Negligence is defined as
A.
B.
C.
D.
a criminal act.
an intentional tort,
an unintentional tort.
a proximate cause.
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P&C 2 S/A - Page 7
P&C Part 2 (Study/Answer Sheets)
44.
If a home owner insures his home equal to at least 80% of the replacement cost of the
dwelling, then what is the rule of indemnification that applies if the home is destroyed?
A.
B.
C.
D.
45.
Which Commercial Crime insuring agreement includes coverage for defense costs?
A.
B.
C.
D.
46.
private insurance.
a monopolistic or competitive state fund.
self insurance.
an employee tax.
The type of bond that individuals who are appointed by the court to manage the property
of another might require is called a
A.
B.
C.
D.
49.
loss of money from robbery of a custodian.
loss of money from safe burglary.
loss of other property from robbery of a custodian.
All of the above
Which of the following is not a way of funding Workers Compensation benefits?
A.
B.
C.
D.
48.
Computer Fraud
Forgery Or Alteration
All Crime coverages
None of the Crime coverages
The Inside The Premises-Robbery Or Safe Burglary insuring agreement in the
Commercial Crime policy covers
A.
B.
C.
D.
47.
The insured will be indemnified 80% of the replacement cost.
The insured is indemnified for the actual cash value of the loss.
The insured is indemnified for 80% of the actual cash value of the loss.
The insured may be indemnified for the replacement value of the property, up
to the policy limits.
License And Permit bond
Fiduciary bond
Court bond
Performance bond
Businesses can obtain coverage for their liability arising out of discrimination and sexual
harassment by purchasing
A.
B.
C.
D.
Commercial General Liability insurance.
Difference In Conditions insurance.
Employment Practices Liability insurance.
Workers Compensation insurance.
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P&C 2 S/A - Page 8
P&C Part 2 (Study/Answer Sheets)
50.
Under the Dwelling Basic form automatically provides coverage against fire, lightning and
A.
B.
C.
D.
51.
Of the following which is not an Extended Coverage perils
A.
B.
C.
D.
52.
hail.
smoke.
windstorm.
internal explosion.
aircraft.
fire.
riot.
hail.
Under the Broad and Special Dwelling forms the Additional Living Expense coverage that
is included protects the insured against
A. depreciation on the house.
B. smoke damage to personal property.
C. extra living costs incurred when the home becomes uninhabitable due to
damage by a peril insured against.
D. loss of rental income that occurs when rental property becomes uninhabitable
because of damage caused by a peril insured against.
53.
Assigned Risk Plans for Auto insurance do which of’ the following?
A. Provides free auto insurance to those who cannot afford it
B. Makes insurance available to drivers who are unable to obtain it through
normal channels
C. Both A and B
D. Neither A nor B
54.
Comprehensive Physical Damage coverage under the Personal Auto policies covers
which of the following?
A.
B.
C.
D.
55.
Damage caused by hitting an animal
Flood
Theft
All of the above
A Commercial Package policy must include
A. Commercial Causes Of Loss form and Common Policy Conditions.
B. Common Policy Conditions and Commercial Property coverage part.
C. Common Policy Declarations, Common Policy Conditions, two or more
coverage forms.
D. Common Policy Declarations, Common Policy Conditions, Special Commercial
Conditions.
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P&C 2 S/A - Page 9
P&C Part 2 (Study/Answer Sheets)
56.
If a hardware store is insured under a Business Income coverage form with the Special
Causes Of Loss form. Which of the following lose would be covered?
A. Income lost when another hardware store opens down the street
B. Income lost when the store closes for a week while the owner is in the hospital
C. Income lost when the store closes for a week to repair damage caused by an
earthquake
D. Income lost when the store closes for a week while damage from a burst water
pipe is repaired
57.
Garagekeepers coverage insures against
A.
B.
C.
D.
58.
Under the Commercial Crime policy what type of property loss is covered under The
Employee Theft insuring agreement?
A.
B.
C.
D.
59.
surety.
principal.
obligee.
bonder.
The insured has $20,000 insurance with Company A and $40,000 with Company B.
Assume both policies contain an “other insurance clause” specifying pro rata. What would
Company A pay if there was a $24,000 loss?
A.
B.
C.
D.
61.
Money
Securities
Property other than money and securities
All of the above
For Fidelity bonds, the party to whom the promise is made and for whose protection the
bond is written is the
A.
B.
C.
D.
60.
physical damage to the insured’s own autos.
liability for bodily injury to customers while on the premises.
medical expenses.
liability for damage to autos of others that are in the care, custody or control of
the insured.
$-0$8,000
$12,000
$20,000
An insured’s home is covered by the DP-3 form. The policy provides $20,000 in coverage
on a $50,000 home. When high winds destroy the roof, it is determined it will cost the
insured $3,000 to replace it. Assuming the actual cash value of the roof is $750, how
much would the insured collect for this loss?
A.
B.
C.
D.
$800
$1,500
$1,800
$3,000
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P&C 2 S/A - Page 10
P&C Part 2 (Study/Answer Sheets)
62.
Which of the following is not an area of law under which a person can be found liable for
injury or damage to another?
A.
B.
C.
D.
63.
The right to request an appraisal belongs to
A.
B.
C.
D.
64.
Property Damage Liability coverage
Bodily Injury Liability coverage
Medical Payments coverage
Both A and B
All of the following must be included in a Commercial Property policy written under the
Commercial Package policy program with the exception being
A.
B.
C.
D.
66.
the insured.
the insurance company.
Neither A nor B
Both A and B
Of the following which Personal Auto coverage reimburses the insured without regard to
fault, regardless of whether or not the state is subject to no-fault laws?
A.
B.
C.
D.
65.
absolute liability.
negligence.
assumption of risk.
vicarious liability.
Causes Of Loss form.
one or more Commercial Property coverage forms.
Commercial Property Conditions form.
Value Reporting form.
When a building insured under the Building And Personal Property coverage form is
vacant for three months,
A. there would be no coverage for either a vandalism loss or a fire loss.
B. a vandalism loss would not be covered; a fire loss would be covered, subject
to a 15% penalty.
C. both vandalism and fire losses would be covered, subject to a 15% penalty.
D. a vandalism loss would be covered subject to a 15% penalty; a fire loss would be
covered in full.
67.
Coverage for products and completed operations is provided under which of the following
contracts?
A.
B.
C.
D.
Occurrence CGL
Claims-made CGL
Neither A nor B
Both A and B
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P&C 2 S/A - Page 11
P&C Part 2 (Study/Answer Sheets)
68.
Assume there are no endorsements attached to the policy, of the following which type of
company would have coverage for liquor liability losses under the Commercial General
Liability policy?
A.
B.
C.
D.
69.
With Surety bonding, which party seeks and pays for the bond?
A.
B.
C.
D.
70.
CGL with a Professional Liability endorsement.
Employment Practices Liability policy.
Errors And Omissions policy.
standard CGL, which includes coverage for professional liability.
On what basis are losses to dwellings and other structures paid under either DP-2 and
DP-3?
A.
B.
C.
D.
73.
a two-party contract.
a three-party contract.
a four-party contract.
not considered a contract.
For insurance agents who need insurance for their professional liability exposure they
should purchase a/an
A.
B.
C.
D.
72.
Obligee
Surety
Principal
Fiduciary
A Surety bond is
A.
B.
C.
D.
71.
A convenience store that sells beer and wine
An advertising agency that serves liquor at a holiday party
Both A and B
Neither A nor B
Actual cash value
Stated value
Replacement cost
Valued policy
The insured has a $1 million Personal Umbrella policy with a $5,000 deductible. For a
$7,000 loss not covered by an underlying contract but covered under the Umbrella, the
insurance company would pay
A.
B.
C.
D.
$2,000.
$5,000.
$7,000.
nothing.
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P&C 2 S/A - Page 12
P&C Part 2 (Study/Answer Sheets)
74.
For Ocean Marine insurance, a general average loss is
A. any loss that is not total.
B. a partial loss arising from a sacrifice of cargo to save remaining property.
C. a loss in which the property is not completely destroyed, but the cost of salvage or
repair would exceed the value of the property.
D. a partial loss that does not arise from jettison.
75.
A company that frequently rents autos and trucks for business use should include which
symbol in the Business Auto policy Declarations?
A.
B.
C.
D.
76.
The Owners And Contractors Protective form covers the insured for liability
A.
B.
C.
D.
77.
crops.
farm buildings.
personal liability.
household personal property.
Of the following which coverages are included in the Dwelling policy? Assume there are
no endorsements attached to the policy.
A.
B.
C.
D.
80.
burglary.
theft.
robbery.
forgery.
Of the following all can be covered under the Farm coverage part of the Commercial
Package policy EXCEPT
A.
B.
C.
D.
79.
arising out of products or completed operations.
arising out of the operations of independent contractors or subcontractors.
arising out of the insured’s premises.
arising out of contractual liability.
In Crime insurance, the taking of property by stealth is included in the definition of
A.
B.
C.
D.
78.
8
2
9
5
Property coverage for homes, other structures and personal property
Fair rental value coverage
Both A and B
Liability coverage
Who of the following is an insured for Liability coverage Under the Personal Auto policy?
A.
B.
C.
D.
The named insured and family members for the use of any auto
Anyone who uses the insured’s covered auto with the named insured’s permission
Both A and B
Anyone who is riding with the insured at the time of the accident
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P&C 2 S/A - Page 13
P&C Part 2 (Study/Answer Sheets)
81.
Which of the following losses would be paid under the Commercial General Liability
policy’s Medical Payments coverage?
A.
B.
C.
D.
82.
Vic needs Liability, Property and Medical Payments coverage for his 30-foot speedboat
with a 75 hp engine. This boat could be covered under a
A.
B.
C.
D.
83.
A mannequin tips over and injures the store owner.
A mannequin tips over and injures a customer.
A mannequin tips over and injures a store employee.
All of the above
Boatowners or Watercraft package policy.
Homeowners policy with no endorsements.
Homeowners policy that includes the Watercraft endorsement.
Personal Inland Marine form.
Of the following who would have a need for the Personal Inland Marine Personal
Property form?
A. A condominium or apartment dweller who cannot obtain open peril coverage
for personal property under the H0-4 or R0-6
B. An insured who needs additional insurance for valuable personal property
C. An insured who needs to insure her personal belongings while traveling
D. An insured who owns a small boat that cannot be covered under the Homeowners
policy
84.
Mutual insurance companies are owned by
A.
B.
C.
D.
85.
their stockholders.
the insurance department in the state where it is incorporated.
the federal government.
their policyholders.
An insurance policy is considered a unilateral contract since
A. the policy does not provide any benefit to the insured unless a claim is paid.
B. the insured must comply with certain conditions in the policy for a claim to be paid.
C. the insurance company is the only party that is legally obligated to perform
under the insurance contract.
D. the insurance company writes the policy provisions, with little or no input from the
insured.
86.
An insurance policy has a $35,000 per occurrence limit. If the insured has a $5,000
covered loss during the policy period, how much coverage is available for other covered
losses that occur during the remainder of the policy period?
A.
B.
C.
D.
$30,000
$35,000
$20,000
$5,000
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P&C 2 S/A - Page 14
P&C Part 2 (Study/Answer Sheets)
87.
Several valuable trees on the insured’s property are destroyed by lightning. This loss is
A. excluded in all Homeowners forms.
B. covered in the HO-3 only for up to 5% of the Coverage A limit or a maximum of $500
per tree.
C. covered in all Homeowners forms, with no limit on the amount of coverage provided.
D. covered for up to 5% of the Coverage A limit in the HO-2, HO-3 and HO-8 and
up to 10% of the Coverage C limit in the HO-4 and HO-6, with a maximum of
$500 per tree.
88.
Of the following who would be covered under the Medical Expenses coverage of the
Businessowners policy?
A. A tenant of the insured who fell off the roof of the rented building
B. A customer who was injured while shopping in the insured’s store
C. An employee of the insured who was injured in a fall off a stepladder in the insured’s
store
D. A marathon runner who was injured while running past the insured’s premises
89.
For the CGL, the products-completed operations hazard is subject to
A.
B.
C.
D.
90.
a products-completed operations aggregate limit.
a per occurrence limit.
Both A and B
the general aggregate limit.
A morale hazard
A. is the tendency for people with a higher-than-average risk of loss to seek insurance
coverage.
B. is the tendency to create a loss on purpose to collect from the insurance company
C. arises through an individual’s carelessness or irresponsible actions.
D. arises from the condition, occupancy or use of the property itself.
91.
Of the following losses which would be covered by a Flood policy?
A. Water backs up through a sewer system and floods the insured’s bathroom.
B. Heavy rains cause a lake to overflow and flood the basement and first floor of a
house.
C. A tornado blows out all the windows in the insured’s home, and the house is flooded
when it rains the next day
D. The insured incurs additional living expenses when flooding forces her to evacuate
her home.
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P&C 2 S/A - Page 15
P&C Part 2 (Study/Answer Sheets)
92.
FAIR Plans prohibit the insurance company from
A.
B.
C.
D.
93.
charging higher rates due to environmental hazards.
requiring the insured to make improvements to the property
rejecting a risk solely because of environmental hazards.
All of the above
When comparing a Commercial Package policy and a Businessowners policy, what is the
primary difference?
A. The eligibility requirements for a Business-owners policy are less stringent than the
CPP’s.
B. With a CPP, the insured can pick and choose the coverages included in the
policy.
C. The CPP is specifically designed for smallbusinesses.
D. There are fewer coverage options in the CPP.
94.
Furniture inside a building that burns down is an example of what kind of loss
A.
B.
C.
D.
95.
Of the following business occupancies each would be permitted in a dwelling insured
under a Dwelling form EXCEPT
A.
B.
C.
D.
96.
a photographic studio.
a small shop carrying merchandise for sale.
a beauty shop run by the insured and her daughter.
a professional office providing services to clients.
What constitutes an agreement to enter into a valid contract?
A.
B.
C.
D.
97.
Direct
Indirect
Consequential
Residual
An exchange of consideration
An unconditional and unilateral promise to perform a duty
A specific offer by one party and acceptance by the other
An exercise of utmost good faith in disclosing all pertinent information
The Business Income coverage form applies to loss of
A.
B.
C.
D.
income as the result of destruction of accounts receivable records.
cash receipts because of burglary or robbery
loss of revenue while operations are suspended due to property damage.
money because of employee dishonesty
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P&C 2 S/A - Page 16
P&C Part 2 (Study/Answer Sheets)
98.
Under the Building and Personal Property coverage form, what obligation, if any does an
insurer have to a mortgagee in the event of policy cancellation?
A. The company has no obligation
B. The company must give the mortgagee 10 days written notice for cancellation
due to non payment of premium and 30 days notice in the case of a
cancellation
C. The company must give the mortgagee 10 days written notice of cancellation in all
cases.
D. The company must notify the insured, who then is responsible for informing the
mortgagee
99.
Under the Business Auto coverage form, which of the following is not considered to be
mobile equipment?
A.
B.
C.
D.
100.
Forklift
Self-propelled snow plow
Farm machinery
Bulldozer
Of the following kinds of property each may be covered under a Building And Personal
Property coverage form EXCEPT
A.
B.
C.
D.
permanently installed fixtures and machinery
account records and evidences of debt.
the insured’s stock held for sale.
an insured tenant’s use interest in improvements and betterments.
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P&C 2 S/A - Page 17
P&C Law Exam (Study/Answer Sheets)
1. The Commissioner of Insurance may do all of the following except
A.
B.
C.
D.
enforces the provisions of the insurance law.
conducts examinations of insurance companies.
supervises and administers the insurance department.
change insurance laws for the good of the general public.
2. An applicant must be at least _________ years old to receive a license as a resident insurance producer.
A.
B.
C.
D.
25
21
18
16
3. In order to take the Tennessee state insurance exam for a resident P&C producer license the applicant must
complete how many hours of instructor led classroom instruction or equivalent?
A.
B.
C.
D.
10
20
40
100
4. After failing the resident insurance producer license exam how long will they have to wait to take the same
exam again?
A.
B.
C.
D.
30 days
six months
nine months
one year
5. Temporary insurance producer license is issued for up to
A.
B.
C.
D.
three months.
none
nine months.
one year.
6. The normal time an insurance producer license will remain in effect is for
A.
B.
C.
D.
as long as the license renewal fee is paid, the continuing education requirements are met and
the license is not revoked/suspend.
one year.
two years.
five years.
7. Complete records pertaining to insurance transactions must be kept for at least
A.
B.
C.
D.
five years.
three years.
two years.
one year.
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Law Test S/A - Page 1
P&C Law Exam (Study/Answer Sheets)
8. Unless exempt, an agent must complete __________ hours of continuing education (CE) per renewal period
(every 2 years).
A.
B.
C.
D.
30
24
18
12
9. An offer to give a prospect anything of value not specified in the contract to persuade the prospect to purchase
the insurance is
A.
B.
C.
D.
twisting.
embezzlement.
rebating.
coercion.
10. An insurance agent represents?
A.
B.
C.
D.
the best interest of the customer.
all insurance companies at once
only securities products
the best interests of the insurance company.
11. An insurance broker represents?
A.
B.
C.
D.
the best interest of the customer.
all insurance companies at once
only securities products
the best interests of the insurance company.
12. What are the Insurance Commissioner duties?
A.
B.
C.
D.
authority to administer state law (not create it.)
functions as a representative of the insurance companies
only manages office personnel
creates insurance law
13. The Department of Commerce and Insurance is involved with what responsibility?
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for
Tennessee.
issuing drivers licenses
levying fines to business other than insurance companies
creates insurance law
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Law Test S/A - Page 2
P&C Law Exam (Study/Answer Sheets)
14. The state legislature…
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for Tennessee.
is authorized to administer state law
functions as a representative of the insurance companies
creates insurance law
15. Producers that write an insurance contract with a company that is not authorized to do business in Tennessee,
would be
A.
B.
C.
D.
paid a higher commission on those sales
is automatically appointed as an agent for that company
not responsible for any resulting problems with that policy
held personally liable
16. An insurance company appointing a producer as an agent must file a notice of this appointment with the
Department of Commerce and Insurance within ________ days.
A.
B.
C.
D.
10
15
20
31
17. The following statements about a non-resident producer’s license which is correct:
A.
B.
C.
D.
never expires
limited to 180 days, unless renewed
A producer who lives in Alabama and has a non-resident Tennessee license will lose their
Tennessee license if their Alabama license expires.
a non-resident producer’s license can only be obtained if the home state of the agent borders directly
to Tennessee and that state has a current reciprocal agreement with Tennessee
18. Which of the following best describes an authorized insurer?
A.
B.
C.
D.
A producer authorized by the Commissioner to transact business in Tennessee
A company authorized by the Commissioner to transact insurance business in Tennessee
A producer who has the authority to represent an insurance company
A policyholder who has a legal contract with an insurance company
19. An insurance company’s license to do business in the state of Tennessee is called a
A.
B.
C.
D.
licenses of authority
DBA certificate
Tennessee Department of Insurance – “Quality Approval” certificate
certificate of authority
20. If a licensed nonresident producer moves to Tennessee and applies within 90 days of arrival to become a
resident producer, they are exempt from
A.
B.
C.
D.
CE requirements for 4 years
state’s minimum income requirements
the states’ insurance licensing examinations requirements.
nothing – they are required to take the state insurance exam and then complete 5 hours of CE
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Law Test S/A - Page 3
P&C Law Exam (Study/Answer Sheets)
21. The insurance Commissioner may issue all of the following penalties to producers who engage in unfair or
deceptive practices, except:
A.
B.
C.
D.
order violators to cease and desist from the prohibited practice
suspend willful violators’ licenses
order payment of a $1,000 fine for each willful violation
order drug testing for license agents
22. Tennessee temporary insurance licenses, if issued, are issued for the maximum term of
A.
B.
C.
D.
90 days
180 days and renewable (only in special circumstances)
360 days
30 days
23. All the following are unfair trade practices, except:
A.
B.
C.
D.
Rebating premiums
Discriminating against a blind applicant for insurance
Issuing company stock to induce people to purchase insurance
Being honest and straight forward with the customer
24. All of the following are considered to be unfair methods of competition, except:
A.
B.
C.
D.
making statements that could lead insureds to believe that, by purchasing a policy, they may gain
stock ownership interest in the company
providing competitive quotes on new insurance
stating that each stockholder is given the right to purchase a specific number of policies
stating that a company makes a profit as a result of policy lapses or surrenders
25. An individual must meet all of the following requirements to obtain a license to sell insurance in Tennessee,
except:
A.
B.
C.
D.
be competent and have a good business reputation
have experience or instruction in the general insurance business or specific class of license
pass the licensing exam
be a property owner in the state of Tennessee
26. All of the following individuals are exempt from the continuing education requirements, except:
A.
B.
C.
D.
A person on extended active duty in the US armed forces
A person holding a current producer’s license issued before January 1, 1997
A person holding a license as a limited insurance representative
A person holding a current producer’s license issued after January 1, 1997
27. An agents’ insurance license for Tennessee will remain valid for ________ after the date of issue
A.
B.
C.
D.
1 year
2 years
3 years
Every other odd number year
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Law Test S/A - Page 4
P&C Law Exam (Study/Answer Sheets)
28. All of the following statements about reinstating a producer’s expired Tennessee insurance license are
correct, except:
A.
B.
C.
D.
the producer must submit a request for reinstatement to the Commissioner
the producer must pay a renewal fee
the producer must pay a nonrefundable reinstatement fee equal to 50% of the renewal fee
the producer must pay a fine of $1,000
29. The insurance Commissioner may deny, suspend, or revoke an agent’s insurance license for all of the
following reasons, except:
A.
B.
C.
D.
violating any Tennessee insurance law
making a false statement in the license application
misusing funds belonging to insurers or policyholders
producers acting in the best interest of the insurance company
30. The minimum age to be licensed as a insurance producer in Tennessee is ______ .
A.
15
B.
18
C.
19
D.
21
31. An insurance agent represents?
A.
B.
C.
D.
the best interests of the insurance company.
the best interest of out of state companies, only
the best interest of the customer
all of the above
32. An insurance broker represents?
A.
B.
C.
D.
the best interests of the insurance company.
the best interest of out of state companies, only
the best interest of the customer
all of the above
33. The state legislature…
A.
B.
C.
D.
(under the guidance of the Insurance Commissioner) administers all insurance laws for Tennessee.
is authorized to administer state law
functions as a representative of the insurance companies
creates insurance law
34. An individual must meet all of the following requirements to obtain a license to sell insurance in Tennessee
except
A.
B.
C.
D.
be competent and have a good business reputation
have experience or instruction in the general insurance business or specific class of license
pass the licensing exam
hold a college degree in business administration
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Law Test S/A - Page 5
P&C Law Exam (Study/Answer Sheets)
35. Which of the following are considered to be unfair methods of competition?
A. making statements that could lead insureds to believe that, by purchasing a policy, they may gain stock
ownership interest in the company
B. stating that each stockholder is given the right to purchase a specific number of policies
C. stating that a company makes a profit as a result of policy lapses or surrenders
D. all of the above
36. Without passing an insurance examination, applicants can receive limited insurance representative license
in all of the following lines of insurance except
A.
B.
C.
D.
credit life and health
mortgage guaranty insurance
property and casualty insurance
limited travel accident insurance
37. All of the following may be granted a temporary producer’s license except
A.
B.
C.
D.
an applicant holding an associates degree in business administration
a widow of a deceased producer
a designee of a licensed producer who is entering active service in the US armed forces
an employee of a licensed producer who becomes disabled
38. A person who, for compensation, investigates and negotiates settlement of claims arising under insurance
contracts on behalf of an insurer is a/an
A.
B.
C.
D.
consultant
adjuster
service claims representative
financial planner
39. Workers compensation benefits for temporary total disability will be paid for up to a maximum of
A.
B.
C.
D.
52 weeks
400 weeks
3 years
7 years
40. Making misleading or incomplete comparisons to induce a policy holder to exchange an insurance policy is
called
A.
B.
C.
D.
Misrepresenting
Forfeiting a commission
Twisting
Coercion
41. The prohibited act of combining several partiers with the only purpose for the group obtaining insurance is
called forming a
A.
B.
C.
D.
Fictitious Group
Forbidden Group
False Group
Rebating Group
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Law Test S/A - Page 6
P&C Law Exam (Study/Answer Sheets)
42. An oral or written statement made by an agent for immediate protection that is valid for a specific time that
provides temporary coverage is called
A.
B.
C.
D.
Temporary Policy
Binder
Provisional Policy
Impermanent Policy
43. In Tennessee, the minimum requirements for automobile insurance is:
A.
B.
C.
D.
25/50/15
25/45/10
25/50/10
15/30/5
44. Which of the following does not help to determine the premiums for workers compensation?
A.
B.
C.
D.
The payroll
The employer’s classification
The accident and injury history of the company
The number of employees
45. When must an employee report a work related injury?
A.
B.
C.
D.
Within the first 30 days
Within the first 20 days
Within the first 10 days
Within the first 60 days
46. If an insurance company does not intend to renew a contract of any kind of personal risk insurance, the
company must mail or deliver the named insured notices of its intention not to renew within how many
days prior to the expiration of the policy?
A.
B.
C.
D.
10 days
20 days
30 days
45 days
47. Boycott, coercion, and intimidation are terms used to describe
A.
B.
C.
D.
Prohibit selling actions
Unfair methods of competition
Fair methods of competition
Illegal campaigning
48. What is a result of the accident prevention course?
A.
B.
C.
D.
An insurance rate or premium reduction
A permanent driver’s license
A free 6-month automobile insurance policy
The right to drive without insurance
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Law Test S/A - Page 7
P&C Law Exam (Study/Answer Sheets)
49. How old must a driver be in order to participate in the accident prevention course?
A.
B.
C.
D.
40
45
50
55
50. What is the meaning of having proof of “Financial Responsibility of Owners and operators?”
A. Proof that the driver of the vehicle has a job
B. Proof the owner of the vehicle has a job
C. Proof that, when at fault in an accident, the driver of the vehicle can and will be responsible
for all damages
D. Proof that, when at fault in an accident, the owner of the vehicle can and will be responsible for all
damages
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Law Test S/A - Page 8
Bonus State Exam Prep Questions
The following definitions and questions are provided for study purposes to be used for State test
preparation.




