Policy provisions, coverage evaluation, and claim settlement
Domain 4 - Policy provisions, coverage evaluation, and claim settlement
This domain tests reading a policy and turning it into a defensible settlement. Know the declarations, insuring agreement, exclusions, conditions, valuation, deductible, and loss-settlement clauses, plus Iowa rules that override ordinary assumptions.
Coverage and settlement
- A homeowners policy typically provides Coverage A dwelling, B other structures, C personal property, D loss of use, and liability coverages. Read the deductible, any special limits, and the valuation clause. Actual cash value is replacement cost less depreciation; replacement cost pays new-for-old but may hold back depreciation until repair or replacement.
- Conditions include proof of loss, appraisal, subrogation, duties after loss, and suit limitation. A mortgage clause protects the lender's interest. Ordinance-or-law coverage may pay for code-required upgrades.
- Iowa's valued policy statute applies to a total loss of real property by fire or lightning: the insurer is liable for the policy limit, not a depreciated value. It does not make every partial loss a policy-limit payment.
- Settlement math: determine the covered scope, price it, apply depreciation if ACV, subtract the deductible and prior payments, and release recoverable depreciation only when the policy conditions are met.
Worked example
A dwelling is insured for $300,000 with a $2,000 deductible and replacement cost coverage. A kitchen fire causes $60,000 replacement cost and $45,000 ACV damage. The loss is partial, so the valued policy rule does not apply. The initial payment is $45,000 minus $2,000, or $43,000. The insured may recover the $15,000 depreciation after completing repairs, subject to the policy's conditions and limits.
Traps
- Applying the valued policy rule to a partial loss.
- Paying replacement cost before repairs are complete.
- Forgetting the deductible or a mortgagee clause.
- Ignoring ordinance-or-law or special limits.
- Treating an estimate as coverage; the policy controls.