PCUniversal 1

TABLE OF CONTENTS
Property & Casualty Insurance
Personal Lines: Chapters 1-7 & State Laws

Commercial Lines: Chapters 1-3, 8-14, State Laws
Property Only: Chapters 1, 2, 4, 5, 7, 8, 11, 12, 13, State Laws

Casualty Only: Chapters 1, 3, 6, 7, 9, 10, 12, 14, State Laws
Chapter 1 General Insurance...................................................................................... 3

Chapter 2 Property Basics......................................................................................... 24
Chapter 3 Casualty (Liability) Basics......................................................................... 35
Chapter 4 Dwelling Policy........................................................................................ 43
Chapter 5 Homeowners Policy................................................................................. 58
Chapter 6 Personal Auto Policy................................................................................ 85
Chapter 7 Miscellaneous Personal Lines Coverage. .................................................. 106
Chapter 8 Commercial Property Insurance.............................................................. 117
Chapter 9 Commercial General Liability Coverage.................................................. 134
Chapter 10 Commercial Auto Coverage.................................................................... 149
Chapter 11 Commercial Crime Part........................................................................... 162
Chapter 12 Miscellaneous Commercial Policies........................................................ 169
Chapter 13 Businessowners Coverage Form.............................................................. 200
Chapter 14 Workers’ Compensation Insurance.......................................................... 217
Retention Question Answer Key................................................................................ 231
Keyword Index......................................................................................................... 241
This edition is valid starting October 2018
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2 A.D.Banker&Company®
1
General Insurance
LEARNING OBJECTIVES
Upon the completion of this chapter, you will be able to:
1. Recognize definitions of general insurance and insurance law terminology
2. Identify basic insurance concepts and principles
3. Identify the characteristics of insurers
4. Recognize the role of insurance producers
5. Recall the elements of legal contracts and interpretations affecting contracts
6. Define Insurable interest
OVERVIEW
This chapter is designed to acquaint the student with the fundamentals of the insurance
industry as a whole as well as foundational concepts that constitute the basis of insurance
regardless of their state licensing.
1.1 The World of Insurance

One of the largest and most diverse sectors of the insurance industry consists of companies, agencies,
producers, consumers, and organizations that provide information and support to the private firms
and persons who buy and sell insurance.
Private Firms and Persons

1. Insurers (Insurance companies or Carriers) manufacture and sell insurance coverage by way
of insurance policies or contracts.
2. Insurance Agencies are independent organizations that recruit, contract with, and support
sales agents and producers.
3. Insurance Agents or Producers are licensed individuals representing an insurance company
when transacting insurance.
4. An Insured is the person or entity that buys insurance for protection from loss of life, health,
property or liability.
Trade and Regulatory Associations

1. The National Association of Insurance Commissioners (NAIC) consists of all State and
territorial insurance commissioners or regulators.
a. The NAIC provides resources, research, legislative and regulatory recommendations and
interpretations for state insurance regulators.
b. The association promotes uniformity among states. Members may accept or reject
recommendations.
c. The NAIC has no legal authority to enact or enforce insurance laws.
A.D.Banker&Company® 3
CHAPTER ONE
2. Federal Insurance Office (FIO) – The Federal Insurance Office was established by the Dodd-
Frank Wall Street Reform and Consumer Protection Act. This office monitors the insurance
industry and identifies issues and gaps in the state regulation of insurers. It also monitors
access to affordable insurance by traditionally underserved communities and consumers,
minorities, and low- and moderate-income persons. The FIO is not a regulator or supervisor.
Insurance is primarily regulated by the individual States.
3. Insurance producer and company trade associations also exist to provide education, support,
networking and lobbying for insurance companies and producers.
Insurance Regulation at the State Level

The insurance industry is regulated primarily at the state level. The legislative branch writes
and passes state insurance laws, or statutes, to protect the insuring public. The judicial branch
is responsible for interpreting and determining the constitutionality of the statutes. The role of
a state’s executive branch is to enforce the existing statutes that have been put in place. The
Commissioner, Director, or Superintendent of Insurance is typically appointed by the Governor,
and the Commissioner has the power to issue rules and regulations to help enforce these statutes.
Insurance Regulation at the Federal Level

The McCarran-Ferguson Act of 1945 determined that the federal government can not regulate
insurance in areas over which states have the authority to do so. Congress created federal
agencies to provide regulatory oversight impacting insurance practices. Government insurers
step in (as a last resort) when private insurers are unable to provide protection relative to the
catastrophic nature or unpredictability of a risk.
Private versus Government Insurers

Most insurance is written through private insurers. However, there are instances where
governmental-based insurers step in to offer an insurance alternative when private insurers are
unable to provide protection. This usually relates to the catastrophic nature of the risk, capacity
to handle the risk, and lack of desire to engage in a line of insurance where experience to
evaluate necessary premium intake to offset potential loss is lacking.
1.2 Types of Insurers – Insurance Companies or

Carriers
Stock Insurance Company

1. A stock company is owned by stockholders or shareholders.
2. Directors and officers direct the company operations and are elected by stockholders.
3. Stockholders receive taxable corporate dividends as a return of profit when declared by the
Directors.
4. Dividends are not guaranteed.
5. Traditionally stock insurers issue Non-Participating policies.
Mutual Insurance Company

1. A mutual company is owned by policyholders (who may be referred to as members).
2. A Board of Trustees or Directors directs the company operations and is elected by
policyholders.
3. Policyholders receive non-taxable dividends as a return of unused premium when declared
by the directors.
GENERAL INSURANCE
4 Dividends are not guaranteed.

5. Traditionally, mutual insurers issue Participating policies.
Reciprocal Insurance Company

1. A group-owned insurer whose main activity is risk sharing.
2. A reciprocal insurer is unincorporated, and is formed by individuals, firms, and business
corporations that exchange insurance on one another. Each member is known as a
subscriber.
3. Each subscriber assumes a part of the risk of all other subscribers. If premiums collected are
insufficient to pay losses, an assessment of additional premium can be made.
4. The exchange of insurance is affected through an Attorney-In-Fact.
Lloyds of London
1. Lloyds of London is not an insurance company, but consists of groups of underwriters called
Syndicates, each of which specializes in insuring a particular type of risk.
2. Lloyds provides a meeting place and clerical services for syndicate members who actually
transact the business of insurance.
3. Members are individually liable for each risk they assume.
4. Coverage provided is underwritten by a syndicate manager such as an attorney-in-fact or
individual proprietor.
Fraternal Benefit Societies

1. Fraternal benefit societies are primarily social organizations that engage in charitable and
benevolent activities that provide life and health insurance to their members.
2. Membership typically consists of members of a given faith, lodge, order, or society.
3. They are usually organized on a non-profit basis.
Risk Retention Groups (RRG)

1. A group-owned insurer that primarily assumes and spreads the liability related risks of its
members.
2. Licensed in at least one state and may insure members of the group in other states.
3. Owned by its policyholders.
4. Group must be made up of a large number of homogeneous or similar units.
5. Membership is limited to risks with similar liability exposures such as theme parks, go cart
tracks, or water slides.
6. Must have sufficient liquid assets to meet loss obligations.
7. Each member assumes a portion of the risks insured.
Self-Insurer
To self-insure means to assume the financial risk one’s self. This is generally an option only for
large companies who may even reinsure for risks above certain maximum limits.
Retention Question 1
A ______________ insurance company is owned by its policyholders.
a. Stock
b. Reciprocal
c. Fraternal Benefits Society
d. Mutual
CHAPTER ONE
1.3 Fundamentals of Insurers
Residual Markets
1. A private coverage source of last resort for businesses and individuals who have been
rejected by voluntary market insurers.
2. A Joint Underwriting Association or Joint Reinsurance Pool requires insurers writing specific
coverage lines in a given state to assume the profits/losses accruing their share of the total
voluntary market premiums written in that state.
3. Risk Sharing Plan – Insurers agree to apportion among themselves those risks that are unable
to obtain insurance through normal channels.
4. Coverage is typically written as Workers’ Compensation, personal auto liability or property
insurance on real property.
Reinsurance Companies
1. An insurance company that assumes all or a portion of a risk from a primary or ceding
insurance company.
2. Reinsurance transfers risk among insurance companies.
3. The insurer requesting reinsurance is the primary or ceding company.
4. The Insurer sharing in the risk is the reinsurance company.
5. Consumer inquiries must originate with the ceding company, which then obtains
reinsurance.
6. Types of Reinsurance:
a. Treaty Agreements – Reinsurance agreement that covers all risks contained in the subject
line(s) of business automatically.
b. Facultative Agreements – Reinsurance agreement that allows ceding and reinsurance
companies the opportunity to negotiate coverage for individual risks.
Financial Rating Services

1. Independent financial rating services evaluate and rate the financial stability of insurance
companies.
2. These companies assign rating codes to show financial strength or weakness of each
company rated.
3. The ratings are available to the public.
4. Producers are responsible for placing business with insurers that are financially sound.
5. Examples of rating services include: A.M. Best Company, Standard &Poor’s, Moody’s
Investment Services, Weiss Insurance Rating, and Fitch Ratings.
If an insurance company wants to transfer all or part of the risk it has accepted, it
would buy which of the following types of insurance?
a. Residual
b. Reinsurance
c. Reciprocal
d. Insurer
GENERAL INSURANCE
1.4 Insurer Domicile and Admittance

1. Domicile refers to the jurisdiction (i.e., state or country) where an insurer is formed or
incorporated.
Domestic Insurer Foreign Insurer Alien Insurer
An insurer organized under An insurer not organized An insurer organized under the
the laws of this state, whether under the laws of this state, but laws of any jurisdiction outside
or not it is admitted to do in one of the other states or of the United States, whether
business in this state. jurisdictions within the United or not it is admitted to do
States, whether or not it is business in this state.
admitted to do business in the
state or jurisdiction.
2. Admitted vs. Non-admitted – Refers to whether or not an insurer is approved or authorized
to write business in this State.
a. The domicile does not impact whether an insurer may be admitted to do business in this
State.
b. An Admitted (Authorized) insurer is authorized by this State’s Commissioner of Insurance
to do business in this State. It has received a Certificate of Authority to do business in this
State.
c. A Non-admitted (Unauthorized) insurer has either applied for authorization to do
business in this state and was declined or they have not applied. They are not authorized
to transact insurance in this state.
d. Surplus and Excess lines insurance can be placed through non-admitted carriers.
3. Surplus Lines Insurance finds coverage when insurance cannot be obtained from admitted insurers.
a. May not be utilized solely to receive lower cost coverage than would be available from
an admitted carrier.
b. Each State regulates the procurement of Surplus Lines insurance in its State.
c. Non-admitted business must be transacted through a Surplus Lines Brokers or Producers.
Which of the following is an insurance company that is organized under the laws of
another state within the United States?
a. Domestic
b. Alien
c. Foreign
d. Authorized
1.5 Insurer Management and Distribution
Management
1. Executives – Oversee the operation of the business.
2. Actuarial Department – Gather and interpret statistical information used in rate making. An
actuary determines the probability of loss and sets premium rates.
3. Underwriting Department – Responsible for the selection of risks (persons and property to
insure) and rating that determines actual policy premium.
4. Marketing/Sales Department – Responsible for advertising and selling.
5. Claims Department – Assists the policyholder in the event of a loss.
CHAPTER ONE
Distribution Models
1. Exclusive or Captive Agency System – Deals with the insured through an exclusive or captive
agent.
a. Agent represents solely one company or group of companies having common ownership.
b. Insurer retains ownership rights to the business written by the agent.
c. The agent is an employee or a commissioned independent contractor.
d. Insurer may or may not provide office and agency support services.
2. Direct Writing System
a. Producer or Agent is an employee of the insurer.
b. Insurer owns the accounts.
c. The agent may be paid a salary, salary plus bonus, or commission.
3. Independent Agency
a. An agent or agency that enters into agency agreements with more than one insurer. It
may represent an unlimited number of insurers.
b. Agency retains ownership of the business written.
c. An independent contractor that is paid a commission and covers the cost of agency
operations.
4. Career Agency System – Agents are recruited, trained and supervised by either a managing
employee or General Agent who is contracted with the insurance company.
5. Personal Producing General Agent
a. Does not recruit career agents.
b. Sells insurance for carriers it is contracted with and maintains its own office and staff.
6. Direct Mail or Direct Response Company
a. Sells insurance policies directly to the public with licensed employees or contractors.
b. A marketing system utilizing direct mail, newspapers, magazines, radio, television,
internet, web sites, call centers and vending machines.
7. Mass Marketing
a. Mass marketing is used to target a specific type of insurance to a large group of
individuals, such as the American Association of Retired People (AARP).
b. Insurer reduces marketing and underwriting expenses.
Which insurance company department accepts the insurance risk?
a. Executive
b. Actuarial
c. Claims
d. Underwriting
1.6 Insurance Agents and Producers

1. Law of Agency
a. A relationship between two or more parties where one party (the agent or producer) acts
on behalf of the other party, known as the principal or insurer.
b. The agent or producer binds the actions and words of the principal.
GENERAL INSURANCE
2. Insurer (Principal)
a. Insurer is the source of authority from which the producer must abide.
b. Insurer is responsible for all acts of a producer, when producer is acting within the scope
of its authority.
c. Producer may be personally liable when his/her actions exceed the authority of the
agency’s contract.
3. Producer (Agent)
a. A person or agency appointed by an insurance company to represent it and to present
policies on its behalf.
b. A producer possesses three types of authority:
1) Express – Authority that is written into the producer’s agency contract. An example
would be the producers binding authority if written in the contract.
2) Implied – Authority the public assumes the producer has. An example would be
the business activities of providing quotes, completing applications and accepting
premiums on behalf of the insurer.
3) Apparent – Authority created when the producer exceeds the authority expressed
in the agency contract. This occurs when the insurer does nothing to counter the
public impression that such authority exists. An example would be the producer’s
acceptance of premiums on a lapsed policy.
c. Producer’s Responsibilities to the Insurer:
1) Fiduciary duty to the insurer in all respects, especially when handling premium funds.
2) Must keep premium funds in a trust account separate from other funds and forward to
insurer promptly.
3) Must report any material facts that may affect underwriting.
4) Responsible for soliciting, negotiating, selling, and cancelling the insurance policies
with the insurer.
5) Duty to only recommend the purchase of suitable policies.
d. Producer’s Responsibilities to Insurance Applicant or Insured:
1) Forward premiums to insurer on a timely basis.
2) Seek and gain knowledge of the applicant’s insurance needs.
3) Review and evaluate the applicant’s current insurance coverage, limits and risks.
4) Serve the best interests of the applicant or insured, although producers represent the
insurer.
5) Recommend coverage that best protects the insured from possible loss and NOT the
most profitable coverage from the perspective of the producer.
4. Broker
a. A licensed individual who negotiates insurance contracts with insurers, on behalf of the
applicant.
b. Represents the applicant or insured’s interests, not the insurer, and thus does not have
legal authority to bind the insurer.
c. A broker’s license is not applicable in all states.
CHAPTER ONE
Which of the following individuals represents the insurance company when selling an
insurance policy?
a. Producer
b. Broker
c. Adjuster
d. Insurer
Which of the following types of authority does the public assume an agent has when
quoting insurance?
a. Authorized
b. Express
c. Implied
d. Apparent
A producer has each of the following responsibilities to the Insurer, except:
a. A fiduciary duty
b. Forwarding premiums to the insurer on a timely basis
c. Reporting material facts that may affect underwriting
d. A duty to recommend only high rate policies
1.7 Federal Regulations
Fair Credit Reporting Act (15 USC 1681–1681d)

