Insurance Principles and Concepts
The contract at the center
Every claim question ultimately asks you to read the policy as a contract of indemnity: the insured is restored - not enriched - to the financial position held before the loss. Learn the characteristics that drive exam logic: a contract of adhesion (ambiguity construed against the drafter), aleatory (values exchanged are unequal and contingent), conditional (duties after loss: prompt notice, proof of loss, cooperation, suit limitation), and one requiring utmost good faith of both parties.
Doctrines that are tested
Insurable interest - in property it must exist at the time of loss (owner, mortgagee, lienholder, bailee); in life, at inception. Subrogation - after payment the insurer stands in the insured's shoes, and an insured who releases the tortfeasor before notifying the insurer may destroy the claim. Other insurance/contribution - pro rata, primary-and-excess, and noncumulative language. Proximate cause - the dominant, efficient cause; look for concurrent causation and anti-concurrent-causation wording. Distinguish named peril from open peril (risk of direct physical loss), and remember the burden: insured proves a covered event, insurer proves an exclusion applies.
Traps: warranties (strict compliance) versus representations (materiality); a deductible reduces the payment, not the loss; under replacement-cost forms the insurer pays actual cash value first and withholds depreciation; subrogation is not a windfall to the insured; "waiver" of a condition must be knowing and intentional while "estoppel" requires detrimental reliance.
Rule of thumb: loss $30,000 RCV, 40% depreciation, $1,000 deductible. Pay $17,000 now ($18,000 ACV less $1,000); hold $12,000 of recoverable depreciation pending proof of repair.