Property & Casualty

Front 1

Accident

Back 1

A sudden, unforeseen, unintended, and unplanned event

Front 2

Pro Rata Cancellation

Back 2

The cancellation of a policy for which a refund is made of the
unearned premium calculated in proportion to the time the policy was in force. When the
insurer cancels the policy, the unearned premium is refunded to the insured on a pro rata basis.

Front 3

Short Rate Cancellation

Back 3

The cancellation of a policy for which the premium refund is
calculated according to a short rate table whereby the insurer retains a portion of the unearned
premium. When the insured requests cancellation of the policy, the unearned premium is
refunded to the insured on a short rate basis.

Front 4

Flat Cancellation

Back 4

The cancellation of a policy on the date the policy becomes effective.
This type of cancellation requires the full return of the paid premium.

Front 5

Peril

Back 5

A cause of a potential loss.

Front 6

Proximate Cause

Back 6

The cause that sets other causes in motion when multiple causes combine to produce loss or damage. The cause without which a given result would have not occurred.
Example: A fire that causes a subsequent explosion or smoke damage; without the fire there
would not have been a subsequent explosion or smoke damage.

Front 7

Binder

Back 7

A document that temporarily provides insurance coverage until a policy is issued. The binder does not state the premium amount.

Front 8

Concurrent Causation

Back 8

A situation where there are two causes resulting in a loss and one
of the causes is excluded while the other cause is not excluded. Unless the policy specifies
otherwise, the loss is covered.

Front 9

Concurrency

Back 9

A situation under which at least two policies provide identical coverage for the
same risk. When policies are concurrent, each policy pays that proportion of a loss that its limits
bear to the total of all policies.

Front 10

Bailee

Back 10

An individual or organization who has taken into its care, custody, and/or control the
property of another for servicing, repair, or storage.
Example: Dry cleaners, jewelers, furriers, etc.

Front 11

Bailor

Back 11

An individual who retains the ownership of property that has been taken into the care,
custody, and/or control of a bailee.
Example:

Front 12

Direct Loss

Back 12

Damage to property in which the proximate cause of the loss is an insured peril.
Example: Fire damage to an insured residence, or water damage to the residence resulting from
a ruptured water pipe.

Front 13

Indirect Loss (Consequential/Contingent Loss)

Back 13

A second or financial loss occurring as
the result of a direct loss.
Example: Additional living expenses incurred as the result of a private residence being
rendered uninhabitable as the result of a fire or other type of direct loss; loss of rental income
caused by a direct loss; loss of business income and extra expenses caused by a direct loss.
! Identify common indirect loss exposures.

Front 14

Named Peril

Back 14

Coverage applies only to losses caused by perils that are specifically stated in
the policy.

Front 15

Open Peril (Special Form)

Back 15

Coverage applies to all losses caused by all perils except for
those specifically excluded. Open peril coverage is sometimes referred to as all risk coverage.
Example: Some of the perils typically excluded are earth movement, ordinance or law, power
failure, nuclear hazard, etc.

Front 16

Actual Cash Value (ACV)

Back 16

The policy pays for the cost to repair or replace the damaged
property at the time of loss, less depreciation. Stated another way, the policy pays current
replacement cost less depreciation.

Front 17

Replacement Cost

Back 17

The policy pays the full cost to replace or repair the damaged property
(not exceeding policy limits) at the time of the loss without an adjustment for depreciation.

Front 18

Market Value

Back 18

A property policy provision that changes the valuation method otherwise
applicable (Actual Cash Value or Replacement Cost) to a valuation method that allows
reimbursement to the insured for damaged property according to the price a willing buyer would
pay for the property purchased from a willing seller.

Front 19

Valued Policy

Back 19

Many states have passed legislation known as a Valued Policy Law that
requires an insurer to pay the full amount of insurance on an insured structure in the event of a
total loss.

Front 20

Specific Coverage

Back 20

This method of writing coverage is used when insuring one property on
one policy for one specific amount of insurance.

Front 21

Scheduled Coverage

Back 21

This method of writing coverage is used when insuring more than
one property on one policy with a specific amount of insurance on each property

Front 22

Blanket Coverage

Back 22

This method of writing coverage is used when insuring more than one
property on one policy for a single amount of insurance that applies to all properties covered
under the policy. The amount of insurance must equal at least 90% of the value of all of the
properties insured.

Front 23

Definitions

Back 23

Definitions are used to clarify the policy language and may be found in different places in various
policies depending on how the policy is organized.

Front 24

Insuring Agreement or Clause

Back 24

The Insuring Agreement or Clause states that the insurer will indemnify the insured for a covered
loss. It is the insurer’s promise of protection to the insured. A description of the covered causes of
loss (perils), that determines the coverage provided, is contained therein.

Front 25

Conditions

Back 25

The Conditions of the policy sets forth the rights, rules, duties, and obligations of the insurer and insured
to follow throughout the policy period.

Front 26

Subrogation

Back 26

The legal process by which an insurer seeks recovery of the amount paid to
the insured from a third party responsible for having caused the loss. Subrogation transfers an
insured’s legal right of recovery to the insurer that has paid a claim, and also:
a. Prevents the insured from collecting twice for the same loss.
b. Helps the insurer maintain lower insurance rates.
c. Ultimately holds the responsible third party accountable for the loss.

Front 27

Other Insurance (a.k.a. Apportionment or Pro Rata Liability)

Back 27

Specifies the process to
be followed when more than one policy covers the same loss. Each policy pays no more than its
share of the loss.
Example: Policy A is written for $200,000, Policy B for $300,000, and Policy C for $500,000
on a building. The building sustains a loss in the amount of $100,000 that is covered by all
three policies. Policy A represents 20% of the total amount of coverage and therefore would
pay $20,000 of the loss. Policy B represents 30% of the total amount of coverage and therefore
would pay $30,000. Policy

Front 28

Endorsements

Back 28

Endorsements are written amendments attached to the policy to broaden or restrict coverage, or
to further define certain policy provisions. Endorsements are typically attached to the policy at
inception, but may be added during the policy term and are subject to insurer approval.

Front 29

Coinsurance

Back 29

Coinsurance is a provision contained in most policies insuring commercial property, and is used
to encourage the insured to purchase and maintain insurance to value, and to establish the basis of
payment in the event the insured fails to maintain a specified percentage of that value. The higher
the coinsurance percentage the insured agrees to purchase and maintain throughout the policy
period, the lower the rate that the insured pays for the insurance. Coinsurance applies only in the
event of a partial loss, as total losses typically are paid in accordance with the Valued Policy Law
discussed earlier in this chapter.

Front 30

Coinsurance Formula

Back 30

The formula that is applied in the event of a partial loss is as follows:
Amount of Insurance Carried X Amount of Loss = The amount the insurer pays
Amount of Insurance Required
(Value at time of loss X Coinsurance %)
Example: The insured owns a commercial building whose current value is $1,000,000. The building is insured for
$750,000 and the insured has agreed to 80% coinsurance. The building sustains a $100,000 fire loss. How much
will the insurer pay of the $100,000 loss?
$750,000 X $100,000 = $93,750
$800,000