1. Protects consumer privacy.
a. Ensures data collected is confidential, accurate, relevant and used for a proper and
specific purpose.
b. Protects the public from overly intrusive information collection practices.
2. When an application is taken, it must inform the applicant a credit report (from consumer
reporting agency) will be obtained. The purpose of this is to determine the financial and
moral status of an applicant (for variety of purposes such as employment screening, insurance
underwriting or loan approvals).
3. Applicant has the right to review the report.
a. Applicant challenge – Credit reporting agency must reinvestigate within 6 months, if
applicant challenges accuracy.
b. Inaccuracies – Agency must forward to applicant inaccurate information given out within
previous 2 years.
c. Disallowed information – Report must not include lawsuits over 7 years old or
bankruptcies over 10 years old.
4. Insurer obligations
a. Insurer is not responsible for correcting inaccuracies on any reports.
b. If an applicant is denied coverage because of inaccurate information they are entitled to
certain rights.
GENERAL INSURANCE
Financial Anti-Terrorism Act (USA Patriot Act)

Imposes record keeping and government reporting requirements on banks, financial institutions
and non-financial businesses for specific financial transactions and customer financial records (a
part of the Bank Secrecy Act).
Fraud and False Statements (Fraudulent Insurance Act)

1. Fraud always involves a false statement and deceit; it can be either a criminal or civil crime.
Federal laws prohibit the commission of fraud.
2. In 2001, the NAIC adopted model legislation for the prevention and enforcement of
insurance fraud. Subsequently, each of the states enacted its own Fraudulent Insurance Act.
3. A fraudulent act involves a misstatement of material fact by a person who knows or believes
that statement to be false. The statement is made to another person who relies on its accuracy
to make a decision or to act and is subsequently harmed by relying on the deliberately false
statement.
4. State fraudulent insurance acts do not modify the privacy of any individual; they protect
producers, brokers, and insurers in the event fraudulent information is provided by
consumers.
5. Insurance applications and claim forms must contain a disclosure about how false statements
and fraud will be treated by the insurer. A sample warning is, “Any person who knowingly
presents false or fraudulent information on an insurance application or claim for the payment
of a loss is guilty of a crime and may be subject to fines and confinement in state prison.”
6. If a person engaged in the business of insurance whose activities affect interstate commerce
willfully embezzles, misappropriates funds/property, knowingly and with the intent to
deceive makes a false material statement or purposely overstates the security of an insurer,
the following penalties apply:
a. A fine of no more than $50,000, imprisonment for up to 10 years, or both.
b. If the violation jeopardized the safety and soundness of an insurer and was a significant
cause of the insurer being placed in conservation, rehabilitation, or liquidation by an
appropriate court, imprisonment can be for up to 15 years.
c. If the amount embezzled or misappropriated does not exceed $5,000, violators will be
fined up to $50,000 or imprisoned for up to 1 year, or both.
7. If a person uses threats, force or attempts to impede/obstruct the administration of the law
during any proceeding involving the business of insurance before any insurance regulatory
official, he/she will be fined up to $50,000 or imprisoned up to 10 years, or both.
8. Any individual who has been convicted of a felony involving dishonesty or a breach of trust,
who then willfully engages or permits an individual to engage in the business of insurance,
and whose activities affect interstate commerce, will be fined up to $50,000 or imprisoned
up to 5 years, or both.
Merchant Marine Act of 1920 (the Jones Act)

Because Workers’ Compensation laws do not apply to seamen, the Jones Act allows insured
seamen to make claims for injuries suffered during the course of employment. It also regulates
maritime commerce in U.S. waters, transportation of cargo, and the rights of seamen.
Motor Carrier Regulatory and Modernization Act (the Motor Carrier Act of 1980)
Deregulated the trucking industry by prohibiting any entity from interfering with a motor carrier’s
right to set its own rates. Motor carriers and private motor carriers that transport property are
required to establish evidence of financial responsibility in the form of insurance, a bond, a
guarantee, or qualification as a self-insurer.
CHAPTER ONE
Gramm-Leach-Bliley Act (GLBA, a.k.a. the Financial Services Modernization

Act of 1999)
1. Repealed parts of the Glass-Steagall Act of 1933 to allow the merger of banks, securities
companies, and insurance companies. It also established the Financial Privacy Rule and
Safeguards Rule for the protection of consumers’ privacy.
2. The Financial Privacy rule requires “financial institutions,” which include insurers, to provide
each consumer with a privacy notice at the time the consumer relationship is established and
annually thereafter.
3. The privacy notice must explain:
a. The information collected about the consumer.
b. Where that information is shared.
c. How that information is used.
d. How that information is protected.
4. The notice must also identify the consumer’s right to opt out of the information being shared
with unaffiliated parties pursuant to the provisions of the Fair Credit Reporting Act.
5. Should the financial institutions privacy policy change at any point in time, the consumer
must be notified again for acceptance.
6. Each time the privacy notice is re-established, the consumer has the right to opt out again.
Terrorism Risk Insurance Act and its Extensions of 2005 and 2007
1. Terrorism Risk Insurance Act of 2002 (TRIA) – Enacted in direct response to the terrorist
attacks New York City and Washington, D.C. on September 11, 2001. Congress provided
temporary financial compensation to insured parties during its crisis of recovery from the
terrorist attacks.
2. TRIA was intended to respond to the chaos the 9/11 terrorist attacks caused in the insurance
industry as well as to assure that commercial property and liability insurance would continue
to be able to provide coverage for the peril of terrorism.
3. TRIA was a temporary program that allowed the federal government to share in terrorism
losses with private insurers in the event a certified act of terrorism took place.
4. TRIA expired on December 31, 2005 and was extended for two years, with changes, under
the Terrorism Risk Insurance Extension Act of 2005 (TRIEA). It was extended with changes
a second time, in 2007, under the Terrorism Risk Insurance Program Reauthorization Act of
2007 (TRIPRA) and is scheduled to expire on December 31, 2020.
5. Protects consumers by addressing market disruptions and ensuring the continued widespread
availability and affordability of property and casualty insurance for terrorism risk.
6. The Act provides for a Terrorism Insurance Program established in the Department of the
Treasury. The Secretary of the Treasury administers the Program. “Act of Terrorism” is
defined as any act certified by the Secretary of Treasury, in cooperation with the Secretary of
Homeland Security and Attorney General.
7. Only commercial property and casualty insurance is covered by the Program; personal lines
insurance and life and health insurance are not covered.
8. No payment may be made by the Secretary under the Program with respect to an insured loss
that is covered by an insurer, unless:
a. The person that suffers the insured loss, or a person acting on behalf of that person, files a
claim with the insurer.
b. The insurer provides clear and conspicuous disclosure to the policyholder of the
premium charged for insured losses covered by the Program and the Federal share of
compensation for insured losses under the Program.
GENERAL INSURANCE
c. The insurer processes the claim for the insured loss in accordance with appropriate
business practices, and any reasonable procedures that the Secretary may prescribe.
d. The insurer submits to the Secretary, in accordance with such reasonable procedures as
the Secretary may establish.
9. An insurer must make coverage for insured losses that do not differ materially from the terms,
amounts, and other coverage limitations applicable to losses arising from events other than
acts of terrorism.
10. The Secretary shall not make any payment for any portion of the amount of such losses
that exceeds $100 billion (cap on annual liability) and no insurer that has met its insurer
deductible shall be liable for the payment of any portion of that amount that exceeds $100
billion.
11. The insurer deductible is 20% of all covered losses.
12. The insurance marketplace aggregate retention amount (the maximum losses the insurance
industry must sustain before federal co-payments are available) is the lesser of $27.5 billion
and the aggregate amount, for all insurers, of insured losses during such period.
13. The insurance companies share of losses in excess of the deductible (amounts paid or losses
exceeding insurer’s deductible) is 15%, while the federal government is responsible for 85%.
Violent Crime Control and Law Enforcement Act of 1994 (18 USC 1033, 1034)
The largest crime bill in U.S. history expands funding to federal agencies such as the FBI, DEA,
and INS and includes provisions that address (among other topics) domestic abuse and firearms,
gang crimes, immigration, registration of sexually violent offenders, victims of crime, and fraud.
1. The Act made it a felony for a person to engage in the business of insurance after being
convicted of a state or federal felony crime involving dishonesty or breach of trust.
a. Violations include willfully embezzling money, knowingly making false entries in any
book, report or statement of the business, threatening or impeding proper administration
of the law in any proceeding involving the business of insurance.
b. Dishonesty – Deceit, misrepresentation, untruthfulness, falsification.
c. Breach of Trust – Based on fiduciary relationship of parties and the wrongful acts
violating the relationship.
2. Penalties – Fines and possible prison time.
3. Insurance license applicants and producers:
a. Applicants who have been convicted of a felony must apply for Consent to Work in the
business of insurance—prior to applying for an insurance license.
b. Producers must apply for consent in their resident state.
c. Officers and employees must apply for consent in the state where their home office is
located.
d. Prohibited persons (convicted felons) must apply for consent in order to discover if they
are permitted or prohibited from the insurance business.
e. Reciprocity – If consent is granted by any state, other states must allow the applicant to
work in their states as well.
f. Consent Withdrawal – If conditions of consent are not continually met, the consent may
be withdrawn.
CHAPTER ONE
A federal regulation called the ___________ protects consumer privacy.
a. Consolidated Omnibus Budget Reconciliation Act
b. Fraudulent Insurance Act
c. Privacy Protection Act
d. Fair Credit Reporting Act
1.8 Risk Management

1. Risk
a. A condition where the chance, likelihood, probability or potential for a loss exists.
b. Uncertainty concerning a loss.
2. Management
a. The determination of what types of protection are required to meet an insured’s needs.
b. A survey of the insured’s operations, health, assets and exposures that could give rise to
losses.
c. Assessment of potential loss frequency and severity.
d. Physical inspections, applications or medical exams used for underwriting help to
manage a risk.
3. Types of Risk:
a. Speculative Risk
Situations where there is a chance for loss, gain, or neither loss nor gain to occur. An
example of speculative risk is gambling. Speculative risk cannot be insured.
b. Pure Risk
1) Situations where there is no chance for gain; the only outcome is for nothing to occur
or for a loss to occur.
2) Pure risk can be insured. Examples include:
a) The possibility of damage to property caused by a fire or other natural disaster.
b) The possibility of financial loss as a result of death.
4. Loss – Reduction, decrease, or disappearance of value. The basis of a claim for damages
under the terms of an insurance policy.
5. Peril – The cause of a loss.
6. Hazard – A specific condition that increases the probability, likelihood, or severity of a loss
from a peril.
7. Three Types of Hazard
Physical Hazard Moral Hazard Morale Hazard
A physical condition that Dishonest tendencies that Attitude that increases the
increases the probability of loss; increase the probability of a probability of a loss. Example:
use, condition, or occupancy of loss; certain characteristics and Indifference or carelessness of
property. Example: Flammable behaviors of people. Example: An leaving one’s house or vehicle
material stored near a furnace. insured burns down his/her own unlocked.
house to collect the insurance
payout.
GENERAL INSURANCE
8. Loss Exposure – The condition of being at risk for a loss. Purely by existing, property and
people are at risk for loss.
9. Adverse Selection
a. An imbalance created when risks that are more prone to losses than the average
(standard) risk are the only risks seeking insurance within a specific marketplace. For
example, only those living in earthquake-prone areas seek to buy earthquake insurance.
b. High-risk exposures tend to seek or continue insurance at a higher participation rate than
the average risk exposures do.
10. Managing Risk
a. Analyzing exposures that create risk and designing programs to minimize the possibility
of a loss.
b. Ways of managing risk:
■ Investments of a large number of people may be pooled by use of a
S Sharing
corporation or partnership.
■ Transferring the risk from one party to another, such as from a consumer to
T Transfer an insurance company.
■ Transfer the uncertainty of loss via a contract.
■ Elimination of the risk.
■ Avoid the activity that gives rise to the chance of loss.
A Avoidance
■ After potential areas of hazards have been identified, it may be found that
some exposure to risk can be eliminated, but it is impossible to avoid all risk.
■ Minimizing the chance of loss, but not preventing the risk. For example,
sprinkler systems, burglar alarms, pollution controls and safety guards on
R Reduction
machinery.
■ Pooling or spreading the risk among a large number of persons or entities.
■ Assume the responsibility for loss.
■ Self insure the entire loss or a portion of the loss. Choosing deductibles is a
method of risk retention.
R Retention
■ It might be economically practical for an insured to not insure each exposure
to loss and instead insure only those risks that threaten financial stability
security.
11. Insurable risks must include:
a. Large number of homogeneous units or groups with the same perils.
1) Law of Large Numbers – As the number of units in a group increases, the more likely
it is to predict a particular outcome.
2) Auto insurance losses are the easiest type of insurance loss to predict precisely
because the number of units insured is so great.
b. The chance of loss must be calculable. A statistical expectation of loss is used by insurers
to calculate premiums.
c. The loss must be measurable (definite and verifiable in terms of amount, cause, place and
time).
d. The premiums must be affordable.
e. From the perspective of the insured, the loss must be accidental in nature.
f. Catastrophic perils are not covered; examples include war, nuclear hazard and illegal
operations.
CHAPTER ONE
Dishonest tendencies that increase the probability of loss are what types of hazard?
a. Physical
b. Moral
c. Emotional
d. Legal
Each of the following must be included in an insurable risk, except:
a. Calculable chance of loss
b. Excluded catastrophic perils
c. Large group with dissimilar members
d. Accidental losses
1.9 Insurance Concepts

1. The Insurance Contract
a. A legal contract purchased to indemnify the insured against a loss, damage or liability
arising from an unexpected event.
b. The exchange of a relatively small and definite expense for the risk of loss that, if it
occurs, may be large or small.
c. A contract designed to transfer risk from the insured to the insurer.
2. Principle of Indemnity
a. Insured is restored to the same financial or economic condition that existed prior to the
loss.
b. Insured should not profit from an insurance transaction.
3. Insurability – The ability of an applicant to meet an insurer’s underwriting requirements.
4. Underwriting – The process of selecting, classifying, and rating a risk for the purpose of
issuing insurance coverage.
5. Insurable Events – Any event, past or present, that may cause loss or, damage or create legal
liability on the part of an insured.
6. Insurable Interest
a. All Policies
1) Insurable interest must exist in every enforceable insurance contract. Depending
upon the contract, it must exist at the time of application or at the time of loss.
2) Requires the potential for an insured to suffer financial or economic hardship in the
event of a loss.
b. Life & Health policies
1) Insurable interest must exist at the time of application, but not at time of loss.
2) Coverage is determined based on the possibility of an economic or financial loss due
to an accident, sickness, or death of the insured.
3) The amount of insurance that may be purchased varies based on the type of coverage.
In some cases, no coverage limit apply.
GENERAL INSURANCE
c. Property
1) Insurable interest must exist at the time of the loss.
2) Property ownership (or mortgage or lien) is evidence of insurable interest.
d. Casualty
1) Insurable interest must exist at the time of the loss.
2) Insurable interest usually results from property or contract rights and potential legal
liability.
Which principle of insurance restores the insured to the same economic condition
that existed before the loss?
a. Indemnity
b. Insurability
c. Adhesion
d. Underwriting
1.10 Contracts
General Terms
Term Definition
Contract Law Pertains to the formation and enforcement of contracts.
Torts are civil wrongs; they’re not crimes or breaches of contract. They result in
Tort Law
injuries or harm that constitute the basis of a claim by a third party.
Both parties bargain in good faith when forming and entering into the contract.
Contract of Utmost
The two parties rely upon the statements and promises of the other and assume
Good Faith
no attempt to conceal or deceive has been made.
Estoppel Prevents the denial of a fact, if the fact was admitted to be true previously.
Hold Harmless A contractual agreement that transfers the liability of one party to another party;
Agreement it is used by landlords, contractors, and others as a way to avoid or reduce risk.
A written contract may not be altered without the written consent of both
Parol Evidence Rule
parties.
Waiver Voluntary surrender of a known right, claim or privilege.
Four Elements of a Legal Contract

