Colorado Property & Casualty Insurance Test Prep.

Front 1

CONTRACT OF UTMOST FAITH

Back 1

Both insurer and insured must know all material facts and relevant information; neither may attempt to conceal facts or deceive the other party.

Front 2

UNILATERAL CONTRACT

Back 2

one in which only one party makes a legally enforceable promise

Front 3

CONDITIONAL CONTRACT

Back 3

the insurer's consideration is a promise to pay only if a certain condition is met. If the condition is not met, the insurer does not have to pay.

Front 4

PERIL

Back 4

Fire, Wind, Hail or collision.

Natural= fire, lighting, wind & hail.
Human= Vandalism, theft or arson.
Economic= Loss of rents/ business income.

Front 5

HAZARD

Back 5

Situation or Condition that increases the possibility of a loss. (a material, structural or operational feature)

Front 6

MORAL HAZARD

Back 6

Dishonest or character/ personality defects

Front 7

MORALE HAZARD

Back 7

Attitude of the insured. (carelessness)

Front 8

RISK

Back 8

Uncertainty regarding the occurrence of financial loss.

Front 9

REASONABLE EXPECTATION

Back 9

States that the insured should recover what a reasonable person would expect to recover under similar circumstances. - giving someone a false sense of what and what amount would be covered

Front 10

BINDER

Back 10

Written statement that provides immediate insurance protection for a temporary period.

Front 11

IDEMNIFICATION

Back 11

Process by which an insured is restored to a pre-loss condition. As a legal principle, it states that a person should not profit or collect more than the value of a loss but restored to the same financial position. NO MORE / NO LESS.

Front 12

CONTRACT OF ADHESION

Back 12

The insurance company writes the contract to be accepted or rejected. Courts generally hold that any ambiguity in contracts should be interpreted for insured to understand.

Front 13

IMPLIED AUTHORITY

Back 13

XYZ Insurance has allowed agents to bind coverage with past dates therefore making agents believe they have the authority to do that continuously because Authority was implied.

Front 14

ALIEN

Back 14

An alien insurance company is incorporated or organized under the laws of any foreign nation, province or territory.

Front 15

PURE RISK

Back 15

Pure risk involves only the chance of loss (not gain) ONLY PURE RISKS ARE INSURANBLE.

Front 16

SPECULATIVE RISK

Back 16

Involves chance of both gain and loss. (stock market ventures) NOT INSURABLE

Front 17

RETENTION

Back 17

When an individual retains the risk and must accept the economic loss if the risk becomes a reality. (self-insurance)

Front 18

SURPLUS LINES

Back 18

A nonadmitted or unauthorized insurance company that has not been authorized to transact business in a particular state. Brokers use this to obtain policies when an authorized company cannot provide coverage.
(ex: Lloyd's of London)

Front 19

FIDUCIARY

Back 19

Involving trust. An agent must trust both insured and insurer, act in good faith and preserve confidential info.

Front 20

MISREPRESENTATION

Back 20

Twisting...inducing a policyholder to cancel, lapse, forfeit or surrender an existing policy in order to purchase a similar policy from the selling agent. In which case, cancellation or change are not warranted.

Front 21

REINSURANCE

Back 21

The spreading or sharing of a risk too large for one insurer by ceding part of the risk to another company or insurer.

Front 22

RECIPROCAL EXCHANGE

Back 22

An unincorporated mutual organized for the mutual protection of its members. An association of subscribing members who exchange contracts of indemnity with each other.

Front 23

UNILATERAL CONTRACT

Back 23

Only 1 party (the insurer) makes any kind of enforceable promise to pay benefits when a certain event occurs (death or disability)

Front 24

MUTUAL INSURANCE COMPANY

Back 24

Owned by its policy owners from whom its resources are derived. Its assets and income are held for the benefit of policy holders who as contractual creditors have the right to vote for directors / trustees

Front 25

INSURABLE INTEREST

Back 25

Any property that will result in financial loss to an insured is an insurable interest.