Risk: The chance of loss
Insurance: A means of transferring the risk of loss
Peril: The cause of loss
Hazard: Increases the chance of loss
An example of pure risks:
Wanda’s dog is temperamental. She’s afraid it will bite a neighbor someday, and she will
be held responsible.
The law of large numbers
states that the more examples used to develop a statistic, the more reliable the statistic
will be.
Betty purchases a house from Vic. She borrows $75,000 from First Commercial Bank which, along with
her $25,000 down payment, equals the $100,000 purchase price of the home. Who has an insurable
interest in this home?
Betty and the Bank
Insurable risk includes:







Insurable interest
Pure risk, not speculative
loss must not happen to a large number of insureds at the same time
risk of loss must be definite; loss would cause financial hardship
cost of loss is calculable
cost of insurance covering the risk is affordable
large number of persons with similar potential for loss.
XYZ Industries has an automatic sprinkler system installed in its office building. This is an example of
which risk management method?
Reduction
XYZ Pharmaceuticals decides not to manufacture a new drug after determining that it has serious
potential side effects. This is an example of which risk management method?
Avoidance
A mutual insurance company
is owned by its insureds.
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Bonus Questions - Page 1
Bonus State Exam Prep Questions
XYZ Insurers writes Homeowners, Auto and Liability insurance for individuals and families.
XYZ is a (mono/multi) line company that specializes in (personal/commercial) lines.
A non exclusive agent
is an independent businessperson.
Solicitors may not
issue or countersign policies.
At XYZ Insurance Company, agents are employees of the company who are paid a salary plus
commissions. This is an example of what type of insurance marketing system?
Direct writer
An agent has many responsibilities to applicants and insureds. Of the following which is NOT one of
those responsibilities?




Preparing quotations for prospects
Countersigning policies
Reviewing insureds’ coverage on a regular basis
Representing the insured in the insurance transaction
The Actuarial department
collects and analyzes data to determine the rates to be charged for insurance.
Which insurance company department is responsible for accepting and rejecting applications based on
company standards?
Underwriting
Which insurance company department is responsible for paying insureds covered losses?
Claims
Who is responsible for licensing insurance agents?
State insurance department
Agent Bradley is offering a free television to every applicant who agrees to buy insurance through his
agency. In most states, this is an illegal practice known as
rebating.
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Bonus Questions - Page 2
Bonus State Exam Prep Questions
State insurance departments are responsible for approving or rejecting
A. rates.
B. policy forms.
C. Both A and B
D. Neither A, B, nor C
XYZ Industries does not have a group health insurance plan for its employees. Instead, it pays
employees’ medical expenses out of a fund specifically created for this purpose. This is an example of
self-insurance.
Of the following statements concerning regulation of the insurance industry which is correct?
The state insurance department is responsible for controlling insurance matters within the
state.
Of the following statements concerning binders which is correct?
They expire on the effective date of the policy to which they apply, or on the expiration
date of the binder if the policy is not issued.
Judgment rating is based on
an evaluation of the characteristics of the individual risk.
Of all rating methods which rating method makes modifications to manual rates to reflect the unique
characteristics of each risk?
Merit
In order to void a policy due to misrepresentation or concealment the misrepresentation or concealment
must
concern material facts.
An agreement between the insured and the insurer that certain conditions will be met is a/an
warranty.
When an insured decides to cancel an insurance policy prior to the expiration date, the unearned
premium is returned on a
short rate basis.
A certificate of insurance provides
proof that a policy has been written.
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Bonus Questions - Page 3
Bonus State Exam Prep Questions
An agent tells an insured that a loss caused by flood damage is covered under her Homeowners policy.
Actually, the policy specifically excludes such losses. The insurance company
would be estopped from denying coverage because the agent stated that the loss is
covered.
The insured’s policy is nearing the expiration date. The insurance company doesn’t want to continue the
insured’s coverage, so it sends the insured a notice that the policy will not continue beyond the expiration
date of the policy. This is an example of
nonrenewal.
Betty’s home is destroyed in a fire caused by a neighbor careless use of fireworks. Betty’s insurance
company pays her for the damage, then files suit against the neighbor to recover the amount it paid for
the loss. This is an example of the application of what policy condition?
Subrogation
Vic sells his car to his friend, Wanda, but does not notify his insurance company Assuming that Vic’s
policy will transfer to her automatically, Wanda doesn’t buy insurance for the car. When the car is
wrecked, Wanda files a claim with Vic’s former insurer. The insurer denies the claim. This is an example
of the application of what policy condition?
Assignment
A heavy rain causes the roof over Betty’s living room to collapse. The insurance company asks her to
move her belongings out of the living room to protect them from further damage and put a tarp over the
roof until it can be repaired. It also asks her to complete a proof of loss form listing the items that were
damaged. This is an example of the application of what policy condition?
Duties after loss
The policy period in an insurance policy
A.
B.
C.
D.
specifies the date and time coverage begins and ends.
may be set by state law
Both A and B
Neither A nor B
An indirect loss is
a type of loss that results from a direct loss.
Betty’s Homeowners policy has an 80% Coinsurance condition. Her home’s value is $125,000. What is
the MINIMUM amount of coverage she must carry to be indemnified for losses up to the policy limit?
$100,000
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Bonus Questions - Page 4
Bonus State Exam Prep Questions
Failure to use the care that is required to protect others from the unreasonable chance of harm is
negligence.
Of the following all must be present to establish negligence EXCEPT
A.
B.
C.
D.
proximate cause.
legal duty owed and breach of duty.
damages.
willful action.
An action that, in a natural and continuous sequence, produces a loss is the
proximate cause.
The type of liability that is imposed as a matter of law without regard to negligence is
absolute liability.
The type of liability that an insured incurs because of the actions of others, such a employees, is
vicarious liability.
Liability losses are general known as
third party losses.
Supplementary payments are
paid in addition to the policy’s liability limit.
An aggregate limit is the most a company will pay
over the policy year
Wanda, a spectator at a baseball game, is injured when an errant ball hits her in the head. She sues the
stadium owners for negligence. Of the following defenses against negligence which would the owners
probably use?
Assumption of risk
The following illustrates the concept of contributory negligence
Vic turns a corner too fast and strikes Kerry’s car, which was illegally parked in a fire lane.
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Bonus Questions - Page 5
Bonus State Exam Prep Questions
Bill sues Betty for injuries sustained in an auto accident. During the trial, it is determined that Bill’s
negligence contributed to the loss. Under comparative negligence laws,
Bill’s damages will be reduced to the extent of his own liability for the loss.
The type of compensatory damages reimburse the injured party for direct, specific expenses involved in
the loss is
Special
The type of damages that are awarded to punish the defendant and deter others from behaving the same
way are called
punitive damages.
An insured is found liable for $100,000 in damages as a result of a car accident. Her insurance company
incurred $25,000 in expenses defending the insured against the suit. The insured’s auto policy limit is
$100,000. How much will the insurance company pay for this loss?
$100,000
Under the DP-1, the insured may choose to have property covered against




fire, lightning and internal explosion. (these are perils)
all of the perils described in above plus the Extended Coverage perils.
all of the perils described in above plus the Extended Coverage perils and vandalism and
malicious mischief.
Any of the above
The DP-2 insures against fire, lightning,
the Extended Coverage perils, V&MM and additional perils.
The DP-3 provides
open peril coverage for the dwelling and broad coverage for personal property.
Under which of the Dwelling forms may the insured be reimbursed for the replacement cost when the
dwelling is destroyed?
DP-2 and DP-3
The insured has a Dwelling form DP-3 covering a home that has a replacement value of $100,000. The
insured carries $60,000 of insurance. Following a loss, it is determined that it would cost $12,000 to
replace the damaged portion of the home. How much could the insured collect, assuming the ACV of the
loss is $6,000?
$9,000 (note: insured was not insured for 80% of home value)
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Bonus Questions - Page 6
Bonus State Exam Prep Questions
Dwelling form ____________ pay losses to dwellings and other structures on an actual cash value basis.
DP-1
Damage to covered property caused by glass breakage is
covered in the DP2 and DP3, but not the DP1
Betty has a Dwelling policy with Broad Theft coverage for on and off her premises Which of the following
theft losses would be covered?




A $400 handgun taken from a bureau in her home
A $9,000 fur coat taken from the cleaners where she had stored it for the summer
Two credit cards taken from her desk in her home
A tape player removed from the dashboard of her car that was parked in her garage
A homeowner who wants the maximum protection for her home and personal property should purchase
the
HO-5.
An individual lives in an apartment. Which Homeowners form should purchase to cover his personal
property?
HO-4
Which Homeowners form provides broad coverage for both the dwe1ling and its contents?
HO-2
The Collapse Additional Coverage is included in which Homeowners forms?
All forms except HO-8
Bill loses control of his car and hits a parked car. Which coverage of Bill’s Personal Auto policy will pay for
the damage to the parked car?
Part A—Liability Coverage
Betty was injured when she lost control of her car and hit an embankment. Which part of her Personal
Auto policy will cover her medical expenses?
Part B—Medical Payments Coverage
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Bonus Questions - Page 7
Bonus State Exam Prep Questions
Mary was injured when she was struck by a car while walking across the street. The driver, who cannot
be identified, left the scene of the accident. Would this loss be covered under Mary’s Personal Auto
policy?
Yes, it would be covered under Part C—Uninsured Motorists Coverage.
During a windstorm, a tree limb fell on Bob’s car and broke the windshield. Which coverage of his
Personal Auto policy will cover the damage to his car?
Other Than Collision Coverage of Part D—Coverage For Damage To Your Auto
Kerry’s auto was damaged when it was struck by another car whose driver ran a stop sign. Which part of
Kerry’s Personal Auto policy will cover the damage to her car?
Collision Coverage of Part D—Coverage For Damage To Your Auto
If the named insured acquires a new car that does not replace a previously insured auto, what must the
insured do to obtain liability coverage for the auto under her Personal Auto policy?
Notify the company of the new car within 14 days of the purchase
Which of the following could be covered under the Liability section of named insured’s Personal Auto
policy?
Injuries to a person struck by the named insured’s auto
Medical Payments coverage provides protection for all of the following EXCEPT




the insured.
the insured’s family.
passengers in the insured’s vehicle.
occupants of a vehicle that is struck by the insured’s vehicle.
Of the following losses select the one that could be paid under Uninsured Motorists coverage? (Assume
there are no endorsements attached to the policy.)




Brad, the insured, drives the wrong way down a one-way street and collides with another car.
Brad is seriously injured. The driver of the other car has no Liability insurance.
Emmett, the insured, is hit by a drunk driver who is uninsured. Emmett is not injured, but his car is
totaled.
Kerry, the insured, is injured when she is struck by a car that runs a red light. The driver
has no Liability insurance.
Victor, the insured, is on his way to work when his vehicle is rear-ended by a car that was
following too closely. Victor suffers a back injury. The driver of the other car carries the minimum
amount of insurance required in the state.
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Bonus Questions - Page 8
Bonus State Exam Prep Questions
Of the following losses which would be paid under the Other Than Collision coverage of the Personal
Auto policy?




A radiator develops a leak after the car has 100,000 miles on it.
The insured’s car is stolen and never recovered.
The insured’s auto skids on icy pavement and flips over.
The insured’s auto is damaged when it is hit by another car that runs a red light.
Under a no-fault plan,
an insurance company reimburses its insured for auto losses, regardless of who was at
fault for the loss.
An Assigned Risk Plan covers
insureds who are uninsurable in the standard market.
Kerry’s Personal Auto policy has a $20,000 Part A limit, which meets her state’s financial responsibility
requirement. While driving in another state, she causes an accident that results in $25,000 of bodily injury
and property damage. That state’s financial responsibility law requires drives to carry $25,000 in Liability
coverage. How much will Lisa’s insurance company pay for her loss?
$25,000
Wanda is critically injured by a hit-and-run driver while she is driving her car on a work-related errand. Her
medical expenses, which total $50,000, are paid in full by her employer’s Workers Compensation policy.
Her injuries are also covered under her Personal Auto policy’s Uninsured Motorists coverage. Assuming
she carried a $100,000 limit for Uninsured Motorists coverage, how much would Wanda be paid under
the Personal Auto policy?
Nothing
What is the standard deductible under the regular program of the National Flood Insurance Program?
$ 500
Which Flood insurance coverage has a deductible?
Both building and contents
Who administers the NFIP?
Federal government
What is the maximum amount of coverage that may be purchased under the emergency Flood insurance
program?
$35,000 for buildings and $10,000 for contents
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Bonus Questions - Page 9
Bonus State Exam Prep Questions
Adequate coverage for large, powerful boats is provided by
specialized personal watercraft policies, such as Outboard Motor And Boat, Boatowners
or Personal Yacht policies.
Which of the following coverages are provided by a typical Outboard Motor And Boat policy?
 Liability
 Medical Payments
 Physical Damage
 All of the above
Losses to which of the following could be paid on a replacement cost basis under the NFIP policy?



Personal property
Single family homes
Mobile homes
Unless an exception applies, coverage under an NFIP policy begins
30 days after the date of application.
The insured’s stamp collection, which is insured under a Personal Articles floater for $5,000, is destroyed
in a fire. The actual cash value of the stamps at the time of the loss is $4,000. How much will the insured
receive for this loss, assuming that the stamps cannot be repaired or replaced?
$4.000
Of the following losses which are excluded under most Yacht policies?


Injury suffered by a passenger in a water skiing accident
Collision damage to another boat for which the insured is liable
The largest office building risk that may be eligible for a Businessowners policy is
six stories and 100,000 square feet.
In addition to maximum floor space, the Businessowners eligibility rule limit eligible risks to a maximum of
$3 million in annual sales.
Under the additional coverages of the Businessowners property coverage, property removed to protect it
from loss will be covered at another location for up to
30 days.
The standard deductible for the BOP property coverage is
$500.
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Bonus Questions - Page 10
Bonus State Exam Prep Questions
Mechanical Breakdown coverage is
an optional BOP coverage that is activated by an entry in the Declarations.
The following coverages is NOT included in the Businessowners policy:
Professional Liability
Of the following losses which would be excluded under the property coverage of the BOP?





An angry employee vandalized an insured’s building.
Termites damaged an insured’s building.
Pianos in an insured’s warehouse were damaged by dryness during an extremely cold winter.
An error in the design specifications for an insured’s building resulted in the building’s collapse six
months after construction was completed.
All of the above
Under the Earthquake And Volcanic Eruption endorsement, all earthquake shocks or volcanic eruptions
that occur within a certain number of hours constitute a single earthquake or volcanic eruption. What is
that time period?
168 hours
Which Causes Of Loss form provides open peril coverage?
Special
The insured’s business sustains $25,000 damage in a fire. The fire department that was called to the
scene billed the insured $1,000. The business is insured under the Building And Personal Property
coverage form for $500,000 with a $5,000 deductible. How much will the insurance company pay for this
loss?
$21,000
The insured buys an office building that is next door to her insured business. Is the new building covered
under her existing Building And Personal Property coverage form?
Yes, up to $250,000 coverage is available under the Newly: Acquired Or Constructed
Property coverage extension.
For a loss to be covered under the Personal Effects And Property Of Others coverage extension in the
Building And Personal Property coverage form, the insured must
meet the coinsurance requirement.
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Bonus Questions - Page 11
Bonus State Exam Prep Questions
According to the Loss Payment condition in the Building And Personal Property coverage form, if the
insured has complied with all of the terms of the coverage part and has reached agreement with the
company on the amount of the loss, the insurer will pay the loss
within 30 days after it receives the sworn statement of loss.
When are losses under the Building And Personal Property coverage form paid at replacement or repair
cost?
If the insured meets the coinsurance requirements and costs $2,500 or less
Of the following which is covered under the Builders Risk coverage form?




Building under construction
Foundation of the building under construction
Fixtures, machinery and equipment used to service the building if they will become a permanent
part of the building and are located within 100 feet of the building
All of the above
A voluntary action to rid the ship of cargo to prevent further damage is called
jettison.
General average losses are
shared by all property owners, including the owners of the ship.
The Motor Truck Cargo policy
insures a truck carrier for liability arising out of the transportation of cargo.
A Bailee’s Customer policy covers
the bailee for loss to customers’ property, regardless of liability.
If the insurance company requests a proof of loss on a Commercial Inland Marine claim, the insured must
submit it within
60 days.
A loss is covered under a Commercial Inland Marine form and another policy. Both policies are written on
the same basis. The Commercial Inland Marine form will
pay on a pro rata basis.
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Bonus Questions - Page 12
Bonus State Exam Prep Questions
The insured removes accounting records from her business to protect them from loss. Are the records
covered under the Accounts Receivable coverage form while away from the premises?
Yes, if the insured notifies the insurer within 10 days
The Jewelers Block coverage form would cover a jeweler’s stock in trade while it is
in transit by registered mail.
Under the Jewelers Block coverage form, the insured is required to
take a physical inventory at least once every 12 months.
- AND maintain business records for three years after the policy expires.
How often is the insured required to submit reports of values under the Floor Plan coverage form?
Monthly
The following loss would be covered under the Camera And Musical Instrument Dealers coverage form:
A clerk drops a camera when arranging digital cameras in a show window. The lens
shatters.
Coverage under an occurrence CGL form is triggered
by BI or PD that occurs during the policy period.
What is the purpose of a retroactive date in the claims-made form?
Stipulate a date as the first date on which an event may occur and be covered by the
policy if a claim is filed
Of the following which is a personal and advertising injury?




Broken leg
Death
Calling a client a cheat and a fraud
Dog bite
Coverage under a claims-made CGL is triggered
When the claim is first made against the insured during the policy period
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Bonus Questions - Page 13
Bonus State Exam Prep Questions
All of the following reduce the CGL’s General Aggregate Limit EXCEPT the




Medical Payments sublimit.
Personal And Advertising Injury limit.
Fire Damage limit.
Products-Completed Operations limit.
In the CGL, who is considered an insured under the policy depends is primary and other primary
insurance applies to the same loss?
how the named insured is designated in the CGL Declarations
A woman is injured when she breaks a tooth on a rock that mysteriously found its way into a box of
cereal. This is an example of the
products-completed operations exposure.
Which one of the following is NOT required in a CGL coverage part?
Cause of Loss form
If an event occurred and was reported during the policy period of a claims-made CGL, and a claim is first
made 30 days after the policy expires, which basic extended reporting period applies?
60-day
Suppose the insured first reports an occurrence to the insurer 15 days after a claims-made CGL expires.
No claim has been made yet. Which basic extended reporting period applies?
Five-year
Of the following which are excluded under Coverage A of the CGL?




Damage the insured causes intentionally
Pollution losses caused by the insured
Liquor liability for those in the business of serving liquor
All of the above
The CGL’s pollution exclusion applies to
Both Coverage A and Coverage B.
If an insurer decides to not renew the CGL policy, how many days notice of non renewal must be
provided to the first named insured?
30 days
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Bonus Questions - Page 14
Bonus State Exam Prep Questions
Which portion of the Garage coverage form covers liability for damage to property of others in the
insured’s care, custody or control?
Garagekeepers
Of the following which can be covered under a Motor Carrier coverage form?



Truckers
Motor carriers
Both of the above
Which Commercial Auto endorsement extends Personal Auto-type coverage to immediate family
members of the named insured?
Individual Named Insured
Medical Payments, Uninsured Motorists and Underinsured Motorists coverage
can be added by endorsement to any of the Commercial Auto coverage forms.
Of the following which losses would be paid under the Business Auto coverage form’s Comprehensive
coverage?




Gradual corrosion of the grillwork on a covered auto due to continuous exposure to salt air
Overturn of a covered auto
Collision damage to a covered auto
Theft of a covered auto
Emmitt Phillips is employed by XYZ Appliances as a shipping clerk. As he is stacking TVs in the storage
room, he is surprised by two men, both carrying guns. They proceed to empty the warehouse of TVs. This
is an example of
robbery
Coverage for defense costs is included in
Forgery Or Alteration coverage.
In a Crime insurance policy, certificates of deposit are considered
securities.
What type of property is protected under Computer Fraud coverage?




Money
Securities
Other property
All of the above
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Bonus Questions - Page 15
Bonus State Exam Prep Questions
An insured must file a proof of loss within how many days after a
120 days
When other insurance applies to a loss, the Crime policy will
pay on an excess basis.
The insured sends an employee to England for two months to oversee the opening of a new branch
office. While on assignment, the employee embezzles over $5,000 from the company. Would this loss be
covered under the insured’s Employee Theft coverage?
Yes, because the employee was temporarily outside the coverage territory for less than 90
days.
Of the following injuries which one would qualify as a compensable injury under Workers Compensation
laws?



A factory worker fractures her arm while working overtime on the assembly line
A hotel maid falls down the stairs while cleaning her own home
A secretary accidentally swallows his gum while in the company lunchroom and chokes when it
gets lodged in his windpipe
In a competitive state, an employer may obtain Workers Compensation insurance from



a private insurance company.
a state fund.
Either of the above
In most states, Workers Compensation laws apply
to most workers except those specifically excluded by law.
The Farm coverage part insures a farmer’s



personal loss exposures.
commercial loss exposures.
Both of the above
The Farm coverage part provides
Both Property and Liability coverage.
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Bonus Questions - Page 16
Bonus State Exam Prep Questions
A breakdown of equipment covered under the Equipment Breakdown Protection coverage form results in
the simultaneous breakdown of two other pieces of covered equipment. According to the form, how many
“breakdowns” occurred in this loss?
One
Under the Equipment Breakdown Protection Coverage Form, which of the following causes of damage to
covered equipment would not be a covered “breakdown”?




Electrical failure, including arcing
Leakage at any valve, fitting, shaft seal, gland packing, joint or connection
Failure of pressure or vacuum equipment
Mechanical failure, including rupture or bursting caused by centrifugal force
A business that wants coverage for its liability for employment-related acts can obtain it by purchasing
Employment Practices Liability insurance.
Commercial insureds who need more Liability coverage than that provided by a certain policy or want
coverage for losses that are exclude certain policy should purchase a
Commercial Umbrella policy.
What is the difference between a Fidelity bond and a Surety bond? A~OTES
A Fidelity bond guarantees that certain acts will not be committed; a Surety bond
emphasizes that certain things will happen.
The following lists all of the parties to a Surety bond?
Principal, obligee, surety
All of the following types of losses may be covered by the Equipment Breakdown Protection Coverage
Form except:
damage caused by fire or combustion explosion.
How do deductibles apply in the Equipment Breakdown Protection coverage form?
Deductibles apply separately for each applicable coverage unless the deductibles are
shown as “combined” for any two or more coverages.
Under the terms of the Suspension provision in the Equipment Breakdown Protection coverage form,
coverage on dangerous equipment can be suspended
immediately upon delivery of written notice to the insured.
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Bonus Questions - Page 17
Bonus State Exam Prep Questions
An insured professional who wants full coverage against liability exposures arising from business should
purchase
both a CGL and the appropriate Professional Liability policy
The Farm coverage part insures a farmer’s



personal loss exposures.
commercial loss exposures.
Both of the above
The Farm coverage part provides
Both Property and Liability coverage.
A breakdown of equipment covered under the Equipment Breakdown Protection coverage form results in
the simultaneous breakdown of two other pieces of covered equipment. According to the form, how many
“breakdowns” occurred in this loss?
One
The insured knows it may take several months for his damaged turbine to be fully repaired, so he
authorizes $500 for temporary repairs so production can resume. This expenditure would be covered
under which coverage in the Equipment Breakdown Protection Coverage form?
Expediting Expense
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Bonus Questions - Page 18
Bonus State Exam Prep Questions
NOTE: TEST WORLD ONLY!
Questionable Questions and Questionable Answers (taken
from the Alabama Department of Insurance’s test bank)
There is a possibility that these questions may have made it to the exam
test bank. These questions maybe incorrect for real world application, but if
you see these on your state exam you should answer them as follows:
When a company cancels an auto policy during the middle of the term, the refund will be made on a
Pro rata basis
The term used to describe terminating the insurance relationship at the end of the policy period is
Nonrenewal
An example of an indirect loss would be
Loss of use
Which is a two party contract?
Property
Insurance contracts offset
Pure risk
Which is a third party contract?
Casualty
Risk is defined as
Chance of loss
Being subject to a loss is the definition for
Exposure
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Bonus Questions - Page 19
Bonus State Exam Prep Questions
The ranking insured in a Personal Lines contract is the
Named insured
When must an insurable interest exist to be paid a claim under a P&C contract
At the time of loss
This type of company is run for the benefit of the policyowners
Mutual
Washington Casualty is doing regular business in Oregon. Within the state of Oregon, Washington
Casualty would be considered a(an)
Foreign company
Washington Casualty is doing regular business in Oregon. Within the state of Oregon, Washington
Casualty would be considered a(an)
Admitted company
A company chartered in Guam or Puerto Rico doing regular business in California would be considered
by Californians to be a(n)
Foreign company
With regard to insurance, the term consideration means
the premium and the statements on the application
Which of the following terms indicates that an insurance contract contains the legally enforceable
promises of only one party?
Unilateral
In purchasing an insurance contract, the applicant must accept the contract as written. This type of
contract is referred to as a(n)
contract of adhesion.
Which of the following principles states that in forming an insurance contract, both parties have a
responsibility to the other?
Doctrine of Utmost Good Faith
An incorrect statement made intentionally on an Auto insurance application is a
Misrepresentation
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Bonus Questions - Page 20
Bonus State Exam Prep Questions
A binder is a(n)
Interim insuring agreement
Which of the following is NOT true regarding consideration in a P&C
policy?
Part of the company’s consideration is the payment of a claim.
Any ambiguities in a P&C policy will be resolved in favor of the policyowner because the policy is a
Contract of adhesion
A person who has responsibility for the financial wellbeing of another is a(n)
Fiduciary
A binder can expire on all of the following EXCEPT:
Date of application
All of the following is true regarding hazards and perils