1. Competent Parties
a. All parties to a contract; Insurer and Insured must have legal capacity to enter into a
contract.
b. Those without legal capacity include:
1) Minors – The insurer may be held responsible for its obligations, however, in most
cases a minor cannot enter into a contract. Exceptions do exist, such as for the
purchase of auto insurance.
2) The mentally incompetent or incapacitated.
3) Persons under influence of drugs or alcohol.
CHAPTER ONE
2. Legal Purpose
a. All parties to a contract must enter it for a legal purpose; public policy cannot be violated
by a legal contract.
b. All parties to a contract must enter it in good faith.
3. Agreement – One party must make and communicate an offer to the other party and the
second party must accept that offer.
a. Offer – The offer for entering an insurance contract is the application submitted by the
applicant.
b. Acceptance – The acceptance of an insurance contract takes place when the insurance
company agrees to issue insurance. A counteroffer by the insurance company is not
acceptance until the applicant accepts the counteroffer.
4. Consideration
a. Something of value is exchanged; the exchange of an act for a promise.
b. The consideration made by the applicant is the premium payment.
c. The consideration made by the insurer is its promise to pay for covered losses.
Insurance Contracts: Characteristics, Definitions and Interpretations

Contract of Adhesion – One party writes the contract, without input from the other party. One
party (insurer) prepares the contract and presents it to the other party (applicant) on a “take-it-or-
leave-it” basis, without negotiation. Any doubt or ambiguity found in the document is construed
in favor of the party that did not write it (insured).
Aleatory Contract – The exchange of value is unequal. Insured’s premium payment is less than
the potential benefit to be received in the event of a loss. The insurer’s payment in the event of
a loss may be much greater, or much less (e.g., $0 in the event a loss doesn’t occur), than the
insured’s premium payment.
Valued Contract – A contract that pays a stated amount in the event of a loss. (Most insurance
policies are NOT valued contracts unless they are endorsed.)
Indemnity Contract – An agreement to pay on behalf of another party under specified
circumstances, such as when a loss occurs.
Applicant – The party submitting an application for insurance.
Application – A document submitted by an applicant to an insurer that provides information
needed for the insurer to underwrite a risk; becomes part of the insurance contract. Most
applications require statements on the application to be true to the best knowledge and belief of
the applicant.
Endorsement – A policy form that alters or adds to the provisions of a property and casualty
insurance contract.
Personal Contract – Owner cannot transfer or assign ownership of an insurance policy (property
and casualty) to another person.
Non-Personal Contract – Owner may transfer or assign ownership of a life or health insurance
policy to another person.
Assignment – Policy owners may not assign or transfer their rights under an insurance contract
without the written consent of the insurer.
Issue Age – Insured’s original age on the policy issue date.
Attained Age – Insured’s age at any point in time at issuance, renewal or conversion.
GENERAL INSURANCE
Effective Date – The date when insurance coverage begins.

Lapse Date – The date when insurance coverage ends; if not cancelled prior, policy will
terminate by end of grace period if premium is not paid.
Unilateral Contract – Only one party is legally bound to the contractual obligations after the
premium is paid to the insurer. Only the insurer makes a promise of future performance, and
only the insurer can be charged with breach of contract.
Conditional Contract – Both parties must perform certain duties and follow rules of conduct to
make the contract enforceable. The insurer must pay claims if the insured has complied with all
the policy’s terms and conditions.
Reasonable Expectations Doctrine – What a reasonable and prudent policy owner would expect;
the reasonable expectations of policyowners are honored by the Courts although the strict terms
of the policy may not support these expectations.
Representations – Statements made by the applicant on the application that are believed to be
true to the best of the knowledge and belief of the applicant; may be withdrawn prior to policy
issuance.
Misrepresentations – A false statement contained in the application; usually does not void
coverage or the policy. If material to the issuance of coverage, meaning the insurer would not
have issued coverage had the misrepresentation not been made, coverage does not apply. In
some cases, a material misrepresentation may void the policy.
Concealment – The willful hiding or obscuring of material facts pertinent to the issuance of
insurance (or a claim). Concealment results in denial of coverage and may void the policy.
Warranties – Statements in the application or stipulations in the policy that are guaranteed true
in all respects. If warranties are later discovered untrue or breached (past, present or future),
coverage (and sometimes the contract) is voided.
Fraud – Intentional deception of the truth in order to induce another to part with something of
value or to surrender a legal right. Contains 5 elements:
■ False statement, made intentionally and that pertains to a material fact.
■ Disregard for the victim.
■ Victim believes the false statement.
■ Victim makes a decision and/or acts based on the belief in, or reliance upon, the false
statement.
■ The victim’s decision and/or action results in harm.
Void Contract – An agreement without legal effect because it was made illegally or it was
declared void by the courts because it doesn’t contain all the elements of a legal contract.
Voidable Contract – A valid contract that for reasons satisfactory to a court, may be set aside by
one of the parties. An example is an insurer may void or revoke coverage for misrepresentation
or fraud.
Each of the following is an element of a legal contract, except:
a. Consideration
b. Legal Purpose
c. Agreement
d. Indemnity
CHAPTER ONE
A warranty is defined as which of the following?
a. Intentional misrepresentation on the application
b. Statement in the application that is guaranteed to be true
c. A false statement in the application
d. What a reasonable and prudent buyer can expect
1.11 Insurer Underwriting
Underwriter
1. The underwriter’s primary responsibility is the selection of risks to be insured. The
underwriter also determines the classification, and premium rate if a risk is accepted by the
insurer.
2. Underwriting protects the insurer against adverse selection and risks that are more likely than
average to suffer losses.
3. Goal is to select risks that fall into the normal range of expected losses.
4. Field underwriter is the producer.
5. Line and staff underwriters are employed by the insurer.
Underwriting Factors
1. Nature of the risk.
2. Hazards that are present.
3. Claims history.
4. Other factors that depend upon the type of risk being insured.
Premium Assumptions
1. Must charge an adequate premium for the risk based on the same factors used in evaluating
the risk.
2. Premium rates are considered inadequate when they do not cover projected losses and
expenses.
3. Rates must not be excessive or unfairly discriminatory.
4. Rate – The dollar amount charged for a particular unit of insurance, such as $5 per $1,000 of
insurance.
5. Premium – The total cost for the amount of insurance purchased.
$50,000 of coverage = $5 rate x 50 (per $1,000 of insurance) for a $250 premium.
Rating Types/Methods
1. Class Rating – A rate charged to a group of policyholders who have similar exposures and
experience.
2. Experience Rating – A rate based on the policyholder’s actual loss history when compared to
the loss history of similar risks.
3. Individual Rating – A rate used for a policyholder because a large enough pool of similar
risks is not available to any other type of rate. Primarily used for commercial and specialty
risks because of the number of unique variables involved.
GENERAL INSURANCE
4. “A” Rating or Judgment Rating – An individual rate that doesn’t use loss history as a
component and that is derived largely from the underwriter’s evaluation and best judgment
the risk poses to the insurer.
5. Loss Cost Rating – A rating organization provides insurers with the portion of a rate that does
not include provisions for expenses or profit.
a. The expense and profit components to develop the final rate must be added by individual
insurers based upon their projections.
b. Loss cost rating is used on risks for which the insurer may not have enough data to
develop the rate, other than for expenses and profit.
6. Manual Rating – The use of rates contained in a manual published by the insurer or those of
the rating organization of which it is a member.
7. Merit Rating – The use of rates that rewards a policyholder that takes measures to decrease
the probability of loss by the implementation of safety programs, loss control programs, etc.
8. Retrospective Rating – The use of rates that adjust the policy premium to reflect the current
loss experience of the policyholder. Premium adjustments are subject to minimums and
maximums. Deposit Premium is the required initial premium paid into the policy that is
subject to adjustment. A premium audit will be used to determine the actual premium based
on the risk exposures
9. Schedule Rating – A method of rating property and liability risks by using charges and credits
to modify a class rate based on the nature of the particular risk being rated.
Rate Approval
1. File and Use – Rates must be filed with the state insurance regulatory authority (Department
of Insurance) and may be used as soon as they are filed.
2. Prior Approval – Insurers cannot use rates until approved by the Department of Insurance, or
until a specific time period has expired after the filing.
3. Mandatory Rates – Some states require that mandatory rates be used for certain lines of
insurance.
4. Open Competition – A state relies on competition between insurers to produce fair and
adequate rates.
5. Loss Reserves – The net premiums plus interest reflects possible future contract obligations.
An accounting measurement of an insurer’s future obligation to its policyholders.
a. Case Reserve Method – A loss reserve established for each claim, when reported.
b. Average Value Method – A loss reserve established based on average settlements of
particular claim types.
c. Loss Ratio Method – A loss reserve formula based upon the expected losses for a
particular class or line.
d. Tabular Method – A loss reserve based upon the estimated length of an insured’s or
claimant’s life or expected disability.
6. Financial Ratios
a. Loss Ratio – Determined by dividing Paid Losses + Loss Reserves by Total Earned
Premiums.
b. Expense Ratio – Determined by dividing an insurer’s Total Operating Expenses by Written
Premiums.
c. Combined Ratio – Sum of the loss ratio and expense ratio.
CHAPTER ONE
Each of the following is a factor considered by an underwriter, except:
a. Hazards
b. Marital status
c. Claims history
d. Outside factors
Which of the following calculations equals a company’s loss ratio?
a. All losses + expenses
b. Paid losses + loss reserves ÷ total earned premium
c. Losses + total operating expenses ÷ total written premium
d. Paid losses + paid expenses ÷ total earned premium
GENERAL INSURANCE
Chapter One — Lightning Facts

1. The State Commissioner, Supervisor, or Director of Insurance is the chief insurance regulator
who protects the insuring population by regulating all insurers and insurance professionals doing
business in the State. 1.1
2. A stock insurance company issues non-participating policies and is owned by stockholders who
received taxable corporate dividends as a return of profit. 1.2
3. A mutual insurance company issues participating policies and is owned by the policyholders
who receive non-taxable dividends as a return of unused premium. 1.2
4. Reinsurance is the transfer of risk between insurance companies. The reinsurer assumes some or
all of the risk of the ceding, or primary, insurance company. 1.3
5. Domicile refers to the state in which an insurer is incorporated. A domestic insurer is organized
under the laws of the resident state; a foreign insurer is organized under the laws of another state
within the United States; and an alien insurer is organized under the laws of a country outside
the U.S. 1.4
6. An admitted insurer is authorized to do insurance business in the state and is issued a Certificate
of Authority by the state’s Department of Insurance. 1.4
7. The underwriting department of an insurance company is responsible for the selection of risks to
insure and determines the rate to be charged. 1.5
8. An agent/producer can be the employee of an insurance company that owns the agent’s book
of business, or an independent agent that enters into agency agreements with more than one
insurance company. Independent agent retains ownership of their books of business. 1.5
9. The Law of Agency is a three-party relationship where a Principal authorizes an Agent to act on
its behalf to create a legal relationship with a Third Party. 1.6
10. Express authority is written into the producer’s agency contract; implied authority is that which
the public assumes the agent possesses; and apparent authority is created when the agent
exceeds express authority and the insurer does not respond. 1.6
11. The Fair Credit Reporting Act (FCRA) protects consumer privacy by ensuring that any data
collected by an insurer remains confidential, and is accurate, relevant, and used for a proper and
specific purpose. 1.7
12. A risk is the uncertainty of a loss. 1.8
13. A peril is the cause of loss. 1.8
14. A hazard increases the probability of a loss. The 3 types of hazards are physical, moral, and
morale. 1.8
15. The principle of indemnity does not allow the insured to profit from a loss; instead, it restores
the insured to the same financial or economic condition that existed prior to the loss. 1.9
16. Insurable interest in property and casualty insurance must exist at the time of the loss. 1.9
17. The insurance contract is one of adhesion; one party (the insurer) prepares the contract and
presents it to the second party (the insured), who must accept it on a “take-it-or-leave-it” basis.
1.10
18. The underwriting factors used to determine premium include the nature of the risk, hazards,
claims history, and other factors that vary depending upon the risk. 1.11
Lightning Facts available in “audio” MP3 format. Visit our website.
2
Property Basics
LEARNING OBJECTIVES
1. Define basic property insurance terms
2. Recognize the types of property losses
3. Define the scope of coverage
4. Identify types of loss valuation
5. Recognize the methods of determining appropriate property insurance limits
6. Recall the component parts of a property insurance policy
7. Differentiate between the types of insureds
OVERVIEW
This chapter discusses the foundation of all property insurance, whether coverage is written
in Personal Lines or Commercial Lines. Property insurance is a two-party contract between the
insured (first party) and the insurer (second party). Property insurance is referred to as first-
party insurance, as it covers loss to property owned by the insured for loss caused by covered
perils.
2.1 Property Insurance Terminology

