III IC-57 flashcards

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

Insurable interest (fire)

At the time of loss the insured must stand to suffer pecuniary loss from damage to the property; ownership, leasehold, or mortgage interests can all support a valid fire claim.

Indemnity principle

The insured is restored to the pre-loss financial position, no better and no worse; payment is based on actual cash value unless a reinstatement or replacement basis is expressly granted.

Average clause

Where the sum insured is below the value at risk, the claim is reduced proportionally: loss multiplied by sum insured divided by value at risk, penalising underinsurance.

Proximate cause

The dominant and effective cause of a loss determines whether it is covered; if that cause is excluded, the claim fails even where an insured peril also contributed.

Reinstatement basis

Settlement on the cost of repairing or rebuilding to the same standard without depreciation deduction, usually conditional on the work being completed within a stated period.

Subrogation rights

After indemnifying the insured, the insurer may pursue negligent third parties in the insured's name, recovering only up to the amount paid and never prejudicing the insured's uninsured balance.

Utmost good faith

Both parties must disclose all material circumstances affecting the risk; non-disclosure or misrepresentation by the insured allows the insurer to avoid the policy.

Material fact

Any circumstance that would influence a prudent underwriter's decision on acceptance, rating, or terms, such as hazardous storage, occupancy changes, or prior loss history.

Domestic boiler explosion cover

Standard fire policies cover explosion of gas or boilers used for domestic purposes, but industrial boilers and pressure vessels require separate engineering inspection and cover.

Electrical short-circuit exclusion

Damage to the faulty electrical item itself from short-circuiting or arcing is excluded, though ensuing fire damage to other insured property remains recoverable.

Spontaneous fermentation exclusion

Loss caused by inherent vice, spontaneous combustion, or fermentation is excluded because it arises from the property's own nature rather than a fortuitous insured peril.

Per-occurrence deductible

A fixed amount deducted once from each adjusted loss event; separate or higher deductibles often apply to windstorm, flood, or subsidence perils.

Replacement cost

The cost of replacing damaged property with new property of like kind and quality, typically without depreciation deduction but subject to a sum insured adequate for new-for-old value.

Salvage value

Residual worth of damaged property that the insurer may take into account or sell, reducing the net indemnity payable under a fire claim.

Consequential loss insurance

Business interruption cover that indemnifies loss of gross profit and increased cost of working following insured physical damage, rather than the property damage itself.

Gross profit definition

Net trading profit plus insured standing charges, calculated on the policy's turnover basis; the sum insured must reflect this figure for the full indemnity period.

Standing charges

Fixed costs such as rent, salaries, insurance, and depreciation that continue during a shutdown and are insured so they can be paid despite reduced turnover.

Indemnity period

The period beginning at the date of damage during which the business is restored to its pre-loss trading level, capped by the maximum indemnity period selected.

Rate of gross profit

Net profit plus standing charges divided by annual turnover, expressed as a percentage; applied to the reduction in turnover to quantify the gross profit loss.

Reduction in turnover

The difference between the turnover that would have been achieved and the actual turnover during the indemnity period, adjusted for trends and special circumstances.

Increased cost of working

Extra expenditure reasonably incurred to avoid or reduce a loss of gross profit, payable only where it is economically justified by the profit saved.

Economic limit test

Increased cost of working is capped at the gross profit saved plus any saving in insured standing charges; costs exceeding that benefit are not recoverable.

Time excess

An initial waiting period at the start of a business interruption claim, expressed in hours or days, for which no loss of gross profit is payable.

BI average condition

If the sum insured on gross profit is below the declared annual gross profit, the claim is reduced in the same proportion as the underinsurance.

Prevention of access extension

An optional cover that responds when authorities deny access to the insured premises after nearby damage, even though the insured property itself is undamaged.

Loss of attraction extension

Optional cover for reduced turnover caused by damage to neighbouring attractions or facilities that draw customers to the insured's business, without damage to the insured premises.

Suppliers extension

Optional cover responding to business interruption caused by physical damage at a named supplier's premises, extending cover beyond the insured's own property.

Customers extension

Optional cover for loss of gross profit following physical damage at a named customer's premises that reduces demand for the insured's goods or services.

Turnover definition

The money paid or payable for goods sold and services rendered in the ordinary course of business, excluding capital asset sales and usually including cash sales.

Output basis

An alternative to turnover for manufacturers where sales data is unreliable; loss is measured by reduction in production value rather than invoiced sales.

Audit clause

A policy condition allowing the insurer to inspect the insured's books and records after a claim to verify turnover, gross profit, and the declared sums insured.

Dual basis of claim

The insured may claim either loss of gross profit or increased cost of working, but not double recovery for the same financial effect within the indemnity period.