Insurance Principles and Concepts
The ideas every claim answer traces back to
Indemnity means the insured is restored to its pre-loss financial position - no better (paying for that is betterment) and no worse than the policy promises. Insurable interest must exist at the time of loss for property. The policy is a contract of adhesion (drafted by the insurer, construed against the drafter when genuinely ambiguous) and aleatory (the exchange is unequal and contingent). Utmost good faith underlies both the application and the claim.
Proximate cause connects the loss to a covered peril; concurrent causation turns on the policy's anti-concurrent causation wording. Subrogation shifts the loss to the responsible party and prevents double recovery; contribution apportions loss among insurers with concurrent coverage. Actual cash value is generally replacement cost less depreciation unless the policy defines it otherwise (some use market value). Replacement cost pays new-for-old and is often paid in two steps, with recoverable depreciation withheld until repair or replacement.
Know the difference between occurrence and claims-made triggers, and between the duty to defend (broad, frequently outside limits) and the duty to indemnify (inside limits).
Worked example - coinsurance
Building replacement cost $1,000,000; 80% coinsurance; limit carried $600,000; covered loss $200,000; $5,000 deductible. Required insurance = $800,000. Recovery = ($600,000 ÷ $800,000) × $200,000 = $150,000, less $5,000 = $145,000. Underinsuring makes the insured a coinsurer of its own loss.