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106 Cards in this Set

  • Front
  • Back
•FEMA (Federal Emergency Management Association)
oFlood Insurance is a FEMA run program
• Non-Participating Communities
o No flood insurance available
o No disaster assistance
o No federal mortgages in Special Flood Hazard Area (SFHA)
• Myths and Facts About Flood Insurance
o You can’t buy flood insurance if you are located in a high risk area (FALSE)
o You can’t buy flood insurance immediately before a flood (TRUE)
o Homeowners’ Policy covers flooding (FALSE)
o You can’t buy flood insurance if your property has been flooded (FALSE)
o Only residents of high risk flood areas need to insure their property (FALSE)
o The NFIP doesn’t offer any type of basement coverage (FALSE)
o Flood Insurance is only available for homeowners (FALSE)
• Definition of a Flood
o A general and temporary condition
o Partial or complete inundation
o Two or more areas of normally dry land or two or more properties
o Overflow of inland or tidal waters
o Unusual and rapid accumulation or runoff of surface waters from any source
• Definition of a Flood→Key Criteria
o Mudflow
o Collapse or subsidence of land along the shore of a lake
o Condition must be general (2 acres→2 properties)
o Condition must be temporary (Versus standing water)
o Occurrence must be accidental or unplanned
• Mitigation and Floodplain Management
o Establish Special Flood Hazard Area (SFHA)
o Distribute Flood Insurance Rate Maps (FIRM)
o Homes built compliance are 77% less likely to be damaged by flood
• Special Flood Hazard Areas (SFHAs)
o Darkly Shaded Area (FIKM)
o 1%> Chance of being flooded in any one year (100-year floodplain)
o 26%>chance of flooding during 30-year mortgage period
• Non-Special Flood Hazard Areas
o Light gray or no shading on flood insurance rate map
o <1% of being flooded in any year
o Approx. 50% of our claims paid here
o Everyone lives in a flood plain!
• Mandatory Purchase Requirement
o Flood insurance purchase requirements for certain homes in SFHA
o Coverage must be provided for the term of the loan
o Coverage limit must equal the outstanding principal balance of the loan or the maximum limit available under the program, whichever is lower
• Who can buy flood insurance
o Participating Community
o All Zones
o Eligible Building
• At least two rigid exterior walls and a roof
• Principally above ground
• Manufactured (Mobile) homes are OK
• If in SFHA→Must be anchored to resist flotation, collapse, or movement
• Policy Types
o Dwelling Form→More for Residential
o General Property→More for Business
• Dwelling Form
o 1-4 Family Residence
o Single Family Condo Unit
o Simplified Language
o ACV or Replacement Cost
• Coverage A→Building Property
o Dwelling→250K Maximum
o Can include detached garage, building under construction, and mobile homes
o 10% of building coverage can be applied to detached garages and carports under the dwelling property
• Coverage B→Personal Property
o Direct Physical Loss
o Inside Building
o Basement Limitations→Typically ACV
• Scope of Basement Coverage
o Foundation Elements
o Cleanup Costs
o Required Utility Connections→Cable/Internet NO
o Furnaces
o Water Heaters
o Washer/Dryer
o Food Freezers and food in them
o Air Conditioners
o Oil Tanks
o Natural gas heaters and the gas in them
o Pumps and/or tanks used in solar energy system
o Heat Pumps
o Electrical Junction and Circuit Breaker Boxes
o Electrical Outlets and Wiring
o Elevators and Related Equipment
o Unfinished Walls, Ceilings, and Related Insulation
• Coverage C→Other Coverage
o Debris Removal
o Loss Avoidance Measures
o Condo Loss Assessments
• Coverage D→Increased Cost of Compliance Coverage
o Flood proofing
o Relocation
o Elevation
o Demolition
• Property Not Covered
o Outside of Building
o In, on, or over water
o Land→Trees/Shrubs
o Walks, decks, driveways
o Fences, seawalks, piers, docks
o Crops and Livestock
o Hot Tubs and Swimming Pools
o Accounts, bills, Coins
o Open Structures and Boat Houses
• Exclusions
o Earth Movement
o Sewer Backup or Seepage
• Deductible
o $500 or $1000 standard
o Other options available up to $5000
o Applies separately to building and contents (COUNT IT TWICE)
• Replacement Cost Coverage
o Single Family Swellings
o Principal Residence
o Building ONLY, not contents
o Insured to 80% of replacement cost or maximum NFIP Coverage available (at the time of the loss)
o Otherwise, ACV applies
• The General Property Form
o Commercial Buildings
o Multi-Unit Apartments
o Churches
o Schools
o Commercial Condos
o Municipal Buildings
• Elevated Buildings
o Building with no basement
o Has its lowest floor elevated above ground level
o By foundation walls, shear walls, posts, piers, pilings, or columns
• Breakaway Wall
o A wall that is not part of the structural support of the building
o Intended through its design and construction to collapse under specific lateral loading forces
o Does not cause damage to the elevated portion of the building or supporting foundation system
• Flood Vent
o Permanent opening in a wall that allows the free passage of water
o Automatically in both directions without human intervention
o Minimum of 2 openings
o No higher than one foot above grade
• Waiting Period
o Insurance can be purchased at any time
o 30-day wait for coverage to become effective after policy application
o Exceptions
• When in conjunction making, increasing, extending, or renewing a loan
• When a map revisions has placed a building into a SFHA
o Policies are written on a one year renewable term basis (GUARANTEE ISSUE)
• Future of Flood Insurance
o Debate on it continuing
o Reform Needed?