Front 26

AVOIDANCE

Back 26

Avoiding having the risk of a loss by not engaging in a certain activity or owning property.
(ex: by not owning a car, Robert will not risk having it stolen)

Front 27

FOREIGN COMPANY

Back 27

A foreign company operates within a state in which it is not chartered and in which its home office is not located.

Front 28

REDUCTION

Back 28

May be accomplished through loss prevention and loss control. (ex: A burglar alarm)

Front 29

EXPRESS AUTHORITY

Back 29

The insurer gives the agent through means of the contract. This explicitly appoints the agent to act on behalf of the insurer.

Front 30

LAW OF LARGE NUMBERS

Back 30

Operates under the principle that the larger the number of similar risks combined into one group, the less uncertainty there will be to the amount of loss the group will incur.

Front 31

WORKERS COMPENSATION

Back 31

No-Fault insurance. Injured workers may receive benefits without having to prove that their employer was negligent. Provides compensation for injuries arising out of their employment. It is State regulated.

Front 32

OCCUPATIONAL DISEASE (WC)

Back 32

a disease that is not peculiar to the employment exposure will not be covered by WC. (ex: Chicken Pox)

Front 33

MONOPOLISTIC METHOD (WC)

Back 33

When insurance must be purchased from the state-run insurer. 5 Monopolistic states: North Dakota, Ohio, Washington, West Virginia and Wyoming.

Front 34

SURETY BONDS

Back 34

Provides monetary compensation if the bonded party fails to perform a certain act. It guarantees that the obligor has the financial means and expertise to fulfill the obligation to which he is bonded. Protects the obligee. a contract of obligation between 2 parties.

Front 35

PRINCIPAL (Surety Bonds)

Back 35

The one whose acts are being guarantee by the bond. The party who promises to do or not do a specific thing.

Front 36

OBLIGEE (Surety Bonds)

Back 36

The one who collects if the principal fails to perform as guaranteed.

Front 37

SURETY

Back 37

The one giving the guarantee. The agent is not a party to the bond.

Front 38

RECIPROCAL EXCHANGE

Back 38

An Unincorporated mutual organized for the mutual protection of its members

Front 39

LLOYD'S

Back 39

Voluntary organizations of individuals or groups of individuals who agree to share in insurance contracts. Each individual or syndicate is individually responsible for the amount of insurance they agree to write.

Front 40

RISK RETENTION GROUPS

Back 40

an alternative for businesses and individuals to secure much needed insurance coverage. they must possess similar liability risks or be engaged in similar businesses.

Front 41

FAIR PLANS

Back 41

governed by the state to help provide economic security against property losses.

Front 42

FLOOD INSURANCE

Back 42

Emergency and Regular. The emergency goes into effect when the community applies to the NFIP and remains until the government finalizes the flood rates. Regular program provides coverage.

Front 43

FLOOD INSURANCE COVERAGES

Back 43

the max coverage for a single-family dwelling under the regular flood program is $250,000 for the building and $100,000 for the contents w/1000 MINIMUM deduct. Under the emergency flood program, the maximum coverage is $35,000 for the building and $10,000 for the contents w/2000 MINIMUM deductible.

Front 44

HOMEOWNERS POLICY

Back 44

A= Structure
B= Other Structures (10% of A)
C= Contents
D= Loss of Use (20% of A)
E= Liability
M= Medical

Front 45

UNDERINSURED

Back 45

to calculate payout:
Amount of insurance / amount of insurance required x loss - deductible= payout.

Front 46

PAIR & SET FORMULA

Back 46

# OF ITEMS REMAINING X VALUD OF 1 ITEM - VALUE OF SET = PAYOUT

Front 47

COMMERCIAL AUTO COVERAGE

Back 47

includes only liability and physical damage coverage. Medical Payments can be added by endorsement. (does not cover damages caused to the insured vehicle if at fault)

Front 48

BUSINESS AUTO EXTENSION

Back 48

Allows up to $2,000 for bail bonds as a supplementary payment. It also pays for the cost of bonds to release attachments in any suit the insurer defends.

Front 49

BUSINESS AUTO SYMBOLS

Back 49

1. ANY auto
2. Owned Autos. only those you own.
3. Owned private passenger autos.
4. owned autos that are not of the private passenger type.
5. Autos subject to no-fault coverage
6. Autos subject to a compulsory UM law.
7. Specifically described autos.