A sudden, unforeseen, unintended, and unplanned event from which loss or damage
Accident
results.
An accident includes continuous or repeated exposure to the same general harmful
Occurrence
conditions.
The termination of an insurance policy before its expiration date. Once cancelled, a
Cancellation
policy provides no coverage. A policy may be cancelled by the insured or insurer.
A proportionate cancellation of insurance that refunds premium to the insured based
on the precise number of days coverage was in effect. The earned premium is the
Pro Rata
premium charged and retained by the insurer for the number of days coverage was in
Cancellation
place; the unearned premium is the premium refunded to the insured for the number of
days coverage was not in place.
A cancellation of insurance that incurs a financial penalty. Sometimes when the insured
Short Rate
cancels the policy before its expiration date, a short-rate cancellation is issued. The
Cancellation
insurer retains a portion of the unearned premium to cover costs.
A cancellation of insurance that is retroactive to the effective date of the policy. No
Flat Cancellation
coverage is provided and the insurer must refund the policy premium paid by the insured.
The termination of a policy at the expiration of its term. The policy does not renew and
Non-renewal
no coverage is provided after the expiration date.
PROPERTY BASICS
The primary cause of loss. If only one peril caused the loss, the proximate cause is the
first event in the unbroken chain of events that resulted in loss. If more than two perils
Proximate Cause
caused or contributed to the loss, the proximate cause is the peril having the most
significant impact in generating the loss or damage.
A fire that burns outside its intended boundaries, or becomes uncontrollable. Examples
Hostile Fire of a hostile fire include a wildfire or a fire that damages a home when a spark from a
fire in the fireplace ignites a piece of furniture.
A fire that was intentionally set and stays within its intended boundaries (e.g., a
Friendly Fire fireplace) and results in smoke damage to the inside of a fireplace. Property insurance
does not cover damage from a friendly fire.
A quality within property that causes it to damage or destroy itself. Examples include
Inherent Vice
rust, rot and the fading of paint. Inherent vice is not covered by a property policy.
A legal agreement issued by an insurance company or a producer that provides
temporary proof of insurance until the insurer is able to issue an insurance policy.
Binder Binders are issued for specific time periods (maximum of 60 days) and automatically
end when the policy is issued. Binders contain the name of the insurer, the amount and
type of insurance, and the perils insured against.
Process whereby a disputed claim is decided by a neutral third party. The disputing parties
Arbitration choose the impartial third party and agree in advance to accept the final decision of the
arbitrator, who makes a decision after a hearing where both parties offer evidence.
The right of the insurer to take possession of damaged property after paying for its loss.
Right of Salvage
The salvage belongs to the insurer.
The amount for which property can be sold at the end of its useful life. In property
Salvage Value
insurance, the salvage value is the scrap value of damaged property.
A policy form that alters or adds to the provisions of a property and casualty insurance
Endorsement
contract.
A principle holding that when two perils simultaneously cause a loss (i.e., they are both
Concurrent
considered the proximate cause of loss), the insurer must pay the loss even if one of the
Causation
perils is excluded by the policy.
The existence of two or more policies covering the same exposures, having the same
Concurrency/
policy periods, and the same coverage triggers. For example, if an auto policy and
Concurrent
an umbrella policy are written with the same policy dates, they are considered to be
Policies
concurrent.
The existence of two or more policies covering the same exposures that don’t have the
Non-
same policy periods. Non-concurrency may create a coverage gap when underlying
Concurrency/
liability policies and an umbrella policy are non-concurrent because if an underlying
Non-Concurrent
liability policy exhausts its aggregate, it may violate the umbrella’s underlying limits
Policies
requirement.
The specified amount of each loss that the insured must bear. In property insurance
(and with a per claim, or per occurrence, deductible), the insurer subtracts the
Deductible deductible from the amount of loss when making payment. By accepting a larger
deductible, the insured’s premium may be reduced. An insurer may require a larger
deductible as an underwriting tool to limit small claims.
Words, terms, and phrases that are clearly described and used in an insurance policy
for the purpose of clarifying the intent of the insurer and to avoid coverage disputes
Definitions with respect to the extent of coverage provided by the policy. Most policies contain a
definitions section in the policy and emphasize policy definitions by enclosing them
within quotes or highlighting them with bold text.
A person or any organization to which property has been entrusted, usually for repairs,
servicing or storage. Because bailees are legally responsible for property in their care,
Bailee
property insurance policies specifically exclude coverage for property in the care of a
bailee.
CHAPTER TWO
Bailor A person or organization that entrusts property to a bailee.

Primary
Any type of coverage that responds to a loss before all other coverage responds.
Insurance
Any form of insurance coverage that provides protection against certain perils or
causes of loss ONLY after loss or damage exceeds a stated amount or the limits stated
Excess Insurance
in specific policies or self-insurance. Excess insurance may be written over primary,
excess, or umbrella insurance.
Unoccupancy A property that contains personal property but has no occupants.
A provision in a property policy that eliminates or limits coverage for buildings that
Vacancy
don’t contain sufficient personal property to support intended occupancy or use.
The taking of property from inside the premises or a locked safe or vault by a person
Burglary
who commits forcible entry into, or exit from, the property of another while trespassing.
The taking of property from the care and custody of a person who has been caused or
Robbery
threatened with bodily harm.
Theft The broadest of the crime coverages, theft includes any act of stealing.
Mysterious The loss of property when the cause of loss is not known. This is NOT theft, burglary,
Disappearance or robbery.
Which of the following is attached to the policy to alter or add to the policy provisions?
a. Binder
b. Endorsement
c. Definitions
d. Excess insurance
A person who takes possession of another person’s property in order to repair it is
called?
a. Assignee
b. Bailor
c. Subrogee
d. Bailee
If the insured does not agree with the insurer’s decision regarding a claim, what
process helps decide the outcome?
a. Insurance company conference
b. Arbitration
c. Inspection
d. Consequential hearing
PROPERTY BASICS
2.2 Types of Property Losses

1. Direct Loss – A loss that causes direct damage to property without an intervening cause.
2. Indirect Loss or Consequential Loss – A loss that is not the direct result of a peril.
Scope of Coverage
There are two types of perils that may be covered by property insurance policies.
1. Named Perils – This type of property coverage only provides insurance for the causes of
loss, or perils, listed. If a peril is not “named” in the policy, no coverage applies for loss or
damage caused by that peril. Typical “named perils” are fire and theft. Named perils may
contain coverage for up to 16 named perils; coverage for additional perils may be added by
endorsement.
2. Open Perils – This type of property coverage provides insurance for all causes of loss that are
not specifically excluded under the policy. Typical exclusions in an “open perils” policy are
flood and earthquake.
Loss Valuation
A property policy pays for losses to property based on the valuation method contained in the
policy or chosen by the insured in an endorsement added to the policy.
1. Replacement Value – The cost to replace property with property of like kind and quality, at
current pricing, without a deduction for depreciation. Many property policies providing loss
valuation at replacement value require covered property to be insured to a certain percentage
of its replacement value, such as 80% or 90%.
2. Actual Cash Value (ACV) – The cost to repair or replace property at its replacement value,
minus depreciation.
3. Agreed Value – The insurance company and insured agree to a specific value of a particular
property before the policy is issued. If a total loss occurs, the insurer will pay the Agreed
Value.
4. Stated Value – A valuation method that states the value of a particular property on the
declarations page, but provides for the insurer to pay the lesser of the stated value or ACV of
the property following a loss.
5. Valued Policy – A policy that states the value of property as the amount shown on the
Declarations page and will pay that full face value in the event of a total loss, regardless of
the actual cash value.
6. Functional Replacement Value – The cost to replace property with other property that
performs the same function with similar efficiency, although the replacement property is not
identical to the property being replaced. This valuation method is typically used with older
property (such as a Victorian home) for which the replacement value exceeds the insured’s
ability or willingness to purchase coverage.
7. Market Value – The price a willing buyer would pay for property purchased from a willing
seller.
Example
Goods and commodities whose value fluctuates with market conditions; namely
agricultural products.
CHAPTER TWO
Classifications of Construction
1. Frame – A building that has a roof, floor, and supports of combustible material, usually
wood, and combustible interior walls.
2. Joisted Masonry – Buildings with exterior walls of masonry or fire-resistive construction rated
for not less than one hour and with combustible floors and roofs.
3. Noncombustible – The buildings and its walls, floors, and structural framework are
constructed of noncombustible materials.
4. Masonry Noncombustible – Buildings with exterior walls of masonry (not less than 4 inches
thick) or made of fire-resistive construction with a rating of not less than one hour and
noncombustible floors and roofs.
5. Fire Resistive – The entire building and roof are constructed of reinforced concrete and steel.
Must have at least a 2-hour fire resistive rating.
6. Modified Fire Resistive – The materials used in the walls, floors, and roof of a structure must
have a fire resistive rating of at least 1 hour, but less than 2 hours.
Each of the following is a direct loss, except:
a. Loss of income
b. Fire damage
c. Cracked windshield
d. Broken pipe water damage
_____________ is the method of loss valuation that values damaged property at the
cost to replace with property of like kind and quality, at current prices, and without
deduction for depreciation.
a. Functional replacement cost
b. Actual Cash Value
c. Replacement Value
d. Market Value
What calculation is used to determine the actual cash value (ACV) of a loss?
a. Market value – depreciation = ACV
b. Replacement cost – depreciation = ACV
c. Market value – original purchase price = ACV
d. Replacement cost – market value = ACV
PROPERTY BASICS
2.3 Methods of Writing Property Insurance Limits

1. Specific Limit – Insures a single item of property for a single limit of insurance. For example,
a fire policy insures one dwelling for $100,000.
2. Scheduled Limit – Insures one or more items of property on a single policy and the amount
of insurance applying to each item is shown on a schedule. For example, one farm policy
insures a home for $100,000 and a barn for $200,000.
3. Blanket Limit – Insures property located at more than one location OR more than one type
of property at the same location OR both. For example, the $1 million blanket limit applies
to two separate buildings at two separate locations, as well as the business personal property
contained in each building.
Standardized Policy Structure

The parts of a policy include:
D Declarations
I Insuring Agreement
C Conditions
E Exclusions
In addition to the four parts of a policy, additional coverages and endorsements will be explained.
Which of the following BEST describes a scheduled limit of insurance on a property policy?
a. Insures multiple items of property on multiple policies
b. Insures multiple items of property on a single policy
c. Insures a single item of property on a single policy for a specific limit
d. Insures a single item of property at a blanket limit
2.4 Policy Structure
Declarations
The Declarations Page describes basic information about the policy including:
1. Who – Names the insurer and insured, including legal representatives in the event of the
insured’s death.
2. What – A description of the property being insured and other parties having insurable
interests, such as a mortgagee.
3. Where – The location of insured property and the named insured’s mailing address.
4. When – The effective and expiration dates of the policy.
5. How Much – The limits of liability insuring covered property and the annual premium for
each type of coverage.
Insuring Agreement
The insuring agreement states the insurance company’s promise to pay the insured. This promise is
usually broad and the other sections of the policy restrict or limit the scope of coverage provided by
the policy. Property insurance policies state in the insuring agreement what perils are covered.
CHAPTER TWO
Conditions
The conditions section states the obligations of the parties to the contract, as well as any other
conditions of coverage. The insureds duties and obligations are spelled out in this section.
1. Policy Period – Specifies that coverage only applies to losses occurring when the policy is in
force.
2. Concealment or Fraud – Specifies that coverage may not apply if an insured makes a material
concealment, misrepresentation, or fraud in the application pertaining to the claim.
3. Liberalization Clause – Specifies that if the insurer broadens coverage with no increase in
premium, that broadening of coverage will apply to existing policies without the need for an
endorsement.
4. Cancellation – Specifies the terms under which the policy can be cancelled by the insurer
and the named insured.
5. Nonrenewal – Addresses the requirements of the insurer if it elects not to renew a policy.
6. Assignment – Specifies that the insured may not transfer rights of ownership without the
insurer’s prior written consent.
7. Subrogation – States the insured must transfer to the insurance company its right of
recovery against any party causing a loss after it accepts payment from the insurer for a loss.
Subrogation allows the insurer to recover from the party that caused a loss any amounts paid
to an insured. It also:
a. Prevents the insured from collecting twice for the same loss.
b. Helps the insurer control expenses and premiums.
c. Ultimately holds the responsible third party accountable for the loss.
8. Changes – Any changes to the policy must be made in writing by the insurer.
9. Insurable Interest and Limit of Liability – The insurer will not be responsible for payment of
loss in an amount greater than the financial interest of an insured.
10. Restoration/Non-reduction of Limits – Specifies the sum and circumstances under which
an insurer charges the insured, usually a business firm, to restore a policy to its initial face
value or not reduce limits of coverage after the insurer has paid a claim either to the insured
business or a third party on behalf of the business.
11. Duties in the Event of Loss – Specifies the obligations of the insured in the event of a loss.
With respect to any loss, these obligations include:
a. Giving prompt written notice to the insurer, including a complete description of how,
when, and where the loss or damage occurred.
b. Notifying the police if a theft occurred.
c. Cooperating with the insurer in the investigation and settlement of the loss.
d. Protecting property from further damage.
e. Preparing an inventory of the damaged property.
f. Allowing the insurer to inspect any damaged property and examine books and records.
g. Submitting proof of loss to the insurer, including:
1) The time and cause of loss.
2) Any other insurance that may cover the loss.
3) Any appropriate receipts, evidence, or affidavits to support the loss.
12. Loss Settlement – Specifies which loss valuation method will apply to the property insured
under the policy.
PROPERTY BASICS
13. Appraisal – Addresses disputes about the amount of a loss. If the insurance company and
insured cannot agree on the amount of a loss, either party may request an appraisal. Each
party selects its own appraiser and the appraisers select an umpire. Agreement by any two
parties settles the loss. Each party pays the cost of its own appraiser and shares the costs of
the umpire and the appraisal. Appraisal is a dispute resolution method and is not used to
determine whether the policy provides coverage for a loss.
14. Other Insurance – Specifies the process to be followed when more than one policy covers
the same loss. Each policy pays no more than its share of the loss.
15. Legal Action Against Us – Specifies that no one may bring suit against the insurer until all
terms and conditions of the policy have been complied with.
16. Loss Payment – Specifies how the insurer will make payment for loss and any applicable time
frames that must be honored when submitting proof of loss and other claim documents.
17. Abandonment of Property – Specifies that the insurer is not obligated to accept any property
abandoned by an insured.
18. Mortgage Clause – Specifies how the policy protects the mortgagee’s financial interest. (A
mortgagee has insurable interest in real property.) Payment is made to mortgagees only
up to its insurable interest in covered property and in order of precedence. The mortgagee
must comply with requirements if the insured’s claim is denied and the mortgagee wishes to
collect under the policy:
a. It must pay any premium due under the policy on demand if the insured fails to do so.
b. It must notify the insurer of any change in ownership, occupancy, or substantial change
in risk of which the mortgagee is aware.
c. It must submit a proof of loss to the insurer if the insured fails to do so.
Under cancellation requirements, the insurer must provide the mortgage holder (mortgagee)
with advance written notice (typically 10 days) before cancelling or nonrenewing coverage,
giving the mortgagee the opportunity to pay the premiums.
19. No Benefit to Bailee – Specifies that no coverage applies if loss payment benefits a bailee.
20. Recovered Property – Specifies the procedure to be followed when lost or stolen property is
recovered after the insurer has made payment under the policy. Each party shall notify the
other of any recovery and, under most property policies, the insured has the right of keeping
the claim payment or returning the claim payment and retaining right to the property after
adjustments have been made for any damage.
21. Bankruptcy – Specifies that bankruptcy or insolvency of the insured does not relieve the
insurer of any of its duties or obligations under the policy.
22. Death – Specifies that in the event of the named insured’s death, the insurer will extend
coverage to the legal representative of the deceased with respect to the premises and property
covered under the policy at the time of the named insured’s death.
23. Loss Payable Clause – Specifies how the policy protects the interests of a loss payee. A loss
payee has insurable interest in personal property.
CHAPTER TWO
Exclusions
Perils that are NOT covered by the policy are listed in the exclusions section. Other perils may
be excluded in provisions stated elsewhere in the policy. Common property exclusions include:
1. Ordinance or Law
2. Earth movement
3. War
4. Water Perils that are NOT covered by the policy are listed in the exclusions section. Other
perils may be excluded in provisions stated elsewhere in the policy (i.e., water damage,
flood, sewer backup, etc.).
5. Utility failure that originates off-premises
6. Neglect of the insured to protect covered property from further loss
7. Intentional loss
8. Nuclear hazard, war, and military action
9. Governmental action
10. Fungus, wet rot, dry rot, and bacteria (e.g., mold)
Additional Coverages
Additional coverages are automatically included in property policies without an additional
premium. The type of additional coverages depends upon the type of policy. Additional
coverages are paid in addition to those stated in the insuring agreement and include debris
removal, collapse, and fire department service charges.
The duties and obligations of the insured are found under what part of the insurance
policy?
a. Declarations
b. Insuring Agreement
c. Additional Coverages
d. Conditions
A Liberalization Clause serves which of the following purposes?
a. At each annual renewal, the policy limit automatically increases in value
b. The insurer has the right to recover from any party causing a loss
c. The insured is given permission to bring suit against the insurer
d. Broadened coverage applies automatically to all policies without a premium charge
Each of the following is a typical property insurance policy exclusion, except:
a. Ordinance or Law
b. Flood
c. Fire
d. Neglect
PROPERTY BASICS
2.5 Common Policy Provisions
Types of Insureds
1. Named Insured – The person or organization designated on the Declarations page of the
policy. If property is being insured, the named insured should be the owner of the property.
If vehicles are being insured, the named insured should be the party or entity to which the
vehicle is titled and registered. The named insured receives the broadest coverage of all
persons or organizations protected by a policy.
2. Insured – A person or organization protected by an insurance contract.
3. First Named Insured – The First Named Insured is the person or organization whose
name appears first on the Declarations. The First Named Insured is granted rights and
responsibilities by the policy that are not granted to other insureds. In commercial lines,
many policies spell out those duties and responsibilities.
4. Additional Insured – A person or organization not ordinarily protected by a policy but
which, through the addition of an endorsement to the policy, is granted status as an insured.
Under a property policy, an additional insured is often a co-owner of real property. Under a
liability policy, an additional insured is often a party to an indemnification or hold harmless
agreement.
Coinsurance
A provision contained in most policies insuring commercial property, and is used to encourage
the insured to purchase and maintain insurance to value, and to establish the basis of payment
in the event the insured fails to maintain a specified percentage of that value. The higher the
coinsurance percentage the insured agrees to purchase, the lower the rate that the insured pays
for the insurance. Coinsurance applies only in the event of a partial loss, as total losses typically
are paid in accordance with the Valued Policy Law.
Which of the following has the broadest coverage under the insurance policy?
a. Named Insured
b. Insured
c. First Named Insured
d. Additional Insured
Which of the following is not true of coinsurance?
a. It is a common policy provision
b. It encourages the insured to maintain insurance to value
c. It applies in the event of a total loss
d. The higher the coinsurance percentage purchased, the lower the rate the insured
pays
CHAPTER TWO
Chapter Two — Lightning Facts