• Outdated maps
• New predictive modeling needed
• Charge appropriate rates for high risk areas
• Force those that live in a high risk area to bear more of the true cost for choosing to live in those areas
o Preponderance of Superstores
o National Catastrophe Fund
• Property Exposures
o Damage or Destruction of Vehicles
• Decrease in or loss value of automobile
• Loss of use of auto until replaced or repaired
o Owned Auto
• Owner or employee of the business operates an auto owned by the business
• Respondent Superior→”Let the ER answer”
• Assume EE was acting on behalf of the ER
• Also covers loaner vehicles
o Auto not owned by the user
• Might have EEs rent vehicles
• Might have vehicles in your care→bailee→using the vehicle
o Hired or Borrowed Autos
• Some organizations lease vehicles
o Liability Assumed Under Contract
• Hold-Harmless Agreement
• Might already be covered in another section
o Employers non ownership liability
o Employees use their own cars in performing their job duties
o Since it is being used to further the insureds business, they could be held liable
➢ Business auto coverage form
• Covers auto loss exposures for a business
• All types of organizations except auto dealers and motor carriers
• Business auto declarations form is longer and more detailed than most other coverage forms
➢ Section 1 – Covered Autos
• Lots of flexibility in designing policy ( liability on some vehicles, full coverage on others)
• Coverage symbol – numerical symbols on policy for each auto
• Indicates which autos have a particular coverage
• Symbol 1 – any auto
o Any auto owned or used by insured
o Best protection
o Usually reserved for liability only
o Insurers are often unwilling to offer because it can trigger an encompassing coverage
• Symbol 2 – owned autos only
• Symbol 3 – owned private passengers vehicles only ( no commercial vehicles)
• Symbol 4 – owned non private passenger vehicles only
• Symbol 5 – auto owned subject to no-fault-PIP
• Symbol 6 – owned auto subject to compulsory uninsured motorist law
• Symbol 7 – specifically described autos
• Symbol 8 – hired autos only
• Symbol 9 – non owned autos only (employees using their own cars)
➢ Newly acquired autos
• Symbol (1-6) – no need to notify insurer – coverage applies till end of policy year
• Symbol 7 – will cover is…o Insurer insures all autos owned by named insured or new auto replaces a previously covered auto
o Also, named insured asks insured to cover auto within 30 days of acquisition
o Out of state coverage extensions
• If the vehicle is traveling in a state with higher minimum limits the policy limits go up to that state minimum
• If a type of coverage is mandatory in the specific state→policy automatically adds it while traveling in that state
o Exclusions
• Intended Injury
• Workers Compensation
• Property in the care, custody, or control (inland marine)
• War
• Racing
• Section III→Physical Damage
• Section III→Physical Damage
o Collision
• Striking another object violently
• Overturn
o Comprehensive
• Any damage to a vehicle except collision
• Or a peril specifically excluded
o Towing and Labor
• Reimburse for towing and labor expenses from the disablement of a private passenger auto
o Transportation Expenses
• Substitute transportation expenses when a private passenger vehicle is disabled
• $20 daily limit→$600 total
• Must have comprehensive coverage→Loss must be to a covered form of loss
o Exclusions
• Nuclear hazards, war, military action
• Wear and tear, freezing, mechanical and electrical failure, and road damage to tires
• Tapes, records, discs, and similar devices
• Radar Detectors
• Damage from racing or demolition contests
• Diminution in Value→Actual or perceived loss in value from damaged property being repaired
• Garage Coverage Form
o Covers the auto and liability loss exposures of auto dealers
o As of 2002→ISO form doesn’t include auto service operations→instead of using the CGL with endorsements
o Many insurers still include these options on the garage form

• Repair Shops
• Service Stations
• Parking Garages
• Tow Truck Operators
o Section III
Garagekeepers Coverage
• Damage left to autos in insured’s care
• Attending, servicing, repairing, parking, storing
• Damage left to autos in insured’s care
• Attending, servicing, repairing, parking, storing
• Direct Excess Option
• When insured is legally liable as primary
• When not liable→Will pay as excess after what customer can recover from their own policy
• Direct Primary Option
• Will pay regardless of liability or existence of coverage by the customer
o Section IV→Physical Damage
• Dealers Auto
• Not listed individually, but in the aggregate
• Single overall limit
• Exclusions
• False pretenses→Voluntary part with via truck, scheme, or other fraudulent means
