Chapter 3 Summary
This chapter explained various types of casualty or liability insurance policies. Use this recap page for quick review before your exam!
Commercial General Liability (CGL)
Exposures
Premises and Operations
Ownership, maintenance, or use of insured's premises; includes business operations; subject to exclusions and limits
Product and Completed Operations
Injuries/damage occurring after insured completes job and leaves site OR relinquishes control of product
CGL Coverage Form
Bodily Injury and Property Damage
Covers BI and PD of a third party
Personal and Advertising Injury
Covers non-physical injury (libel and slander)
Medical Payments
Medical, surgical, ambulance, hospital, nursing, funeral expenses of third party
Per Occurrence
Maximum amount payable per occurrence or accident
Aggregate Limit
Most the insurer will pay for losses in policy period
Who Is Insured
Personal Auto Policy (PAP) & Business Auto
PAP Policy Parts
Types of Auto
Owned
Vehicle titled to insured or acquired during policy period
Nonowned
Private vehicles operated/in custody of named insured, not titled to insured
Hired
Leased, rented, or borrowed
Temporary Substitute
Used while insured vehicle is out of service (breakdown, repair, loss)
Part A: Liability Coverage Details
Pays for BI and PD, defense costs, and costs from settlement/defense
Split Limit
BI per person / BI per accident / PD
Combined Single Limit
One dollar amount for all losses
Common Exclusions:
- + Intentional injury or damage
- + Use without permission
- + Commercial-type vehicle in business
- + Property being transported
Part B: Medical Payments Details
- + Pays necessary medical and funeral expenses from accident
- + Must be rendered within 3 years of accident
- + Payments from liability or UM reduce medical payments coverage
Part C: UM/UIM Coverage Details
Uninsured Motorist (UM)
For BI caused by driver without required liability coverage
Underinsured Motorist (UIM)
For BI caused by driver with insufficient coverage
UIM Formula:
UIM Coverage = Insured's UIM Limits - At-Fault Driver's BI Limits
Part D: Physical Damage Details
Includes collision and other-than-collision coverages. Pays for direct and accidental loss.
Transportation Expenses Waiting Periods:
24 Hours
For losses OTHER than theft
48 Hours
For theft losses
Part E: Duties After Accident
- + Prompt notification of loss
- + Cooperation with insurer
- + Forwarding legal papers
- + Submitting to examinations under oath
- + Allowing access to medical records
- + Notification of hit-and-run or theft
- + Protection of property from further loss
- + Allowing inspection and appraisal of damaged property
Part F: General Provisions
- + Bankruptcy: Does not relieve insurer of obligation
- + Policy Changes: Terms may not be waived except by endorsement
- + Fraud: No coverage for fraudulent statements
- + Legal Action: Cannot sue until policy provisions complied with
- + Subrogation: Insurer's right to recover payments
- + Territory: US, US territories, Puerto Rico, Canada
- + Assignment: Cannot transfer without written consent
- + Two or More Policies: Highest limit applies if same loss covered
Common PAP Endorsements
- + Towing and Labor: Basic limit of $25
- + Extended Nonowned Coverage: Coverage for nonowned autos, fee-carrying vehicles
- + Miscellaneous Vehicles: Motorcycles, motor homes, golf carts
- + Joint Ownership: For individuals who own a vehicle together
Commercial Auto Coverage Form
Covers commercial auto (excludes truckers, garages, motor carriers)
- Section I: Covered Autos (designation symbols)
- Section II: Liability Coverage
- Section III: Physical Damage Coverage
- Section IV: Conditions
- Section V: Definitions
Garage Coverage Form
For businesses with autos of others in care, custody, control
Garagekeepers Coverage: Comprehensive, Specified Cause of Loss, Collision
Workers Compensation
Standard Policy Concepts
- + Who is insured: Employer/insured named
- + Locations: All locations listed on information page
- + Work-related: Injury or occupational disease during employment
- + Non-work-related: Ordinary injury/disease of general public (NOT covered)
Other States' Insurance
- + Allows coverage in states other than where policy written
- + State must be included for coverage to apply
- + Available on automatic/temporary basis
Employer's Liability
- + Federal Employer's Liability Act (FELA)
- + Covered under Section II - Liability
- + Actions must begin within 3 years
Exclusive Remedy
Employees cannot seek damages outside of Workers Compensation law unless as a result of claims not covered.
Premium Determination
- + Established by applying rating bureau classification to each $100 of payroll
- + Experience Modification Factor: Based on employer's losses, payroll, and premiums
- + Premium Discounts: When standard premium greater than $5,000
- + Participating Policies: Eligible dividends based on underwriting requirements
- + Retrospective Rating: Based on insured's actual loss experience during policy term
Crime Coverage
Program Breakdown
Entities:
- + Commercial
- + Government
Coverage Triggers:
- + Discovery Form: Occurrence at any time, discovered during policy/extended period
- + Loss-Sustained Form: Loss discovered during policy period and extended reporting period
Bonds (Surety & Fidelity)
The Three Parties
Principal (Obligor)
Promises to fulfill obligation; purchases bond; goes through underwriting
Obligee (Insured)
Person to whom promise is made; bond paid to if principal defaults
Guarantor (Surety)
Bonding company providing financial backing; pays if principal defaults
Surety Bonds
- + Guarantees performance of another
- + 3-party contract: principal, obligee, surety
- + Penalty: Set limit for which surety is liable
Fidelity Bonds
Guarantees honesty and trust (not performance)
- + Individual (1 employee)
- + Named Schedule (several named employees)
- + Position Schedule (anyone in scheduled position)
- + Commercial Blanket (all employees, per loss)
- + Blanket Position (all employees, per employee)
Professional Liability
Purpose and Characteristics
- + Protects against legal liability from professional services
- + Usually written on claims-made basis
Errors and Omissions (E&O)
Protects insurance agents and brokers from financial loss due to lawsuits:
- + Incorrect advice
- + Not placing correct coverage
- + Not informing insured of important issues
Written on claims-made basis
Umbrella and Excess Liability
Types of Policies
Underlying Policy
Primary liability policy
Umbrella (Stand-Alone)
Coverage can be greater OR less than underlying
Excess (Follow Form)
Mirrors underlying policy, increases limits
Personal Umbrella
- + Also called "catastrophe insurance"
- + Protects from large claims/lawsuits
- + Minimum $1,000,000 additional coverage
- + SIR: Retained limits insured pays before umbrella responds
- + Must maintain underlying insurance
- + Insurer not liable beyond what it would pay if underlying was in effect
Commercial Umbrella
- + Provides higher limits over other liability coverage
- + Minimum limit of liability required on underlying
- + Insured pays SIR prior to umbrella paying for certain losses
Quick Reference: Key Numbers
3 years
Medical expenses timeframe (PAP)
24/48 hrs
Transportation expense waiting periods
$100
WC premium per payroll unit
$5,000
WC premium discount threshold
$1M
Min personal umbrella coverage
3 years
FELA action time limit
$25
Basic towing & labor limit
3
Parties in a surety bond
Ready to Test Your Knowledge?
Use flashcards and quizzes to reinforce what you've learned in Chapter 3.