1. An occurrence is an accident and includes continuous or repeated exposure to the same general
harmful conditions. 2.1
2. If an insurer cancels an insurance policy before its expiration date, the refund is made on a pro
rata basis. 2.1
3. The primary cause of a loss is referred to as the proximate cause. 2.1
4. A friendly fire stays within its intended boundaries and a hostile fire burns outside its intended
boundaries. 2.1
5. An endorsement is a policy form that alters or adds to the provisions of a property and casualty
insurance contract. 2.1
6. The deductible is the specified amount of each loss that the insured must bear. A larger
deductible reduces the premium and the submission of small claims. 2.1
7. A direct loss causes damage without an intervening cause, and an indirect loss occurs as the
consequence of a direct loss. 2.2
8. A named perils policy specifically lists the covered perils (causes of loss) and an open perils
policy covers all perils except those specifically excluded. 2.2
9. The replacement value of property is the cost to replace it with property of like kind and quality,
at current pricing, without a deduction for depreciation. 2.2
10. Actual cash value is the replacement value of property minus depreciation. 2.2
11. A valued policy requires the insurance company pay the total scheduled limit of insurance for a
total loss. 2.2
12. A policy insuring property for a specific limit insures a single item on a single policy for a single
limit of insurance. 2.3
13. A policy insuring property for a scheduled limit insures one or more items on a single policy and
each item is insured at a scheduled limit of insurance. 2.3
14. A policy insuring property for a blanket limit insures multiple items of property on a single policy
with one limit of insurance applying to all insured property. 2.3
15. The declarations page describes basic information about the policy; i.e., the who, what, where,
when, and how much. 2.4
16. The Insuring Agreement is the insurer’s promise to pay the insured. 2.4
17. The conditions section states the obligations of the insurer and the insured, as well as any other
conditions of coverage. 2.4
18. The subrogation provision states the insured’s obligation to transfer to the insurance company its
right of recovery against any party causing a loss after it accepts payment from the insurer for a
loss. 2.4
19. Perils that are NOT covered by the policy are listed in the exclusions section. 2.4
20. Additional coverages are automatically included in property policies without an additional
premium and include items such as debris removal, collapse, and fire department service
charges. 2.4
21. Coinsurance is a common property policy provision that requires the insured maintain a certain
limit of insurance coverage in order to avoid a penalty in the event of a partial loss. 2.5
3
Casualty (Liability) Basics
LEARNING OBJECTIVES
1. Define basic casualty or liability insurance terms
2. Recognize the liability insurance principles and concepts of negligence
3. Recall the component parts of a liability policy
4. Identify the common liability policy provisions
5. Define the terms used to express limits of liability
OVERVIEW
This chapter represents the foundation of liability insurance and discusses the various terms,
definitions, principles, and concepts used in liability policies. A liability policy provides
protection for legal liability arising from unintentional torts for bodily injury or property
damage to others. Liability insurance is also referred to as third-party insurance because loss
payments benefit someone other than the insured. If you recall, the insured is the first party to
an insurance contract, the insurer is the second party, and an unknown party that suffers harm
is the third party.
3.1 Liability Insurance Terminology

Liability insurance only provides coverage when the insured is legally liable for causing injuries or
damage. Legal liability is the responsibility under law or contract for an act or failure to act.
A tort is a wrongful act, other than a breach of contract, that violates a duty or the rights
of another and for which compensation may be sought from the responsible party.
Torts may result from either criminal or civil activity. Torts are either intentional, or
unintentional. An intentional tort is a deliberate act that harms another and for which
Tort the injured party is permitted by law to sue the wrongdoer. An unintentional tort, also
known as negligence, is an act, or failure to act that is committed without the same level
of care a reasonable individual would have exhibited given the same knowledge and set
of circumstances. Liability insurance provides coverage for most unintentional torts and
excludes intentional torts.
The liability assigned to one party for the conduct of another, based solely on a
Vicarious
relationship between the two. Examples include employer/employee relationships and
Liability
parent/child relationships.
Negligence Failure to use ordinary care. For example, running a red light.
Gross Failure to exhibit any sort of care through recklessness or deliberate indifference to the
Negligence well-being of others. For example, driving while under the influence of alcohol.
An artificial condition on land that attracts children, such as a swimming pool, and
Attractive requires the owner to exhibit a special duty of care. Legally, children are considered
Nuisance invitees to the premises if it contains an attractive nuisance even when they are not
expressly invited.
CHAPTER THREE
Loss of
Compensation to a husband or wife for the loss of companionship of a spouse.
Consortium
Awarded to the injured party for the actual loss sustained. Damages are Special or
General. Special damages are an award to an injured party for actual and known
expenses such as bills, loss of earnings, and the costs of repairing or replacing damaged
Compensatory
property. Special damages are paid for tangible loss or damage. General Damages are an
Damages
award to an injured party for pain, suffering, mental anguish, disfigurement, and similar
types of losses. General damages are paid for losses that cannot be calculated objectively
and assigned a specific dollar value.
An award to an injured party, in addition to compensatory damages, to punish and
Punitive
discourage a wrongdoer from repeating negligent acts or omissions. Most liability
Damages
policies do not provide coverage for punitive damages.
Legal liability arising from physical injury, including sickness, disease, and death caused
Bodily Injury
by the acts or omissions of an insured. Bodily injury liability expenses include medical
Liability
bills, lost wages, mental anguish, pain and suffering, etc.
Legal liability arising from physical damage to tangible property, including loss of use
Property
of that property, caused by the acts of an insured. Property damage liability expenses
Damage
include the actual cost of repair or replacement of the damaged property as well as the
Liability
inability to use damaged property (loss of use).
Coverage for the bodily injury of third parties sustained on an insured location or as
a result of the insured’s activities. Coverage is provided for the payment of necessary
Medical
medical, surgical, x-ray, dental, ambulance, hospital, professional nursing, and funeral
Payments
expenses. Payments are made regardless of the insured’s negligence. This coverage is
Coverage
provided to discourage liability claims and lawsuits and, when payments are made, are
not an admission of liability.
Legal liability arising from specific offenses committed by an insured that results in injury
other than bodily injury or property damage. Examples of personal injury include libel,
Personal Injury
slander, false arrest, invasion of privacy, and copyright infringement. Personal injury is
Liability
generally understood to affect one’s reputation or emotional well-being and is not bodily
harm or property damage.
A sudden, unforeseen, unintended, and unplanned event from which loss or damage
Accident
results.
An accident includes continuous or repeated exposure to the same general harmful
Occurrence
conditions.
Insured must notify the insurer in writing as soon as possible in the event of any loss or
occurrence. The written notice should include the named insured, policy number, and
Notice of Loss
details about the time, place, circumstances of the occurrence, and names and addresses
of any claimants and witnesses.
A formal statement made by the insured and provided to the insurer that provides
Proof of Loss
necessary details for the insurer to determine its liability under a policy.
A document that shows evidence that specific types of insurance were purchased by
Certificate of
the insured, at certain limits, and that they were in place on the date the certificate of
Insurance
insurance was issued. A certificate of insurance is not proof of insurance, as a binder is.
A(n) ____________ is a civil wrong committed by one person against another.
a. Tort
b. Accident
c. Breach
d. Punitive damage
CASUALTY (LIABILITY) BASIC
Which of the following damages is awarded to the injured party for the actual
medical expenses incurred?
a. General
b. Punitive
c. Special
d. Consortium
Which of the following documents informs an insurer that a loss has occurred?
a. Certificate of insurance
b. Notice of loss
c. Proof of loss
d. Occurrence notice
Payment of necessary medical expenses without regard to negligence is covered by
which of the following insurance coverages?
a. Medical Payments
b. Bodily Injury
c. Property Damage
d. Personal Injury Liability
3.2 Liability Insurance Principles and Concepts
Negligence
Negligence, in a broad sense, is the failure to use ordinary care. Specifically, it is a wrongful act
that is neither criminal nor a breach of contract that violates a duty or the rights of another – and
for which the injured party may demand compensation. It is the failure to use the same degree
of care a reasonable and prudent person would use when given the same knowledge and set of
circumstances.
1. Elements – In order for an act or failure to act to be negligent, it must contain 4 elements:
a. Duty Owed – Requires the injured party to prove the alleged wrongdoer owed a duty to
the injured party or to the public.
b. Violation of Duty – Requires the injured party to prove the alleged wrongdoer not only
owed a duty but also violated that duty. Basically, the alleged wrongdoer didn’t exhibit
reasonable care.
c. Violation of Duty is Proximate Cause – Requires the injured party to prove the alleged
wrongdoer’s negligent actions or inactions were the proximate cause of actual injuries or
damages.
d. Foreseeable Consequence – Requires the injured party to prove the actual injuries or
damages were a reasonably foreseeable consequence at the time the negligent action or
inaction occurred.
Note
If any of the four elements is absent, an act, or the failure to act, is not considered negligent.
CHAPTER THREE
2. Defenses – When a claimant accuses an insured of negligence, the insured may use one of
several defenses:
a. Common Law – Law practiced as the result of judicial or court decisions (i.e., case law
and precedents).
1) Contributory Negligence – Prevents recovery for damages caused by a negligent
party if the claimant was negligent to any extent. For example, if the claimant is
5% negligent and the wrongdoer is 95% negligent, the claimant is not permitted to
collect damages.
2) Assumption of Risk – Prevents recovery if the claimant knowingly assumed the risk.
3) Intervening Cause – Prevents or limits recovery from the wrongdoer when a second,
distinctly separate negligent act occurs after the original negligent act, but before
damage occurs, and interferes with the chain of events that brings about the loss. The
intervening cause must be unexpected and unforeseen.
b. Statutory Law – Written law enacted by legislatures.
1) Comparative Negligence – Damages are reduced in proportion to the degree of
the claimant’s negligence. For example, if the claimant is 5% negligent and the
wrongdoer is 95% negligent, the claimant may only recover 95% of damages.
2) Statute of Limitations – The length of time during which legal proceedings may be
initiated. This time period is established by federal or state law and usually begins on
the day an event occurs.
Strict and Absolute Liability

Strict and Absolute liability is a legal principle that imposes legal liability based on conditions,
activities, or products that exhibit very high hazards; the degree of care exercised by the insured
isn’t considered when making a determination of liability.
1. Absolute liability is most often associated with dangerous animal ownership, abnormally
dangerous activities, and employers liability for injuries sustained by their employees.
Dangerous animals include lions, bears, and certain dog breeds such as pit bulls and
rottweilers. Absolute liability applies to the storage of explosives, highly flammable material
and weapons or firearms.
2. Strict Liability Applies to Products – If a claimant can prove that a product caused the injury,
the manufacturer will be held liable whether or not the product was defective.
3. Liability may be asserted even in the absence of negligence. For example, the manufacturer
of a dangerous product is always legally liable if the product causes injury or damage.
No-Fault Liability
When a no-fault liability system or law is in place, the injured party collects insurance benefits
from his or her own insurance as if it were first-party coverage, thus eliminating the process of
determining negligence or legal liability. No-fault laws vary by state and typically apply to auto
insurance.
1. Most no-fault laws restrict the rights of the injured party to sue unless the injuries are severe
(e.g., paralysis or death) and meet certain conditions. These conditions are called a threshold
and can be either a monetary limit (e.g., $5,000) or described verbally (e.g., death, facial
injuries, or broken bones).
2. Some no-fault laws allow the insured to choose whether their policy operates under a no-
fault or tort basis. Other states allow policyholders to “add-on” no-fault benefits to their auto
policies that are otherwise subject to tort liability.
3. Some states refer to their no-fault laws and coverage as personal injury protection (PIP).
Each of the following is an element of negligence, except:
a. A duty is owed
b. The duty is violated
c. There is a foreseeable consequence
d. There is an intervening cause
Which of the following is a common law defense used by the defendant when the
injured party is partially responsible for his own injuries?
a. Proximate cause
b. Contributory negligence
c. Absolute liability
d. Comparative negligence
A party injured in an auto accident is not allowed to sue the negligent party who
caused the accident under which of the following laws?
a. No-fault
b. Civil
c. Pure
d. Tort
3.3 Common Policy Provisions
Insureds
1. Named Insured – The person or organization designated on the Declarations page of the
policy as being protected by an insurance contract.
2. Insured – A person or organization protected by an insurance contract.
3. First Named Insured – The name of the person or organization that appears first on the
Declarations page of a policy as “named insured.”
4. Additional Insured(s) – A person or organization not ordinarily protected by a policy but
which, through the addition of an endorsement to the policy, is granted status as an insured.
Under a liability policy, an additional insured is often a party to an indemnification or hold
harmless agreement.
Other Insurance
This provision specifies the process to be followed when more than one policy covers the same
loss.
1. Primary – If the policy is primary, it makes payment before all other policies in place make
payment for a loss.
2. Excess – If the policy is excess, it makes payment only after all other insurance in place
exhausts its limits or denies coverage.
CHAPTER THREE
3. Pro Rata Liability – Specifies the process to be followed when more than one policy covers
the same loss. Each policy pays no more than its share of the loss and the method of sharing
varies by contract. Some policies require sharing of losses by the ratio of applicable limits of
insurance each insurer writes with respect to the total of all limits available for the loss (pro
rata). Other policies require the insurers to share the loss by contributing equal shares until
each insurer has paid its limit of insurance (contribution by equal shares).
Example
Policy A insures a dwelling for $250,000 and Policy B insures the same dwelling for
$500,000. If both policies covered the same loss, Policy A would pay one-third of
the loss because $250,000 represents 1/3 of all the insurance available to cover the
loss ($250,000 equals 1/3 of $750,000, which is the sum of $250,000 on Policy A
and $500,000 on Policy B).
Limit of Liability/Limits of Insurance

