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106 Cards in this Set
- Front
- Back
•FEMA (Federal Emergency Management Association)
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oFlood Insurance is a FEMA run program
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• Non-Participating Communities
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o No flood insurance available
o No disaster assistance o No federal mortgages in Special Flood Hazard Area (SFHA) |
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• Myths and Facts About Flood Insurance
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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) |
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• Definition of a Flood
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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 |
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• Definition of a Flood→Key Criteria
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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 |
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• Mitigation and Floodplain Management
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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 |
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• Special Flood Hazard Areas (SFHAs)
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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 |
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• Non-Special Flood Hazard Areas
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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! |
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• Mandatory Purchase Requirement
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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 |
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• Who can buy flood insurance
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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 |
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• Policy Types
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o Dwelling Form→More for Residential
o General Property→More for Business |
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• Dwelling Form
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o 1-4 Family Residence
o Single Family Condo Unit o Simplified Language o ACV or Replacement Cost |
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• Coverage A→Building Property
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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 |
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• Coverage B→Personal Property
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o Direct Physical Loss
o Inside Building o Basement Limitations→Typically ACV |
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• Scope of Basement Coverage
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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 |
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• Coverage C→Other Coverage
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o Debris Removal
o Loss Avoidance Measures o Condo Loss Assessments |
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• Coverage D→Increased Cost of Compliance Coverage
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o Flood proofing
o Relocation o Elevation o Demolition |
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• Property Not Covered
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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 |
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• Exclusions
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o Earth Movement
o Sewer Backup or Seepage |
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• Deductible
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o $500 or $1000 standard
o Other options available up to $5000 o Applies separately to building and contents (COUNT IT TWICE) |
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• Replacement Cost Coverage
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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 |
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• The General Property Form
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o Commercial Buildings
o Multi-Unit Apartments o Churches o Schools o Commercial Condos o Municipal Buildings |
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• Elevated Buildings
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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 |
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• Breakaway Wall
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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 |
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• Flood Vent
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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 |
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• Waiting Period
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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) |
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• Future of Flood Insurance
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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 |
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• Property Exposures
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o Damage or Destruction of Vehicles
• Decrease in or loss value of automobile • Loss of use of auto until replaced or repaired |
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o Owned Auto
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• 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 |
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o Auto not owned by the user
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• Might have EEs rent vehicles
• Might have vehicles in your care→bailee→using the vehicle |
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o Hired or Borrowed Autos
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• Some organizations lease vehicles
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o Liability Assumed Under Contract
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• Hold-Harmless Agreement
• Might already be covered in another section |
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o Employers non ownership liability
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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 |
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➢ Business auto coverage form
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• 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 |
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➢ Section 1 – Covered Autos
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• 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) |
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➢ Newly acquired autos
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• 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 |
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o Out of state coverage extensions
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• 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 |
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o Exclusions
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• Intended Injury
• Workers Compensation • Property in the care, custody, or control (inland marine) • War • Racing |
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• Section III→Physical Damage
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• Section III→Physical Damage
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o Collision
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• Striking another object violently
• Overturn |
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o Comprehensive
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• Any damage to a vehicle except collision
• Or a peril specifically excluded |
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o Towing and Labor
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• Reimburse for towing and labor expenses from the disablement of a private passenger auto
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o Transportation Expenses
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• 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 |
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o Exclusions
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• 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 |
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• Garage Coverage Form
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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 |
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o Section III
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Garagekeepers Coverage
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• 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 |
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• Direct Excess Option
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• When insured is legally liable as primary
• When not liable→Will pay as excess after what customer can recover from their own policy |
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• Direct Primary Option
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• Will pay regardless of liability or existence of coverage by the customer
o Section IV→Physical Damage |
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• Dealers Auto
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• Not listed individually, but in the aggregate
• Single overall limit |
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• Exclusions
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• 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 |
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• Motor Carrier Coverage Form
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o Used to be known as Truckers Form
o Covers businesses that sue auto to transport property of others or their own |
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o Owner Operators
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• Motor carriers often hire these independent contractors to haul goods for them
