Policy Coverage and Provisions
This domain tests the ability to read a property policy as a whole and apply its coverage grants, exclusions, conditions, limits, deductibles, and endorsements to a Nevada claim. Questions commonly involve homeowners and commercial property forms, valuation, and the difference between a policy limit and an actual payment.
Reading the policy
- Start with the declarations: named insured, insured property, limits, deductible, and forms. Then read the insuring agreement, exclusions, conditions, and endorsements. Endorsements modify the base form and control over conflicting language.
- Homeowners coverage typically includes Coverage A dwelling, B other structures, C personal property, and D loss of use. Commercial property forms use similar building and business personal property grants, with additional coverages and sublimits.
- Nevada requires policies and endorsements to be delivered as issued and prohibits provisions that conflict with applicable insurance statutes. Read the policy with Nevada law, not in isolation.
Valuation, limits, and conditions
- Indemnity is the core principle. Actual cash value is replacement cost less depreciation; replacement cost value pays depreciation after repair or replacement. Deductibles apply per occurrence. Coinsurance, ordinance-or-law coverage, mortgage clauses, and sublimits can change the payment.
- Conditions include proof of loss, appraisal, salvage, and suit limitations. Insurable interest must exist at the time of loss.
Worked example: An HO-3 replacement-cost policy has a $2,000 deductible. Kitchen damage is $40,000 replacement cost and $12,000 depreciation. The initial ACV payment is $40,000 minus $12,000 depreciation minus $2,000 deductible, or $26,000. The insured can recover the $12,000 depreciation after completing repairs. If the policy were ACV-only, no depreciation would be recoverable.
Traps: assuming replacement cost pays depreciation upfront; applying the deductible twice; ignoring exclusions; missing proof-of-loss deadlines; confusing the policy limit with the payable amount.