Each policy includes a provision that specifies the most it will pay in the event of loss. Certain
limits of liability apply to any one loss; other limits apply to the total of all losses that occur
within the policy period. In addition, the manner in which limits of liability are designated vary
by coverage and policy type. The limit of liability, or limits of insurance, are shown on the policy
declarations page and are the most paid by the policy regardless of the number of insureds,
claims made, lawsuits filed, or parties making claims or filing lawsuits.
1. Per Occurrence Limit – The most the policy will pay for all losses arising out of any one
occurrence, regardless of other policy limits.
Example
The limit of liability for personal liability on a homeowners policy is a per
occurrence limit.
2. Per Person Limit – The most the policy will pay for loss to any one person injured in any one
loss, regardless of other policy limits. For example, the limit of liability for medical payments
coverage on an auto policy is a per person limit.
3. Aggregate Limit – The most the policy will pay for all losses submitted during the policy
period, regardless of other policy limits.
a. Each loss payment made under a per occurrence limit or per person limit reduces the
aggregate limit of liability.
b. For example, if a commercial general liability policy has a medical payments coverage
per person limit of $5,000, a liability per occurrence limit of $1 million and a $2 million
general aggregate limit, payment of a $3,000 medical payments claim would use up
$3,000 of the general aggregate limit, leaving $1,997,000 available for the payment of
future claims submitted during the balance of the policy term.
4. Split Limits – The most the policy will pay for loss of different types that occur as a result of
any one loss, regardless of other limits. For example, the limits of liability on an auto policy
for bodily injury might be represented as 100/300/100 ($100,000 is the per person limit for
bodily injury liability, $300,000 is the per occurrence limit for bodily injury, and $100,000 is
the per occurrence limit for property damage liability).
5. Combined Single Limit – The most the policy will pay for all losses of all types resulting from
any one occurrence, regardless of other limits. For example, the per occurrence limits on
homeowners and general liability policies provide coverage for the sum of all bodily injury
liability and property damage liability claims that arise from one occurrence.
Named Insured Provisions

1. Assignment – The owner of a liability policy cannot transfer policy ownership without the
insurer’s written consent. For example, a business owner cannot sell his business and then
transfer ownership of the business’ general liability insurance policy to the new owner
without the written consent of the insurance company.
2. Subrogation – After an insurer pays a loss, it is granted the insured’s rights to seek recovery
from the party responsible for the loss. For example, if Bob is legally responsible for injuring
Sue in a car accident, Sue’s insurance company may seek reimbursement from Bob for the
claim payments it made to Sue.
3. Liberalization – When coverage under a particular form of insurance issued by an insurer
is broadened without an additional premium charge, it automatically applies to all policies
currently in effect. For example, Carrier A adds coverage enhancements to its Special Form
homeowners policy, without an additional charge. Those changes automatically apply to all
policies currently in effect.
Which of the following is designed to prevent the insured from collecting more than
the actual extent of a loss?
a. Excess insurance
b. Primary coverage
c. Pro rata liability
d. Contribution by equal shares
The ______________________ is the most the policy will pay for the sum of all the
losses occurring within a policy period.
a. Contribution
b. Excess
c. Combined
d. Aggregate
The _______ Limit of liability applies to bodily injury, property damages, or both.
a. Contribution limit
b. Excess limit
c. Combined Single
d. Limit
Chapter Three — Lightning Facts

1. A tort is a wrongful act, other than a breach of contract or a crime that violates a duty or the
rights of another and for which compensation may be sought from the responsible party. 3.1
2. An intentional tort is a deliberate act that harms another and for which the injured party is
permitted by law to sue the wrongdoer. 3.1
3. Liability insurance provides coverage for most unintentional torts and excludes intentional torts.
3.1
CHAPTER THREE
4. Vicarious liability is assigned to one party for the conduct of another, based solely on a
relationship between the two. 3.1
5. Compensatory damages are awarded to an injured party for actual loss sustained. 3.1
6. Special damages are compensatory damages for tangible expenses such as bills, loss of earnings,
and the costs to repair or replace damaged property. 3.1
7. General damages are compensatory damages for pain, suffering, mental anguish, disfigurement,
and similar types of losses that cannot be objectively calculated. 3.1
8. Bodily injury liability is the legal liability arising from physical injury, including sickness, disease,
and death caused by the acts or omissions of an insured. Bodily injury liability expenses include
medical bills, lost wages, mental anguish, disfigurement, pain and suffering, etc. 3.1
9. Property damage liability pays for the legal liability arising from physical damage to tangible
property, including loss of use of that property, caused by the acts of an insured. Property
damage liability expenses include the actual cost of repair or replacement of the damaged
property as well as the inability to use damaged property (loss of use). 3.1
10. Medical payments coverage pays for necessary medical, surgical, x–ray, dental, ambulance,
hospital, professional nursing, and funeral expenses incurred by a third party on the insured’s
premises regardless of fault. 3.1
11. Personal injury liability is the legal liability arising from the wrongful conduct of the insured
resulting in injuries to one’s mental or emotional wellbeing and not bodily injury or property
damage. 3.1
12. An accident is a sudden, unforeseen, unintended, and unplanned event from which loss or
damage results. 3.1
13. Negligence is a tort and, specifically, the failure to use the same degree of care a reasonable and
prudent person would use when given the same knowledge and set of circumstances. 3.2
14. Contributory negligence is a defense for negligence in which the claimant was also negligent to
any degree. 3.2
15. Comparative negligence involves fault on the part of all parties and the damages are reduced in
proportion to the degree of negligence. 3.2
16. Under absolute liability, a claimant does not have to prove fault in order to collect damages. 3.2
17. Strict liability applies when a manufacturer is held liable whether or not its product was
defective in causing injuries. 3.2
18. An excess policy pays a covered claim after the primary policies exhaust their limits or deny
coverage. 3.3
19. A pro rata loss payment provision requires each insurer to pay its share of a loss in proportion to
the coverage of that policy as it relates to the total of all insurance on the risk. 3.3
20. The limit of liability is the dollar amount of coverage specified for a liability loss. 3.3
21. The aggregate limit is the maximum amount payable for loss per location or per person from all
occurrences within a policy period regardless of the number of separate accidents. 3.3
22. A split limit of liability is the amount of coverage divided between bodily injury and property
damage. 3.3
23. A combined single limit is the policy limit applied to either bodily injury or property damage as
needed or in any combination. 3.3
4
Dwelling Policy
LEARNING OBJECTIVES
1. Identify the purpose of a dwelling policy, including eligibility requirements
2. Differentiate between the DP–1, DP–2, and DP–3 forms of coverage in terms of perils insured
against and how losses are paid
3. Identify the different types of dwelling coverages and the limits of liability for each
4. Recognize the general exclusions of a dwelling policy
5. Recognize the common endorsements that may be added to a dwelling policy
OVERVIEW
The Dwelling Policy is primarily used to insure personally owned residential dwellings
containing one to four units that are either not eligible for coverage under a homeowners
policy or occupied by a tenant. It can be owner or tenant occupied and may also be occupied
on a seasonal or secondary basis.
4.1 Dwelling Policies
Dwelling Program Eligibility

1. Dwellings must be used principally for residential dwelling purposes and cannot have more
than 4 dwelling units or more than five roomers or boarders.
2. Mobile homes are eligible if they are permanently affixed to a foundation, but only on the
Basic Form of coverage (DP–1).
3. Incidental business occupancies, such as schools, studios, and offices, are permitted if the
primary use of the dwelling is as a personal residence.
4. Dwellings located on farms are not eligible.
Dwelling Coverage Forms

DP–1 (Basic Form)
1. The perils insured against are fire, lightning, and internal explosion. If an additional premium
is paid for Extended Coverage (EC), the following perils are also included:
■ Windstorm or hail
■ Explosion
■ Riot or civil commotion
■ Aircraft, vehicles
■ Smoke
■ Volcanic eruption
CHAPTER FOUR
The peril of vandalism or malicious mischief (VMM) may also be included with the payment
of an additional premium. EC and VMM coverages, if purchased, must appear on the
declarations.
2. If VMM is purchased, it excludes loss for vandalism in vacant buildings.
3. Losses to the dwelling, other structures, and contents are paid on an actual cash value basis.
DP–2 (Broad Form)

1. The perils insured against are the DP–1 perils, the EC perils, VMM and the following:
■ Damage by Burglars – This does not include theft coverage nor does it apply if the
dwelling was vacant 60 or more consecutive days immediately before a loss.
■ Falling objects – Damage to the exterior of the building must take place for coverage to
apply to contents inside the building.
■ Weight of ice, snow, or sleet – This doesn’t apply to awnings, patios, pavements, pools,
etc.
■ Accidental discharge or overflow of water or steam – Must occur from within a
plumbing, heating, air conditioning, or automatic fire protective sprinkler system, or
household appliance. This doesn’t apply to constant or repeated seepage or leakage over
a period of time or if the dwelling was vacant 60 or more consecutive days immediately
before a loss.
■ Sudden and accidental tearing apart, cracking, burning, or bulging – Must occur to a
steam or hot water heating system, air conditioning system, or automatic fire protective
system, or household appliance.
■ Freezing – Must occur to a plumbing, heating, air conditioning, or automatic fire
protective sprinkler system, or household appliance. Applies only if the insured used
reasonable care to maintain heat in the building OR shut off the water supply and drained
all systems of water.
■ Sudden and accidental damage from artificially generated electrical current – This peril
is caused by man-made electricity or power surge and does NOT apply to damage to
tubes, transistors, electronic components, or circuitry contained in appliances, fixtures,
computers, etc.
2. The Damage by Burglars peril includes damage to the covered property caused by the
burglar, but not theft of property. The Vehicle peril does not include loss to a fence,
driveway, or walkway caused by a vehicle owned or operated by the insured. The Smoke
peril does not include loss caused by smoke from agricultural smudging or industrial
operations.
3. Losses to the dwelling and other structures are paid on a replacement cost basis, and losses to
personal property are paid on an actual cash value basis.
DP–3 (Special Form)

1. Coverage for the dwelling and other structures is provided on an open perils basis, meaning
coverage is provided for all causes of loss except for those perils specifically excluded.
2. In addition to the policy’s General Exclusions, the DP–3 specifically excludes the following
losses under Coverages A and B:
■ Collapse, except for coverage provided by Other Coverages.
■ Freezing, thawing, or weight of water or ice on patios, fences, swimming pools,
foundations, piers, docks, retaining walls, etc.
■ Theft of property not part of a covered building or structure.
■ Theft in or to a dwelling or structure under construction.
DWELLING POLICY.
■ Wind, hail, ice, snow, or sleet to outdoor radio and TV antennas & aerials, trees, shrubs,
plants, and lawns.
■ Vandalism and malicious mischief, theft or attempted theft, and any ensuing loss if the
dwelling has been vacant for more than 60 consecutive days immediately before a loss.
■ Constant or repeated seepage or leakage of water or steam over a period of time from
within a plumbing, heating, air conditioning, or automatic fire protective sprinkler
system, or household appliance – these systems and appliances do NOT include sumps,
sump pumps, mold, fungus, or wet rot unless resulting from accidental discharge or
overflow of water or steam and is hidden from view.
■ Any of the following: wear and tear; deterioration; mechanical breakdown; smog, rust, or
corrosion; smoke from agricultural smudging or industrial operations; pollution; settling,
cracking, bulging, or expansion of foundation, walls, floors, pavement, or patios; and
birds, vermin, rodents, insects, or domestic animals.
3. Theft of property that is part of the dwelling or other structures is covered as long as the
dwelling or other structures have not been vacant for more than 60 days. Theft of contents is
still excluded unless coverage has been added by an endorsement.
4. Personal property is covered for the Broad Form (DP–2) named perils.
5. Losses to the dwelling and other structures are paid on a replacement cost basis, and losses to
personal property contents are paid on an actual cash value basis to the insured.
Perils Insured Against

DP-3 Personal Property
DP-1 DP-2 DP-3 Buildings
(Coverage C)
Fire Fire Open Perils Coverage Fire
Lightning Lightning Lightning
Internal Explosion Internal Explosion Internal Explosion
Optional w/ Endorsement: Wind Wind
Wind Hail Hail
Hail Aircraft Aircraft
Aircraft Riot or civil commotion Riot or civil commotion
Riot or civil commotion Vehicles Vehicles
Vehicles Volcanic Eruption Volcanic Eruption
Volcanic Eruption Explosion Explosion
Explosion Smoke Smoke
Smoke VMM VMM
VMM Burglar Damage Burglar Damage
Falling Objects Falling Objects
Weight of Snow, Ice or
Weight of Snow, Ice or Sleet
Sleet
Accidental Discharge Accidental Discharge
Accidental Tearing Accidental Tearing Apart,
Apart, Cracking, Cracking, Burning or Bulging
Burning or Bulging
Artificial Electric Current Artificial Electric Current
CHAPTER FOUR
Which of the following is not eligible under the Dwelling Program?
a. Dwelling has 5 roomers
b. Dwelling has 4 apartment units
c. Dwelling includes a piano school
d. Dwelling is located on farm property
Which of the following dwelling program forms covers the building on an open peril
basis?
a. DP–1 Basic Form
b. DP–2 Broad Form
c. DP–3 Special Form
d. DP–4 Liability Form
Which of the following dwelling forms pays for losses to the dwelling on an actual
cash value basis?
a. DP–1 Basic Form
b. DP–2 Broad Form
c. DP–3 Special Form
d. DP–4 Liability Form
4.2 Dwelling Coverages

Coverage A – Dwelling
Coverage B – Other Structures
Coverage C – Personal Property
Coverage D – Fair Rental Value
Coverage E – Additional Living Expenses
1. Coverage applies to the dwelling described in the declarations, used principally for
residential purposes, including structures attached to the dwelling, such as an attached
garage, carport, breezeway or deck.
2. Coverage also includes materials and supplies on or next to the described location used to
construct, alter, or repair the dwelling or other structures at the described location.
3. Unless otherwise covered in the policy, building equipment and outdoor equipment used to
service the described location is considered part of the dwelling IF such property is located
on the described location.
4. No coverage applies to land, including land on which the dwelling is located.
5. The Coverage A limit of insurance appears on the declarations as a specific limit. It is chosen
by the named insured at the time coverage is applied for and should represent the dwelling’s
replacement value.
DWELLING POLICY.

