CA Property & Casualty flashcards

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

Insurable interest

A person has insurable interest when a loss would cause a financial detriment; in property insurance it must exist at the time of loss, while in life insurance it must exist at application.

Indemnity principle

Indemnity restores the insured to approximately the pre-loss financial position, no better and no worse; it prevents profit from loss and supports actual cash value, subrogation, and policy limits.

Actual cash value

Actual cash value is replacement cost minus depreciation, or market value depending on the policy; it reflects the value of the damaged property immediately before the loss.

Coinsurance formula

Claim payment equals the limit carried divided by the limit required, multiplied by the loss, then reduced by the deductible, and capped by the policy limit.

Subrogation

After paying a covered loss, the insurer may pursue the responsible third party to recover payments; the insured cannot double-recover and must cooperate with the insurer.

Utmost good faith

Both parties must disclose material facts; concealment, misrepresentation, or breach of warranty can affect coverage because insurance depends on accurate underwriting information.

Adhesion contract

An insurance policy is drafted by the insurer and offered take-it-or-leave-it; ambiguities are generally construed against the drafter and in favor of the insured.

Moral hazard

Moral hazard is the increased chance of loss caused by dishonest or intentional behavior, such as arson or staged theft, and it is addressed through underwriting and claims investigation.

Replacement cost coverage

Replacement cost coverage pays to repair or replace damaged property with new property of similar kind and quality, without deducting depreciation, subject to policy limits and deductible.

HO-3 policy

HO-3 covers the dwelling on an open-peril basis and personal property on a named-peril basis; it is a common homeowners form for owner-occupied residences.

HO-4 policy

HO-4 is renters insurance; it covers the tenant's personal property on named perils and provides liability and additional living expenses, but not the building structure.

Mortgagee clause

A mortgagee clause gives the lender rights to receive loss payments and notice of cancellation or nonrenewal, protecting the lender's interest in the insured property.

Additional living expense

ALE pays necessary increases in living costs when a covered peril makes the residence uninhabitable, usually for a specified time and subject to policy limits.

Business income coverage

Business income coverage replaces lost net income plus continuing normal operating expenses during a covered suspension of operations, subject to limits and the period of restoration.

Ordinance or law coverage

This coverage pays additional costs required by building codes when repairing or rebuilding damaged property, such as demolition, increased construction costs, or upgraded materials.

Flood insurance

Flood is excluded by standard property policies; coverage is typically purchased separately through the National Flood Insurance Program or a private flood insurer.

Negligence elements

To recover for negligence, a claimant must prove duty, breach of duty, causation, and damages; comparative fault may reduce the amount recoverable.

Pure comparative negligence

California follows pure comparative negligence, so a plaintiff's recovery is reduced by the plaintiff's percentage of fault even if that fault exceeds the defendant's fault.

Collision coverage

Collision pays for damage to the insured vehicle caused by striking another object or overturning, subject to the deductible and policy limit.

Comprehensive coverage

Comprehensive pays for vehicle damage from causes other than collision, such as theft, fire, vandalism, or weather, subject to the deductible and policy limit.

Uninsured motorist coverage

UM coverage pays for bodily injury caused by an uninsured or hit-and-run driver; California requires insurers to offer it, and it may include underinsured motorist coverage.

Occurrence-based CGL

An occurrence CGL policy covers bodily injury or property damage that occurs during the policy period, even if the claim is reported later, subject to policy terms.

Claims-made CGL

A claims-made CGL policy covers claims first made and reported during the policy period or extended reporting period, rather than when the injury or damage occurred.

Workers compensation exclusive remedy

Workers compensation pays statutory benefits for work-related injury or illness and generally bars the employee from suing the employer for negligence.

FAIR Plan

The California FAIR Plan is a residual market insurer that offers basic property coverage when admitted insurers decline the risk, funded by participating insurers.

California Earthquake Authority

The CEA is a publicly managed, privately funded pool that offers residential earthquake insurance in California; insurers must offer earthquake coverage when selling residential policies.

Premium trust

California producers must hold premiums in a fiduciary capacity, keep them separate from personal funds, and not commingle or misappropriate collected premiums.

Rebating prohibition

California generally prohibits insurers and producers from offering rebates or inducements not stated in the policy, because it can result in unfair discrimination among insureds.

Surplus lines diligent search

A surplus lines broker must first search the admitted market and document that coverage is unavailable before placing a risk with an eligible nonadmitted insurer.

Fair claims settlement

California regulations require insurers to acknowledge claims and accept or deny them within specified timeframes, generally 40 days after receiving proof of claim.

CIGA

The California Insurance Guarantee Association pays covered claims of insolvent admitted property and casualty insurers, subject to statutory limits and exclusions.

Producer continuing education

California resident insurance producers generally must complete 24 hours of continuing education every two years, including at least 3 hours of ethics.