Chapter Summary
This chapter covered the essential components of insurance policies and the key provisions and clauses found in casualty insurance contracts. Below is a complete recap organized by topic. Use this as your quick reference guide for exam review.
1 Policy Structure
Declarations (Dec Page)
Who, what, when, where, and how much. Contains: Named insured, policy period, coverage limits, premium, deductibles, property descriptions, policy number.
Definitions
Defines key terms used throughout the policy. Often shown in quotation marks or bold print. Critical for understanding coverage.
Insuring Agreement
The insurer's promise to pay. States what the company will do in exchange for premium. The heart of the insurance contract.
Additional Coverage
Extra benefits beyond the main coverage. Often with separate, smaller limits. Examples: debris removal, fire department charges.
Conditions
What both parties must do. Insured's duties after loss, cancellation procedures, how claims are settled, assignment rules.
Endorsements (Riders)
Amendments that modify the standard policy. Can add coverage, remove coverage, or change terms. Take precedence over policy language.
Exclusions
What is NOT covered. Lists perils, property, losses, or situations the policy doesn't cover. Prevents duplication and controls cost.
Policy Limits
Maximum amount the insurer will pay. Types: per person, per occurrence, aggregate, split limits, combined single limit (CSL).
2 Definition of the Insured
Insured
Anyone covered by the policy. May include the named insured plus other parties defined in the policy (spouse, family members, employees, etc.).
Named Insured
Person or entity specifically named in the declarations. Has the most rights and responsibilities. Can make policy changes, receive refunds, cancel policy.
First Named Insured
When multiple parties are named, the first one listed has ultimate authority. Receives notices, can cancel policy, has full policy control.
Additional Insureds
Parties added to the policy by endorsement. Get coverage but have limited rights. Examples: landlords, lenders, contractors on business policies.
Insured's Five Duties After Loss
- Give prompt notice - Notify insurer as soon as possible
- Protect property - Prevent further damage, make temporary repairs
- Cooperate with investigation - Answer questions, provide records
- Submit proof of loss - Detailed, sworn statement of loss
- Allow inspection - Let insurer examine damaged property and records
3 Provisions and Clauses
Arbitration Clause
Alternative to court for resolving disputes over the amount of loss (not coverage). Each party picks an arbitrator, those two pick a third (umpire). Decision is binding.
Other Insurance Clause
What happens if multiple policies cover same loss. Types: Pro rata (split by limits), Primary/excess (one pays first), Escape (clause doesn't pay if other insurance exists).
Notice of Claim
Insured must notify insurer promptly after a loss. "Prompt" usually means as soon as practicable/reasonable, not a fixed number of days.
Proof of Loss
Detailed, sworn statement of the loss. Must be submitted within a specified time (often 60-90 days). Contains: what happened, when, amount claimed, supporting documentation.
Loss Settlement Provision
How losses are valued and paid. Methods: Actual Cash Value (ACV), Replacement Cost, Agreed Value, Stated Value. May specify when payment is due.
Cancellation
By insurer: Usually requires 30-60 days written notice (varies by state and reason). Pro rata refund.
By insured: Can cancel anytime. Gets short-rate refund (less than pro rata - includes penalty for early cancellation).
Nonrenewal
Insurer chooses not to renew when policy expires. Different from cancellation. Usually requires advance written notice (30-60 days before expiration).
4 Claims Made vs Occurrence Forms
The Problem
Liability losses often discovered years after the event. Insurers must pay on expired policies. Hard to set adequate rates. Original limits may be inadequate due to inflation.
The Solution
ISO developed claims made form. For insurer to pay, the CLAIM MUST BE MADE DURING THE POLICY PERIOD (not when injury occurred).
| Feature | Occurrence Form | Claims Made Form |
|---|---|---|
| Coverage trigger | When injury/damage OCCURS | When claim is MADE |
| Time limit? | No - claims can be made years later | Yes - must file during policy period |
| Used for | Most policies (auto, home, workers comp, property) | ONLY CGL (and some professional liability) |
EXAM CRITICAL: Claims made forms used ONLY for Commercial General Liability (CGL). All other policies use occurrence forms!
5 Fair Credit Reporting Act (FCRA)
What is FCRA?
Federal law administered by the Federal Trade Commission (FTC). Protects consumers from circulation of inaccurate or obsolete personal financial information.
Purpose
Ensure consumer reporting agencies (credit bureaus) are fair and equitable. Regulate how businesses use consumer credit information.
How it Applies to Insurance
Insurers use credit information for underwriting (deciding whether to insure) and rating (setting premiums). This use must comply with FCRA.
Consumer Rights
- Know when credit report was used in adverse decision
- Get free copy of credit report (within 60 days of adverse action)
- Dispute inaccurate information
- Add explanatory statements to credit file
- Privacy protection/limit use of information
- Sue for FCRA violations
Insurer Obligations
- Send adverse action notice if credit affects decision
- Identify credit bureau that provided report
- Explain consumer rights in the notice
- Clarify bureau's role (didn't make the decision)
- Have legitimate purpose for accessing credit
- Maintain reasonable procedures for accuracy
Key Numbers to Remember
30-60
Days notice to cancel (insurer)
60-90
Days to submit proof of loss
60
Days for free credit report (after adverse action)
30
Days for credit bureau to investigate dispute
5
Duties after loss
Memory Aids
5 Duties After Loss
1. Prompt notice, 2. Protect property, 3. Cooperate, 4. Submit proof of loss, 5. Allow inspection
Policy Structure - DICE CAP
Declarations, Insuring agreement, Conditions, Exclusions, Coverage (additional), Additional insureds, Policy limits
Occurrence vs Claims Made
Occurrence = WHEN happened. Claims made = WHEN filed. Claims made ONLY for CGL!
FCRA Administered By
FTC (Federal Trade Commission) - federal law, not state insurance department
Cancellation Refund Types
Pro rata (insurer cancels) = fair. Short-rate (insured cancels) = penalty for early cancel
Other Insurance Methods
Pro rata (split by limits), Primary/Excess (order matters), Escape (won't pay if other exists)
High-Frequency Exam Topics
1. Claims Made vs Occurrence
Heavily tested. Know the difference and which policies use which form.
2. Five Duties After Loss
Memorize all five. Exam will test whether you know what insured must do.
3. Named Insured vs Additional Insured
Know the difference in rights and responsibilities.
4. FCRA - Who Administers
FTC, not state insurance department. Know adverse action notice requirement.
5. Pro Rata vs Short-Rate Cancellation
Who cancels determines refund method. Know which is which.
6. Policy Structure Components
Know all eight parts and what each contains.