o Issue of car purchase without legitimate title
• “Driveaway”→No collision coverage for an auto being driven from point of purchase to destruction over 50 miles
• Motor Carrier Coverage Form
o Used to be known as Truckers Form
o Covers businesses that sue auto to transport property of others or their own
o Owner Operators
• Motor carriers often hire these independent contractors to haul goods for them
• Motor carrier often provides liability coverage for OO during the trip
Bobtailing & Deadheading
o Bobtail→Truck power unit without attached trailer
o Deadheading→Operating with an empty trailer
o During the above two situations→Usually not covered by motor carrier policy
o Bobtail and deadhead coverage provides liability when not carrying goods for clients
o Trailer Interchange
• When motor carrier agrees to swap trailers with another carrier
• Usually agree to indemnify the other carrier if damage occurs to borrowed trailer
• Trailer interchange coverage addressed this created liability
• Coverage Part For Farm
o A→Dwelling
o B→Detached Garage
o C→Household Personal Property
o D→Loss of Use
o E and F→Farm Personal Property
o G→Barns
• Farm owners Policy
o Package Policy
o Residential Property
o Farm Property (Equipment, livestock, barns)
o Personal and Farm Liability Exposures
• Additional Forms (Coverages)
o Inland Marine
• Equipment and Livestock
o Liability
• Personal as well as the operation of the farm as a business
• Crop/Hail
o Covers crops damaged by hail
o Also loss to crops by fire and windstorm
• Federal Crop Insurance
o Covers unexpected production losses due to natural causes
• Drought
• Excessive Rain
• Hurricanes
• Tornadoes
• Lightning
• Animal Mortality
o Term Life on Animals
o Death from accident, injury, sickness, or disease
o Theft
o Valuable horses, registered cattle, racehorses, show dog, circus animal
• Business Owners Policy (BOP)
o Package Policy
o Combines property and liability
o Small and medium size businesses
o Buildings and Personal Property
o Includes Business Income
o Low processing costs for insurer and insured
o Looks like Homeowners Policy
• BOP Eligibility
o Main Street Businesses
• Furniture stores, hardware stores, small offices
• Limitations on the size
• Usually 25000 feet or less
o Apartment Buildings
• Usually cannot exceed 6 stories or 60 units
o Office Buildings
• Limitations on the size (6 stories)
• Usually 25000 sq. ft. or less
• Tenants in large office buildings may be eligible
o Contractors
• Small contractors
• Payroll Limit of $300,000
o High Risks Excluded
• Demolition
• Work with insulation
• Use of a crane
o Restaurants
• Must have an automatic fire extinguishing system
• Limited cooking facility
• Fast Food
• BOP Ineligible
o Auto Businesses
o Bars, Grilles, and large restaurants
o Manufacturing Firms
o Places of Amusement
o Financial Institutions
• BOP Features
o Covers more perils than the CPP
o Uses more replacement cost
o No coinsurance provisions
o Automatic season INCREASE provision eliminates the need for peak season endorsement
• BOP Additional Coverages
o Employee Dishonesty
o Money and Securities
o Outdoor Signs
o Equipment Breakdown
o Accounts Receivable
• WC Statute
o Obligates ER to pay specified medical, disability, rehab, and death benefits
o Job related injuries and diseases
o Regardless of fault
• Benefit Requirements
o Must arise out of and in the course of employment
o Related to employment→While Working
o Occupational diseases are covered
o Cause and effect relationship
o Medical
• Full and unlimited medical expense benefit for covered injury or disease
• First Dollar Coverage→No deductible or co-insurance
o Disability
• Temporary Partial Disability→Prevents injured worker from performing some job duties for a definite time period
• Temporary Total Disability→Unable to perform any job duties for a specific period of time
• Worker will eventually resume all job duties
• Permanent Partial Disability→Workers suffer an irreversible injury but can return to some work duty
• Lose an eye
• Permanent Total Disability→They will never be able to perform job duties again
• Benefits compensated for loss of wage during injury period
• Deductible→Waiting period
• Paid weekly
• Percent of salary varies by state
• Compensation also for losing specific body parts→AKA scheduled benefits
• Does not hinge on wage loss
o Rehabilitation Benefits
• Goal is to return to work
• Pay expenses for physical therapy
• Can cut the cost of claims
o Death Benefits
• Burial expense
• Partial replacement of workers former weekly wage
• Varies based on the number and types of dependents
• Out of State Law Application
o When traveling in another state
• File in the state the injury occurred
• File in state where employer/job is located
• File in the state where the EE lives
• What drives EE decision?
