Insurance Principles and Concepts
What this domain tests
This domain checks whether you can apply the doctrines that decide coverage before anyone opens an estimate: risk transfer, insurable interest, indemnity, utmost good faith, adhesion, proximate cause, and actual cash value versus replacement cost. Maryland items often frame these through the public adjuster's role: you advocate for the insured, but you cannot manufacture coverage that the policy does not provide.
Core rules
- Insurance transfers uncertainty; indemnity restores the insured to the pre-loss position, no better.
- Insurable interest must exist at the time of loss for property coverage.
- Policies are contracts of adhesion. Ambiguities are construed against the drafter, but plain exclusions are enforced.
- Utmost good faith imposes disclosure duties on both parties; a material misrepresentation can void coverage.
- Proximate cause is the dominant, efficient cause of loss. Concurrent causation requires reading the policy's anti-concurrent causation language closely.
- Subrogation and other-insurance clauses prevent double recovery.
Worked example
A 15-year-old shingle roof has a replacement cost of $24,000 and 60% depreciation. ACV = $24,000 − $14,400 = $9,600. After the $2,500 deductible, the initial payment is $7,100. The recoverable depreciation of $14,400 is payable only after the roof is actually replaced and proof is submitted. If the insured settles for ACV, the claim ends at $7,100; the adjuster must not promise the full $24,000.
Traps that cost marks
- Applying the deductible twice when recoverable depreciation is released.
- Treating replacement cost as market value or as an automatic payment.
- Assuming an ambiguity always wins; Maryland enforces clear exclusions.
- Ignoring that insurable interest is measured at the time of loss, not at policy inception.