Property and Casualty Insurance Basics
Property and Casualty Insurance Basics
This domain tests policy architecture and the coverage triggers that decide whether a property or liability loss is payable. Public adjusters must read declarations, insuring agreements, conditions, exclusions, and endorsements as one contract.
Policy structure
Declarations identify the insured, locations, limits, deductibles, and forms. The insuring agreement grants coverage; exclusions remove it; conditions impose duties after loss such as notice, proof of loss, cooperation, and appraisal. Endorsements amend the policy and prevail over conflicting base-form language.
Property and liability basics
Property coverage may be named-peril or open-peril; causation and exclusions decide the claim. Coinsurance is a property condition requiring a limit that is a percentage of value; a penalty applies when the limit falls below that percentage. Liability coverage responds to third-party bodily injury or property damage and includes a duty to defend, usually outside the limit.
Worked example
Building replacement cost is $1,000,000; the policy has an 80% coinsurance clause and a $600,000 limit. A covered fire causes $200,000 damage; the deductible is $5,000. Required limit = 0.80 × $1,000,000 = $800,000. Because the limit is lower, the coinsurance factor = $600,000 ÷ $800,000 = 0.75. Payable loss before deductible = 0.75 × $200,000 = $150,000. After the $5,000 deductible, payment = $145,000. Reasoning: the penalty applies to the loss, not to the policy limit.
Traps
Do not apply coinsurance to agreed-value or replacement-cost endorsements without reading them. Do not subtract the deductible before the coinsurance factor. Do not confuse liability limits with defense costs. Do not ignore endorsements that change valuation or exclusions.