C12: Insurance on Property flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Utmost good faith

A doctrine requiring the applicant to disclose all material facts that would influence a prudent underwriter's decision, and requiring the insurer to deal fairly. Breach renders the policy voidable.

Material fact

Information that would influence a prudent insurer's decision to accept, decline, or rate a risk. Examples include prior losses, hazardous occupancy, and unoccupied premises.

Contra proferentem

A rule of construction holding that ambiguous policy wording is interpreted against the party who drafted it, usually the insurer. Coverage clauses are read broadly; exclusions narrowly.

Statutory conditions

Policy conditions prescribed by insurance legislation that cannot be varied to the insured's detriment, covering notice, proof of loss, appraisal, salvage, and limitation periods.

Proof of loss

A formal sworn statement submitted by the insured at the insurer's request, detailing the amount claimed with supporting documentation. It must be furnished within the statutory period, commonly sixty days.

Abandonment clause

A condition prohibiting the insured from abandoning damaged property to the insurer. The insured retains the property and must mitigate further damage while the claim is settled.

Insurable interest

A pecuniary relationship with property such that the insured benefits from its continued existence or suffers loss from its destruction. It must exist at the time of loss.

Actual cash value

Replacement cost new of the damaged property minus depreciation measured by age, condition, and useful life at the date of loss. It is the default indemnity measure in many property forms.

Coinsurance formula

Recovery equals insurance carried divided by insurance required, multiplied by the loss. Insurance required equals the coinsurance percentage multiplied by the value at risk.

Replacement cost coverage

A valuation basis paying the cost to repair or replace with new property of like kind and quality, without depreciation, subject to the policy limit and often a requirement to actually replace.

Hostile fire

A fire that escapes its intended container or place of confinement and causes damage. Friendly fire, confined to its intended place, is not covered under fire policies.

Removal coverage

Coverage for property removed from insured premises to protect it from an insured peril, typically for a limited period such as thirty days and subject to a percentage of the policy limit.

72-hour clause

A provision aggregating all loss from a single fire or explosion event occurring within a seventy-two-hour period into one occurrence, preventing stacking of limits across successive events.

Extended coverage perils

A set of perils historically added to fire coverage: windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles, and smoke. Vandalism is often a separate endorsement.

Ordinance or law coverage

Endorsement paying the increased cost of repairing or rebuilding to comply with current building codes, including demolition of undamaged portions required by code.

Earthquake endorsement

A separate coverage with its own limit and a percentage deductible, commonly two to ten percent of the limit, and a seventy-two-hour aggregation clause for successive shocks.

Special causes of loss form

An all-risk form covering all risks of direct physical loss unless excluded. The insured proves physical loss; the insurer bears the burden of proving an exclusion applies.

Ensuing loss clause

A provision preserving coverage for loss from a covered peril that follows an excluded cause, such as a fire started by faulty wiring, even though the wiring failure itself is excluded.

Value reporting form

A form adjusting premium to actual values reported periodically, applying a penalty at settlement if reported values fall below the true values at the reporting dates.

Business income coverage

Coverage for loss of net income plus continuing normal operating expenses during the period of restoration, subject to a policy limit and a waiting period.

Period of restoration

The period beginning at the time of loss and ending when the damaged property is repaired with reasonable speed or business resumes at a new permanent location.

Extra expense coverage

Coverage for reasonable costs incurred to avoid or minimize interruption of business, such as temporary premises and overtime, without any requirement that business income be reduced.

Contingent business interruption

Coverage for loss of income caused by physical damage to property of a supplier or customer, or by government prohibition of access to the insured premises.

Employee dishonesty bond

Fidelity coverage for loss of money or property from dishonest acts of employees committed with intent to gain, excluding loans, salary, and unexplained inventory shortages.

Surety bond parties

Three parties: the obligee who is protected, the principal who must perform, and the surety who guarantees performance. The surety holds a right of indemnity against the principal.

Discovery form

A fidelity form covering loss discovered during the bond period regardless of when the dishonest act was committed, subject to any retroactive date stated.

Social engineering fraud

Loss from impersonation schemes inducing an employee to transfer funds or property. It requires a specific endorsement and is distinct from computer fraud requiring unauthorized system access.

Equipment breakdown coverage

Coverage for accidental breakdown of boilers, pressure vessels, and mechanical or electrical equipment from explosion, arcing, or mechanical failure, including damage to surrounding property.

Object limit versus damage limit

The object limit caps the cost to repair or replace the failed equipment itself; the damage limit covers resulting damage to surrounding property and other insured property.

Spoilage coverage

Coverage for loss of perishable stock from temperature or humidity change caused by an insured equipment breakdown or power interruption, often subject to a waiting period.

COPE factors

The four core underwriting elements for fire risk: Construction, Occupancy, Protection, and Exposure. Each factor influences the probability and severity of loss.

Protection class

A rating of fire protection quality based on fire department response and water supply, scaled from one to ten, with one the best and ten indicating no recognized protection.