Perils are active and hazards are inactive
Hazards can be physical, moral and morale
Perils come in three groups Basic, Broad and Special
A box of dynamite is a(n)
Physical hazard
If you look to be covered by everything which is not excluded, you should buy
Special cause of loss
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Bonus Questions - Page 21
Bonus State Exam Prep Questions
All of the following statements concerning valuation in a property policy are
true



Under Agreed Value, the insured and the company establish the value before the loss
occurs.
Under Stated Amount, the insured does not know what will be paid on a loss until the loss
occurs.
Functional Replacement is also known as Repair Cost.
Benjamin has two property policies with identical peril power covering his property. The first has a limit of
$75,000 and the second has a limit of $25,000. If Benjamin suffers a $4000 covered loss, how will the two
policies pay?
The first will pay $3000 and the second will pay $1000
The policy provision which allows policyowners to enjoy enhancements made by the company to the
policy form they have in force without waiting until a policy renewal date is known as
Liberalization
The insured’s home is destroyed by a plumber with an out of control blowtorch. The company pays for the
loss and then sues the plumber. This process is known as
Subrogation
Under the Broad Form Cause of Loss, the burden of proof following a claim is on the
Insured
In P&C policies, the part of the policy which names the insured, the property to be covered and
the limits of the policy is known as the
Declarations
Which of the following does NOT follow the concept of indemnification?
Punitive damages
Which is true about Umbrella Liability policies?
They are written for excessive amounts.
A demolition company is using dynamite to destroy an old downtown building. Which of the following
applies?
Strict liability
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Bonus Questions - Page 22
Bonus State Exam Prep Questions
The liability term used to describe damage to an individual’s mental state is
Personal injury.
Which of the following is true concerning the Medical Payments section of a Liability contract?
It has rather low dollar limits.
You are hit by a Greyhound bus. This incident is
Both an accident and an occurrence.
Which of the following is NOT negligence?
Intentional act
Which of the following is true concerning defense costs in a liability contract?
They pay in addition to the limits of the policy.
Assume that Cal’s Commercial Liability policy has an occurrence limit of $100,000 and an aggregate limit
of $500,000. Further assume that so far this year, his insurer has paid claims of $420,000. When an
injured shopper is awarded $90,000, how much will Cal’s company pay?
$80,000
Fire Legal Liability is most important to
A tenant.
Which of the following coverages can be found in all Homeowners forms but in no unendorsed
Dwelling policies?
Theft
Which of the following is Coverage D in a Dwelling policy?
Fair Rental Value
An attached garage would be covered as
Coverage A
If your $5000 gold watch is stolen, how would your Homeowners policy respond?
The loss would be limited in coverage.
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Bonus Questions - Page 23
Bonus State Exam Prep Questions
How would an HO-8 respond to a loss due to weight of ice and snow?
The loss is not due to a covered peril.
Based upon the number of perils covered, which Homeowners form is the most limited?
HO-8
Based upon the number of perils covered, which Homeowners form is the most generous?
HO-S
What is the maximum that the Fire Department service charge can pay in a Homeowners policy?
$500
What is the standard deductible in an HO-3?
$250
What is the maximum horsepower allowed for a boat that you own to be covered under the Personal
Liability section of a Homeowners policy?
25
You are driving your car with your son and the neighbor’s kid to soccer practice when you run a red light
and hit Calvin and his family in their car. Under what part of your Personal Auto policy would Calvin’s
injuries be covered?
Part A
You run a stop sign, hitting Calvin and Clara’s car. Cal’s injuries are in the amount of $30,000 and Clara’s
total $12,000. Their car is damaged in the amount of $11,000. Your liability limits are 25/50/10. How much
will your company pay for Cal and Clara’s bodily injury and property damage?
$47,000
All of the following are true concerning Auto policy Med Pay EXCEPT:
Med Pay coverage is triggered by negligence.
What is the equivalent Single Limit of 100/300/100?
$400,000
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Bonus Questions - Page 24
Bonus State Exam Prep Questions
Cal is driving the family car with his wife, Clara, Cal Jr. and their daughter, Katie. He has Med Pay limits
of $25,000. If Cal is in a wreck, and he and all of his passengers are injured, what is the maximum that
his Personal Auto policy will pay?
$100,000
You have Underinsured limits of 100/300/50 when an underinsured motorist runs a stop sign causing you
bodily injury of $75,000. His limits are 25/50/10. How much will you be paid by the two companies?
$75,000
You and your company cannot agree on the value of the car you totaled. What method is used to settle
the dispute?
Appraisal
A Homeowners policy provides how much liability coverage for a 22 foot, 200 horsepower ski boat?
$0
A Boatowners policy is usually written on what basis?
Replacement Cost
Which of the following would a Boatowners policy NOT cover?
Fishing equipment
If the owner of a Yacht policy warrants that his vessel will be in storage through May 1, and is actually
sailing his boat on April 10 when the company discovers his actions, what will happen?
His coverage will be cancelled.
Under the National Flood Program, which of the following is true?
The minimum deductible is $500
Which of the following could a farmer NOT cover under an NFIP policy?
Growing crop
The Commercial Package policy may contain a maximum of how many coverage modules?
7
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Bonus Questions - Page 25
Bonus State Exam Prep Questions
The ranking insured in the Commercial Package Policy is
First Named Insured
A policy written to provide only Equipment Breakdown coverage is a
Monoline policy
The CPP goes into effect at what time of day?
12:01 am
Which of the following is not a coverage module choice in the CPP?
Garagekeepers
Which of the following options is NOT available in the Commercial Property policy?
Fair Market Value
Which of the following losses would NOT be covered by the Basic Cause of Loss form?
Collapse
What is the standard deductible in a Commercial Property policy?
$500
What is the maximum that the Fire Department Service charge will pay in a Commercial Property policy?
$1000
A vacant building can lose coverage altogether after how many days?
60
In a Business Income coverage, the time elapsed from the loss until the building is fully repaired is known
as the
Period of restoration
Who certifies an act of terrorism?
Secretary of Treasury
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Bonus Questions - Page 26
Bonus State Exam Prep Questions
The earthquake endorsement to a Commercial Property policy treats all shocks within what period of time
as a single occurrence?
168 hours
What other peril besides earthquake does the Earthquake endorsement cover?
Volcanic eruption
When a dry cleaners accepts a customer’s suit for cleaning, the dry cleaners becomes a
Bailee
Which of the following is not covered by the CGL?
Pollution liability
For which of the following would Med Pay provide coverage?
A carpenter at your house drops a hammer on your foot
For which of the following would a CGL provide coverage for a Law Firm?
Host Liquor liability
Which of the following pays only if you are legally liable?
Bodily Injury Liability
Which CGL coverages does the National Enquirer get?
A&C
Commercial Med Pay will make medical payments for up to how long after a loss?
1 year
A policyowner is charged a self-insured retention with his Umbrella when
His underlying policy does not provide coverage
Which of the following is covered under the CGL?
Independent Contractors liability
Which of the following is not listed in the CGL as a contract covered under Contractual liability?
Employment agreement
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Bonus Questions - Page 27
Bonus State Exam Prep Questions
Medical Payment limits are expressed as
Per person limits
If Carl is assigned to drive a cash deposit to the bank, Carl is acting as a
Messenger.
Which of the following is NOT money?
Securities
A thief finds the door to an appliance store has been left unlocked. He enters and takes several big
screen TVs. The thief has committed
Theft.
Robbery of a watchperson is considered to be a(n)
Burglary.
Fidelity Bonds are used in connection with
Employee theft.
To cover all employees on one Fidelity Bond, you would use a(n)
Blanket bond.
The Commercial Crime policy pays for losses on what basis?
ACV
All of the following are covered under a Commercial Crime policy?



Theft
Forgery
Computer Fraud
Forgery and Alteration covers Commercial Crime losses involving
outgoing instruments.
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Bonus Questions - Page 28
Bonus State Exam Prep Questions
Insuring Agreement #3—Inside the Premises—Theft of Money and Securities covers all of the following



Money destroyed in a fire.
Money that disappears.
Money that is taken in a robbery.
The boiler at ABC Manufacturing is destroyed in a factory fire. The boiler
loss is covered under
ABC’s Commercial Property coverage.
ABC Manufacturing’s boiler explodes, setting the factory on fire and
causing extensive smoke damage. Significant water damage is done by
the firemen extinguishing the blaze. All are true about ABC’s coverage:



The boiler is covered by XYZ’s Equipment Breakdown coverage.
The water damage is covered by XYZ’s Commercial Property
coverage.
The smoke damage is covered by XYZ’s Commercial Property
coverage.
All of the following would be covered by Equipment Break-down coverage:



Steam boilers
Refrigeration equipment
Computers
Equipment Breakdown coverage losses are settled on what basis?
Replacement Cost
The insurance company may suspend coverage on any unsafe insured object by giving written notice
how many days in advance?
The suspension is immediate.
How many vehicles are required to qualify for fleet rates?
5 or more
A company which provides private passenger vehicles for each of its 10 sales reps would likely purchase
the
Business Auto Coverage form
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Bonus Questions - Page 29
Bonus State Exam Prep Questions
A business concerned with its liability when employees use their own vehicles on company business
needs
Employers Nonownership Liability
A Car Wash concerned about its responsibility for customer’s cars should buy
Garagekeepers Coverage form
The Motor Carrier Act of 1980 requires minimum liability limits of_____ when transporting specified
hazardous materials such as explosives.
$5,000,000
To determine which autos are covered autos in a Business Auto Coverage form, you should refer to the
Declarations Page
Which is not true about Ocean Marine policies?
They must be filed and approved before use
Inland Marine policies are frequently used to cover all of the following:



Property held by a bailee
Off premises business personal property
Off premises mobile equipment
The Nationwide Marine Definition does which of the following?
Generally distinguishes Marine risks from Property risks
Which of the following appears in the Nationwide Marine Definition?
Commercial Property floater risks
The property coverages under a BOP protect against losses due to
Open perils.
The Additional coverages and the Extensions of coverage under a BOP
Are provided automatically.
Liability coverage under a BOP is
Occurrence triggered.
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Bonus Questions - Page 30
Bonus State Exam Prep Questions
Minimum liability limits under a BOP are
$300,000 per occurrence.
The Fire Legal limit under a BOP is
$50,000.
The basic deductible under a BOP is
$500.
A building insured under a BOP loses vandalism coverage after it has been vacant for ___ days.
60
Business personal property moved to a new location to protect it from a covered peril is covered by the
BOP for up to ___ days.
30
All of the following would be eligible for a BOP:



Funeral parlor
Florists shop
Bakery
Which type of business would be eligible for a BOP?
Fast food restaurant
Prior to the enactment of Workers Comp laws, employers regularly used all of the following defenses
against negligence suits brought by injured employees:



Fellow Servant
Assumption of Risk
Contributory Negligence
Which is a factor in Workers Compensation?
Occupation-related
All of the following are regular sources for Workers Comp coverage:



Private companies
Monopolistic state funds
Self-insurance
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Bonus Questions - Page 31
Bonus State Exam Prep Questions
All of the following are benefits of Workers Comp Part One:



Medical Expenses
Long Term Care
Rehabilitation
The following is a level of disability recognized by most state Work Comp statutes:
Temporary total
Part Two—Employers Liability has which of the following occupational accident limits?
$100,000/accident
Part Two—Employers Liability has which of the following occupational sickness limits?
$100,000/person
Which of the following has the greatest impact on Workers Comp rates?
Frequency of claims
Which Federal Workers Comp Law covers seamen?
Jones Act
Which Federal Workers Comp Law covers postal workers?
Federal Employer Liability Act
Replacement cost less depreciation defines
actual cash value.
A building owner purchases a property policy in the amount of $60,000 on his $100,000 building. The
contract contains an 80% coinsurance clause. If he suffers a covered loss of$ 10,000 he will receive a
settlement in the amount of ____disregarding the deductible.
$7,500
Insurance binders are
interim insuring agreements.
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Bonus Questions - Page 32
Bonus State Exam Prep Questions
A consequential loss can also be called a(n)_____
Indirect loss.
Which statements must represent the absolute truth?
Warranties
Knowingly withholding material information on an application is____
concealment
Which type of insurance company is designed to pay dividends to policyowners?
Mutual
A company domiciled in this state is best described as a company.
domestic
An insurance company’s promise to pay a loss can be found in which policy section?
Insuring agreement
The rules which govern the actions of the company and the policyowner within an insurance
contract can be found in the policy_____
Conditions
A short-term proof of insurance coverage provided to an insured until a policy can be delivered
is known as a(n)______
binder
All of the following are considered insurable losses:



Income losses due to a business’ inability to remain open following a covered loss
Fire losses following a lightning strike
Medical costs following a woman’s fall on a wet Drugstore floor
Which of the following best defines risk?
Uncertainty of loss
Property policies provide coverage only if there is insurable interest at the
time of loss.
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Bonus Questions - Page 33
Bonus State Exam Prep Questions
An unforeseen and unintended event that happens at a known time in a known place is defined as a(n)
________
accident
A family that regularly leaves their house unlocked would be considered to be a
Morale hazard.
In an insurance contract, consideration is best defined as
something of value
All of the following are common methods of settling P&C losses:



Agreed value
Actual Cash value
Replacement cost
Which of the following is a peril?
Hail
If an HO-3 has a coverage limit of $100,000 on the dwelling, how much coverage would
automatically apply to cover the insured’s personal property in Coverage C?
$50,000
All of the following are true about the Personal Liability coverage of a Homeowners contract:



It is generally written as a single, occurrence limit.
It covers an insured’s legal liability arising from nonbusiness activities.
The basic limit of coverage is $100,000.
Which Additional Coverage is found in the Homeowners Broad Form HO-2?
Collapse
What is the primary objective of the Med Pay to Others coverage in Section II of a Homeowners
policy?
To avoid negligence claims
Which Homeowners coverage provides for indirect loss coverage?
Coverage D—Loss of Use
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Bonus Questions - Page 34
Bonus State Exam Prep Questions
A home is covered under a Homeowners Comprehensive form HO-S for $150,000. The cost of
replacing the home is $200,000. Following a total loss, the insured would receive settlement
of______ disregarding any deductible.
up to the Actual Cash Value
In a Homeowners policy, wall-to-wall carpeting would be covered as
Building
Which of the following is true concerning a Special Form Homeowners HO-3 without endorsement?
It will pay the Actual Cash Value of personal property losses.
A Dwelling policy sold without endorsement will cover
property
A woman has scheduled her tanzanite ring for $2000 on an Inland Marine endorsement to her
Homeowner’s policy. In the event of a covered loss, how will the claim be paid disregarding any
deductible?
$2000 from Inland Marine
A house insured under a Homeowners Special Form HO-3 suffers damage to the house and the
personal property inside by a Kodiak bear. What property is covered under the HO-3 contract?
Both the house and the personal property
For which of the following losses would you have coverage under a DP-3?
Ice blocks your gutters and water seeps into your home.
Which of the following would NOT be covered by Section I of an HO-3 contract?
The insured $2000 cocker spaniel
Under a Personal Articles floater, a pair of antique bookends is scheduled for $1000. When one
of the bookends is destroyed by a covered peril, the remaining bookend is worth only $25. Assuming that
the destroyed bookend cannot be replaced and disregarding any deductible, how much will the insured
receive for the loss?
$750
Uninsured Motorists coverage provides coverage for which of the following?
Bodily injury to an insured
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Bonus Questions - Page 35
Bonus State Exam Prep Questions
Tom is driving with auto limits of 100/300/100 when he causes an accident injuring two people
in the amounts of $60,000 and $125,000. What is the maximum his policy will pay for the
accident?
$160,000
A Personal Auto policy will provide Supplementary Payments to cover all of the following:



Costs of investigating the accident
The premium for a bail bond
The premium for an appeal bond
Personal Auto policy Collision coverage will NOT pay in which situation?
A thief steals the car and then wrecks it
All of the following are covered under a Personal Auto policy:



The insured’s trailer
A Temporary Substitute auto
A new auto acquired 3 days ago
The Collision coverage of a Personal Auto policy pays claims on what basis?
Actual Cash Value
What is the equivalent Single Limit of liability to Split Limits of 50/100/50?
$150,000
Your Personal Auto Med Pay would cover wall of the following:
Injuries suffered by a pedestrian whom you bump with your car while he is crossing the
street
Which vehicle is excluded from coverage under your Personal Auto policy?
A company vehicle provided for your regular use
Personal Auto Med Pay coverage will pay medical bills for
Up to 3 years from the date of the accident
Which is covered by a Personal Auto policy?
Carpooling
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All of the following are reasons to purchase Med Pay limits higher than the minimum:



Your Medical Expense coverage may exclude auto accident injuries
Your passengers may not have adequate Med Pay coverage of their own
Minimum Med Pay limits are extremely low
Alex borrows Brian’s car and has an at-fault accident injuring Carlos. Both Alex and Brian have a
Personal Auto policy. How is the claim paid?
Brian’s policy is primary and Alex’s policy is excess.
If minimum auto limits of liability are 25/50/10, a driver with limits of 15/30/10 is considered
to be a(n)
Uninsured Motorist.
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1.
Hazard = anything that increases the chance of loss. [Three type of hazards: Physical hazard (hazard
that arises from condition or occupancy of property), Morale hazard (careless or irresponsible behavior),
Moral hazard (person might intentionally create a situation that would cause a loss)].
2.
Managing Risk: Avoid, Control (Loss prevention: Curtail loss frequency and Risk prevention: Limit loss
severity), Retain risk (not insured) and Transfer risk (insured). (Insurance is a way of transferring risk.)
3.
Mutual insurance companies (owned by policy holders – cash building policies receive dividends).
4.
Insurable interest: You must have an insurable interest! (You can insure your home or business, but
not your neighbor’s.)
5.
Insurance can only be used to cover Pure Risk (someone may steal something). Insurance cannot be
used to cover Speculative Risk (losses in the stock market).
6.
Insurance contracts are contracts of indemnity (putting the customer back where they were financially
before the loss, within the limits of the contract).
7.
Declarations (first page of policy, name of insured, address, amount of coverage, description of
property, and perils insured against).
8.
Contract adhesion (the policy is developed by the insurance company and offered on a take it or leave it
basis).
9.
The HO-6 (HO 00 06) (is the Condominium form, it provides broad coverage similar to HO-2 on the
personal property of condominium owners with very limited dwelling coverage.)
10. Fair Credit Reporting Act (credit standing, personal character, reputation, habits, and lifestyles. This
gives the consumer recourse if insurance is denied on the basis of a credit report.
11. This is an example of a “liability loss.”
12. Three Rating Methods: Judgment Rating (oldest way, also known as Experience Rating – involves pure
judgment based on experience), Manual Rating (or class rating – based on manuals – Rate per unit X
number of units = premium), and Merit Rating (includes both judgment and manual rating methods).
13. Flood Insurance (the National Flood Insurance Program [NFIP] was created by congress in 1968 to
make Flood insurance available to eligible communities through federal subsidization. This program is
operated under the Federal Emergency Management Agency [FEMA] and is managed by the FEMA
branch: the Federal Insurance Administration [FIA]).
14. This is an example of an eligible business for the businessowners policy.
15. Workers compensation covers rehabilitation, disability, and medical.
16. The location of the home office affects designation of company: Domestic (insurance company’s home
office is located within the state), Foreign (insurance company’s home office is located in another state),
or Alien (insurance company’s home office is located in another country).
17. Binders (oral or written statements made by an agent for immediate protection that is valid for a specific
time and provides temporary coverage. A binder does not guarantee that a policy will be issued).
18. Insurance Marketing Systems: Exclusive agency system (or captive agency system – sell for only one
company), Direct writer system (agents are employees of an insurance company), Direct response
system (have no agents – sold only through mail or over the phone), and Independent agency system
(independent, sell for many companies, and can bind coverage).
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19. Open peril (sometimes called all risk or special coverage) this is the type of insurance policy that
insures against all risks of loss that are not specifically excluded by the policy.
20. Prior approval state: in a particular state, if an insurance company is required to file policy forms and
rates with the state insurance department and wait for official approval before using the new forms and
rates, the state is a “prior approval state.”
21. The Nationwide Definition states that imports and exports are eligible for Ocean Marine insurance.
22. Payment bonds (Guarantees that bills for labor and materials will be paid by the contractor as they are
due. These are sometimes called Labor and Materials bonds, and are frequently included as part of a
Performance bond.)
23. Actual Cash Value (ACV) (ACV=Replacement Costs – Depreciation) (common method of determining
value of loss.)
24. Appraisal Condition (either party may demand an appraisal on the item in question – if both parties
choose a separate appraiser the appraisers choose an umpire to settle any differences in the appraisals
results – insured pays for his own appraiser fees and half of the fees for the umpire).
25. Appraisal Condition (either party may demand an appraisal on the item in question – if both parties
choose a separate appraiser the appraisers choose an umpire to settle any differences in the appraisals
results – insured pays for his own appraiser fees and half of the fees for the umpire).
26. Home owners policies (provides both property and liability coverages; unendorsed Dwelling policies
provide property coverage only).
27. Business Income: Pays loss of income that the insured sustains due to a direct physical loss from a
covered peril that forces the insured to suspend business operations. Coverage is provided until the
business is repaired, rebuilt or replaced.
28. Part Two-Employers Liability (provides coverage to the insured for sums the insured becomes legally
obligated to pay under common law because of a work-related injury or occupational disease. A
minimum limit of $100,000 per accident applies. There is also a per employee limit for disease and an
overall limit for additional claims.)
29. The HO-3 (HO 00 03) (is the Special form and provides open peril coverage for loss to the dwelling and
other structures, unless specifically excluded in the policy. It provides broad named peril coverage for
personal property, which is identical to the HO-2’s coverage of personal property. See manual for
exclusions.
30. Property Off-Premises extends up to $10,000 in coverage for property temporarily off the premises.
31. Equipment Breakdown Protection coverage form covers damage from an explosion caused by the
centrifugal force of moving parts.
32. Defenses against Negligence: Contributory (PURE contributory negligence: in some states if a person
contributes to their own damages in any way, another party can not be held liable).
33. Supplementary Payments (paid in excess of policy limits) include: Defense cost, Claim investigation
expenses, Bond premiums (exp. Bail bonds, appeal bonds, release of attachment bonds), First aid to
others at time of accident, Expenses for investigation or defense of claim (if requested by insurance
company), Loss earnings, Prejudgment interest (not included as part of damages), and Post judgment
interest (interest accruing on the judgment after an award, but prior to payment by the insurance
company).
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34. Termination of policy: Insured: must give advanced notice in writing, send in the policy and specific date
to end policy, and the Insurer: must provide advance notice of cancellation (or renewal – requires a
minimum of 20 days notice) – 10 days advanced notice for nonpayment during the first 60 days of a
new policy --- 20 days in all other cases.
35. Dwelling 89 policy (issued by Insurance Services Office (ISO)) or Basic form (also known as DP-1 or
DP 00 01) coverages: Coverage A – Dwelling (covers dwelling and other attached structures, materials,
supplies used for construction or repair and outdoor equipment used to service premises), Coverage B
– Other Structures (other structure on premises connected only by fences, utility line or similar
connection – separate structure may not be used for commercial, manufacturing or farming purposes)
and Coverage C – Personal Property (personal property usually at the dwelling place and dwelling
occupancy.)
36. Truckers coverage form and Motor Carrier coverage form includes Trailer Interchange coverage.
37. The HO-5 (HO 00 05) (Covers both dwelling and property on open peril basis for both Dwelling and
Personal Property – covers anything not specifically excluded in the policy.)
38. General Aggregate Limit is the maximum that will be paid for the sum of losses under Coverages A, B
and C, except for damages arising out of the products-completed operations hazard. (This limit is
subject to modification by endorsement so that it applies separately to each of the insured’s locations or
projects.)
39. Personal Property form (coverage for 9 optional classes with automatic coverage-- newly acquired
items identified by [A] if category is already insured: jewelry[A], furs, cameras[A], musical
instruments[A], silverware, golf equipment, fine arts[A], stamps, and coins).
40. Special form (DP-3, DP 00 03) (provides open peril coverage on the dwelling and other structures,
insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal
property is covered on a named peril basis—the same perils listed in the DP-2.)
41. Exclusions include: Personal property owned by guests or servants, Money, securities, manuscripts,
bullion, currency, accounts, deeds, and evidences of debt. Bank notes, coins, gold other than gold
ware, letters of credit, medals, personal records, platinum, silver other than silverware, ticket, and
stamps. Books of accounting, drawings and other paper records, electronic data processing tapes,
wires, records, discs or other software media (does not apply to blank recording or storage media or
prerecord media), Credit cards and fund transfer cards, Aircraft, Motor vehicles; other than motorized
equipment used to maintain the premises, and Boats; other than rowboats and canoes.
42. Commercial Package policies cover: crime, boiler and machine, and inland marine.
43. Parcel Post policies cannot be covered under Commercial Inland Marine.
44. Extra Expense endorsement (covers the additional expenses incurred by the business to continue
operations after a direct loss by a covered peril, including time element coverage.)
45. Business owners policy may be summarized as: a prepackaged policy addressing property and liability
coverage for certain types of small businesses.
46. The Special Business owners Property form Optional Coverages are usually preprinted in the policy, but
apply only if they are designated in the Declarations and normally require additional premium. They
include: Interior Glass: Covers loss to glass items that are permanently attached to walls, floors or
ceilings. Each item to be covered must be described in the Declarations. When this optional coverage is
selected, policy limitations that apply to interior glass do not apply. ([Included in Standard form only]
Included in policy limit), see manual for details on other coverages included.
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47. Hull insurance (provides Physical Damage coverage for the ship itself while in transit on oceans, rivers
and lakes. Coverage may be obtained for a single vessel or an entire fleet. Limited Liability insurance
may also be included through the Running Down clause, which protects the owner if he or she is held
liable for the negligent operation of the vessel in damaging another ship.)
48. Parties to a Bond Insurance contract include two parties—the insured and the insurance company while
Bonds are contracts between three parties: Principal (The party who promises to do [or not do] a
specific thing. This is the person or company bonded.), Surety (The party [often the insurance company]
who agrees to be responsible for loss that may result if the principal does not keep his or her promise.),
and Obligee (Party to whom the principal makes the promise, and for whose protection the bond is
being written.)
49. Sudden and accidental rupture of a heating system are covered under HO-2 and HO-3, the others listed
are not.
50. Liability assumed under the Commercial General Liability coverage form is excluded, except for
contracts specifically defined as insured.
51. Extended Non-owned Coverage for Named Individuals (expands coverage of the Personal Auto policy
concerning the driving of other individual’s vehicles).
52. No-Fault Insurance (under these laws the insured is reimbursed by their own insurance company for
medical expenses and/or loss of wages related to an accident regardless of who caused the accident).
53. Deductibles (amount of loss that the insured must pay out-of-pocket before the insurance company will
cover the rest of the loss).
54. Commercial Crime Endorsements: Funds Transfer Fraud (covers losses resulting from fraudulent
instructions to a financial institution to pay money from an insured’s transfer account. A transfer account
is an account maintained at a financial institution that allows money to be transferred electronically,
either by phone or in writing. Fraudulent instructions are instructions by someone who is impersonating
an insured or an employee to transfer money without the insured’s knowledge or consent.), and The
Extortion—Commercial Entities (pays for loss of money, securities and other property resulting from
extortion. Extortion means the surrender of property away from the premises as the result of a threat
communicated to the insured to do bodily harm to the insured, an employee or a relative of either who is
being held captive.)
55. Additional losses that result from a direct loss to property are called indirect/consequential losses.
56. Object Definitions form is not included as a component of a Commercial Package policy.
57. Consolidation or Merger: (New employees and additional premises obtained through a consolidation or
merger are automatically covered for 90 days. However, the insured is required to provide written notice
to the insurer and pay any additional premium required. This condition does not appear in Crime forms
written for government entities.)
58. Retroactive Date (provides some measure of protection against previous losses that may have occurred
before the claims-made form was written. The retroactive date is listed in the CGL Declarations.) The
insured has three options for the retroactive date: Use the same date as the policy effective date, Use
an earlier date than the policy effective date, and Use no retroactive date.
59. An example of an item covered under Coverage C.
60. Liquor Liability Coverage Form covers insureds that are in the liquor business. It covers liability for
contributing to a person’s intoxication or for providing liquor in violation of the law for businesses
engaged in the liquor business. The standard forms exclude this liability, which is sometimes called
dram shop liability. Coverage can be purchased on either a claims-made occurrence basis.
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61. Mobile homes are covered under a Mobile Home package policy or an HO-2 or HO-3 with the Mobile
Homeowners endorsement.
62. This is an example of Part D’s coverage. (Collision and Other Than Collision [physical damage] -- may
be written alone or with Liability coverages.)
63. Errors and Omissions insurance is one of the types of Personal liability insurance.
64. Just a fun fact you must know for the state exam.
65. Just a fun fact you must know for the state exam.
66. Pollution Liability Coverage Extension endorsement overrides the Coverage A exclusion for BI or PD
claims arising out of pollution losses. It does not provide coverage for clean-up costs associated with
pollution losses.
67. Certain responsibilities and obligations are assigned to the First Named Insured (First Named Insured is
the only individual that can make changes to the policy with the responsibility for premium payment
being the First Named Insured’s– policies may have any number or individuals listed on the policy,
however only one First Named Insured.)
68. Workmen Compensation (Workers Compensation laws [provide a fair means of handling work-related
injuries, including occupational diseases.] gives employees the right to collect from their employers for
injury, disability or death that occurs in the course of employment regardless of who is at fault. Exclusive
Remedy: Employees cannot sue their employers in court to obtain additional compensation.) The part of
a Workers Compensation and Employers Liability policy specific to this question is Part One—Workers
Compensation.
69. The driver in this accident is “insured.”
70.
Hired And Nonowned Auto Liability endorsement provides coverage for hired or nonowned autos used
by the business if the insured does not have Commercial Auto insurance.
71. Personal Auto policy’s Medical Payments coverage would provide protection for all of the following: the
insured, passengers in the insured’s car and the insured’s family members.
72. This is the definition of expressed authority.
73. The individual State Insurance Departments are responsible for the licensing of insurance agents.
74. MCS-90 Endorsement (This endorsement provides public liability coverage for bodily injury, property
damage and environmental restoration.) This endorsement is the most common method to obtain
adequate Truckers coverage to cover the automobile exposure, as well as Commercial Inland Marine
Motor Truck Cargo insurance to cover the liability for cargo being hauled.
75. Competitive State Funds (Other states have created competitive state funds that give employers a
choice between purchasing Workers Compensation insurance from a state fund or a private insurance
company. Thus, the state fund competes with private insurance.)
76. Pro Rata Method (most common method resolution when other insurance companies are involved in a
given claim. Example: $10,000 loss --- one insurance policy coverage is $50,000 [we will call this policy
A]; the other insurance company policy coverage is for $100,000 [we will call this policy B]: liability limit
of policy A / (liability limit of policy A + liability limit of policy B) X amount of loss = amount to be paid
policy A.
77. Four factors required to establish negligence: legal duty owed, breach of legal duty owed, proximate
cause, and damages.
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78. Supplementary Payments (pays in addition to policy liability limit).
79. 80% coinsurance condition (means the property must be covered by a least 80% of full value – if not
insured for at least 80%, partial loss payouts may be reduced proportionally. This is called coinsurance
penalty.)
80. Section I Endorsements: Special Personal Coverage (Scheduled Personal Property), Jewelry, Furs and
fur-trimmed garments, etc.
81. With a retention limit of $1,000 and losses of $20,000 the total that would be paid would be $19,000.
82. Building coverage -- in addition to the building itself the policy also includes: Completed additions,
Fixtures (including outdoor fixtures), etc.
83. Aggregate Limit (is applicable to all injury or damage during the policy period, except injury or damage
falling within the Fire Legal Liability limit or Products-Completed Operations limit [which applies to legal
liability arising out of the use of products manufactured by the insured]. This aggregate is twice the
Liability and Medical Expenses limit. In addition, there is a separate Products-Completed Operations
Aggregate limit.)
84. Mechanical breakdown is excluded from coverage under a Personal Auto policy, in the Physical
Damage section.
85. This is a fun fact you must know for the state exam.
86. See Business Auto Coverage Form in your manual for details.
87. See Cause of Loss in your manual for details.
88. This is the definition for “coinsurance.”
89. Farm coverage part does not cover crops.
90. Legal Liability form (Liability coverage form also covers damage to property of others while in the
insured’s control, but only if the insured is legally liable for the damage.)
91. This is by definition for Business Auto coverage form’s Comprehensive coverage.
92. Garage keepers coverage (covers the insured’s liability for damage to customers’ property that the
insured has for servicing, repair, parking, or storage. The insured also has the option of purchasing
Direct Damage Garage keepers insurance, which pays for physical damage to customers’ property in
the insured’s custody, whether or not the insured is liable. Direct Damage Garage keepers insurance
can be provided on either a primary or excess basis; the causes of loss that can be covered include
Comprehensive or Specified Causes.)
93. This is the definition for the Causes Of Loss—Special form of the Commercial Property coverage part.
94. Add the losses (up to the policy limit) for BI to the losses (up to the policy limit) for PD; the result is the
amount the policy will pay for a give accident.
95. This is by definition for Workers Compensation system.
96. Just a fun fact you will have to know for the state test.
97. Dwelling – open peril (risk of loss not otherwise excluded are covered), personal property: fire, lighting,
windstorm, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism & malicious mischief,
theft, volcanic eruption, falling objects, weight of ice & snow or sleet, discharge of water or steam,
freezing of plumbing & related systems, and artificially generated electric current.
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98. Physicians and Surgeons Equipment (covers medical and dental instruments on and off the premises,
as well as furniture and fixtures at the office and the insured’s interest in improvements and
betterments. Medical and dental equipment of others used by the insured is also covered at the
insured’s option. Radium is not covered.)
99. This is an example of the application of Builders Risk Reporting form.
100. Material fact: (information which the insurance company will use to base the policy on).
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1.
Parts of the insurance contract: Declarations, Insuring agreement, Conditions, Exclusions, and
Definitions.
2.
Special form (DP-3, DP 00 03) (provides open peril coverage on the dwelling and other structures,
insuring against all risks of direct physical loss that are not specifically excluded in the policy. Personal
property is covered on a named peril basis—the same perils listed in the DP-2.)
3.
Insurable interest: You must have an insurable interest! (you can insure your home or business, but not
your neighbor’s).
4.
Liability losses (also known as third party losses; losses that occur from actions toward other people or
their property).
5.
Defenses against Negligence: Contributory (in some states if a person contributes to their own
damages in any way, another party can not be held liable), Comparative (in other states if both parties
contribute to a loss, awards are based on the extent to which each party was negligent), and
Assumption of Risk (in some states if a person knowingly exposes themselves to danger or injury they
may not be able collect damages. Exp: spectators injured at racing events).
6.
Coverage D (fair rental value - if structure is uninhabitable and insured can not collect normal rent on
property due to damage – losses are limited to 10% of dwelling coverage and further limited to two
weeks if civil authority prevents use of undamaged property due to damage of other properties near by).
7.
This is an example of Personal Auto policy’s Liability coverage.
8.
Insurance contracts are contracts of indemnity (putting the customer back where they were financially
before the loss, within the limits of the contract).
9.
The Builders Risk Reporting form is a contract of indemnity (putting the customer back where they were
financially before the loss, within the limits of the contract). See Builders Risk form in your manual.
10. The HO-5 (HO 00 05) (Covers both dwelling and property on open peril basis for both Dwelling and
Personal Property – covers anything not specifically excluded in the policy).
11. This is based on the definition of insurance.
12. This is the definition of a Motor Truck Cargo policy.
13. Exposure Covered by Commercial General Liability Insurance: Work-related injuries to employees,
Pollution, Contractual agreements in which the insured assumes liability, Ownership, maintenance or
use of autos, watercraft and aircraft, Premises and Operations, Products-Completed Operations, and
Indirect/Contingent Liability. Auto liability is covered under a separate policy.
14. Elements of a valid contract: Competent parties, Legal purpose, Offer and acceptance, and
Consideration.
15. This is part of the definition for DP-1.
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16. Nonowned auto category includes: Autos used in the insured’s business that are not leased, hired,
rented, or borrowed. Includes autos owned by employees but used in the insured’s business or
personal affairs and has Liability coverage only.
17. Contract Bonds (guarantee the fulfillment of contractual obligations.) Common types of Contract bonds
are: Bid bonds, Performance bonds, Payment bonds, Supply bonds, and Completion bonds.
18. Competitive State Funds: (Some states have created competitive state funds that give employers a
choice between purchasing Workers Compensation insurance from a state fund or a private insurance
company. Thus, the state fund competes with private insurance.)
19. Insurance can only be used to cover Pure Risk. Insurance cannot be used to cover Speculative Risk.
Ware and tear is not insurable.
20. Proximate cause (the action(s) that caused the loss).
21. Personal Property floater (open peril coverage designed for apartment or condo dwellers who cannot
obtain coverage under HO-4 or HO-6).
22. Physical Damage coverage (Comprehensive or Specified Causes of Loss and Collision -- Uninsured
Motorists, Medical Payments and Underinsured Motorists coverage can be added by endorsement.)
23. This is the definition of consideration.
24. Retroactive Date (provides some measure of protection against previous losses that may have occurred
before the claims-made form was written. The retroactive date is listed in the CGL Declarations.) The
insured has three options for the retroactive date: Use the same date as the policy effective date, Use
an earlier date than the policy effective date, and Use no retroactive date.
25. This is a fun fact you must know of the state exam.
26. Coverage for loss of income due to a covered loss to a boiler or other defined object is available under
a Business Interruption endorsement to the Boiler and Machinery coverage form.
27. This is the definition of peril.
28. This the definition of a nonexclusive agent (independent or broker).
29. Exclusions include losses controllable by the insured (excluded because lost is controllable when extra
care is used).
30. Commercial Property coverage part is specifically designed to cover business property.
31. Business Income coverage forms (also known as time element coverage) (pays for loss of income that
the insured sustains due to a direct physical loss from a peril insured against that forces the insured to
suspend operations during the period of restoration. Period of restoration begins on the date of the
direct physical loss and ends on the date on which the property can be repaired, rebuilt or replaced with
reasonable speed).
32. Binders (oral or written statements made by an agent for immediate protection that is valid for a specific
time and provides temporary coverage. A binder does not guarantee that a policy will be issued).
33. This is by definition for DP-2 and DP-3.
34. Ocean Marine Protection and Indemnity insurance provides marine liability coverage.
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35. The Workers Compensation policy provides coverage for amounts the employer is required to pay
under state Workers Comp laws and amounts for which the employer becomes legally obligated to pay
for an employee’s work-related injuries.
36. Adverse Selection (underwriters do not want to insure people/property that have an extremely high risk,
they want to avoid adverse selection).
37. Replacement cost – depreciation = actual cash value (exp. 10 years X 300 per year depreciation = $
3000 depreciation, Replacement cost of $5,000 – depreciation of 3,000 = $2,000 actual cash value.)
38. Flood insurance is available from the federal government or private companies who are reimbursed for
losses by the government.
39. Insurance company approval or ratification (policies forms, endorsements, and rates used doing
business in the state. Some states are file and use states in which the insurance company only has to
file forms, endorsements and rates then use them. Some states are Open Competition states where the
only requirement is the products must be adequate, rates can not be excessive and the company must
practice non discrimination).
40. Just a fun fact you must know for the state exam.
41. Risk - Nationwide Definition. The Definition lists six categories of eligible Marine risks: Imports (covered
by Ocean Marine), Exports (covered by Ocean Marine), Domestic shipments (covered by Inland
Marine), Instrumentalities of transportation or communication (covered by Inland Marine) (includes
forms that cover property related to transportation or communication, such as bridges, pipelines and
television towers), and Personal property floater risks (covered by Personal Inland Marine insurance).
42. This is a fact concerning Workers Compensation.
43. Negligence (lack of reasonable care that is required to protect others from the unreasonable chance of
harm).
44. Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of personal property are settled at
actual cash value. Losses to dwelling and other structures are settled at replacement cost [no
deduction for deprecation as long as insured carries insurance equal to 80% or more of the full
replacement cost of the building at the time of loss.] If the insured does not carry enough insurance to
qualify for replacement cost coverage, they will be paid: The actual cash value, or A portion of the
replacement cost--- whichever is larger).
45. Forgery and Alteration: Covers loss from forgery or alteration of checks, drafts and similar items made
or drawn by or on the insured or the insured’s agent.
46. Inside The Premises—Robbery Or Safe Burglary Of Other Property (If the insured owns the premises or
is liable for damage to it, it also covers damage to the interior or exterior of the premises that results
from actual or attempted robbery or safe burglary. Damage to a locked safe or vault that is inside the
premises is also covered when the damage results from actual or attempted robbery or safe burglary.)
Have two primary coverages: Loss of other property (not money or securities) while inside the premises
from actual or attempted robbery of a custodian, and Loss of other property from a safe or vault inside
the premises from actual or attempted safe burglary.
47. Fund for Workers Compensation insurance: five basic methods for funding benefits. Each state requires
that employers provide security through at least one of the following methods: Insurance Purchased
from a Private Insurer, Monopolistic State Funds, Competitive State Funds, Self-Insurance, Individual
Employers to Form Groups.
48. Judicial Bonds (guarantees that the principal will fulfill certain obligations set forth by law.) There are
two classes of judicial bonds: Fiduciary bonds (commonly used to bond guardians, administrators,
trustees, and executors, all of whom are fiduciaries, or persons appointed by a court of law to manage
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Rationales 2 - Page 3
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the property of others.), and Court bonds (used to settle legal arguments that do not involve monetary
damages. Their primary purpose is to protect obligees against loss in case principals are not able to
prove that they are legally entitled to the legal remedy they sought against the obligees.)
49. Employment Practices Liability (EPL) insurance (CGL and Workers Compensation And Employers
Liability policies exclude losses arising out of wrongful termination, discrimination, sexual harassment,
and other employment-related practices. May be issued as an endorsement to a Directors And Officers
Liability policy or as a separate policy. Although standard ISO forms are available, many companies
issue their own policies. Policy provisions differ greatly among insurers, particularly those regarding the
types of wrongful employment acts covered. Most policies cover wrongful acts committed by the
employer and its employees.
50. Dwelling Basic form “automatically” covers perils which include: Fire, Lightning, and Internal explosion.
51. Dwelling Basic form “automatically” covers perils which include: Fire, Lightning, and Internal explosion.
52. Additional Living Expenses (unique with DP-2 and DP-3) (pays for additional living expenses the
insured incurs after a covered loss, including reasonable motel, dining, laundry, and transportation.
53. Assigned Risk Plans or Automobile Insurance Plans (voluntary agreements between insurance
companies licensed in a given state. These companies agree to share the poor risks among
themselves. Each company accepts its share of assigned risk drivers according to the size of the
individual insurance company).
54. This is the definition for Comprehensive Physical Damage coverage.
55. A Commercial Package policy must include Common Policy Declarations, Common Policy Conditions,
and two or more coverage forms.
56. This is an example of a loss covered by the Business Income coverage form with the Special Causes
Of Loss form.
57. Garage keepers coverage (covers the insured’s liability for damage to customers’ property that the
insured has for servicing, repair, parking, or storage. The insured also has the option of purchasing
Direct Damage Garage keepers insurance, which pays for physical damage to customers’ property in
the insured’s custody, whether or not the insured is liable. Direct Damage Garage keepers insurance
can be provided on either a primary or excess basis; the causes of loss that can be covered include
Comprehensive or Specified Causes).
58. Employee Theft (coverage pays for loss of or damage to money, securities and other property resulting
from theft committed by an employee, either acting alone or in collusion with others.)
59. Obligee (Party to whom the principal makes the promise, and for whose protection the bond is being
written.)
60. 1/3 of the $24,000 loss is $8,000.
61. This is an example of the payment coverage for losses under DP-3.
62. Assumption of Risk (Assumption of risk allowes the employer to deny liability on the basis that the
employee knew what the situation was like before he or she was employed and, therefore, assumed all
of the risk of injury himself or herself.)
63. Just a fun fact you need to know for the state exam.
64. Medical Payments Coverages – reimburses the insured without regard to fault, regardless of whether or
not the state is subject to no-fault laws.
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65. Just a fun fact you must know for the state exam.
66. Vacancy condition states that if a building has been vacant for more than 60 consecutive days before
the loss, the insurer will not pay for loss due to vandalism, water damage, theft or attempted theft,
building glass breakage, or sprinkler leakage (unless the system has been protected against freezing).