Front 50

BUSINESS AUTO SYMBOLS (cont)

Back 50

8. Hired Autos. lease/rent or borrow but NOT from any of your employees.

9. Nonowned autos. this would include autos owned by your employees

19. Mobile Equipment. land vehicles.

Front 51

HULL INSURANCE

Back 51

Protects a ship's owner against loss to the ship itself.

Front 52

CARGO INSURANCE

Back 52

Covers property inside of a vessel

Front 53

FREIGHT INSURANCE

Back 53

Covers income lost to the ship owner because the ship was lost or destroyed.

Front 54

JETTISON

Back 54

The voluntary act of throwing cargo overboard to save the vessel and crew. Policy would cover losses due to jettison.

Front 55

INDEMNITY INSURANCE (P&I)

Back 55

Provides a kind of workers compensation insurance for the vessel's crew members to protect against job related injuries.

Front 56

BARRATRY

Back 56

Illegal acts committed willfully by the ship's master or crew for the purpose of damaging the ship or cargo. Includes hijacking, abandonment or embezzlement.

Front 57

CEASE & DESIST

Back 57

Any insurer (company) who violates a cease and desist order may be fined up to $10,000 per violation & $500 to any individual (agent)

Front 58

INSURANCE COMMISSIONER

Back 58

Keeps records of examinations, adopts rules and regulations, determines whether rates are excessive, inadequate or unfairly discriminatory. Has the power to conduct investigations and subpoena witnesses.

Front 59

REPLACEMENT COST

Back 59

RC: Amount needed to replace new for old w/no deduction for depreciation.

Front 60

ACTUAL COST VALUE

Back 60

ACV: Replacement Cost MINUS depreciation.

Front 61

HOMEOWNERS

Back 61

Section 1.
A: Dwelling
B: Other Structures. (10% of A)
C: Personal Property (50% of A)
D: Loss of Use.
Section 2.
E: Personal liability
F: Medical Payments.

Front 62

BOND

Back 62

Serves as a guarantee of performance. The surety guarantees the principal's conduct & that if conduct falls short, surety is responsible to obligee.

Front 63

OBLIGOR

Back 63

Principal whose obligation has been guaranteed

Front 64

OBLIGEE

Back 64

Party insured whose favor the obligation & receives the benefit.

Front 65

SURETY

Back 65

The Company guaranteed the obligation will be performed by employee.

Front 66

THEFT/ LARCENY

Back 66

Taking of property from another person. Any act of stealing.

Front 67

BURGLARY

Back 67

Theft of property from INSIDE premises when business is closed. *Requires visible evidence of forced entry or exit.*
Actual entry is NOT required.

Front 68

ROBBERY

Back 68

Violent theft. Requires threat or fear.

Front 69

MYSTERIOUS DISAPPEARANCE

Back 69

Unknown cause of loss. Theft must be ruled out. Discovery period applies to losses discovered within 12 months.

Front 70

CRIME COVERAGE FORMS

Back 70

A: Employee Dishonesty
B: Forgery or Alteration
C: Inside Premises
D: Property other than $ - must b w/in 100 ft of premises
E: Outside Premises
F: Computer Fraud
G: Kidnap, ransom or extort.
R: Money orders and counterfeit.

Front 71

WORKERS COMPENSATION COVERAGE

Back 71

-Medical care for injuries (100%)
-Funeral Expenses
-Wage loss (after 7 day waiting period)
-% of employees weekly wage (subject to state limits)
-Scheduled awards for permanent injuries & dismemberment.