• Motor carrier often provides liability coverage for OO during the trip |
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Bobtailing & Deadheading
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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 |
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o Trailer Interchange
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• 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 |
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• Coverage Part For Farm
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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 |
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• Farm owners Policy
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o Package Policy
o Residential Property o Farm Property (Equipment, livestock, barns) o Personal and Farm Liability Exposures |
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• Additional Forms (Coverages)
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o Inland Marine
• Equipment and Livestock o Liability • Personal as well as the operation of the farm as a business |
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• Crop/Hail
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o Covers crops damaged by hail
o Also loss to crops by fire and windstorm |
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• Federal Crop Insurance
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o Covers unexpected production losses due to natural causes
• Drought • Excessive Rain • Hurricanes • Tornadoes • Lightning |
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• Animal Mortality
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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 |
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• Business Owners Policy (BOP)
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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 |
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• BOP Eligibility
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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 |
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• BOP Ineligible
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o Auto Businesses
o Bars, Grilles, and large restaurants o Manufacturing Firms o Places of Amusement o Financial Institutions |
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• BOP Features
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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 |
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• BOP Additional Coverages
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o Employee Dishonesty
o Money and Securities o Outdoor Signs o Equipment Breakdown o Accounts Receivable |
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• WC Statute
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o Obligates ER to pay specified medical, disability, rehab, and death benefits
o Job related injuries and diseases o Regardless of fault |
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• Benefit Requirements
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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 |
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o Medical
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• Full and unlimited medical expense benefit for covered injury or disease
• First Dollar Coverage→No deductible or co-insurance |
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o Disability
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• 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 |
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o Rehabilitation Benefits
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• Goal is to return to work
• Pay expenses for physical therapy • Can cut the cost of claims |
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o Death Benefits
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• Burial expense
• Partial replacement of workers former weekly wage • Varies based on the number and types of dependents |
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• 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 |
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• Workers Compensation
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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 |
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• Methods to meet WC Obligation
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o Private Insurance
o Assigned Risk Plans o State Funds |
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o Private Insurance
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• Pay Premium→Insurer pays and administers claims
• Highly experience rated |
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o Assigned Risk Plans
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• 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 |
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o State Funds
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• 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 |
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• Self Insurance
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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 |
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• Policy
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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) |
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o Part 1→WC
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• 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 |
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o Part 2→ER Liability
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• 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 |
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• Part 3→Other States Insurance
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• 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 |
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• Rating WC
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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 |
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o Worker Classification
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• 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 |
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• Premium
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o Experience Rating
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o Experience Rating
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• 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 |
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o Large Deductible Plan
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• 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 |
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• Professional Liability
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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 |
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• Claims
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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 |
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• Underwriting Professional Liability
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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 |
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• Insurance Agent and Broker Errors and Omissions (E&O)
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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 |
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• Directors and Officers Liability (E&O)
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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) |
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• D+O Liability (E&O)→Exclusions
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o Libel or Slander
o Gaining personal profit illegally o Violations of SEC regulations o Acts of deliberate honesty o Liability under ERISA |
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• Excess and Umbrella
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o Purchased to extend the limits of CGL, auto liability, and other liability coverages
o Why Needed? • Catastrophic Claims |
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• Maximum Possible Loss (MPL)
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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 |
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• Coverage Layers
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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 |
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• Aggregate Limits
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o Unlike property→Even if losses never exceed occurrence limit→You could still be uninsured or underinsured
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• Excess and Umbrella
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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 |
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• Excess Policies
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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 |
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• Umbrella Policies
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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 |
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• Aircraft Insurance
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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 |
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• Aircraft Hull Coverage
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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 |
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• Aircraft Liability Coverage
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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 |
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• Surety Bonds
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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 |
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• Surety Bonds Different Than Insurance
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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 |