In addition, any amount that would otherwise be paid for a covered loss will be reduced 15%. Note that
buildings under construction are not considered vacant.
67. Coverage is provided under both.
68. Liquor Liability Coverage Form covers insured that are in the liquor business. It covers liability for
contributing to a person’s intoxication or for providing liquor in violation of the law for businesses
engaged in the liquor business.
69. Parties to a Bond Insurance contracts include two parties—the insured and the insurance company
while Bonds are contracts between three parties: Principal (The party who promises to do [or not do] a
specific thing. This is the person or company bonded.), Surety (The party [often the insurance company]
who agrees to be responsible for loss that may result if the principal does not keep his or her promise.),
and Obligee (Party to whom the principal makes the promise, and for whose protection the bond is
being written.)
70. Surety bonds (major differences between Fidelity and Surety bonding lies in the face that, in Fidelity
bonding, it is the obligee (the employer) that seeks and pays for the bond. The principal (the employee)
often does not even know the bond exists. With Surety bonds, on the other hand, the principal is always
the party that both arranges and pays for the bond for the benefit of the obligee.)
71. Errors And Omissions (E&O) insurance (broad term that refers to Professional Liability policies written
for professionals, such as insurance agents, accountants, architects, stockbrokers, engineers,
consultants, and attorneys.)
72. Replacement Cost Coverage (unique with DP-2 and DP-3) (losses of personal property are settled at
actual cash value. Losses to dwelling and other structures are settled at replacement cost [no
deduction for deprecation as long as insured carries insurance equal to 80% or more of the full
replacement cost of the building at time of loss.] If the insured does not carry enough insurance to
qualify for replacement cost coverage, they will be paid: The actual cash value, or A portion of the
replacement cost--- whichever is larger).
73. $7,000 loss – $5,000 deductible = $2,000 payout
74. General Average Loss (partial losses resulting from a sacrifice of cargo to save remaining property will
be shared by all other property owners, including the owners of the ship. Each owner shares in the
general average loss in proportion to his or her total property interests regardless of which owner’s
property was actually jettisoned.)
75. Symbol 8: Hired autos only --- Designates Liability and/or Physical Damage coverage only; Only used
for autos the insured has leased, hired, rented, or borrowed; Does not include autos rented or borrowed
from employees or members of their households.
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76. Owners And Contractors Protective Liability (OCP) coverage form is specifically designed to provide
liability for operations of independent contractors. It is purchased by someone other than the named
insured to protect the insured against liability arising out of work performed for the insured by an
independent contractor. It is most frequently used to protect an owner for liability arising out of
operations being performed by a general contractor. Coverage applies only to the specific location and
contractor named in the Declarations and is written on an occurrence basis.
77. This is by definition under Crime insurance.
78. Farmers Insurance (Farmers’ businesses and homes are often at the same location, so they need
insurance that will cover both their personal and business exposures to loss. The Farm coverage part,
which can be written as a mono-line policy or included in the CPP, includes several Farm Property
coverage forms that cover both the personal and business property of the farmer and a Farm Liability
coverage form for the personal and business liability exposures of the farmer. This covers both
scheduled and unscheduled personal property).
79. Just a fun fact you need to know for the state exam.
80. Just a fun fact you need to know for the state exam.
81. This is an example of the coverage under the Commercial General Liability policy.
82. This is an example of the coverage under the Boat owners or Watercraft package policy.
83. This is an example of the use for a Personal Inland Marine Personal Property form.
84. Mutual insurance company (owned by policy holders – cash building policies receive dividends).
85. Unilateral Aspect of Insurance: (Only the insurance company is bound to performance by the insurance
contract. The insured may chose to pay or not pay the premiums at anytime.)
86. An insurance policy has a $35,000 per occurrence limit; therefore there is a limit of $35,000 for each
occurrence of loss.
87. Trees, Shrubs, and Other Plants (unique with DP-2 and DP-3) (pays up to 5% of the Coverage A limit
for damage to trees, shrubs, plants, or lawns caused by a specified list of perils. This is limited to
$500.00 maximum per tree, shrub or plant. [In the HO-4 and HO-6, the limit is 10% of the Coverage C
limit or a maximum of $500 for any one tree, shrub or plant.][Coverage D’s limit is $1,000 and also
covers the removal of fallen trees that block access to driveways or handicapped ramps at the insured’s
residence]).
88. This is an example of the coverage under the Medical Expenses coverage of the Business owner’s
policy.
89. This is a fun fact you will need to know for the state exam.
90. Moral hazard (person might intentionally create a situation that would cause a loss).
91. This is an example of coverage under a Flood policy.
92. Fair Access to Insurance Requirements Plans (FAIR Plans) (state developed insurance plans used to
insure inner city property at reasonable rates).
93. This is the difference between a Commercial Package policy and a Business owner’s policy.
94. Direct (financial loss directly related to the loss of property).
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95. Dwelling policies may include small businesses (may include incidental business and professional
occupancy – must involve service as opposed to sales and involve no more than two people working on
the premises at any one time. For exp: includes beauty parlor, photography studios and professional
offices.)
96. Elements of valid contract: Competent parties (parties must be of legal age and can not be nuts), Legal
purpose (you can not enforce a contract for the sell of illegal drugs), Offer and acceptance (agreement),
and Consideration (monies).
97. Business Income coverage forms (also known as time element coverage) (pays for loss of income that
the insured sustains due to a direct physical loss from a peril insured against that forces the insured to
suspend operations during the period of restoration. Period of restoration begins on the date of the
direct physical loss and ends on the date that the property can be repaired, rebuilt or replaced with
reasonable speed).
98. Mortgage holders condition promises to pay losses to any mortgage holders named in the Declarations
as their interest may appear. This condition protects the interest of mortgage holders by promising
advance notice of cancellation. The insurer must provide 10 days’ written notice if it cancels for
nonpayment of premium and 30 days’ notice if it cancels for any other reason allowed by the policy. If
the insurer decides not to renew, it must give the mortgage holder at least 10 days’ advance written
notice.
99. The following self-propelled vehicles are considered autos (not mobile equipment): Self-propelled
vehicles with permanently attached equipment designed primarily for snow removal, road maintenance
(other than construction or resurfacing) or street cleaning, Cherry pickers and similar devices that are
mounted on automobile or truck chassis and used to raise or lower workers, and Self-propelled vehicles
with attached air compressors, pumps or generators.
100. Building and Personal Property (What is insured? The building itself, the insured’s business personal
property and the personal property of others located at the business premises within the limits defined
in the Declarations Section of the policy). Money, accounts, food stamps, notes, securities and related
properties are excluded. (Lottery tickets held for sale are not securities and are covered.)
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Rationales for Law Exam (TN)
1. Just a fun fact that you will have to know for the state exam.
2. Just a fun fact that you will have to know for the state exam.
3. Just a fun fact that you will have to know for the state exam.
4. Just a fun fact that you will have to know for the state exam.
5. Just a fun fact that you will have to know for the state exam.
6. Just a fun fact that you will have to know for the state exam.
7. Just a fun fact that you will have to know for the state exam.
8. Just a fun fact that you will have to know for the state exam.
9. This is the definition of “rebating.”
10. Just a fun fact that you will have to know for the state exam.
11. Just a fun fact that you will have to know for the state exam.
12. Just a fun fact that you will have to know for the state exam.
13. Just a fun fact that you will have to know for the state exam.
14. Just a fun fact that you will have to know for the state exam.
15. Just a fun fact that you will have to know for the state exam.
16. Just a fun fact that you will have to know for the state exam.
17. Just a fun fact that you will have to know for the state exam.
18. Just a fun fact that you will have to know for the state exam.
19. Just a fun fact that you will have to know for the state exam.
20. Just a fun fact that you will have to know for the state exam.
21. Just a fun fact that you will have to know for the state exam.
22. Just a fun fact that you will have to know for the state exam.
23. Just a fun fact that you will have to know for the state exam.
24. Just a fun fact that you will have to know for the state exam.
25. Just a fun fact that you will have to know for the state exam.
26. Just a fun fact that you will have to know for the state exam.
27. Just a fun fact that you will have to know for the state exam.
28. Just a fun fact that you will have to know for the state exam.
29. Just a fun fact that you will have to know for the state exam.
30. Just a fun fact that you will have to know for the state exam.
31. Just a fun fact that you will have to know for the state exam.
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Rationales for Law Exam (TN)
32. Just a fun fact that you will have to know for the state exam.
33. Just a fun fact that you will have to know for the state exam.
34. Just a fun fact that you will have to know for the state exam.
35. Just a fun fact that you will have to know for the state exam.
36. Just a fun fact that you will have to know for the state exam.
37. Temporary license are not generally issued in Tennessee, unless under these special circumstances.
38. This is the definition for an adjuster.
39. Just a fun fact that you will have to know for the state exam.
40. This is the definition for twisting.
41. Creating a Fictitious Group with the only purpose for the group obtaining insurance is prohibited.
42. This is the definition for a binder.
43. This is the minimum requirements when purchasing automobile insurance in Tennessee.
44. Just a fun fact that you will have to know for the state exam.
45. Just a fun fact that you will have to know for the state exam.
46. Just a fun fact that you will have to know for the state exam.
47. Just a fun fact that you will have to know for the state exam.
48. Just a fun fact that you will have to know for the state exam.
49. Just a fun fact that you will have to know for the state exam.
50. Just a fun fact that you will have to know for the state exam.
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Law Rationales - Page 2
Property and Casualty -- Glossary of Terms
"A" (or Judgment) Rates - Rates that are based on the judgment of the
underwriter on an individual risk basis and not supported by loss experience.
Abandonment - A term that applies to property and signifies both a relinquishing
of it and the letting go of all legal rights to it, as well, with the intent to claim a total
loss. Abandonment of property to an insurance company is something insureds are
expressly prohibited from doing in most property polices.
Abandonment Clause - A property policy provision that stipulates that the insurer
need not accept any damaged property that the insured chooses to relinquish.
Absolute Liability - The performance of an act so dangerous as to be sufficient to
trigger liability regardless of the degree of negligence. Triggering explosives is often
used as an example. Sending workers aloft for construction or repair at elevated heights
is another. "Strict liability'' is another term that is sometimes used.
Accident - An unforeseen, unintended, and unexpected event, which occurs suddenly
and at a definite place. See Occurrence.
Accident Frequency - The rate of occurrence of accidents. Along with accident
severity, it is taken into account in rate making.
Accident Severity - The measure of the seriousness of a claim, measured in, for
example, dollars. Along with frequency, it is taken into account in rate making.
Accident Year Experience - Measures premiums and losses relating to accidents
which occurred during a 12-month period.
Accommodation Line - Normally unacceptable risks that are written as an
"accommodation'' to an agent or broker who has an overall profitable relationship
with the insurer. For example: a personal auto risk with a teenage driver of a sports
car might be written if the other lines of insurance which it carries for the customer
were profitable; or if the agency has had a good
and profitable relationship with the insurer.
Account Current - A monthly statement provided by an insurer detailing an agent's
premiums, commissions, cancellations, and endorsements.
Account Selling - Account selling is trying to handle all of a client's insurance needs,
rather than providing for only a portion of those needs.
Accounts Receivable Insurance - Pays for the cost of reconstructing accounts
receivable records that have been damaged or destroyed by a covered peril. Even
more important, it covers any payments that cannot be collected because records
cannot be reconstructed.
Acquisition Cost - The expense undertaken to acquire new business. The concept
applies to both agents and companies. The largest portion of an insurer's acquisition
cost is agent's or sales representative's commission or bonus.
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Glossary - Page 1
Property and Casualty -- Glossary of Terms
Act of God - Acts of Nature - the term was once widely used to distinguish between
man-made events, i.e., fire, collision, and nature's rampages in wind and flood.
Active Malfunction - In products insurance, a defect or malfunction in a product
that damages the property of the user.
Actual Cash Value (ACV) - A method for placing value on property as of the
time of its loss or damage. ACV may be determined as replacement cost, new, less
depreciation. The market value of an item may be used to help determine actual
cash value. Contrast with replacement cost.
Actual Cash Value Appraisal - An appraisal to determine the actual cash value
of a building and related personal property.
Actuary - A person highly trained in mathematics and statistics who calculates rates
and dividends, and provides other statistical information for an insurance company.
Additional Insured - One who qualifies as "insured'' under the terms of a policy even
though not named as insured. Officers of a corporation may be included as insureds
under the terms of a policy written in the name of the corporation.
Additional Living Expense Insurance - This coverage, found in homeowners
forms, provides payment for extra expenses made necessary by the insured's
inability to reside in the insured dwelling because of a covered loss -- for example,
restaurant meals and hotel bills. The amount payable is the difference between normal
household expenses and the increase.
Adhesion Contract - A standardized set of agreements offered by one (usually the
stronger) party to another on a "take it or leave it'' basis. An insurance policy is an
example of such a contract. The insurer offers a personal auto policy, for example,
that an individual may "adhere to'' (or not) but in any case the individual may not
change any of its terms. Because it has the stronger position, the insurance company
has the burden to spell out its terms precisely. Such contracts are interpreted strictly a
gainst the author of the contract. Not to be confused with aleatory contract.
Adjuster - A person who may act either on behalf of the insurance company or the
insured in settling a claim. Employee adjusters work for an insurer; independent
adjusters represent the insurance company on a fee basis; and public adjusters represent
the insured on a fee basis.
Admitted Assets - The highly liquid assets of an insurer permitted by the state to be
taken into account when reporting financial condition.
Admitted Company - An insurance company that is licensed (admitted) to conduct
business within a given state.
Admitted Market - The range of insurance available through admitted companies.
Advance Premium - Also called "deposit premium,'' an advance premium is a down
payment on what will be the final premium, in policies where the final premium is
subject to audit.
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Glossary - Page 2
Property and Casualty -- Glossary of Terms
Adverse Selection - The tendency of poorer than average risks to buy and
maintain insurance. Adverse selection occurs when insureds select only those
coverages that are most likely to have losses.
Adverse Underwriting Decision - Any decision made by an underwriter that
is not favorable to the insured. Such decisions involve termination, declination, higher
rates, or reduction in coverage. Another example is the placing of a risk in a residual
market or with an unauthorized insurer.
Advertising Injury - Claim arising out of slander, libel, copyright infringement, or
misappropriation of advertising ideas. Coverage is provided as part of coverage B of
the commercial general liability policy.
Affinity Marketing - Targeting marketing efforts toward one group or category of
client. Examples include: grocery stores; all the employees of one company; or
employees in one industry. Group business is a type of affinity marketing.
Agency Company - An insurance company that produces business through an
agency network. See direct writer.
Agency Contract - The legal agreement between an insurance agency and the
insurer detailing the terms of representation.
Agency Plant - The total force of agents representing an insurer.
Agent - One who solicits, negotiates or effects contracts of insurance on behalf of an
insurer. His right to exercise various functions, his authority, and his obligations and the
obligations of the insurer to the agent are subject to the terms of the agency contract
with the insurer, to statutory law, and to common law.
Agent’s Appointment - The act by an insurer that grants an agent the authority to
act as an agent for the insurer. In most states, agents must be licensed and appointed,
prior to being allowed to sell insurance.
Agent’s Authority - The authority of an insurance agent to act on behalf of the insurer
he or she represents. There are several types including: express authority (authority to
act on specific instructions only); implied authority (actions taken in accordance with
prevailing custom); or apparent authority (actions based on appearances created by
the agent and acquiesced to by the principal).
Agents Errors and Omissions Insurance - Insurance obtained by the insurance
agent to guard against loss caused by an unintentional failure to properly insure (or
recommend insurance to) a client.
Agent’s License - A certificate of authority from the state that permits the agent to
conduct business.
Aggregate Deductible - A deductible provision in some property insurance contracts
where all covered losses during a year are figured together and an insurer pays only
when the aggregate deductible amount is exceeded.
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Glossary - Page 3
Property and Casualty -- Glossary of Terms
Aggregate Excess Reinsurance - A type of excess reinsurance treaty that sometimes
is called stop loss or excess of loss ratio reinsurance. The retention in this type of
agreement is calculated based on all losses over the period of time that is stated in the
treaty. The reinsurer is responsible for the amount of losses between the retention and
the limit on the treaty.
Aggregate Limit - The maximum amount an insurer will pay under a policy in any
one policy period.
Agreed Amount Clause - An agreement between underwriter and insured whereby,
in exchange for the purchase of coverage in an amount specified by the underwriter,
the insured is protected from a coinsurance penalty. Agreed value clause - Though rare,
some policies cover for a value agreed upon at the time of writing; if the property is
lost because of an insured peril, the amount stated in the policy will be paid. Fine arts
insured under a personal articles floater or homeowners scheduled personal property
endorsement are examples.
Aircraft Coverages - Though aircraft have long been an important element in the
lives of most Americans, insurance of aircraft exposures has remained outside the
mainstream of property and liability insurance markets. Aircraft hull and liability
insurance is the counterpart of personal or commercial auto policies coverage.
Aircraft products insurance is the counterpart of products liability coverage. Air cargo
insurance is mirrored in motor truck cargo. Hangarkeepers liability is akin to
garagekeepers coverage. As with any specialty line of insurance, the absence of
standardized forms limits practice to specialists in the line.
Alcoholic Beverage Control (ABC) laws, see Dram shop laws.
Aleatory Contract - A contract in which the number of dollars to be given up by each
party is not equal. Insurance contracts are of this type, as the policyholder pays a
premium and may collect nothing from the insurer or may collect a great deal more
than the amount of the premium if a loss occurs. Not to be confused with contract of
adhesion.
Alien Insurer - An insurance company formed under the laws of a country other than
the one it is doing business in.
Alienated Premises - Property that has been sold by an insured.
All Risks - A property policy expression now out of fashion. It was used to designate
contracts that promised coverage against "all risks of direct physical loss" in contrast
to forms that covered for specific, named perils. The word "all" came to be perceived
as open to broader interpretation than insurers intended and it was dropped in favor
of the promise to cover "risks of physical loss." See Named perils and also Open perils.
Allied Lines - Lines of insurance that cover for perils other than fire, that are usually
sold with fire insurance, e.g., "fire and allied lines."
Alternative Dispute Resolution (ADR) - Methods other than lawsuits that are
designed to resolve legal disputes. Examples are arbitration and mediation.
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Glossary - Page 4
Property and Casualty -- Glossary of Terms
Ambiguity - A standard policy provision that proves to be ambiguous may be
interpreted in the light most favorable to the insured.
American Agency System - The system of selling insurance through agents who
receive omissions in lieu of salary.
American Association of Insurance Services (AAIS) - An association of
insurance companies providing filing and various technical services on behalf of its
member companies.
Americans with Disabilities Act (ADA) - Passed by Congress in 1990, this act
requires that "reasonable accommodation" be made in public accommodations,
including the workplace, for those with physical or mental disability.
American College, The - An educational institute conferring the Chartered Life
Underwriter (CLU) designation.
American Lloyds - Unincorporated associations of individual underwriters who
assume specified portions of liability under each policy issued. There is no connection
with Lloyd’s of London.
Anniversary Date - The anniversary of the original date of issue of a policy as shown
in the declarations.
Annual Aggregate Deductible - A deductible applied annually to the total amount
paid in claims during a policy period. Claims are generally subject to a per-occurrence
deductible; the aggregate is the limit beyond which no further deductibles are applied.
Anti-Coercion Laws - Usually contained in a section of the state code entitled
"Unfair Trade Practices," these provisions define the use of coercion as an unfair
practice and, hence, a violation of the state law.
Anti-rebating Laws - Laws found in all but two states which prohibit an agent’s
refunding part of a commission to an applicant as an inducement for placing insurance
through the agent. California and Florida allow rebating of commissions on a limited basis.
Apparent Authority - The perceived ability of an agent to bind an insurance contract
to an insurance company. If an agent or agency holds themselves out as representing
a particular company it is reasonable for the public to assume that such authority is
established contractually, even if it is not. Apportionment - The method of dividing a
loss between multiple insurers that cover the same loss.
Appraisal - A determination of the value of property for the purposes of determining
the proper amount of insurance to be bought or in adjusting a loss.
Appurtenant Structure - Another structure on the same premises as the principal
structure. A detached garage on a dwelling premises is "appurtenant" to the dwelling.
Older homeowners forms refer to the "other structures" protected under the HO
Coverage B as "appurtenant structures."
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Glossary - Page 5
Property and Casualty -- Glossary of Terms
Arbitration Clause - The clause in an insurance policy that spells out how
disagreements over a claim are settled.
Arson - The intentional setting afire of property.
Assigned Risk - A risk not be generally acceptable to any insurance company but for
which the law says that insurance must be acquired. Personal auto liability is one such
necessary coverage. Insurance companies doing personal auto business in a state can
be required to accept assignment of a portion of the state’s unacceptable drivers as
insureds.
Assigned Risk Plan, see Auto insurance plan.
Association Captive - A captive insurer owned by the members of a sponsoring
organization or group, such as a trade association.
Assumed Liability - Liability assumed under contract or agreement. More commonly
known as contractual liability.
Assured - A party who is a potential beneficiary of an insurance contract. The
synonym "insured" is more commonly used.
Attorney-In-Fact - An individual who is given authority to execute legal documents,
including bonds; or the manager of a reciprocal exchange, which is an insurance
arrangement whereby risk is transferred to other members. The attorney-in-fact need
not be a lawyer.
Attractive Nuisance - Condition that can attract and injure children. The occupants
of land on which such a condition exists are liable for injuries to children. Examples of
attractive nuisance: swimming pools; earth moving equipment; playground equipment.
Audit - Some policies (such as workers compensation) are written subject to an audit.
Since workers compensation premium is based on the insured’s payroll, the insurer is
entitled to audit the insured’s records at the end of the policy to verify that it has
collected an adequate premium for the amount of payroll to which it was exposed.
Authorized Insurer - An insurer granted permission by a state to sell specific lines of
insurance within that state.
Auto insurance plan - Program set up by various states to ensure that everyone
with a valid driver’s license will be able to purchase auto insurance. All auto insurers
operating within a state are assigned insureds in proportion to the amount of auto
premium written.
Automobile Liability Insurance - Insurance in which the insurer agrees to pay all
sums for which the insured is legally obligated because of bodily injury or property
damage arising from the ownership, maintenance, or use of an auto.
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Glossary - Page 6
Property and Casualty -- Glossary of Terms
Automobile Medical Payments - Insurance applying to the medical, hospital, or
funeral expenses of anyone injured while on or in an insured automobile. The coverage
is not dependent on liability, being triggered simply by an accident. It may be included
in either the Business Auto Policy or the Personal Auto Policy. See also Premises medical
payments.
Auto Physical Damage Insurance - Insurance on the vehicle, itself. This usually is
broken down into collision and other than collision coverages.
Automobile Shared Market - A program in which all automobile insurers in each
state make coverage available to car owners who are unable to obtain auto insurance
in the voluntary market.
Bailee - One who has is charged with the care of the property of another. For
example, a garage is bailee of a customer’s ("bailor’s") car (the "bailment") and a
jeweler is a bailee of customers’ jewelry while in for repair or appraisal.
Bailees Customers’ Insurance - Insurance designed to reimburse a bailee’s
customers for loss without regard to liability.
Bailees Floater - An inland marine form that covers — on an open perils basis —
a bailee’s interest in personal property of others.
Bailees Liability Insurance - Insurance covering damage negligently caused by
a bailee or employee to goods left in their care.
Bailment - The act of delivering property in trust to another for a limited time and
specific purpose.
Bailor - The person delivering property to another in trust.
Bankers Blanket Bond - A bond designed to indemnify for loss of money, securities,
etc., caused by: dishonesty of employees; robbery or theft from the premises; or
robbery or theft while the insured property is in transit.
Basic Causes of Loss - The perils of fire, lightning, and removal of property from
premises endangered by those perils as shown in the standard 1943 New York fire policy.
Basic Named Perils - Covered perils in a property insurance contract: fire, lightning,
windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosion and riot.
Beach Plans - Sometimes known as windstorm plans or pools, these are plans
devised by coastal states to insure the windstorm exposure of coastal properties. The
plans operate in a manner similar to a joint underwriting association, with participation
by all insurers operating within a state.
Bench Error - A mistake in the production process of a product that causes a loss.
Such losses are usually covered.
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Glossary - Page 7
Property and Casualty -- Glossary of Terms
Betterment - A term used to express the difference in the value of property before
loss and after restoration. If a 20-year roof is damaged by an insured peril and it has
to be replaced in its 15th year and the restoration renews the 20-year life expectancy,
the owner has obtained a 15-year betterment in the roof. Without replacement cost
insurance on the roof, the owner is expected to reimburse the insurance company for
the "betterment" entailed in the restoration. Also see Improvements and betterments.
BI - A shorthand expression for "bodily injury."
Bid Bond - Guarantees an owner, the "obligee," that the accepted contractor will
actually undertake the work and that the contractor will furnish performance, payment,
and, perhaps, maintenance bonds — or that the contractor will pay the owner the difference
between the amount of the contractor’s accepted bid and the bid of another contractor who
has to be called in to complete the project.
Binder - An insurer’s agreement, by way of an agent, to provide non-life insurance
on the spot, pending issuance of the policy contract.
Binding Authority - The authority extended to an agent by an insurer to provide
insurance, usually on a temporary basis, until a policy can be written.
Blanket Bond - An employee dishonesty or fidelity bond covering all persons of a
group or class; as opposed to bonds naming specific individuals (name schedule) or
positions (position schedule).
Blanket Coverage - A means of insuring various items of property under one limit of
liability.
Blanket Insurance - Insurance covering multiple items of property as a group.
Covered property may be at one location or several.
Bobtailing - A trucking term that means the driving of the tractor portion of a semi
after the trailer has been delivered and removed. A special trucking endorsement,
Truckers Insurance for Non-Trucking Use, may be necessary when bobtailing.
Bodily Injury - A term that refers to physical injury, sickness, or disease, or death
resulting therefrom. In some jurisdictions "bodily injury" includes emotional injury.
Bodily Injury Liability - Legal obligation that flows from the injury or death of another
person. This insurance is commonly limited to bodily injury liability derived by way of
negligence, but coverage of liability by way of contract (holding another harmless) is also
possible.
Boiler & Machinery Insurance - Fired vessels, steam generators, mechanical and
or electrical objects and turbines, are all examples of "objects" that might be listed for
coverage under a boiler and machinery policy. Coverage is for damage to covered
property caused by an accident to an object identified in the policy’s schedule.
Coverage includes extra expense, automatic 90-day coverage at new locations,
defense against liability claims, and supplementary payments like those provided
under public liability policies.
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Glossary - Page 8
Property and Casualty -- Glossary of Terms
Bond - A document for expressing surety. A bond engages three entities; the "surety"
(bonding company) sells the bond to the "principal" for the purpose of paying the amount
the principal will owe to the "obligee" upon failure of the "principal" to perform some act
or provide some service under agreed terms.
Bond, Fidelity - A bond that guarantees the principals honesty.
Bond, Surety - A surety bond is the financial assumption of responsibility by one or
more persons for fulfilling another’s obligations.
Book of Business - The accounts written by an agent or company. It can be
ex-pressed in a number of ways such as "total book" of business, "book of auto
business," "homeowners business," etc.
BOP (Business Owners Policy), see Business Owners Policy.
Bordereau - A written schedule of insureds, premiums, and losses submitted to
reinsurers under certain types of reinsurance agreements.
Boycott - Another practice defined as "unfair" under most states’ codes. Such a
practice which occurs when someone in the insurance business refuses to do business
with someone else until that person complies with certain conditions or concessions.
Broad Form Perils - A property insurance designation for coverage that extends
beyond the basic named perils.
Broad Form Property Damage Endorsement - A commercial general liability
endorsement that removes the care, custody, or control exclusion relating to the
property of others and replaces it with a less stringent one.
Broker - One who represents the insured in arranging insurance. A broker may also
serve as the agent of an insurance company. Typically, a broker does not have binding
authority.
Builders Risk Insurance - A variation of property coverage specifically applicable to