1. Coverage B applies to other structures on the described location if they are separated or
detached from the dwelling by clear space, a fence, or a utility line. Examples include a
detached garage, shed, pool, and an outdoor storage building.
2. No coverage is provided for structures rented to others who were not a tenant of the dwelling
before residing in the other structure. An exception applies if the structure is rented solely as
a private garage. As with Coverage A, coverage is NOT provided for land.
3. No coverage is provided for other structures used in whole or in part for commercial,
manufacturing, or farming purposes. However, if other structures used for such purposes only
store property owned solely by the named insured or a tenant of the dwelling, coverage will
apply provided the property doesn’t include any gaseous or liquid fuel located other than in a
vehicle’s fuel tank.
4. The Coverage B limit of insurance is up to 10% of the Coverage A limit and is automatically
provided under each of the dwelling forms. In the case of a DP–1, this limit does not increase
the amount of insurance provided by Coverage A. The DP–2 and DP–3 forms provide
additional insurance.
Example
The Coverage A limit on an insured dwelling is $100,000. In a DP–1, a detached
garage would be covered for up to $10,000; however, the most the policy would
pay for loss to both the dwelling and garage is $100,000. Under the DP–2 and
DP–3 forms, the garage would be covered for up to $10,000 and this would be in
addition to the $100,000 of coverage provided for the dwelling.
5. Neither Coverage A nor B insure damage caused by wind, hail, ice, snow, or sleet damage to
outdoor radio and television antennas and aerials, including their lead-in-wiring.

1. Coverage applies to household and personal property usual to the occupancy as a dwelling
if it is owned by the insured or by members of the insured’s family who reside with the
insured. Loss due to vandalism and malicious mischief is covered even if the property has
been vacant for 60 days or more. Coverage only applies while insured property is located at
the described location. After a loss and at the insured’s request, Coverage C will also apply
to personal property of a guest or servant while located on the described location. Personal
property of a tenant or boarder is not covered.
2. Coverage also automatically applies to personal property the insured removes from the
location to a newly acquired principal residence for 30 days or until policy expiration,
whichever occurs sooner. Otherwise, coverage is not provided for personal property located
off the described location.
3. Property not covered includes: accounts, bank notes, coins and currency; birds, animals,
and fish; aircraft and watercraft other than rowboats or canoes; motor vehicles other than
those used to service the described location or to assist the handicapped; hovercraft; data,
including books of account, drawings, paper records, computers and their equipment; credit
cards, funds transfer cards, and other access devices; water or steam; and grave markers.
4. As a coverage giveback, the insured may use up to 10% of the Coverage C limit of insurance
for loss caused by an insured peril to covered property anywhere in the world.
CHAPTER FOUR
Coverage D – Fair Rental Value

1. Coverage D provides insurance for indirect losses that occur as a result of direct losses to
property insured under Coverages A, B, or C that are covered by the policy.
2. The policy pays the fair rental value of that part of the described location that is rented to
others, or held for rental to others, at the time of a loss IF the rental unit is unfit for its normal
use because of a direct loss covered by the policy.
3. Payment will be made for the shortest time necessary to repair the damaged portion of the
dwelling that’s normally held for rental. A deduction is made for any continuing expenses –
meaning expenses that would continue without regard to whether the unit can be occupied
(e.g., electric bills or the mortgage payment).
4. If a civil authority prevents the insured from using the dwelling because a neighboring
location was directly damaged by peril that is insured by the insured’s policy, the fair rental
value will be paid for no more than 2 weeks.
5. Cancellation of a lease is not covered.
6. The Coverage D limit of insurance is up to 20% of the Coverage A limit and is automatically
provided under each of the dwelling forms. In the case of a DP–1, this limit does not increase
the amount of insurance provided by Coverage A. The DP–2 and DP–3 forms provide
additional insurance.
Coverage E – Additional Living Expense

1. Like Coverage D, Coverage E provides insurance for indirect losses that occur as a result of
direct losses to property insured under Coverages A, B, or C that are covered by the policy.
Coverage E is automatically included in the DP–2 and DP–3 forms; it’s not included in the
DP–1 form.
2. The policy pays any necessary increases in living expenses incurred by the named insured
when a covered loss makes the unit in which the named insured lives uninhabitable.
Payment is made only to the extent the insured’s household can maintain its normal standard
of living.
3. The Coverage E limit of insurance is up to 20% of the Coverage A limit and is additional
coverage. Examples of expenses paid by Coverage E are the costs of a motel room, boarding
pets, and dining out.
DP–1 DP–2 DP–3

Basic Form Broad Form Special Form
Loss Limit of Loss Limit of Loss Limit of
Settlement Insurance Settlement Insurance Settlement Insurance
Limit of Limit of Limit of
Coverage A ACV RC RC
Liability Liability Liability
10% Cov A 10% Cov A 10% Cov A
Coverage B ACV (not additional RC (additional RC (additional
insurance) coverage) coverage)
Insured’s Insured’s Insured’s
Coverage C ACV ACV ACV
choice choice choice
20% Cov A 20% Cov A 20% Cov A
Coverage D (not additional (additional (additional
insurance) coverage) coverage)
20% Cov A 20% Cov A
Coverage E None (additional (additional
coverage) coverage)
DWELLING POLICY.
An attached carport is covered under which of the following coverages?
a. Coverage A - Dwelling
b. Coverage B - Other Structures
c. Coverage C - Personal Property
d. Coverage D - Fair Rental Value
All of the following are covered under Coverage B – Other Structures, except:
a. Swimming pool
b. Construction materials
c. Shed
d. Storage building
Which coverage pays for the loss of rents due to direct loss to the dwelling from a
covered peril?
a. Coverage B - Other Structures
b. Coverage C - Personal Property
c. Coverage D - Fair Rental Value
d. Coverage E - Additional Living Expense
All of the following are types of property NOT covered under Coverage C – Personal
Property, except:
a. A dog
b. Canoe
c. Motor vehicles
d. Credit cards or fund transfer cards
4.3 Other Coverages
Debris Removal
1. The policy pays the insured’s reasonable expenses for the removal of debris of covered
property if the property is damaged by an insured peril.
2. Debris removal expense is included in the limit of insurance that applies to the damaged
property.
Improvements, Alterations, and Additions

1. If the insured is a tenant, he or she may use up to 10% of the Coverage C limit of insurance
for a covered loss to improvements, alterations, and additions made or acquired at the
insured’s expense to that part of the described location only occupied by the named insured.
2. In the DP–1 form, coverage is included in the limit of insurance; in the DP–2 and DP–3
forms, it’s additional insurance.
CHAPTER FOUR
World-Wide Coverage
1. The insured may use up to 10% of the Coverage C limit of liability for a covered loss to
property insured under Coverage C while it’s located anywhere in the world.
2. This coverage does NOT apply to rowboats, canoes, or property owned by guests or servants.
3. This coverage is included in the Coverage C limit of liability.
Reasonable Repairs
1. If covered property is damaged by an insured peril, the policy will pay the reasonable costs
incurred by the named insured for necessary measures taken to protect covered property
from further damage.
2. This is not additional insurance and coverage does not increase the limit of insurance that
applies to the covered property.
Property Removed
1. If property is being removed from the described location to protect it because it is
endangered by a covered peril, coverage is provided for direct loss by any peril while
removed. Under the DP–1 form, coverage is provided for 5 days while removed; under the
DP–2 and DP–3 forms, coverage is provided for 30 days while removed.
2. This coverage does not increase the limit of insurance that applies to the property being
removed.
Trees, Shrubs, and Other Plants

1. Under the DP–2 and DP–3 forms, coverage is provided for trees, shrubs, plants or lawns on
the described location for loss caused by the following perils: fire or lightning; explosion; riot
or civil commotion; aircraft; vehicles not owned by the named insured or by a resident of the
described location; vandalism or malicious mischief; and damage caused during a burglary
or an attempted burglary. This coverage is not included in the DP–1 form.
2. Damage to trees, shrubs, plants, or lawns caused by the following perils are not covered:
wind; hail; weight of snow, ice or sleet; and loss by theft.
3. The limit of insurance for this coverage is up to 5% of the Coverage A limit, with a maximum
of $500 applying to any one tree, shrub, or plant.
4. This is additional coverage.
Fire Department Service Charge

1. Under each of the dwelling forms, the policy will pay up to $500 for the named insured’s
liability assumed by contract or agreement for fire department charges incurred when the fire
department is called to save or protect covered property from an insured peril. Coverage does
not apply if the property is located within the limits of the city, municipality, or protection
district furnishing the fire department response.
2. Essentially, coverage is provided for services provided by an assisting fire department.
3. This is additional insurance and the policy deductible does not apply.
DWELLING POLICY.
Collapse
1. “Collapse” is defined as the abrupt falling down or caving in of a building, or any portion of
a building, but only if it cannot be occupied for its current intended purpose. If a building,
or any portion of a building, is in danger of falling down or caving in – or if it’s standing, it is
NOT in a state of collapse.
2. Under the DP–2 and DP–3 forms, coverage is provided for direct physical loss to covered
property involving collapse of a building, or any part of a building, but only if the cause of
loss is: any of the Coverage C named perils; hidden decay; hidden insect or vermin damage;
weight of contents, equipment, animals or people; weight of rain which collects on the roof;
and use of defective materials or methods in construction, remodeling or renovation if the
collapse occurs during the course of the construction, remodeling, or renovation.
3. Collapse does not include settling, cracking, shrinking, bulging, or expansion.
4. This coverage does not increase the limit of insurance and is NOT provided by the DP–1.
Glass or Safety Glazing Material

1. Under the DP–2 and DP–3 forms, coverage is provided for the breakage of glass or safety
glazing material if it is part of a covered building, storm door, or storm window.
2. Coverage is provided for direct loss caused by earth movement and the pieces, fragments, or
splinters of broken glass from the glass or safety glazing material.
3. No coverage applies if the dwelling was vacant for 60 consecutive days immediately before
the loss. The vacancy provision doesn’t apply to losses caused by earthquake.
4. Loss for damage to glass will be settled on the basis of replacement with safety glazing
materials when required by ordinance or law.
5. Coverage doesn’t increase the limit of liability and is NOT provided by the DP–1 form.
Ordinance or Law
This an additional coverage for DP-2 and DP-3. It applies to increased costs incurred by the
named insured due to the enforcement of any ordinance or law that requires or regulates the
construction, demolition, remodeling, renovation, or repair of a covered building or structure
because of a covered loss.
1. Up to 10% of the Coverage A limit of liability may be used for this coverage and, if the
insured is a tenant, up to 10% of the limit of insurance that applies to improvements,
alterations, and additions may be used.
2. Some or all of the limit of insurance for this coverage may be used to pay for the increased
costs incurred by the named insured to remove debris resulting from the construction,
demolition, remodeling, renovation, repair, or replacement of covered property.
3. NO coverage is provided for any loss in value of a building or structure due to the
enforcement of any ordinance or law or costs incurred by ordinances that require pollution
clean up, removal, treatment, etc.
4. This is additional insurance.
The limit of insurance for the Other Coverage Trees, Shrubs, and Other Plants is
provided at which percentage of the Coverage A limit?
a. 5%
b. 10%
c. 50%
d. 100%
CHAPTER FOUR
Which of the following is NOT true about coverage for Property Removed?
a. Property is covered while being removed from the premises to avoid a covered loss
b. Coverage applies under the DP–3 form for 30 days while the property is removed
c. Coverage does not increase the limit of insurance that applies to the property
removed
d. Property coverage applies under the DP–1 policy for 30 days while the property is
removed
Which of the following does not apply to the Other Coverage Glass or Safety Glazing
Material?
a. Covers glass that is part of a covered structure
b. Applies to all dwelling forms
c. No coverage applies if a dwelling is vacant for 60 consecutive days before the loss
d. May be settled on a replacement cost basis
4.4 General Exclusions

The dwelling forms do not insure for loss caused directly or indirectly by any of the following –
regardless of any other cause or event that contributes concurrently or in any sequence to the loss:
1. Ordinance or Law – Increased costs due to the enforcement of any ordinance or law
regulating the use, construction, demolition, remodeling, renovation, or repair of property –
including removal of debris. Under the Dp–2 and DP–3 forms, this exclusion doesn’t apply to
the Other Coverage, Ordinance or Law.
2. Earth Movement – Earthquake, including land shock waves or tremors before, during or after
a volcanic eruption; landslide; mudslide or mudflow; subsidence or sinkhole, earth sinking,
rising, or shifting. Coverage is excluded whether the earth movement is caused by human,
animal, or natural forces. If a direct loss by fire or explosion ensues from earth movement, it
is covered.
3. Water Damage – Flood, surface water waves, tidal water, overflow of a body of water, water
or waterborne material that backs up through sewers or drains or overflows from a sump or
sump pump, water or waterborne material below the surface of the ground--including water
that exerts pressure on or seeps or leaks through a building, sidewalk, driveway, foundation,
swimming pool, or other structure (such as basement walls). If a direct loss by fire or
explosion results from water damage, it is covered.
4. Power Failure – The failure of power or other utility service if it takes place off the described
location. Power failure occurring on the described location is covered.
5. Neglect – The insured’s neglect to use all reasonable means to save and preserve property at
and after the time of a loss.
6. War – War includes undeclared war, civil war, insurrection, rebellion, revolution, or any
warlike act by a military force. The discharge of a nuclear weapon will be deemed a warlike
act, even if accidental. War also includes any consequence of the preceding.
7. Nuclear Hazard – Any nuclear reaction, radiation, or radioactive contamination—whether
controlled or uncontrolled—except that fire resulting from the nuclear hazard is covered.
DWELLING POLICY.
8. Intentional Loss – Loss arising out of any act committed by or at the direction of the named
insured or any additional insured, with the intent to cause a loss. Coverage is excluded for
any insured committing the intentional loss, even those who did not commit or conspire to
commit the act that causes the loss.
9. Non-concurrent Exclusions – The following exclusions apply, however, if an ensuing loss is
otherwise covered by the policy, it will not be excluded: weather decisions; acts or decisions,
including the failure to act or decide, of any person, group, organization, or governmental
body; faulty, inadequate, or defective planning, zoning, development, surveying, sighting,
design, workmanship, repair, construction, renovation, remodeling, grading, compaction,
materials used in repair, and maintenance.
The Earth Movement exclusion contains all of the following perils, except:
a. Mudflow
b. Explosion
c. Landslide
d. Earthquake
What type of power failure is excluded under all of the dwelling forms?
a. Power failure that occurs on the insured premises
b. Power failure that causes a fire to a neighboring property
c. Power failure that occurs off the insured premises
d. Power failure that causes a fire on the described location
4.5 Selected Endorsements

Each of the following endorsements requires the payment of additional premium:
Automatic Increase in Insurance Endorsement (DP 04 11)