Front 72

WORKERS COMPENSATION

Back 72

Premium is based on payroll. (per $100)

Needs a 4 digit job classification
Experience modification.
EMPLOYER IS NOT MAKE PAYMENT OR ASSUME OBLIGATION!
Incident must b reported w/in 10 days to company

Front 73

CGL EXCLUSIONS

Back 73

Coverage A: Product Recall/ sistership. (cost of replacing or recalling customers defective product)
Coverage B: Personal Injury. (False Arrest. Malicious Prosecution. Wrongful Eviction. Liber & Slander. Plagiarism)
Coverage C: Medical. (All employees are excluded under GL but covered under WC)

Front 74

SUPPLEMENTARY PAYMENTS

Back 74

B- bonds

A- aid

I- interest on judgements

L- loss of earnings

E- expenses

D- defense costs

Front 75

TYPE OF CONTRACTS

Back 75

1. Unilateral- 1 sided. only insurer has promise to keep.
2. Adhesive- Take it or leave it.
3. Aleatory- Uneven. small premium to a large payout.
4. Conditional- Rules are set by insurer
5. Personal

Front 76

BUSINESS EXPOSURES

Back 76

Premises- Owned Rented or used by insured.
Operations- Business activities away from premises.
Products- Becomes a product after it leaves the store & control is relinquished.
Completed Operations- Work has been completed.
Independent Contractors- Subs who can cause damage

Contractual Liability- assumed in a contract whereby 1 party assumes legal liab. Fire- by insured's negligence.

Front 77

HAZARD

Back 77

Physical (such as a high performance engine, wood stove, pool, trampoline or old fuses)
Moral= dishonesty (drunk drivers, no insurance, bad credit)
MoralE= Carelessness. (people are stupid)

Front 78

INSURABLE RISK

Back 78

C- calculate

A- affordable

N- Non-catastrophic

H- Homogenous Exposures

A- Accidental

M- Measurable

Front 79

EXPOSURE

Back 79

The more you have, the higher the risk

Front 80

ADVERSE SELECTION

Back 80

Tendency of people with significant potential to file claims. - Agents must screen prospects because of this.

Front 81

LAW OF LARGE #S

Back 81

Used by companies to predict potential future losses. They take on too many risks with reasonable assurance of only paying a small amount of claims.

Front 82

POOLING

Back 82

Each person @ risk pays a smaller guaranteed payment in exchange for more expensive conditional coverage if problem occurs.

Front 83

TORT LIABILITY

Back 83

-Intentional
-Unintentional
-Strict or absolute: imposed on a party who engages in inherently dangerous activities.
-Vicarious: Responsible for another. Like parents for children or employers for employees.

Front 84

LIABILITY

Back 84

The legal obligation to pay for damage caused by INSURED to OTHERS

Front 85

INDIRECT LOSS

Back 85

A financial loss incurred as a result of direct damage to property. A business can suffer such a loss in the form of lost profits, rent and extra expenses required to keep business operating.

Front 86

MEDICAL COVERAGE

Back 86

The insurer pays for reasonable expenses for necessary medical and funeral services incurred within three years from the date of an accident without regard to fault.

Front 87

ASSIGNED RISK PLAN

Back 87

a stand-alone entity or part of the competitive state fund. All insurers writing workers compensation coverage in the voluntary insurance market must also participate in the plan. The coverage MUST BE purchased from the state run insurer.

Front 88

EXTRA EXPENSE INSURANCE

Back 88

Pays for the necessary additional expenses the insured incurs following a loss to maintain operations at the level they were before loss.

Front 89

LOSS OF EARNINGS

Back 89

Policy will cover up to $250 per day.

Front 90

SHORT RATE CANCELLATION

Back 90

Method used when a policy is cancelled by the insured before it reaches its natural expiration. The company pays a return premium less than the proportionate or pro rata part that is still unearned. There is a penalty to the insured for cancelling early.

Front 91

COLORADO INSURANCE GUARANTY ASSOCIATION ACT

Back 91

In the event an insurance company becomes insolvent, the Colorado Insurance Guaranty Association will assume the processing of all covered claims in accordance with the applicable insurance policies and the applicable Colorado statutes.

Front 92

TERRORISM

Back 92

The federal government is responsible for reimbursing 85% of each insurer's terrorism losses above the insurer's annual deductible.

Front 93

RATE

Back 93

Amount of dollars and cents charged for a particular amount of insurance. For example, the rate charged for a fire policy might be $.50 per $100 of value. If the insured wishes to cover property valued at $100,000, the annual premium would be $500 ($.50 × 1,000 hundreds = $500).