construction projects. It is commonly written in an amount to cover the value of the
structure when completed. The premium charged takes into account that values at risk
increase gradually over the term of the policy.
Bumbershoot - A form of coverage similar to an umbrella, having to do with ocean
marine risks.
Business Auto Policy (BAP) - A standardized contract for writing liability and
property coverage on commercial autos.
Business Income Coverage - Insurance protecting the income derived from
an insured’s business activities when curtailed by a covered peril. Coverage includes
reasonable extra expense the insured undertakes to expedite return to
business operations.
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Glossary - Page 9
Property and Casualty -- Glossary of Terms
Business Income, Dependent Properties - Covering loss to an insured when the
operations of a key supplier, customer, or "leader property" on which the insured’s
operations are dependent, is shut down by a covered peril. Also referred to as
"contingent business income."
Business Personal Property - A term relating to "contents" of a commercial
enterprise. It may include furniture, fixtures, machinery and equipment as well as
stock, all other chattels owned by the insured, and even use interest in building
improvements and betterments.
Business Owners Policy (BOP) - A package of property and liability insurance
for small and medium size businesses, the BOP owes its origin to the success of the
homeowners policy.
"Buy-Back" Deductible - A deductible that may be eliminated for an additional
premium in order to provide "first-dollar" coverage.
Calendar Year Experience - Underwriting result based on earned premiums and
booked incurred losses for the same calendar year reporting period, regardless of the
dates of the loss events. Booked incurred losses include paid losses, beginning of year
to end of year changes in case reserves, and IBNR.
Cancellation; Flat, Pro Rata, or Short Rate - In a flat cancellation the full premium
is returned to the insured. A pro rata cancellation means the insurer has charged for
the time the coverage was in force. Short rate cancellation entails a penalty in excess
of pro rata for early termination.
Capacity - An insurer’s (or reinsurer’s) top limit on the amount of coverage it has
available. The term may also refer to the total available in the respective insurance
or reinsurance market.
Captive Agent - A representative of a single insurer. In the case of captive agents,
the insurer owns and controls expiration dates and policy records. A captive agent is
a member of what may be called an exclusive agency system.
Captive Insurer - An enterprise with all the authority to perform as an insurance
company, but is organized by a parent company for the express purpose of providing
the parent company’s insurance.
Care, Custody, or Control - An expression common to liability insurance contracts.
It refers to an exclusion in the policy eliminating coverage for damage to property of
others that is in the insured’s "care, custody, or control." The insured has a bailee
relationship to the property, in other words, making the insured liable for the care
of the property beyond damage caused by negligence. A bailees floater is often used
to cover the insured’s obligation for the care of such property.
Cargo Insurance - An inland marine or ocean marine policy covering cargo in the
care, custody, or control of the carrier.
Cash-Flow Underwriting - Name given to an insurer’s practice of "nonselectively"
writing business in order to generate greater amounts of cash for in-vestment purposes.
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Glossary - Page 10
Property and Casualty -- Glossary of Terms
Casualty Insurance - The type of insurance concerned with legal liability for losses
caused by bodily injury to others or physical damage to property of others.
Catastrophe (Excess) Cover - Another term for catastrophe reinsurance, wherein
the ceding company is indemnified by the reinsurer after a specified loss amount is
reached, for losses caused by catastrophes.
Causes of Loss Forms - The reference is commonly to property insurance con-tracts
and the form in question details those perils to which the coverage will respond. Though
any property insurance contract must name the perils it intends to cover, e.g., crop hail,
earthquake, perils of transit, and so on, the most commonly used general forms are the
basic and broad named perils forms and the special form. In contrast to the named perils
forms, that list specific perils for coverage, the special form contract covers simply risk
of direct physical loss, relying on exclusions to delimit and define the coverage.
Cede - The transfer of all or part of a risk written by an insurer to a reinsurer.
Cedant - A ceding insurer or reinsurer. Ceding means to contractually transfer a
portion of a risk or risks to a reinsurer.
Ceding Commission - The cedant’s acquisition costs and overhead expenses, taxes,
licenses and fees, plus a fee representing a share of expected profits, which often is
expressed as a percentage of the gross reinsurance premium.
CERCLA, see Superfund.
Certificate of Insurance - A written description of insurance in effect as of the date
and time of the certificate. The certificate does not ordinarily confer any rights on the
holder, i.e., the issuing insurer does not promise to inform the holder of change in or
cancellation of coverage.
CGL (Commercial General Liability), see Commercial general liability.
CIC - Certified Insurance Counselor.
CLU - A designation — Chartered Life Underwriter — conferred upon successful
completers of a series of studies of life insurance and related disciplines designed by
The American College.
CPCU - A designation — Chartered Property Casualty Underwriter — conferred upon
successful completion of a series of 10 exams on insurance and related disciplines
designed by the American Institute of Chartered Property Casualty Underwriters.
Civil Commotion - One of the extended coverage perils, paired with the peril "riot,"
which refers to a less widespread or generalized event than "riot" might be thought to
encompass.
Claim Expense - The expense of adjusting a claim, such as investigation and
attorneys’ fees. It does not include the cost of the claim itself.
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Glossary - Page 11
Property and Casualty -- Glossary of Terms
Claims-Made Coverage - A type of public liability insurance that responds only to
claims for injury or damage that are brought (to the insurer) during the policy period
(or during a designated extended reporting period beyond expiration). This
development was in response to "long tail" claims, such as those related to asbestosis
injury, carrying over many years and multiple layers of coverage limits. However, most
public liability policies are written on an "occurrence" basis, covering injury or damage
occurring during the policy period even if a claim is brought months or even years later.
Clash Cover - A type of catastrophe reinsurance for casualty insurance. The retention
is equal to the highest limit of any one insurance policy covered by the agreement.
Clash cover is written to cover all losses from one source, such as a construction site.
Class Rates - When property or people share a certain number of characteristics
relevant to the cost of providing them with insurance (such as a male driver under
the age of 25 without an accident) underwriters can develop insurance rates that reflec
t the exposures represented by the "class" and offer insurance based on a class rate
rather than by computing individual rates for each member.
Clause - A provision or condition affecting the terms of a contract. Coinsurance,
cancellation, and subrogation clauses are typical insurance contract clauses.
Clean-Up Costs - Generally, those costs associated with the clean up of pollution.
Close or Closely Held Corporation - A corporation that is owned by a small number
of individuals who are related. A close corporation fills its own vacancies.
Coercion - Another act defined by most states as an "unfair trade practice." This one
occurs when someone in the insurance business uses physical or mental force to
persuade another to transact insurance.
Coinsurance Clause - "Coinsurance" refers to the bargain between commercial
property owners and the insurance industry. This clause in property policies encourages
the property owner to gauge coverage needs by possible, not probable, maximum loss.
With $1 million at risk but a probable maximum loss of $100,000, for example, the
property owner would probably buy $100,000 insurance and bank on avoiding the larger
disaster. The bargain offered by the insurance industry is a reduced rate per $100 of
coverage if the owner agrees to buy coverage at a specified relation (80% commonly)
to value (to possible maximum loss in other words). If the insured accepts the bargain
but events prove the amount of insurance is inadequate to the stated coinsurance
percentage, the insured becomes "coinsurer" in the same ratio as the amount of
insurance bears to the amount that should have been carried.
Collapse - A property insurance peril, subject to its own specific agreement in property
policies, which otherwise insure on an open perils basis.
Collision Damage Waiver - When paired with an auto rental agreement, the
rental car company agrees to waive the renter’s responsibility for any physical
damage to the rental car in exchange for an additional payment. Sometimes called
a "loss damage waiver."
Collision Insurance - A type of physical damage insurance available for automobiles.
Coverage is triggered when damage is caused by striking against another object.
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Glossary - Page 12
Property and Casualty -- Glossary of Terms
Combined Ratio - The sum of an insurance company’s loss ratio and expense ratio;
used as an indicator of profitability for insurance companies.
Combined Single Limit (CSL) - Liability policies commonly offer separate limits
that apply to bodily injury claims and to claims for property damage. "50/100/25" is
shorthand under such a policy for $50,000 per person/$100,000 per accident for
bodily injury claims and $25,000 for property damage. A combined single limits policy
might cover for $100,000 per covered occurrence whether bodily injury or property
damage, one person or many.
Commercial Blanket Bond - A bond that covers the named insured against
employee dishonesty. A single coverage amount applies to any one loss, regardless o
f the number of employees involved.
Commercial General Liability (CGL) - The CGL policy is an ISO form, widely used
to provide commercial enterprises with premises and operations liability coverage,
products and completed operations insurance and personal injury coverage. Premises
medical payments coverage is often included as well.
Commercial Lines - A distinction marking property and liability coverage writ-ten for
business or entrepreneurial interests as opposed to personal lines.
Commissioner of Insurance - The official in a state (or territory) responsible for
administering insurance regulation; sometimes called the Superintendent or Director
of Insurance.
Common Area - The part of a building or premises either owned by or used by all
tenants or tenant-owners of the building (e.g. the swimming pool at a condominium).
Comparative Negligence - A variation of contributory negligence, in which the
comparative degree of negligence for each party to an accident is taken into account
when awarding damages.
Compensatory Damages - The award, usually monetary, that is intended to compensate
the claimant for injury sustained.
Completed Operations Insurance, see Products and completed operations.
Completion Bond - A bond that guarantees a lending institution or other mortgagee
that a building or other construction that they have lent money on will be completed on
time so it can used as collateral on the loan.
Comprehensive Personal Liability Insurance - Provides individuals and family
members with protection from legal liability for most accidents caused by them in their
personal lives. Note that any legal liability claims submitted while in the course of
business activities are not covered.
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Property and Casualty -- Glossary of Terms
Comprehensive Physical Damage (Automobile) - Traditional name for physical
damage coverage for losses by fire, theft, vandalism, falling objects, and various other
perils. On Personal Auto Policies, this is now called "other than collision" coverage.
On commercial forms, it continues to be called "comprehensive" coverage.
Concurrent Causation - When two perils contribute concurrently to a property loss,
one excluded and the other not, the effect of the exclusion tends to be voided in a policy
covering on an open perils basis. A concurrent causation exclusion is found in current forms.
Condition - One of the obligations of either the insured or the insurer imposed in the
insurance contract.
Condominium - Type of dwelling where the structure is owned jointly while spaces
within the structure are owned individually. Special property and liability forms cover
the interests of the condominium association and of unit owners.
Condominium Association Coverage - A policy that provides coverage for the
building, elements of the building, and liability needs for those who collectively own
a piece of property.
Condominium Unit Owners Form - A policy that provides coverage for the
personal property, owned elements of a unit, and liability for the individual unit owner.
Consequential Loss - An indirect consequence of direct loss to property.
Business income may be lost when a store burns down, or frozen goods may
spoil when windstorm causes an interruption of power. Consequential or indirect
loss is not generally insured by policies covering direct damage (i.e., by fire or
wind as in these examples), but insurance is readily obtainable separately for
most such consequential exposures — (business income coverage, most common.)
Construction Bond - A bond that guarantees the owner of a building under
construction that it will be completed. If the contractor cannot finish the work,
the insurer is obligated to see that the work is performed.
Constructive Total Loss - This condition is said to exist when the cost of repairs
exceeds the actual cash value of damaged property.
Contingent Business Income, see Business income, dependent properties.
Contingent Liability - Liability imposed on a business entity (individual, partnership,
or corporation) for acts of a third party for which the business entity is responsible.
Contract of Adhesion, see Adhesion contract.
Contractors Equipment Floater - Coverage designed for the special needs of
contractors to insure their machinery and other equipment.
Contractual Liability - Liability that does not arise by way of negligence but by
assumption under contract. For example, in certain leases, a tenant may assume a
landlord’s liability to others for unsafe conditions on the premises. Some such
assumptions are covered automatically under the Commercial General Liability form.
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Glossary - Page 14
Property and Casualty -- Glossary of Terms
Contributory Negligence - A defense to a negligence action in which it is asserted
that the claimant failed to meet the standard required for his or her own protection,
and that that failure contributed to the loss.
Controlled Business - The amount of insurance countersigned, issued or sold by a
producer covering that producer’s interests, immediate family, or employees. Many
states limit the amount of controlled business that may be written, by placing a
maximum percentage of all business that may be "controlled."
Convention (or Statement) Blank - The uniform annual financial statement that
must be filed by all insurers, as prescribed by the National Association of Insurance
Commissioners. The convention blank must be filed annually in an insurer’s home
state and every state in which it is licensed to do business.
Corporation - A business whose articles of incorporation have been approved in
some state. For insurance purposes, the type of business structure helps to determine
who is insured on the policy.
Countersignature - An authorized signature of agent or company representative on
an insurance policy. Usually pertains to policies sold by an agent of the insurer located
in another state.
Court Bonds, see Judicial bonds.
Coverage Trigger - In liability insurance, the "trigger" is the event that brings
coverage into play. It may be either an occurrence of bodily injury or property
damage; or, in a form with a claims-made trigger, the formal making of a claim.
Covered Loss - An accident, including accidental damage by forces of nature, that
brings a contract of insurance into play.
Credit Card Forgery - A criminal act involving the illegitimate use of credit cards
to obtain goods or money. Limited coverage for such losses is automatically provided
in most homeowners policies.
Crime Insurance - A broad category covering loss of property through criminal
activity — from employee dishonesty to burglary and robbery, computer fraud,
and forgery.
Crop Insurance - Insurance covering growing crops against hail, wind, and fire.
Protection against a broader range of perils can often be arranged as well.
Daily - The document—now more commonly found in electronic than in paper form
— that provides insurer and agent with a quick reference to all pertinent information
relative to a contract of insurance: insured’s identification, location, coverage, term,
premium, and so on. Sometimes referred to as a "daily report."
Data Processing Insurance - Coverage for electronic media, computers, and other
electronic data processing equipment.
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Glossary - Page 15
Property and Casualty -- Glossary of Terms
Deadheading - A trucking term that means the driving of a tractor-trailer that
is empty, usually on the return trip from delivering goods. A special trucking
endorsement, Truckers Insurance for Non-Trucking Use, may be necessary when
deadheading.
Debris Removal Clause - A consequential coverage commonly included in direct
loss policies. For example, fire policies provide limited recovery for the insured’s cost
of removing the debris after a covered fire. Not to be confused with removal.
Declarations page - That part of a property or liability insurance policy that
discloses information pertinent to the coverage promised including names, addresses,
limits, locations, term, premium, forms, and so on. The same information, perhaps in
a shorthand version, is contained as well in the daily.
Deductible - The part of the loss that is to be borne by the insured.
Demolition Insurance - When a building is damaged beyond a certain point,
say 50% destroyed, local building codes may direct that the structure be razed.
Insurance to cover this exposure (and the lost value of the undamaged but newly
razed part) can and clearly should be arranged whenever it exists. Increased cost
of construction coverage to meet current building codes should be provided as well.
Dependent Properties, see Business Income, Dependent Properties.
Deposit Premium - When the price of insurance is tied to fluctuating values or
costs that cannot be known until the end of the policy period, inventory or payroll
are two common examples, a deposit or provisional premium or estimated premium
may be charged at the outset of a policy with final adjustment to come at the end of
the term.
Depositor’s Forgery Insurance - Coverage against loss due to forged checks,
notes, etc. Limited coverage is automatically included in homeowners contracts.
Commercial establishments can purchase crime coverage with this feature.
Depreciation - As property ages and becomes worn it often loses value. That loss
of value must be taken into account in any adjustment of property insurance that
covers loss of actual cash value.
Difference In Conditions (DIC) - Property insurance obtained through the excess
and surplus lines market to supplement and expand on the property coverage available
through admitted markets. DIC has been called the "property umbrella" policy.
Direct Damage - Physical damage caused to property by a peril such as fire or
lightning.
Direct Loss - The immediate consequence of the action of an insured peril. A
fire-damaged structure is a "direct loss" by fire. In contrast, see Consequential loss.
Direct Premiums - Premiums collected from policyholders before premiums for
reinsurance are paid.
Direct Writer - An insurer that sells coverage directly via its own employees.
Contrast with independent agent.
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Glossary - Page 16
Property and Casualty -- Glossary of Terms
Directors and Officers Liability Insurance - A form of errors and omissions
insurance covering the directors and officers of corporations against suits alleging
they committed wrongful act(s).
Discovery Period - The period of time, commonly one year, after the termination
of a surety bond during which covered loss may be discovered, reported, and covered.
Dishonesty, Disappearance, and Destruction ("3-D") Policy - The name once
applied to a form used for comprehensive crime coverage. Now known as ISO Form C.
Dram Shop Laws - State laws pertaining to selling and serving alcoholic beverages
and the public liability these activities may entail. Also called alcoholic beverage control
(ABC) laws.
Dram Shop Liability Insurance, see Liquor Liability Insurance.
Drive Other Car (DOC) Endorsement - A business auto or garage policy
endorsement providing coverage for named individuals while driving non-owned
autos in situations unrelated to the business of the insured.
Druggists Liability Insurance - A form of professional liability insurance for
druggists.
Duty to Defend - Part of the insuring agreement of many policies. The insurer has
the duty to defend the insured in event of a covered loss.
Dwelling Forms - Forms for coverage of dwellings and personal property that are
not eligible for homeowners coverage. Tenant occupied rental properties are
commonly insured under these forms.
e-Business - The transaction of business by way of electronic media, such as
telephones, fax machines, computers, and video-teleconferencing equipment. This
generally is broader than e-commerce although some may view e-business and
e-commerce as interchangeable terms.
e-Commerce - The buying and selling of goods by way of electronic media, such
as telephones, fax machines, computers, and video-teleconferencing equipment.
Earned Premium - Portion of a premium for which the insurer has already provided
protection.
Earnings Insurance - A simplified form of insurance covering business income loss,
limited to a set percentage of the policy’s total amount for recovery of proved loss for
each 30-day period.
Earth Movement - Subject to an exclusion in property policies, this peril includes
earthquake, landslide, mudflow, etc.
Effective Date - The date shown in the declarations of a policy upon which coverage
is to take effect.
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Glossary - Page 17
Property and Casualty -- Glossary of Terms
Employee Dishonesty Coverage - Insurance protecting employers from loss due
to theft by their employees.
Employers Liability Insurance - A feature of standard workers compensation
policies, this coverage applies to liability that may be imposed on an employer outside
the provisions of a workers compensation law.
Employers Non-Ownership Liability - Employers who buy commercial auto
coverage on a basis other than "any auto" have this exposure whenever an employee
uses his or her own auto on the employer’s behalf.
Employment Practices Liability Insurance - Coverage against allegations of
illegal or discriminatory hiring and firing practices, sexual harassment of employees,
and so on.
Endorsement - An amendment to a policy form.
Enterprise-Wide Risk Management - An effort to categorize, measure, and treat
all types of risk that may adversely affect a business. It includes both traditional
hazard risks and other business risks, such as risks posed by competitors, by
economic developments, and natural conditions the business cannot control, and
by general operations.
Environmental Impairment Liability Insurance, see Pollution Liability Insurance.
Equipment Floater, see Floater.
ERISA - An acronym standing for the 1974 Employee Retirement Income Security
Act which regulates certain employee benefit plans.
Errors and Omissions Coverage - A type of professional liability insurance,
protecting the insured against claims alleging bodily injury or property damage caused
by the professional or technical incompetence of the insured.
Estimated Premium, see Deposit Premium.
Estoppel - The legal doctrine that a party may be precluded from denying that
certain rights exist if, by behavior or implication that such rights did, in fact, exist,
another party has acted upon this information to his or her detriment.
Exgratia Payment - A payment by an insurer to an insured for which there is no
contractual liability. Such payments are sometimes made as a goodwill gesture if there
is the possibility of a misunderstanding or a mistake.
Examination Under Oath - Found in the conditions section of many insurance policies,
the insurer’s right to examine an insured under oath following a loss.
Excess Insurance - Coverage that applies on top of underlying insurance that is
primary, i.e., that pays until its coverage limit is exhausted at which point the excess
coverage takes over.
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Glossary - Page 18
Property and Casualty -- Glossary of Terms
Excess or Surplus Lines Market - The range of insurance available through
non-admitted insurers, i.e., insurance companies that are not licensed in a particular
state or territory. Specific provisions of state or territorial law control placements.
Exclusive Agency System, see Captive Agent.
Expense Ratio - The dollar amount that represents acquisition and service costs,
expressed as a percentage of written premium.
Experience - A record of losses.
Experience Modification - The raising or lowering of premiums under terms of an
experience-rating plan.
Experience Rating - A method of rating that uses past experience to establish current
rates.
Explosion - An extended coverage peril and currently a covered peril in nearly every
policy of property insurance. The peril remains distinct from steam boiler explosion, which
is covered by boiler & machinery insurance.
Extended Coverage - An early and indivisible "package" of property insurance perils
said to have been devised to make possible the spread of windstorm insurance beyond
the highly exposed coastal and plains states. For those whose exposure to windstorm
was less, "extended coverage" also encompassed smoke damage, hail, riot and civil
commotion, aircraft and vehicle damage, and explosion insurance. Included here for
historic purposes only since the term, "extended coverage," is no longer in general use.
Extended Non-Owner Liability - A personal auto policy endorsement that provides
broader liability coverage for specifically named individuals. When attached, it covers:
(1) non-owned autos furnished for the regular use of an insured; (2) use of vehicles to
carry persons or property for a fee; and (3) broader coverage for business use of vehicles.
Extended Period of Indemnity - A time for recovery of proved business income loss
after physical property is restored and business reopened. The 30-day extension
included in many business income forms may be extended by endorsement.
Extended Recovery Period, see Extended Period of Indemnity.
Extended Reporting Period, see Claims-Made Coverage.
Extra Expense Insurance - Depending on an insured’s requirements, this coverage
may be purchased as a supplement to business income insurance, applying to expediting
expenses that aid in quickly restoring the insured’s operations after a covered loss; or it
can be the primary coverage sustaining the extra cost of continuing doing business for
those insureds who would find it extremely damaging to fail to meet customer
commitments, e.g., newspapers, dairies, etc.
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Glossary - Page 19
Property and Casualty -- Glossary of Terms
Factory Mutual - A mutual insurance company insuring only properties that meet
high underwriting standards. The typical risk is fire-resistive construction with a central
station alarm.
Facultative Reinsurance - A separate reinsurance agreement that is negotiated for
a particular risk or insurance policy.
Fair Credit Reporting Act - Public Law 91-508 requires that an insurer tell an
applicant if a consumer report may be requested. The applicant must also be told the
scope of the possible investigation. Should the application be declined because of
information contained in that report, the applicant must be given the name and address
of the reporting agency. The insurer may not reveal the contents of the report. Only
the agency that compiled the report may release its contents.
FAIR Plan - An acronym for Fair Access to Insurance Requirements, these plans
have been established in many states to make fire and extended coverage (and
homeowners in some states) available in areas otherwise not addressed by the
voluntary market.
Fair Rental Value - An amount payable to an insured homeowner for loss of rental
income due to damage that makes the premises uninhabitable.
Farmowners-Ranchowners Policy - A "homeowners" type package policy adapted
to include farm and ranch exposures.
FEMA - Federal Emergency Management Agency. This agency administers the National
Flood Insurance Program.
Fidelity Bond, see Employee Dishonesty Coverage.
Fiduciary - A generic term for persons or legal entities such as executors, trustees,
and guardians appointed by the court, under a will, or by a trust to manage, control, or
dispose of the property of others.
Fiduciary Bonds, see Judicial Bonds.
Fiduciary Liability Insurance - This insurance covers claims arising from: (1) a
breach of the responsibilities or duties imposed on a benefit plan administrator; or (2)
a negligent act, error, or omission of the administrator.
File and Use Rating Laws - State laws that permit the use of new rates by an
insurance company without first obtaining the approval of that state’s insurance
department.
Financial Responsibility Clause - The clause in an auto policy stating that, when
the policy is certified as future proof of financial responsibility, then the policy will
comply with the financial responsibility laws to the extent required.
Financial Responsibility Law - When applied to automobile operations, this term
signifies the minimum statutory limits of an operators responsibility for bodily injury
and property damage caused by negligent operation of the vehicle.
Fine Arts Floater, see Floater.
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Glossary - Page 20
Property and Casualty -- Glossary of Terms
Fire - Combustion evidenced by a flame or glow. Insurance distinguishes between
a "hostile" fire (one out of bounds) and "friendly" fire (such as that contained within the
firebox of a stove).
Fire Department Service Charge - A fee that may be imposed by a fire department
for responding to a call. Most fire coverage agreements include indemnification provisions
for such eventualities.
Fire Legal Liability - Public liability policies routinely exclude coverage for damage
to property in an insured’s care, custody, or control. This leaves a big gap in a tenant’s
coverage, a gap partially filled by an exception in the commercial general liability policy
that restores limited coverage for fire damage to the landlord’s building. Perhaps the
best benefit of the exception is to call attention to the exposure so arrangements can be
made for broader coverage at appropriate limits.
Fire Mark - An insignia, attached to the outside of a house, that represented the
insurer of the house.
First Named Insured - An insurance policy may have more than one party named
as insured. In such cases, the first named insured attends to policy "housekeeping,"
i.e., pays premiums, initiates (or receive notice of) cancellation, or calls for interim
changes in the contract. This is spelled out in commercial policies in the "common
policy conditions."
Fixtures - Generally, something tangible that is fixed or attached, as to a building,
so that it becomes an appendage or structural part.
Flat Cancellation, see Cancellation.
Fleet Policy - Written for a risk that has five or more vehicles.
Flesch Test - A method to determine the degree of ease or difficulty for reading
material. It counts not only the number of words in a sentence, but also the number
of syllables in each word. Some states require that insurance con-tracts be written so
that they have a certain readability level (often, 8th grade).
Floater - An inland marine form covering movable property wherever located within
territorial limits.
Flood - A general and temporary condition of partial or complete inundation of dry land
caused by the overflow of the natural boundaries of a body of water or the unusual and
rapid accumulation of surface water runoff. Some insurance policies that include flood
as a covered peril only insure against damage caused by overflow of the natural
boundaries of a body of water, but other policies also may insure against surface
water losses.
Flood Insurance - Flood insurance, like earthquake coverage, is usually only of
interest to those relatively few whose property is exposed. Consequently, losses among
this small group will be high and premiums can be prohibitive. However, in 1968 the
Federal government stepped in to help property owners in designated "flood plains"
with the National Flood Insurance Act of 1968. Coverage is not only available, but may
even be required to obtain financing for exposed properties.
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Glossary - Page 21
Property and Casualty -- Glossary of Terms
Flood Insurance Rate Map (FIRM) - Provided by FEMA (Federal Emergency
Management Agency), this map delineates base flood elevations and flood risk zones,
and is used for rating purposes for flood insurance.
Forgery or Alteration Coverage - This type of insurance covers loss sustained
through forgery or alteration of outgoing negotiable instruments made or drawn by the
insured; drawn on the insured’s account(s); or made or drawn by someone acting as the
insured’s agent. This includes loss caused by any of the following: (1) Checks or drafts
made or drawn in the insured’s name, payable to a fictitious entity; (2) Checks or drafts,
including payroll checks, executed through forged endorsements; and (3) Alteration of
the amount of a check or draft.
Form - The central document or documents of an insurance contract. Forms may be
altered by endorsement.
Fraud - The intentional perversion of the truth in order to mislead someone into parting
with something of value.
Friendly Fire, See Fire.
Fronting - The practice, in reinsurance, of the ceding company retaining only a small
portion of a risk and ceding the remainder to a reinsurer.
Functional Replacement Cost - The cost to repair or replace damaged property
with materials that are functionally the equivalent of the damaged or destroyed
property. For example: replacing a solid mahogany banister with a pine banister.
Fur Floater, see Floater.
Furriers Customers Insurance, see Bailees floater.
Gap Coverage - Insurance for a lessee designed to cover the difference in selling
price between a vehicle’s actual cash value, and the payout left on a lease.
Garage Policy - One of the early package policies, it is written for automobile dealers