• Most money
• Workers Compensation
o Compromise between EE and ER
o ER is held absolutely liable for injuries
o EE cannot sue ER
o ER pays in some cases when there is no negligence
o EE receives swift and certain payments
• Methods to meet WC Obligation
o Private Insurance
o Assigned Risk Plans
o State Funds
o Private Insurance
• Pay Premium→Insurer pays and administers claims
• Highly experience rated
o Assigned Risk Plans
• Can’t acquire private insurance
• Unable to meet insurer underwriting requirements
• Poor experience
• Varies by state
• Usually a pool of business accepted by private carriers funneled via the state
o State Funds
• Half of the states have set-up funds
• Controlled by state but function like a private insurer
• Accept any good faith application by a state company
• Some state compete with private carriers
• Sometimes it is the only option
• Compettive State Funds
• Some state funds compete with private carriers
• ER can buy from state or private carrier
• Monopolistic State Funds
• It is the only option some states
• Unable to purchase from private carriers
• Employer’s Mutual Insurance Company
• Set up by the state
• Less control by state than a state fund
• Competes against other private companies
• Self Insurance
o Allowed by state if financial capacity is demonstrated
o Sometimes must post a bond with the state
o Must also demonstrate an ability to properly administer a plan
o Appropriate for large ERs with good experience
o ER often purchases excess coverage to cover a catastrophic loss when self-insuring
o Aggregate Excess
• Covers all total losses past a retention point up to a stated limit
• Not tied to a specific claim→Just claims in total
o Specific Excess
• Retention amount of a maximum
• On a per claims basis
• Policy
o WC and EL Policy
o Workers Compensation and ER Liability
o Policy form is filed and maintained in most states
o NOT ISO
o National Council on Compensation Insurance (NCCI)
o Part 1→WC
• Pays for obligations required by law
• Insurer also defends in a lawsuit
• Also pays penalty to ER for:
• Willful Misconduct
• Illegal Employment
• Failure to comply with health and safety laws
• Discrimination against any EE who files a WC claim
o Part 2→ER Liability
• Pays for EE injury, not WC
• 3rd-party lawsuit
• Family member lawsuit (loss of consortium)
• Exclusions→Part 2
• Injury outside US or Canada
• Punitive damages due to an illegal EE
• Intentional bodily injury on part of insured
• Part 3→Other States Insurance
• Extends WC and EL automatically to any state listed in section 3C
o Section 3A lists states currently operating
• 3C are states you might operate in
• Must inform insurer when a 3C state becomes active
• If you enter a state that is not on 3A or 3C→Must notify insurer within 30 days
• Why not just say all states?
• Insurer must avoid states they are not licensed in or monopolistic states
• Stopgap Coverage
o Insured has some operations in a monopolist state
o State policies do NOT include EL
o Can be part of your WC policy that applies to other states
o Could also be part of your general liability policy
• Rating WC
o NCCI files forms and endorsements for insurers in many state
o Some states have their own rating bureau
o Set tables used to create manual or “book rates”
o Premium uses payroll as its basis
o Worker Classification
• ID group of EEs to set rate on appropriate risk
• Governing Classification is what best describes overall operation
• Not all EEs fit this classification
• Except in some situations→Governing Classification is what prevails in setting normal rate
• Premium
o Experience Rating
o Experience Rating
• Premium for a particular insured is increased or decreased in future periods
• Tied to the experience (loss history) of the insured
• Also is tied to the credibility of results
• Time and Size
• Retrospective Rating
• Premium for a particular insured is increased or decreased in current periods
• Pay a minimum premium
• Depending on the results during the policy period
• Refund from the insurer
• Bill for additional premium
• Good for an insurer who is concerned about a marginal account
• Good for an insured that is confident that claims will be low
o Large Deductible Plan
• Range from 50K to 250K per claim
• Essentially is self-funding with catastrophic coverage
• Allows insured to self insurer without going through the state requirements to set up self insurance programs
• Professional Liability
o Malpractice→Physicians and E+O exposures for professionals (Attorneys, insurance agents, accountants, etc.)