and may include liability insurance for garage operations, automobile operations,
physical damage coverage on garage owned autos, bailees coverage on customers
cars, and auto and premises medical payments coverage.
Garagekeepers Liability - A bailee coverage applying to automobiles. Commonly
included in garage policies, it may be written to provide coverage for limited perils or
for comprehensive physical damage, with or without collision damage coverage.
Coverage may be expressed as covering the legal liability of the garagekeeper or
amended to cover on a direct basis, as primary insurance or excess.
General Liability Insurance, see Commercial general liability.
Glass Insurance - Commercial property form that covers plate glass, glass signs,
lettering, etc.
Gross Earnings Coverage - An outdated term for business income coverage.
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Glossary - Page 22
Property and Casualty -- Glossary of Terms
Guarantee Funds - State mandated funds collected from licensed insurers and
maintained as backup protection for policyholders of bankrupt insurers.
Guiding Principles - Suggested procedures for establishing primacy of coverage in s
ituations involving loss under a variety of coverage forms and, perhaps, more than one
interested party. Last promulgated in the 1960s, the spirit of the principles survives
because insurers apparently find that the prescribed procedures commonly lead to
equitable settlements for all parties.
Hangarkeepers Legal Liability - A bailee coverage for those charged with the
care of aircraft owned by their customers.
Hard Market - A condition of the insurance marketplace in which insurance is difficult
to obtain, and relatively expensive.
Hazard - Generally, a condition that increases the possibility of loss.
Hazardous Waste - Term generally used to refer to pollutants or contaminant’s
which result from industrial processing and must be disposed.
Highly Protected Risk (HPR)- A building meeting certain standards of fire
protection, which is therefore eligible for a reduced rate.
Hired Auto - A non-owned auto that may be borrowed as well as rented or leased by
the insured. Personal auto policy insureds are covered automatically for hired autos,
but business auto policy insureds may not be.
Hold Harmless Agreement - A contractual assumption by one party of the liability
exposure of another. Lease agreements, for example, commonly require the tenant to
hold the landlord harmless for bodily injury or property damage experienced by others
on the premises.
Hole-In-One Insurance - Coverage designed for amateur golf tournaments in
which there is a substantial cash prize for anyone making a hole-in-one.
Holistic risk management - See Enterprise-wide risk management.
Homeowners Insurance - An early and hugely successful example of "packaged"
property and liability insurance. A mid-twentieth century insurance development was
introduction of the so-called "multi-line era" in which insurers became empowered to
write both property and liability forms of insurance, making way for the first packaging
of these coverages within a single policy.
Host Liquor Liability - Part of the CGL, this covers the incidental serving of alcohol
by an insured who is not in the business of serving alcohol.
Hostile Fire, see Fire.
HPR - See Highly protected risk.
Housekeeping - A generalized term that refers to the overall care, cleanliness, and
maintenance of an insured’s property.
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Glossary - Page 23
Property and Casualty -- Glossary of Terms
Hull Insurance - Ocean marine insurance covering physical damage to the ship or vessel
insured. Usually, written on an "all-risks" basis.
Impaired Property - A liability exclusion relating to the insured’s faulty products or
work that results in an "impairment" to the property to which it is attached assuming the
insured can salvage the situation by replacing the property or redoing the work.
Improvements and Betterments - Anything that adds to the value of property.
Commonly used to describe a tenant’s use interest in fixtures added to the landlord’s
building. May also refer to permanent changes made by a condominium unit-owner to
his/her unit, such as the addition of new kitchen cabinets.
Increased Cost of Construction - A damaged building may have to be upgraded
to be repaired under building codes in force at the time of reconstruction. Building
owners in such situations need guidance in buying insurance to cover this added
exposure.
Incurred Losses - The value of claim payments plus reserves.
Indemnity - A fundamental concept governing insurance: compensation for loss or
injury sustained.
Independent Adjuster - An individual or member of a firm who contracts with
insurers to investigate claims and suggest appropriate settlements. Contrast with
Public adjuster.
Independent Agent - A "retailer" of insurance who, by contractual arrangement
with a number of insurance companies, sells and services property and liability
insurance. The independent agent "owns" the policy information and expiration dates
of his client’s coverage and thus controls renewals and their placement.
Independent Insurance Agents of America (IIAA) - An association of insurance
agents who are independent contractors, and represent one or more insurers.
Sometimes referred to as the "Big I."
Indirect Damage - Sometimes referred to as indirect loss, this is loss resulting from
a peril, but not directly caused by that peril. An example is fire damaging a freezer
(direct damage), with resultant food spoilage (indirect damage).
Inflation Guard Endorsement - An endorsement attached to an insurance policy
whereby the limits of liability on a piece of property are increased on a regular basis
by a certain percentage in order to offset increasing building costs associated with inflation.
Inherent Vice - A flaw in an item of property that will, in time, reveal itself and show
the property as damaged. Property insurance does not normally cover such damage.
Inland Marine Insurance - Property insurance signaling broad coverage of properties
exposed to the transportation peril and those subject to being used or kept at a location
other than the insured’s customary premises. Eligible property is identified in the Nationwide
Definition of Marine Insurance.
Innkeepers Legal Liability - A bailee coverage purchased by innkeepers to cover
the property of their guests.
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Glossary - Page 24
Property and Casualty -- Glossary of Terms
Insolvency Fund - See Guarantee Funds.
Inspection Report - A report prepared for an insurer by an outside organization. It
provides information about an applicant’s or insured’s physical, financial, and moral
attributes.
Insurable Interest - The potential for financial loss associated with damage or
destruction of property.
Insurable Risk - The exposure to significant, measurable accidental loss from
identifiable perils. The exposure, while not catastrophic, must be shared by a
sufficient number of potential insureds so that the cost of loss for one can be
measured and affordably shared throughout the market.
Insurance - A mechanism whereby risk of financial loss is transferred from an
individual, company, organization, or other entity to an insurance company.
Insurance Contract - A legal document defining circumstances under which the
insurer will pay, and the amount to be paid. Also see Insurance policy.
Insurance Exchange - See Reciprocal Exchange.
Insurance Institute for Highway Safety - A not-for-profit research organization,
well known for its auto "crash tests."
Insurance Policy - The document containing the contract between the insured and the
insurer which defines the rights and duties of the contracting parties.
Insurance Services Office (ISO) - An organization providing statistical information,
actuarial analysis, policy language, and related services for the insurance industry.
Insurance to Value - The concept of purchasing sufficient insurance coverage so as
to closely approximate the value of the property being insured.
Insured - The party or parties whose interests are covered in a non-life insurance
contract. The less common term Assured is sometimes used synonymously.
Insuring Agreement - In an insurance contract, the insurer’s promise to pay.
Integrated Risk Financing - A type of risk financing designed to provide integrated
protection against catastrophic losses. It may incorporate both traditional and
non-traditional types of exposures, or it may include only traditional property
and casualty risks.
Interline Endorsements - Commercial endorsements that apply, or could apply,
to more than one coverage as part of a package policy.
Jacket - The cover of an insurance policy; it usually contains the name of the insurer,
its address, etc.
Jettison - Act of throwing overboard part of a vessels cargo or hull in hopes of saving
a ship from sinking.
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Property and Casualty -- Glossary of Terms
Jewelers block insurance - A policy especially designed for jewelers, it offers a
combination of coverages protecting against risks of physical loss to property at the
jeweler’s premises, property in transit, or customers’ property in the insured’s care.
Jewelry Floater, see Floater.
Joint and Several Liability - A legal doctrine whereby a creditor or claimant may
demand payment or sue one or more of the parties separately, or all of them together.
Joint Underwriting Association (JUA) - These are insurance pools representing
all insurers in a state. A few "servicing carriers" act on behalf of all the insurers, issuing
policies, receiving fees, and handling claims. They are reimbursed for losses, and
receive fees from the JUA to cover operating costs.
Joint Venture - A venture in which two businesses join together to share risk or
expertise on a specific project or group of projects.
Jones Act - The Federal act through which maritime workers are provided workers
compensation coverage (which ordinarily responds to the mandates of particular states).
Judicial Bonds - Two types of bonds available to guarantee faithful performance
of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons
entrusted by the courts in the management, conservation, and disposition of property.
Litigation bonds (or "court bonds") are required in court actions. Bail bonds and appeals
bonds are litigation bonds; where the bond amount is forfeited if the bonded person
disappears or the appeal is lost.
Jumbo Risk - A policy of insurance written with exceptionally high limits
Keeton-O’Connell, see No fault Auto Insurance.
Key Employee Insurance - Life insurance written on the life of an organization’s
officer or other key employee, the loss of whom would cause the organization financial
hardship.
Kidnap-Ransom Insurance - A specialty coverage offered in the surplus and excess
lines markets that responds to ransom demands for recovery of kidnap victims.
Lapse - Termination of a policy because of failure to pay the premium.
Larceny - The unlawful taking of personal property of another.
Latent Defect - A hidden flaw that will, in time, cause property damage that is
uninsurable. Such damage is uninsurable because the element of chance is no longer
present.
Law of Large Numbers - An underlying principle of insurance; the larger the number
of participants in a given arrangement, the more accurate the rate is to the exposure.
Leased Worker - A worker leased from another organization on a long-term basis.
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Glossary - Page 26
Property and Casualty -- Glossary of Terms
Leasehold Interest Insurance - The insurable interest is that of a tenant who has
some years remaining under a favorable lease that is subject to termination upon
significant damage to the leased property.
Legal Liability - Liability imposed by law; this includes liability based on negligence,
strict liability, or contractual liability.
Libel - Written defamation of another’s reputation.
Liberalization Clause - A feature of property policies that promises that any future
change in the company’s form that would broaden coverage with no change in premium
will automatically apply under the policy currently in force.
License and Permit Bonds - Suretyship guaranteeing that the principal will abide by
the rules and obligations imposed by licensing laws or ordinances. For example, an
electrician may have to post such a bond guaranteeing compliance with building codes
before being licensed by a municipality.
Limited Partnership - A form of partnership that consists of one or more general
partners, who actively engage in the business, and one of more special partners, who
are not liable for the debts of the partnership beyond their initial financial contribution.
Commercial insurance policies usually differentiate in the "Who Is Insured" section
between corporations, partnerships, and other business models. Therefore, the type
of model being insured is important.
Liquor liability insurance - Liability coverage for owners and operators of
establishments selling or serving alcoholic beverages. Litigation bonds,
see Judicial bonds.
Livery Use - An exclusion in automobile liability policies applying to the use of autos
to carry persons for hire as in a taxi service. A share-the-ride car pool is not "livery use."
Livestock Insurance - Life insurance on livestock covering death by named perils.
Lloyd’s of London - An association of individuals, called "names," or groups of
individuals who write insurance for their own accounts. Lloyd’s had its be-ginning in
17th century London in Edward Lloyd’s coffee house.
Loading and Unloading Exclusion - A feature of commercial general liability (CGL)
policies intended to separate that coverage from the automobile exposure. The CGL
coverage ends at the point where an item is picked up for loading onto an auto and
resumes at the point where the item is deposited upon unloading.
Longshore and Harbor Worker’s Act - A Federal law that specifies compensation
amounts for injured longshore and harbor workers. Formerly referred to as the
Longshoremen’s and Harbor Workers Act.
Loss - An unintentional decline or disappearance in value arising from an event.
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Glossary - Page 27
Property and Casualty -- Glossary of Terms
Loss Adjustment Expenses - Payments by an insurer for the investigation and
settling of claims. They include the cost of defending a lawsuit in court.
Loss assessment coverage - Insurance responding to property or liability loss of a
property owners association that are not covered by the associations master policy.
Loss Control - Actions to reduce the frequency or severity of losses. Installing locks,
burglar or fire alarms and sprinkler systems are loss control techniques.
Loss Costs - Loss data that has been modified by insurance advisory organizations
by necessary loss development, trending, and credibility processes in order to arrive
at the statistical cost of losses to be used in establishing a premium rate.
Loss Development - An actuarial method to detect and correct for consistent errors
in estimating the amount of future loss payments or the procedure for adjusting incurred
losses to reflect their future development and ultimate value. Loss development factors
are developed actuarially and applied to cur-rent losses in order to predict what the
ultimate cost of losses will be when the claims are closed.
Loss Expectancy - The underwriter’s calculation of probable maximum loss.
Loss Experience - What the loss history has been on a particular line or book of
business.
Loss Exposure - A set of circumstances presenting the possibility of loss, whether or
not the loss actually occurs.
Loss Frequency - How often a loss occurs over a given space of time.
Loss Limit - Commonly used in financial institution bonds, a loss limit is the aggregate
amount that will be paid out under the coverage during the policy term. Loss limits also
may be used when insuring large property risks where the exposures are spread out
geographically. In this type of situation, it is unlikely that all property would be damaged
by a single occurrence. Therefore, the amount of insurance may be set at a "loss limit"
per each covered occurrence.
Loss of Use Insurance - See Additional Living Expense Insurance.
Loss Payable Clause - A property policy provision that, at the request of the named
insured, stipulates that claims tied to losses of certain property will be paid to both the
named insured and the party named in the subject clause.
Loss Prevention - Refers to engineering or inspection activities carried out to prevent
losses in the workplace.
Loss Ratio - The ratio of incurred losses including loss adjustment expenses to
earned premiums.
Loss Payout Pattern - Losses often are paid over a period of years, especially in
casualty lines of insurance. The payout pattern illustrates the way that claims are paid
out from the time they are filed until they are closed.
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Property and Casualty -- Glossary of Terms
Loss Trending - A method to modify developed losses for changes that will occur
in the future. Trend factors are used by rate makers to adjust past losses to more
accurately reflect the loss experience expected to develop while the rates are being
used.
Loss Triangle - Used to show how losses develop, a loss triangle is a chart that lists
losses by line and by year. It shows the value of each set of annual losses at the end
of subsequent 12-month periods.
Lost Policy Release - A means whereby an insured may cancel a policy by signing
a statement to the effect that, since his or her policy has been lost, he cannot return it
to the insurer to effect cancellation, but still wishes to cancel the policy.
MCS-90 - This is the "Endorsement for Motor Carrier Policies of Insurance for Public
Liability under Sections 29 and 30 of the Motor Carrier Act of 1980." The endorsement
assures that the trucker is using insurance to comply with the financial responsibility
requirements of the act.
Maintenance Bond - Guarantees that faulty work or defective materials charged to
the bond principals will be corrected or replaced. A maintenance bond may be included
among the terms of a performance bond.
Malicious Mischief, see Vandalism.
Malpractice, see Professional Liability.
Managing General Agent (MGA) - An agent standing between an insurer and
other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs
often are said to have the "pen" because they are given the authority to accept,
underwrite, and price submissions received from retail agents.
Manufacturers and Contractors Liability (M&C) - The premises and operations
liability exposures of manufacturers and contractors covering third parties for bodily
injury or property damage negligently inflicted in the course of daily activities.
Manufacturers Output Policy (MOP) - Policy originally designed to cover property
of a manufacturer being processed at another company; it covers personal property
away from the premises on an open perils basis.
Manufacturers Selling Price Clause - Clause stating that finished goods are
valued for insurance purposes at their selling price rather than their cost of
manufacture.
Manuscript Policy - An insurance policy covering property or liability exposures
(or both) that is uniquely assembled from standard or specially created forms to suit
the needs of an insured.
Marine Insurance - Insurance primarily concerned with transportation exposures
and property that is commonly moved around from place to place. In America, the
field is divided between Inland marine and Ocean marine.
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Property and Casualty -- Glossary of Terms
Maritime Coverage - Crew members of vessels are subject to Admiralty Law and
may sue their employers for work-related injuries because state workers compensation
laws do not apply to them. Therefore, special coverage must be purchased for
this exposure.
Market Value - The price at which insured property could have been sold just prior
to its loss or damage. Along with "cost new minus use deprecation," market value is
but another gauge used to determine the loss settlement to which an insured is entitled.
The insured may choose the gauge that produces the most favorable outcome.
Market Value Appraisal - An appraisal to determine the market value of a building
and related personal property.
McCarran-Ferguson Act - Passed by Congress in 1945, this act states that regulation
and taxation of insurance by the states is in the public interest, and that congressional
silence should not be construed as a barrier to state regulation.
Medical Malpractice - Type of insurance protecting physicians, surgeons, nurses,
and other medical practitioners against claims alleging failure to perform.
Medical Payments Insurance - A coverage found in auto and liability policies that
pays medical expenses to injured persons without regard to liability.
Merit Rating - A form of auto rating in which an insured’s past experience as well
as anticipated experience is taken into account when arriving at a rate.
Minimum Premium - An insurer’s lowest charge for an insurance policy.
Misrepresentation - Generally, misstatement of facts made on an application for
insurance. May also be misstatement of coverage made by an agent to an insured.
Mobile Equipment - Included for coverage under the commercial general liability
form, this term relates to land vehicles used in ways that take them out of an explicit
"automobile liability" exposure (e.g., vehicles used only on the insured premises, to
carry certain permanently attached equipment, that are not required to be registered,
or are designed for solely for off-road use).
Model Bill - A bill drawn up for insurance regulatory purposes by the National
Association of Insurance Commissioners, with the recommendation that it be
implemented by the states.
Monoline Policy - An insurance policy covering one subject of insurance, as opposed
to a combination or multiline policy.
Monopolistic State Fund - Five states have their own system for providing
reparations to injured employees eligible under the state’s workers compensation
act. Private insurance companies may not compete. The states are North Dakota,
Ohio, Washington, West Virginia, and Wyoming.
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Glossary - Page 30
Property and Casualty -- Glossary of Terms
Moral Hazard - As "physical hazard" relates to susceptibility to fire or wind, the term
"moral hazard" relates to susceptibility to loss through moral lapse of the owner (e.g.,
"Burn the house down and collect from the insurance company before losing it in a
foreclosure to the finance company.").
Morale Hazard - The term "morale hazard" addresses the issue of an apathetic
insured (e.g., "It’s insured, let it burn.")
Mortgage Holders Clause - A standard property policy provision that creates
elements of a separate contract between a mortgage company and an insurance company.
Any loss to building or structures will be paid to the mortgage company and insured
jointly and any act of the insured voiding coverage will not affect the mortgage holder
without it first being given an opportunity to com-ply with the insurer’s needs.
Motor Carrier Act of 1980 - A federal law that de-regulated the United States
trucking industry and transferred the enforcement of financial responsibility requirements
for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation.
Insurance is one method of complying with the financial responsibility requirements.
Motor Truck Cargo Policy - Two forms of inland marine coverage are associated with
this title, one for carriers and one for owners. As a carrier, the insured is protected for
legal liability relating to property of others in the course of transport. As an owner, the
insured is protected for in-transit damage to its own property.
Motor Vehicle Record (MVR) - An official record of a driver’s accidents and traffic
violations kept by the licensing state(s). Often used to determine eligibility and/or
premiums for auto insurance.
Multi-Line Era - During the first half of the twentieth century, insurers were licensed
to write
to write
called a
to write
property insurance or liability insurance but not both. Two insurers were needed
automobile liability and physical damage insurance, for example, in a contrivance
"combination policy." Not long after World War II, states began licensing insurers
both forms of insurance introducing what was then called the "multi-line era."
Mutual Insurance Company - A cooperative insurance company organized and
owned by its insureds.
Mysterious Disappearance - A named peril in some forms. Either theft or
unexplained disappearance of covered property from a known location may
activate coverage.
Named Insured - The party or parties specifically named as insured in the insurance
contract. Others may have claim on the coverage of a policy by way of internal
provisions, but any such right is by way of the agreement between the named insured
and the insurance company.
Named Non-Owner Policy - Issued to someone who does not own an automobile,
but who drives borrowed or rented autos.
Named Perils - A formal and specific listing of perils covered in a policy providing
property insurance. A policy covering for damage by fire is said to cover for "the
named peril" of fire.
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National Association of Insurance Commissioners (NAIC) - An association of
insurance commissioners and superintendents formed to share information and develop
common laws and procedures for insurance regulatory purposes.
National Association of Insurance Women (NAIW) - An association of women
(and men) in the insurance industry who have achieved the designation of Certified
Professional Insurance Woman (CPIW) or CPIM.
National Association of Professional Surplus Lines Offices (NAPSLO) - Trade
association of and providing services to surplus and excess lines agents and brokers.
National Council on Compensation Insurance (NCCI) - National association
that collects, tabulates, and provides data used in formulating rates for workers
compensation insurance.
National Flood Insurance Program (NFIP) - A federal program through which
per-sons with property located in predefined flood plains can obtain flood coverage.
See Flood insurance.
Nationwide Definition of Marine Insurance - A document published by the
National Association of Insurance Commissioners that was rooted in an older (1933)
definition of "...Insuring Powers of Marine and Transportation Underwriters". In general,
the "definition" specifies property that may be insured under marine contracts such as
property in inland transport and property regularly or routinely in transit, e.g.,
contractors equipment.
Negligence - Action or failure to act that is outside the realm of what would be
considered appropriate by ordinary, reasonably prudent persons.
Net Loss - The amount of a loss, after deductions for salvage, other insurance, and
any subrogation that an insurer is responsible for.
Net Premium - Premium less expense, such as commission.
New York Standard Fire Policy - Once the benchmark of property policies, it was
adopted for use in all but a handful of states. The familiar provisions of its
165-Numbered-Lines, e.g., cancellation, mortgagee, appraisal clauses, etc., survive
in Insurance Service Office property policies as well as in independently produced forms.
No Benefit To Bailee - A clause in inland marine forms that prevents a person in
the possession of property of others from benefiting from any insurance the owner
has on the property
.
No-Fault Auto Insurance - A few states have laws that partially exempt drivers
from legal liability for auto accidents. In these "no fault" states car owners buy
insurance to protect themselves and their passengers from the economic and medical
effects of auto accidents in addition to liability insurance at whatever limit the statute
decrees. Professors Robert Keeton and Jeffrey O’Connell gave the "no fault" notion
impetus with the 1967 publication of their study "After Cars Crash."
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NOC - Underwriter’s shorthand derived from general liability and workers
compensation rating tables that stands for "not otherwise classified" meaning no more
specific classification is available — as in "Clerical Office Employees NOC."
Nonadmitted Insurers, see Excess or Surplus Lines Market.
Non-Owned Auto - This term signifies an auto that is neither owned, hired, nor
borrowed by the insured under a commercial auto policy. Employees’ cars used in
company business are commonly classified this way. The employer’s auto liability
cover for use of non-owned autos is covered by entry of symbol 1 ("any auto") or
symbol 9 ("non-owned autos") on the declarations page.
Nonresident Agent - An agent who does not reside in the state in which he or she is
licensed.
Nose Coverage - This is the opposite of Tail coverage, although it fulfills the same
need. Nose coverage most commonly provides prior acts coverage for insureds who
are moving from a claims-made coverage form to an occurrence coverage form. It is
provided by the replacement policy.
Notice of Loss - Notice the insured provides to the insurer that a loss has occurred.
Nuclear Energy Insurance Pools - Any of the insurance pools designed to pro-vide
property and/or liability coverage for organizations that handle substantial quantities of
nuclear material.
Nuisance Value - The amount for which an insurance company will settle a claim - not
because it is a valid claim but, because the company considers.
Object, see Boiler & Machinery Insurance.
Obligee - A term used in surety bonds to refer to the individual or firm that is to
benefit from the bonds protection. A performance bond, for example, provides the
obligee property owner with recourse if the bonded contractor, the principal, fails to
perform.
Obligor - A term used in surety bonds to refer to the individual or firm bound by an
obligation. Also known as the "principal."
Occupancy - In general, a condition affecting the desirability of property policies.
Occupational Safety and Health Act (OSHA) - Passed in 1970, this law
promulgated strict work-safety regulations, and set up the mechanism to enforce
these rules through fines for violations, and closure of unsafe plants.
Occurrence - In general, an event that triggers coverage under any policy.
Specifically, an event that triggers coverage under an occurrence-based liability
policy. Such a policy covers injury or damage that occurs during the policy period
even if claim is brought months or even years after the policy has expired - see
Claims-made for the alternate arrangement. Also see Accident.
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Property and Casualty -- Glossary of Terms
Ocean Marine - Insurance coverage for vessels and property in ocean shipping.
"River marine" is the term referring coverage for inland shipments on water.
"Motor truck cargo" refers to coverage for property transported over highways.
Off Premises Cover - Commercial property policies commonly establish a small
coverage limit that applies to property temporarily away from the insured’s place
of business.
Omnibus Clause - An agreement in most automobile liability policies and some
others that extends the definition to include to others without the needing to name
them. An example would be a policy that covers the named insured and "those
residing with him."
Open Perils - Property coverage that applies to risks of loss on a general basis, in
contrast with policies that cover for specifically identified perils — see Named perils.
The old term for open perils was "all risks."
Open Rating - A state rating system that allows the insurer to use rates without prior
approval. Also referred to as "open competition."
Operating Ratio - The sum of the combined ratio plus investment income.
Ordinance or Law Coverage - This insurance responds to property loss or damage
necessitating repair, demolition, or rebuilding in accordance with current building codes.
Ordinary Payroll - Payroll allotted to employees whose services could be curtailed in
event of a long-term shutdown of a business without a harmful effect on reopening.
This figure is important in calculating business income insurance exposures.
Other than Collision Insurance (Automobile), see Comprehensive Physical
Damage (Automobile).
Other Insurance - When two or more policies cover the same interests for the same
exposures, each policy is said to represent "other insurance" to the other. Most
insurance policies contain clauses that specify how or if claims will be paid if other
insurance exists for the same exposures.
Outer Continental Shelf Lands Act - This act makes the Longshore and Harbor
Workers Compensation Act apply to work involving the development of the natural
resources of the outer continental shelf. A special endorsement, the Outer Continental
Shelf Lands Act Coverage Endorsement, amends workers compensation policies to
provide coverage for this exposure.
Owners and Contractors Protective (OCP) Liability Coverage Form - Provides
coverage for the liability of an owner of land on which a building is being constructed
for the acts of the contractor handling the construction. Owners, Landlords, and Tenants
legal liability (OL&T), see Premises and operations liability.
Ownership of Expirations - Refers to the ability of an independent agent to place a
risk with any of the companies that he or she represents. Unless that customer goes to
another agent, the current agent "owns" the policy and the right to place it as he/she
sees fit.
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Property and Casualty -- Glossary of Terms
Package Policy - Any combination of insuring agreements that combines property and
casualty coverages. Homeowners, business owners, and garage policies are examples.
Paid Losses - The losses that have been paid for a claim.
Pair and Set Clause - Clause that stipulates that partial loss to a pair or set of items
will be valued in terms of the lost item, not on the basis of reduced value of the pair
or set.
Partial Loss - A property loss that is less than a total loss. See Constructive
Total Loss.
Partnership - A business model in which two or more individuals join together to
conduct business and share profit and losses. Commercial insurance policies usually
differentiate in the "Who Is Insured" section between corporations, partnerships, and
other business models. Therefore, the type of model being insured is important.
Pay-at-the-Pump - A device for making sure all motorists are insured; the theory
being that premiums for basic liability coverage could be collected through "taxes" at
the gasoline pump in a relatively painless manner, thus eliminating the uninsured
motorist.
Payment Bond - Sometimes also called a "labor and materials bond," this bond
guarantees that bills owed by the contractor will be paid as they come due. The
agreement may be incorporated into the performance bond.
PD - A shorthand expression for "property damage."
Peak Season Endorsement - Instead of buying insurance amounts reflecting values
at the height of inventory, some enterprises are able to forecast times when values will
be at their peak and use this endorsement to increase the amount of insurance during
that specific interval.
"Pen," The, see Managing General Agent (MGA).
Per Occurrence/Per Loss Excess Reinsurance Treaty - An agreement under
which losses above a certain dollar amount are ceded to the reinsurer, who is responsible
for all losses from any one exposure above this amount up to the reinsurance limit.
The retention is expressed as an amount incurred per occurrence. An occurrence may
be one hurricane, one flood, or one accident that results in injuries to multiple people.