o Directors and Officers
o Fiduciary Liability
o Employment Practices Liability
• Claims
o Usually written on a claims made basis
o Usually include a condition allowing insurers to settle out of court without policyholders consent
o When underwriting→Consideration is given to whether defense costs are to be included
o Self-Insured Retention→(10,000 or more) are often included on policies→Rare for liability insurance
o Other factors include market trends (account scandals) job market, and local conditions
• Underwriting Professional Liability
o Medical malpractice
o High Risk→Specialists→Anesthesiologists, neurosurgeons, OB-GYN
o Consideration includes years in practice, education, professional reputation, claims history
o Specialty usually represents a higher risk in other area as well→Lawyers, accountants, insurance agents
• Insurance Agent and Broker Errors and Omissions (E&O)
o Failure to properly advise client of their insurance needs
o Failure to obtain insurance for client in timely manner
o Failure to renew policy @ expiration without giving prior notice
o Failure to advise client of policy limit
• Directors and Officers Liability (E&O)
o Covers corporations D&O against liability and their wrongful acts
o That are not covered by CGL or auto
o Usually tied to company decisions that adversely impact financial perform of firm (Stock Price)
• D+O Liability (E&O)→Exclusions
o Libel or Slander
o Gaining personal profit illegally
o Violations of SEC regulations
o Acts of deliberate honesty
o Liability under ERISA
• Excess and Umbrella
o Purchased to extend the limits of CGL, auto liability, and other liability coverages
o Why Needed?
• Catastrophic Claims
• Maximum Possible Loss (MPL)
o MPL easier to estimate for property
o How much is it?
o What it costs to rebuild
o No comparable way to estimate MPL for liability coverages
• Coverage Layers
o In property→Exposures are often covered entirely by one insurer
• Or, if they share it is usually on a pro-rata shared basis
• Losses shared from dollar one
o High Limit liability is usually arranged in layers
• Primary Coverage
• Excess Coverage
• Primary is usually set @ 1 million
• Successive layers usually set @ 5, 10, or 25 million
• Aggregate Limits
o Unlike property→Even if losses never exceed occurrence limit→You could still be uninsured or underinsured
• Excess and Umbrella
o Needed When
• Damages exceed occurrence limit
• Aggregate is reached
o Only usually come into play when underlying policy is exhausted or reached its limit
• Excess Policies
o Increase the limits of liability on an underlying policy
o Does not broaden coverage (Unlike Umbrella)
o Usually written on a layered basis
o Severity, not frequency, is the issue (similar to umbrella)
o Often, the individual case is not underwritten→but broad considerations like catastrophic exposures are covered
• Umbrella Policies
o Large, low frequency losses
o Usually does not provide primary insurance
o Provides excess coverage above liability limits on an underlying policy
o Provide for coverage gaps in an underlying policy
o If underlying limits are not maintained→the umbrella will still only respond as if those limits are in place
o Policies are not very standardized
o High net worth individuals and businesses are the common purchases of the policy
• Aircraft Insurance
o Who Needs
• Airlines
o Business/Pleasure→Individually owned aircraft→no direct profit from airplanes
o Industrial Aid→Corporate owned aircraft used for employees and flown by full-time pilots
o Special Use→Crop dusting, banner towing, law enforcement
o Commercial Use→Charter operated aircraft
• Aircraft Hull Coverage
o All Risks→Group or Flight
o All risks→Not in motion
• Sitting on runway, being towed, or in storage
o Exclusions
• War
• Wear and Tear
• Tire Damage
• Aircraft Liability Coverage
o 3rd party claims for BI/PD
o Separate bodily injury limits for passengers and non-passengers as well as property
o Can purchase one, two, or three
• Surety Bonds
o Suretyship→Promise of 1 person (surety) to answer the failure of another person (principal) to do something as promised
o Insurance companies perform this function through surety bonds
• Surety Bonds Different Than Insurance
o 3rd party contract
o Principal is liable to surety for losses surety pays
o Coverage period is indefinite
o Surety really expects no losses