Per Risk Excess Reinsurance Treaty - Similar to a per occurrence/per loss excess
treaty except in the matter of the retention. The retention applies separately to each
subject of insurance.
Performance Bond - A bond that guarantees the property owner (the "obligee")
that the contractor with the winning bid on a job will perform as promised and on time.
Peril - A potential cause of loss.
Perils of the Sea - Somewhat akin to open perils on land, the term refers to any
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Property and Casualty -- Glossary of Terms
potential cause of loss derived from shipment on a seagoing vessel.
Period of Restoration - The period of time following a loss that is necessary to
restore a business or organization to a pre-loss condition.
Personal Articles Floater - Before the advent of packaged forms and broad
coverages, households commonly had fire insurance on dwelling and personal property
with the possible addition of extended coverage. The personal articles floater is an
inland marine form that was used by the affluent for scheduling open perils coverage
for various articles and classes of valuable personal property. A homeowners
endorsement accomplishes the same thing today and the personal articles floater is no
longer widely written.
Personal Auto Policy - The form currently promulgated by Insurance Services Office
(ISO) for coverage of personal auto liability and physical damage exposures.
Personal Injury - Distinguished from "bodily injury," this term relates to injury
inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on.
It is written as Coverage B of the commercial general liability forms and as
homeowners Coverage E.
Personal Injury Protection (PIP) - The section of an auto policy in a no-fault
state that responds to physical injury, loss of income, etc., of the insured regardless
of fault.
Personal Liability Insurance - Insurance for individuals or members of a household
offering protection against claims by third parties (outsiders) alleging bodily injury or
property damage due to negligence. See also Premises medical payments.
Personal Lines - Insurance covering the liability and property damage exposures of
private individuals and their households. Contrast with Commercial lines.
Personal Property - Term used in insurance to distinguish chattels from real property.
Physical Hazard - A hazard that arises from the material, structural, or operational
features of the risk itself apart from the persons owning or managing it.
Physicians and Surgeons Professional Liability Insurance, see Professional
Liability.
Plate Glass Coverage - Provides "special" protection, except for the perils of war,
nuclear reaction, and fire. (Fire is covered under the building policy.) This coverage is
for full replacement cost and covers the expense of repairing frames, installing
temporary plates, or boarding up openings.
Policy Year - Unique to the insurance business, this is a means of cost accumulation
in which the aggregate transactions of all policies becoming effective in a given year
determine the financial performance of those policies. Policyholder, see Insured.
Policyholders’ Surplus - The amount of money available to an insurer to meet its
obligations to its policyholders, after subtracting liabilities.
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Property and Casualty -- Glossary of Terms
Pollution Liability Insurance - Coverage for bodily injury or property damage
caused by a "pollution incident." Insurance Services Office has two forms, one limited
to on-site clean up of pollution spills.
Pool - An organization in which insurers cover certain types of risks as a group and
share premiums, expenses and losses. Pools are often used to underwrite larger risks.
Portfolio - All of an insurer’s in-force policies and outstanding losses, respecting
described segments of its business.
Power-of-Attorney - Commonly used in bonding, this document conveys authority
for the individual(s) named on it to execute bonds and other legal documents.
Premises - Generally, a piece of land with a building or buildings upon it.
Premises and Operations Liability - Once known as owners, landlords, and
tenants legal liability, or as manufacturers and contractors liability, depending on
the business’s activity, the term refers to the liability exposure of business entities
to third parties (customers, guests, and passers by) who may become injured or
have property damaged through the negligent acts of the business persons, their
agents, or employees. Coverage of this exposure is by way of the commercial
general liability policy. Contrast with Products and completed operations liability.
Premises and Operations Medical Payments - Bodily injury rather than liability
is the trigger for this coverage. Sometimes referred to as "customer good will insurance,
" it is a relatively inexpensive addition to the commercial general liability policy and an
automatic feature of personal liability protection. Since it responds to injury of customers
or guests without regard to fault, it is sometimes effective in heading off a potentially
much more serious liability claim against the owner or tenant of the business premises
or private residence.
Premium - Term for the amount of money the insured pays the insurer to purchase
insurance.
Pressure Vessel - In boiler and machinery insurance, a type of container designed
to hold liquids or gasses under pressure. Types are categorized as fired (such as a
boiler) and unfired (such as an oxygen or hydrogen tank).
Price-Anderson Act of 1957 - Federal law that requires evidence of financial
responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants,
and for fuel fabrication plants licensed to process five or more kilograms of plutonium.
Primary Insurance - The first policy or coverage to apply. Contrast with Excess
Insurance.
Principal - Used in suretyship, it refers to the individual whose performance is
guaranteed.
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Prior Approval - Indicates that an insurer must have rate or form changes formally
approved by the state insurance department before it can use them Private Passenger
Automobile - A four wheeled motor vehicle, subject to state registration laws, designed
to carry passengers (such as a car, station wagon, SUV, or van) on public roads.
Pro Rata Cancellation, see Cancellation.
Producer - A term identifying the insurance agent, field rep, or other employee who
sells insurance.
Product Recall Insurance - Coverage for the costs of recalling a product known,
or suspected to be, defective.
Products and Completed Operations Liability - The liability exposure of the
manufacturer whose malfunctioning products may cause injury or property damage or
of the contractor whose failed structures or projects may do the same. Coverage of the
exposure is a feature of the commercial general liability policy. The insurance does no
t in any way constitute a guarantee of either the insured’s product or work. Contrast
with Premesis and operations liability.
Professional Insurance Agents (PIA) - Trade association of insurance agents.
Professional Liability - A form of errors and omissions insurance, (sometimes called
"malpractice" coverage for errors alleged against those in the healing and legal
professions). Arbitrarily it seems, "errors and omissions" is the term applied most often
to insurance covering liability for mistakes in matters affecting property, i.e., coverage
for "Insurance Agents E&O," "Architects E&O" while "professional liability" is used in
reference to coverages such as "Druggists Professional Liability," "Physicians and
Surgeons Professional Liability," and "Lawyers Professional Liability."
Promulgate - To develop, file, publish, and put into effect insurance rates or forms.
Proof of loss - Following a loss, a formal statement given by an insured to the insurer
that includes details of the loss such as the original cost of damaged or destroyed
property.
Pro-Rata or Proportional Reinsurance - A certain portion of every risk is ceded
under a proportional agreement. The insurer and reinsurer agree to share a portion
of all insurance, premium, and losses in the same amount. The insurer is paid a
commission for ceding the risk portion and premium to the reinsurer.
Prospect - A potential buyer of an insurance policy or program.
Protection and Indemnity (P&I) insurance - The nautical equivalent of bodily
injury and property damage liability.
Proximate Cause - That event which, in an unbroken sequence, results in direct
physical loss under an insurance policy. For example, wind is the proximate cause of
loss when a windstorm blows out a window that in turn topples a lit candle that sets fire
to a structure and burns it down.
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Property and Casualty -- Glossary of Terms
Public Adjuster - An individual or member of a firm who contracts with private parties
to aid with the preparation of loss statements and presentation to insurers. Contrast with
Independent adjuster.
Public Liability Insurance - General term for any liability coverage for claims
brought against the insured by a third party or member of the public.
Public Official Bond - A "performance bond" for holders of public office.
Punitive Damages - An award for damages above and beyond the requirements
for compensating third parties for injury or damage. As the word implies the award is
meant to punish the offender. Most states and territories permit punitive damages awards
to be covered by liability insurance.
Pure Risk - The only consideration is the possibility of loss or no loss, but not making
a profit. Contrast with Speculative risk.
Quota Share Reinsurance - A type of pro-rata or proportional reinsurance
agreement under which the insurer and reinsurer agree to share a pre-determined portion
of all insurance, premium, and losses. The primary insurer’s retention in a quota share
agreement is expressed as a percentage of the amount insured.
Railroad Protective Liability - Liability coverage designed to protect a railroad
from liability claims arising out of the operations of others on or adjacent to railroad
property.
Rain Insurance - A weather coverage that indemnifies a promoter or organizer
against loss of income because of the cancellation of an outdoor event due to rainfall
that exceeds a specified amount during a specified time period.
Rate Filing - Documentation filed by an insurer with the state requesting a change
in the existing rates.
Rating Bureau - A private organization that classifies and promulgates manual rates
(or loss costs).
Real Property - Land, buildings, and other structures (such as a swimming pool or
tool shed).
Rebate - In insurance, a portion of an agent’s commission returned to a customer as
an inducement to place the insurance through the agent. This practice is illegal in all
but two states as against public policy.
Reciprocal Exchange - A type of insurance managed by an attorney-in-fact in
which members pay premiums, and share in losses equally. Membership is required
for insurance.
Redlining - Unfair discrimination based not on the risks characteristics but on its
location. The term is commonly associated with an insurer’s refusal to consider
insuring any home or business within a specific area marked by a line drawn on a
map.
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Property and Casualty -- Glossary of Terms
Reinsurance - The business of insuring insurance companies. By "ceding" a portion
of its business to a reinsurance company, an insurer spreads the risk of exposure to
catastrophic loss.
Reinsurer, see Reinsurance.
Removal - "Removal" was a provision of the New York Standard Fire Policy in which
the insurer agreed to cover the cost of removing covered property from the path of a
fire. Presently, property policies express the agreement in terms of "preservation of
property" from imminent danger of damage from any covered peril. Not to be confused
with Debris removal.
Renewal - The extension of the term of coverage of an expired policy, commonly
by replacement with another policy effective on the date of expiration of the previous
policy.
Rent-a-Captive - A specialized form of captive insurance company operation
designed for businesses that do not want to own a captive but want to obtain some
of the advantages offered by captives. A rent-a-captive is formed by a group of
investors and operated as an income-producing business. Insureds who wish to
participate "rent" space in the captive instead of setting up and capitalizing their
own captive insurance company.
Rent Insurance - A form of business interruption insurance for a landlord. It protects
building owners against loss of income when the building cannot be rented because of
damage from any of the insured perils. It provides income while an insured’s building
is untenantable.
Rental Value Insurance - Refers to protection of either a landlord’s rental income
or an owner occupant’s economic stake in use of the subject structure. Either interested
party can obtain coverage by way of an Insurance Services Office business income form.
Renters Insurance - Term for insurance for the non-owner occupant of a dwelling
or apartment.
Replacement Cost, see Actual Cash Value.
Replacement Cost Appraisal - An appraisal that determines the amount required to
replace an existing structure and related personal property.
Replacement Cost Insurance - Covers property — both building and contents — on
the basis of full replacement cost without deduction for depreciation on any loss sustained,
subject to the terms of the co-insurance clause.
Reporting Form - A device for insuring values subject to extensive fluctuation that
keeps the premium in line with the actual exposure. A maximum limit is set at policy
inception and the insured is charged a "deposit premium." Actual values are then
reported, usually on a monthly basis, and earned premium is figured on the basis of
those reports and laid off against the deposit premium.
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Reservation of Rights - An arrangement in which an insurer agrees to proceed with
the defense of a case without commitment to provide coverage, in the event that the
facts disclosed during the trial reveal that the occurrence is not covered.
Reserves or Reserved Losses - The value of losses that have been estimated and
set up for future payment.
Resident Agent - A licensed agent who resides in and is licensed in the state in which
business is being written.
Residual Markets - Insurance markets established outside the normal insurance
marketing channels to cover unusually large or poor risks. Such markets include
assigned risk plans, aircraft pools, nuclear pools, and certain government insurance
programs.
Respondent Superior - A legal term referring to the fact that, under specific
circumstances, an employer (or principal) is legally liable for the actions of his or her
employees while in the course of their employment.
Retention - Usually used in reinsurance, this is the amount of liability retained by an
insurer, and not ceded to a reinsurer.
Retroactive Date - The date that defines the extent of coverage in time under
claims-made liability policies. Claims resulting from occurrences prior to the policy’s
stated retroactive date are excluded.
Retrocessionnaire - A reinsurer that contractually accepts a portion of the cedant’s
reinsurance risk. The transfer is called a retrocession. Retrospective rating - A rating
arrangement in which the final premium for insurance coverage is not determined until
all claims are closed. The final premium is determined by the insured’s actual loss
experience during the policy period.
Rider - Another term for an endorsement attached to a policy that modifies the
coverage.
Riot - One of the extended coverage perils, related to, but broader than,
civil commotion.
Risk - Risk is uncertainty concerning loss. Sometimes also used to refer to a piece
of business or a submission to an insurer.
Risk and Insurance Management Society, Inc. (RIMS) - Trade association of
risk managers and insurance buyers.
Risk Management - The process of handling pure risk by way of reduction,
elimination, or transfer of risk, with the latter commonly achieved through insurance.
Risk Manager - The individual in an organization responsible for evaluation of the
organization’s exposures, and controlling these exposures through such means as
avoidance or transference, as to an insurance company.
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Property and Casualty -- Glossary of Terms
Risk Retention Group - An insurance company chartered under the laws of a state
or other U.S. jurisdiction, composed of members whose business activities are similar,
and controlled by its members.
Rolling Store - A vehicle out of which goods are sold. An example would be a mobile
snack bar at a construction site. Insurance policies may contain wording that may
restrict or define available coverage for this type of operation.
Safe Driver Plan - Merit rating of automobile insurance. In most states drivers are
charged with "points" for (moving) traffic violations and auto accidents. These points
translate to surcharges on the drivers’ insurance rates.
Salvage - When an insurer makes a payment for lost or damaged property, the
insurer is entitled to the salvage of that property.
Schedule - List of items on a policy declaration, sometimes also showing descriptions
and values.
Seasonal Risk - A risk that is present only during certain parts of the year. For
example: seasonal dwellings such as cottages used for vacations.
Self-Insurance - An insurance-like strategy for handling one’s own exposures to
loss supported by the financial wherewithal to meet expected losses. Not to be
confused with a decision to forego insurance.
Self-Insured Retention (SIR) - That portion of pure risk an insured undertakes
to handle on his or her own. A deductible is a form of self-insured retention.
Selling Price Clause - Applicable to the value of goods which have been damaged
or destroyed by an insured peril. This clause insures the profit that would have been
earned if the goods had been sold. It sets the insurable value of the property that has
been sold, but not delivered, at the amount at which it was sold, less any charges not
incurred.
Severability - A provision that insurance applies separately to each insured under
the policy.
Shock Loss - Name given to any large loss that impacts an otherwise profitable book
of business.
Short Rate Cancellation, see Cancellation.
Short Tail - Additional coverage that may be purchased under a claims-made policy
that responds to losses that may have occurred during a policy period, but are not
reported until after the end of the policy period. Usually available for no longer than
a year.
Sidetrack Agreement - The contract between a business and a railroad wherein a
railroad builds a track onto the business’s property to facilitate shipping, and the
business agrees to release the railroad from liability.
Sine Qua Non Rule - A legal rule stating that a person’s conduct cannot be held to
be the cause of a loss if the loss would have occurred anyway.
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Property and Casualty -- Glossary of Terms
Single Interest Policy - A policy that insures the interest of only one party in property
where there are a number of parties having an insurable interest.
Sinkhole Peril - Risk of loss by collapse of a "sinkhole." This is now covered as a
basic cause of loss in commercial property policies.
Sistership Exclusion - An exclusion in products insurance that eliminates coverage
for the withdrawal or recall of products.
Sliding Scale Dividend Plan - Often used with workers compensation insurance,
dividend plans are established as a means of returning a portion of the premium to the
policyholder if losses are better than expected and the insurance company board of
directors declares a dividend. In a sliding scale plan, the amount of the potential dividend
slides up or down according to the loss experience. Dividends cannot be guaranteed; they
are paid upon declaration by the insurer’s board of directors.
Slip - At Lloyd’s of London, a document that identifies which syndicates are participating
on a risk and for what percentage.
Smoke Damage - An Extended Coverage Peril.
Society of Chartered Property & Casualty Underwriters - Professional society
of those having attained the CPCU designation. (See CPCU.)
Soft Costs and Rents - Related to builders risk insurance, these are the necessary
expenses that are incurred because a building project is delayed as the result of a
covered property loss. Included are expenses such as increases in architectural fees,
loss of rents because the project completion date is later than planned, increased
interest expense, etc.
Soft Market - A term given to a condition in which insurance is relatively inexpensive
and easy to obtain.
Solicitor - An employee of an insurance agent or agency who is empowered to sell
insurance on behalf of a licensed agent, generally using only those insurers that the
agency represents. A solicitor usually does not have binding authority, and the business
that is generated by a solicitor usually is owned by the agent, not the solicitor.
Solvency - Insurers must have sufficient assets (capital, surplus, reserves) in order
to satisfy statutory financial requirements (investments, annual reports, examinations)
and to meet liabilities.
Special Agent - An insurer’s representative in a territory. He or she serves as a
liaison between the insurer and the agent. The special agent is responsible for the
volume and quality of the business written in that territory. Some states require a
special license of special agents. Special form - In contrast to the named perils forms
in property insurance, those forms that list specific perils for coverage, the special form
contract covers simply risk of direct physical loss, relying on exclusions to limit and define
the protection intended. See Open Perils.
Specific Excess Reinsurance - Another term for per occurrence/per loss excess
reinsurance.
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Property and Casualty -- Glossary of Terms
Specific Insurance - An insurance policy that covers only property specifically
described in the policy, as opposed to blanket insurance, which usually covers all
property at specified locations.
Specimen Policy Form - Specimen policy forms often are requested when nonstandard coverage forms are being used. The specimen form may be reviewed to
determine the actual policy provisions before coverage is bound.
Speculative Risk - Risk which entails a chance of gain as well as a chance of loss.
Contrast with Pure risk.
Split Limits - As in auto insurance, where rather than one liability amount applying
on a per-accident basis, separate amounts apply to bodily injury and property
damage liability.
Sprinkler Leakage Insurance - Insurance that covers damage due to the
accidental discharge from an automatic sprinkler system.
Stacking of Limits - The application of the limits of one or more insurance policies
to a claim or loss.
Standard Fire Policy, see New York Standard Fire Policy.
Stated Amount - Amends the valuation clause on a policy to include an amount
that is "stated" as the value of the item(s) being insured. Usually, these policies
pay the lesser of the ACV of the damaged property, the cost of repairing or replacing
the property, or the stated amount.
Statutory Accounting Principles (SAP) - Statutorily mandated accounting
principles and practices that must be followed when an insurance company submits
its annual financial statement to the department of insurance. In contrast to
Generally Accepted Accounting Principles (GAAP) which are followed by most
other businesses.
Steam Boiler Explosion, see Boiler & Machinery Insurance.
Stop Loss - A provision in an insurance policy that cuts off an insurer’s losses at a
given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.
Strict Liability - Liability ascribed to a manufacturer or seller of a defective or
dangerous product regardless of any fault or negligence.
Subrogation - The right of one party who has paid for the loss of a second party
to obtain recompense from the third party who is responsible for the loss. For example,
an insurance company becomes "subrogated" to the rights of its insured to the extent
of the insurer’s payment for collision damage caused by the negligence of the other
driver.
Subsidence - A form of earth movement, excluded in most property policies.
Substandard Risk - A risk falling outside normal underwriting standards. If written at
all, it is usually with a substantial premium surcharge.
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Property and Casualty -- Glossary of Terms
Sue and Labor Clause - A marine insurance clause comparable to removal in
property insurance.
Superintendent of Insurance - In some states the Commissioner of Insurance is
known as the Superintendent.
Supplemental Extended Reporting Period - An optional reporting period that
allows coverage for liability claims made after the policy period.
Surety, see Bond.
Surety Association of America (SAA) - A voluntary, non-profit, unincorporated
association that is licensed as a rating or advisory organization for surety and fidelity
insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information,
filings, publications, and surety and fidelity bonds.
Surface Water - Commonly known as water on the surface of the ground usually created
by rain or snow, which is of a casual or vagrant character, following no definite course
and having no substantial or permanent existence. Some insurance policy may include
surface water as a covered peril but exclude "flood" when defined as the overflowing of
water from its natural boundaries, such as a lake or river.
Surplus - The amount by which an insurer’s assets exceed its liabilities.
Surplus Lines, see Excess & Surplus Lines Market.
Surplus Share Reinsurance - A type of pro-rata or proportional reinsurance
agreement under which the insurer and reinsurer agree to share a pre-determined portion
of all insurance, premium, and losses. The primary insurer’s retention in a surplus share
agreement is stated as a dollar amount of the amount insured.
Syndicate - An association of insurers that work together to insure an especially large
or hazardous risk. Also see Pool.
TPA (Third party administrator). A TPA is a contractor that adjusts and ad-ministers
insurance claims.
Tail Coverage - Coverage for claims made after a claims-made liability policy has
terminated; the extended reporting or discovery period. See Nose Coverage.
Temporary Worker - An employee hired on a short term, often seasonal, basis.
Tenants Improvements and Betterments, see Improvements and Betterments.
Third Party - An outsider; a business or personal invitee or a party with absolutely
no connection to an insured who may become a claimant under a form of public
liability coverage because of injury or property damage alleged to have been
caused by the negligence of the insured.
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Property and Casualty -- Glossary of Terms
Threshold Level - The point at which an injured person may bring tort action
under a modified No-Fault Auto Plan. Many no-fault plans only allow tort action for
pain and suffering after medical bills exceed some figure, like $1,000; or if
disfigurement or death occurs.
Tight Market, see Hard Market.
Time Element Coverage - Insurance in which the element of time has heavy
bearing on the extent of loss. Business income insurance covers loss of income
for the unknown duration of the insured’s business interruption.
Title Insurance - Insurance that indemnifies the owner of real estate in the
event that someone challenges his or her ownership of property, due to the
discovery faults in the title.
Tort - A wrong for which a civil (as opposed to criminal) action can be brought.
Many tort claims arise from negligence.
Trailer Interchange Agreement - An arrangement among truckers whereby
trailers may be moved along by the tractors of one or more parties to the agreement.
Transfer of Risk - A basic underlying principle of insurance, whereby the risk of
financial loss is transferred from one party to another.
Treaty Reinsurance - An agreement in which the ceding company agrees in
advance to cede certain classes of business or types of insurance to a reinsurance
company. The reinsurer agrees to accept all risks or losses that fall within the terms
of the agreement.
Twisting - The practice of inducing by misrepresentation, or inaccurate or
in-complete comparison, a policyholder in one company to lapse, forfeit or
surrender his insurance for the purpose of taking out a policy in another company.
Umbrella Liability - A liability contract with high limits covering over top of
primary liability coverages and, subject to a self-insured retention (deductible),
covering exposures otherwise uninsured.
Underground Storage Tank (UST) - Tanks sunk in the ground that are used to
store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or
contaminant’s.
Underinsured Motorists Coverage - Coverage for the insured and passengers
whenever the at-fault driver in an accident has auto liability insurance with lesser
limits than the insured’s. This coverage lies atop "uninsured motorists coverage" or
atop the at-fault driver’s low limit automobile liability insurance and provides the
insured and passengers with protection equal (usually) to the insured’s own
automobile liability cover.
Underlying Insurance Policy - The policy providing initial coverage for a claim
until its limit of liability is reached and an umbrella or excess policy’s coverage is
triggered.
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Glossary - Page 46
Property and Casualty -- Glossary of Terms
Underlying Limits - The limits of liability of the policy(ies) underlying an umbrella
or excess policy.
Underwriter - One who researches and then accepts, rejects, or limits
prospective risks for an insurance company.
Underwriters Laboratories, Inc. (UL) - Originally begun as a cooperative of
western fire insurers to test materials, the UL is now an independent organization
testing virtually every fabricated device and material. Items are permitted to bear
the UL seal of approval only after they have passed stringent testing for safety.
Unearned Premium - That portion of an insurance premium that would have to
be returned to the insured if the policy were cancelled.
Unilateral Contract - A contract such as an insurance policy in which only one
party to the contract, the insurer, makes any enforceable promise. The insured
does not make a promise but pays a premium, which constitutes his part of the consideration.
Uninsurable Risk - An uninsurable risk is one that is literally uninsurable
because loss is certain rather than possible.
Uninsured Motorists Coverage - Coverage for the insured and passengers
whenever the at-fault driver in an accident has no auto liability insurance. Coverage
is usually to the extent of limits required by state auto financial responsibility laws.
United States Longshore and Harbor Workers Compensation Act (USL&H) A compulsory law administered by the Department of Labor that covers injuries to employees
on vessels or drydocks.
Unsatisifed Judgment Fund (UJF) - In some states a person who is injured in
an automobile accident and who cannot collect from the person responsible, may
collect from a special fund (UJF).
Vacant Property - Once defined as devoid of occupants or contents, a stricter
definition is being applied as more and more communities find older buildings of
three and four stories that are only one quarter occupied. Property policies impose limitations
on coverage of "vacant" buildings so the (changing) definition of vacant
property is quite important.
Valuable Papers Coverage - Provides "all risk" coverage on "valuable papers,"
such as: written, printed, or otherwise inscribed documents and records, including
books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It
covers the cost of research to reconstruct damaged records, as well as the cost
of new paper and transcription.
Valuation - To estimate the value of a piece of property usually by considering
its replacement cost or its actual cash value. Factored into the estimate is any
depreciation or wear and tear.
Valued policy, see Agreed amount clause.
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Glossary - Page 47
Property and Casualty -- Glossary of Terms
Valued Policy Law - Law that exists in some states which applies primarily to
buildings. The laws differ but, in general, they state that in case of a total loss the
amount of insurance is the agreed amount of loss.
Vandalism and Malicious Mischief - Once treated as a separate peril to be
added to a property policy or not, current property forms routinely include the
protection.
Verbal Threshold - Term in no-fault auto insurance, applicable in some states,
which states that victims are allowed to sue in tort only if their injuries meet certain
verbal descriptions of the types of injuries that render one eligible to recover for
pain and suffering.
Vested Commissions - Commissions on renewal business which are paid to the
agent whether or not he or she still works for the insurance company with which the business
is placed.
Vicarious Liability - The condition arising where one person is responsible for the
actions of another, as a parent is often held responsible for the vandalism damage
a minor child does to a school.
Waiver of Subrogation - An insurer has the right of subrogation; however, it
may waive that right through this method.
Wear and Tear Exclusion - A common heading for an "all risks" exclusion
relating to a group of events that do not represent risk at all. Property will become
worn out and torn; it will rust, settle, become rotted, infested, marred, scratched,
etc. It is easy to distinguish however between the marring that occurs over time
(excluded) and marring that occurs when a concrete block is dropped onto a fine
wooden table.
Whole Dollar Premium - The practice of many insurers to round premiums to
the nearest dollar, rather than carrying them out to the nearest cent. An amount
of 51 cents or more is usually rounded up to the next dollar, and any cents
amount less than that is dropped.
Workers Compensation Insurance - Coverage that conforms to the workers
compensation laws of the states in which it written. See also Employers liability
insurance.
Wrap Up - A liability coverage specialty focused on contracting risks, at-tempting
to manage in a single contract the broad interplay of exposures and interests
among owners, general contractors, and subcontractors.
XCU - Short for explosion, collapse, and underground, this acronym is used to
denote that certain construction projects carry this hazard.
Y2K - An abbreviation for Year 2000. The Y2K problem resulted from the use of
two-digit year fields in computer software codes and silicon chip technology.
Because of this, the software or chip cannot recognize "00" as the year 2000
instead of 1900 or doesn’t recognize it at all.
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Glossary - Page 48
Property and Casualty -- Glossary of Terms
Zone System - Developed by the NAIC for the triennial examination of insurers.
Under the system, teams of examiners are formed from the staffs of several states
in each of the geographical zones. The results of their examinations are then
accepted by all states in which an insurer is licensed, without the necessity of
each state having to conduct its own examinations.
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Glossary - Page 49
Answer Sheets – (Please make additional blank copies)
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