1. An automatic pro rata increase in the Coverage A and B limits of insurance is applied by the
percentage shown on the endorsement. This endorsement is used to help offset inflation and
may also be referred to as the Inflation Guard Endorsement.
2. The increases are calculated per day, and will increase the dwelling coverage, as well as the
premium, annually when the policy renews. If a loss occurs throughout the year, coverage is
based on a pro-rated basis.
Example
A dwelling policy is issued January 1 with a dwelling coverage limit (Coverage A)
of $200,000. The policy has an Automatic Increase/Inflation Guard endorsement
for 5%. If a loss occurs 6 months later, the amount of coverage is now $205,000.
The annual increase would be $10,000 for the year, therefore, the increase for
6 months is $5,000. When the policy renews, the increased dwelling coverage
becomes $210,000 and the 5% inflation protection will be based on the increased
limit (not $200,000) for the following year.
CHAPTER FOUR
Broad Theft Coverage Endorsement (DP 04 72)

Because none of the dwelling forms includes coverage for theft, one of two endorsements must be
used if the named insured wishes to have coverage for the peril of theft. The Broad Theft Coverage
endorsement may be added to any of the dwelling forms IF the described location is owner occupied.
If the dwelling is tenant occupied, the Limited Theft Coverage endorsement must be used.
1. Broad Theft Coverage – Provides insurance for the perils of theft, attempted theft, and
vandalism or malicious mischief that results from theft or attempted theft.
■ No VMM coverage applies if the dwelling was vacant for more than 60 consecutive days
immediately before the loss.
■ On-premises coverage is provided for covered property located at the described location
occupied by an insured.
■ Off-premises coverage is provided when covered property is away from the described
location; however, the property must be owned or used by an insured or residence employee.
2. Limited Theft Coverage – Provides insurance for the perils of theft, attempted theft, and
vandalism or malicious mischief that results from theft or attempted theft.
■ No VMM coverage applies if the dwelling was vacant for more than 60 consecutive days
immediately before the loss.
■ On-premises coverage applies when covered property is owned or used by the named
insured or a residence employee and is at the described location.
Dwelling Under Construction Endorsement (DP 11 43)

This endorsement is needed because eligibility for the dwelling property coverage requires
insured dwellings to be occupied for residential purposes. Dwellings under construction are not
occupied and, when this endorsement is added, the named insured agrees to advise the insurer
when construction is completed.
1. The limit of liability for Coverage A is provisional and is based on the building’s value upon
completion. The limit of insurance in place at any time prior to completion is a percentage
of the Coverage A limit that equals the proportion the actual value bears to the value on the
date of completion.
2. Once the construction is completed, the named insured must notify the insurer to obtain
consent to occupy the dwelling and to adjust the policy premium. Occupancy of the building
under Coverage A, as a dwelling, is permitted for 30 days after completion.
Personal Liability Supplement

Because the dwelling forms only provide property coverage, if personal liability coverage is
desired, coverage must be secured under another policy or an endorsement must be attached to
the dwelling policy.
1. The Personal Liability endorsement contains its own Definitions section and provides
Coverage L - Personal Liability and Coverage M - Medical Payments to Others.
2. Personal liability coverage applies to claims made or suits brought against an insured for
damages because of bodily injury or property damage caused by an occurrence to which the
policy applies. Payment will be made up to the limit of liability appearing on the declarations
for which an insured is legally liable. Coverage is also provided for defense in addition to the
limits of liability.
DWELLING POLICY.
3. Medical payments to others coverage applies to claims for the necessary medical expenses
incurred or medically ascertained within 3 years from the date of an accident causing bodily
injury to which the policy applies.
a. Medical expenses are reasonable charges for medical, surgical, x-ray, dental, ambulance,
hospital, professional nursing, and funeral services.
b. Coverage does NOT apply to expenses incurred by the named insured or regular
residents of the named insured’s household except residence employees.
c. Coverage applying to others must arise out of injury to a person on an insured location
with the insured’s permission, or to persons off an insured location if the injury is caused
by the activities of an insured or residence employee while in the course of employment
by the insured. Also covered are injuries to persons caused by an animal owned by or
in the care of an insured or that arise out of conditions on an insured location or ways
immediately adjoining it.
4. The endorsement also provides additional coverages for claim expenses, first aid expenses,
and damage to the property of others.
5. Exclusions include:
■ Expected or intended injury
■ Business
■ Professional services
■ War
■ Communicable disease
■ Sexual molestation
■ Corporal punishment
■ Physical or mental abuse
■ Controlled substance
All of the following statements are TRUE about the Broad Theft Coverage
endorsement, except:
a. It does not apply to the DP–1
b. Both on- and off-premises coverage is available
c. Theft and attempted theft are covered
d. Resulting damage caused by malicious mischief and vandalism is covered
The Personal Liability endorsement includes each of the following additional
coverages, except:
a. First aid expenses
b. Damage to the property of others
c. Claims expenses
d. Debris removal
CHAPTER FOUR
The Automatic Increase in Insurance endorsement typically increases Coverages A
and B by which of the following?
a. A flat amount
b. A percentage designated on the endorsement
c. $10,000
d. $25,000
Chapter Four — Lightning Facts

1. To be eligible for the dwelling property program, dwellings must be used principally for
residential purposes, cannot contain more than 4 dwelling units, and can have no more than 5
roomers or boarders. 4.1
2. The DP–1 Basic Form perils are fire or lightning and internal explosion. If an additional premium
is paid for Extended Coverage (EC), the following perils are also included: windstorm or hail,
explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption. The peril of
vandalism or malicious mischief (VMM) may also be included with the payment of an additional
premium. 4.1
3. Losses to the DP–1 dwelling, other structures, and contents are paid on an actual cash value
basis to the insured. 4.1
4. The DP–2 Broad Form perils are the DP–1 perils, the EC perils, VMM, and the following: damage
by burglars, falling objects, weight of ice, snow, or sleet, and accidental discharge or overflow of
water or steam. 4.1
5. The DP–3 Special Form covers the dwelling and other structures on an open perils basis, except
for the perils specifically excluded. 4.1
6. Coverage A applies to the dwelling described in the declarations, used principally for residential
purposes, including structures attached to the dwelling, such as an attached garage, carport,
breezeway or deck. 4.2
7. The Coverage A limit of insurance appears on the declarations as a specific limit. It is chosen
by the named insured at the time coverage is applied for and should represent the dwelling’s
replacement value. 4.2
8. Coverage B applies to other structures on the described location if they are separated or detached
from the dwelling by clear space, a fence, or a utility line. 4.2
9. The Coverage B limit of insurance is up to 10% of the Coverage A limit and is automatically
provided under each of the dwelling forms. 4.2
10. Coverage C applies to household and personal property usual to the occupancy as a dwelling if it
is owned by the insured or by members of the insured’s family who reside with the insured. 4.2
11. Coverage D provides insurance for indirect losses that occur as a result of direct losses to
property insured under Coverages A, B, or C that are covered by the policy. 4.2
12. The Coverage D limit of insurance is up to 20% of the Coverage A limit and is automatically
provided under each of the dwelling forms. 4.2
13. Under the DP–1, the Coverage B limit does not increase the amount of insurance; under the
DP–2 and DP–3 forms, this limit is additional insurance. 4.2
14. The additional coverage Debris Removal pays the insured’s reasonable expenses for the removal
of debris of covered property if the property is damaged by an insured peril. 4.3
DWELLING POLICY.
15. The additional coverage Improvements, Alterations, and Additions pays a tenant up to 10% of
the Coverage C limit for improvements made or acquired at the insured’s expense to that part of
the described location he or she rents. 4.3
16. The additional coverage Reasonable Repairs pays the reasonable costs incurred by the insured
for necessary measures taken to protect covered property from further damage. 4.3
17. The Property Removed additional coverage covers property against direct loss for all perils while
being removed from the described location because the property at the described location is
endangered by an insured peril. 4.3
18. Trees, Shrubs, and Other Plants is an additional coverage that provides insurance at a limit of up
to 5% of the Coverage A limit, with a maximum of $500 for any one tree, shrub, or plant. 4.3
19. Damage to trees, shrubs, plants, or lawns is NOT covered when caused by wind, hail, weight of
snow; ice or sleet; or loss by theft. 4.3
20. Under each of the dwelling forms, the insurer will pay up to $500 for fire department charges
incurred when a fire department other than the fire department in the jurisdiction in which the
described location is situated is called to save or protect covered property from an insured peril.
4.3
21. Coverage for the peril of collapse is only provided under the DP–2 and DP–3 forms. Coverage is
provided for direct physical loss to covered property involving collapse of a building or any part
of a building. 4.3
22. Ordinance or Law is excluded and is the increased costs due to the enforcement of any
ordinance or law regulating the use, construction, demolition, remodeling, renovation, or repair
of property – including removal of debris. 4.4
23. Earth Movement is excluded, including land shock waves or tremors before, during or after a
volcanic eruption; landslide; mudslide or mudflow; subsidence or sinkhole, earth sinking, rising,
or shifting. 4.4
24. Water Damage is excluded and includes flood, surface water waves, tidal water, overflow of a
body of water, water or waterborne material that backs up through sewers or drains or overflows
from a sump or sump pump, water or waterborne material below the surface of the ground –
including water that exerts pressure on or seeps or leaks through a building, sidewalk, driveway,
foundation, swimming pool, or other structure (such as basement walls). 4.4
25. Power Failure is excluded and is the failure of power or other utility service if it takes place off
the described location. Power failure occurring on the described location is covered. 4.4
26. Neglect is excluded and is defined as the insured’s neglect to use all reasonable means to save
and preserve property at and after the time of a loss. 4.4
27. War, nuclear hazard, and intentional loss are excluded under all the DP policies. 4.4
28. The Automatic Increase in Insurance Endorsement is used to provide, at the annual renewal date
of the policy, an automatic increase in the Coverage A and B limits of insurance to help offset
inflation. 4.5
29. The Broad Theft Coverage endorsement provides insurance for the perils of theft, attempted theft,
and vandalism or malicious mischief that results from theft or attempted theft. It may only be
added to policies insuring owner occupied dwellings. 4.5
30. The Dwelling under Construction endorsement provides the insured an average amount of
insurance for Coverage A during the course of a dwelling’s construction. 4.5
31. The Personal Liability endorsement provides coverage for personal liability and medical
payments to others and may be added to any of the dwelling forms of coverage. 4.5
5
Homeowners Policy
LEARNING OBJECTIVES
1. Understand the purpose of a Homeowners policy including eligibility
2. Compare and contrast the different Homeowners Coverage Forms
3. Identify the Homeowners policy Section I coverages A, B, C, and D
4. Recall the Section I Additional Coverages and Exclusions
5. Recognize the available Homeowners Section I endorsements
6. Recognize the Section II Definitions
7. Identify liability Coverages E and F
8. Recall Section II Conditions
OVERVIEW
There are six standard Homeowners Forms: Broad Form (HO–2), Special Form (HO–3),
Contents Broad Form (HO–4), Comprehensive Form (HO–5), Unit-owners Form (HO–6),
and Modified Coverage Form (HO–8.) Each form includes Section I Property Coverages and
Section II Liability Coverages. Homeowners policies are package policies because they contain
more than one type of insurance and offer advantages not found in monoline policies, such as
premium savings, broader coverage, and the insured’s need for fewer policies.
5.1 Eligibility
1. All homeowners forms with the exception of the Contents Broad Form (HO–4) and Unit-
owners Form (HO–6) require the named insured to be the owner – Occupant of the insured
dwelling. The dwelling must be the principal residence of the named insured, and incidental
business occupancies, such as offices, studios, and schools, are permitted.
2. The Contents Broad Form (HO–4) and Unit-owners Form (HO–6) are written to insure the
personal property and personal liability of the named insured who does not own the building
in which he/she lives. The HO–4 is designed for tenants of residential units (i.e., dwellings
and apartment units) and provides no coverage for buildings and other structures. The HO–6
is designed for the owners and tenants of condominium or cooperative units. Coverage
is provided for the portion of the building the named insured owns (or is responsible for
insuring), personal property, and personal liability.
3. Eligible residential dwellings are those containing one to four residential units and no more
than 2 roomers or boarders per family.
4. Dwellings under construction, and that will be the primary residence of the named insured
upon completion of construction, are also eligible for coverage.
HOMEOWNERS POLICY
Homeowner Coverage Forms

Broad Form (HO–2)
1. This form provides named perils coverage for the dwelling (Coverage A), other structures
(Coverage B), and personal property (Coverage C). The 16 named perils are:
■ Fire or lightning
■ Windstorm or hail
■ Explosion
■ Aircraft
■ Vehicles
■ Smoke
■ Volcanic eruption
■ Vandalism or malicious mischief
■ Theft (limited)
■ Falling objects
■ Weight of ice, snow, or sleet
■ Accidental discharge or overflow of water or steam
■ Sudden and accidental tearing apart, cracking, burning, or bulging of heating or air
conditioning systems (HVAC)
■ Freezing
■ Sudden and accidental damage from artificially generated electrical current
2. Losses under Coverages A and B are valued on a replacement cost basis. Although coverage
for personal property (Coverage C) is provided on the same named perils basis as the
dwelling and other structures are, losses are valued on an actual cash value (ACV) basis.
3. This form does not cover loss to a fence, driveway or walk caused by a vehicle owned or
operated by the insured.
HO–3 (Special Form)

1. In the Special Form (HO–3), the dwelling and others structures (Coverages A and B) are
insured on an open perils basis, meaning all perils are insured if they aren’t specifically
excluded in the policy. Losses to the dwelling and other structures are valued on a
replacement value basis just as they are in the HO–2.
2. The Special Form (HO–3) specifically excludes the following causes of loss under Coverage A and B:
■ Collapse, except as provided by Additional Coverages.
■ Freezing of household appliances or a plumbing, heating, air conditioning, or automatic
fire protective system unless the insured has taken reasonable care to maintain heat in the
building or shut off the water supply and drained the appliances and systems of water.
■ Freezing, thawing, pressure or weight of water or ice on patios, fences, swimming pools,
foundations, piers, docks, retaining walls.
■ Theft in or to a dwelling under construction, including construction-related materials and
supplies.
■ Vandalism and malicious mischief, including ensuing loss, if the dwelling has been
vacant for more than 60 consecutive days immediately before the loss.
■ Mold, fungus, or wet rot unless resulting from accidental discharge or overflow of water
or steam that is hidden from view.
CHAPTER FIVE
■ Wear and tear, marring, deterioration, mechanical breakdown, latent defect, inherent
vice, smog, rust, corrosion, dry rot.
■ Smoke from agricultural smudging or industrial operations.
■ Pollution including discharge, dispersal, seepage, migration, or release of smoke, vapor, fumes,
acids, or other chemicals unless such discharge is caused by a Coverage C Peril Insured Against.
■ Settling, cracking, bulging, or expansion of foundation, walls, floors, pavements, patios.
■ Birds, vermin, rodents or insects.
■ Animals owned or kept by an insured.
3. Personal property (Coverage C) is insured on a named perils basis that includes the same 16 named
perils in the Broad Form (HO–2). Coverage C losses are valued on an actual cash value basis.
4. Includes losses to a fence, driveway or walk caused by a vehicle owned or operated by the insured.
5. The burden of proof for losses to the dwelling and other structures falls to the insurer because
coverage is provided on an open perils basis. On the other hand, the burden of proof for losses
to personal property falls to the insured to show which of the 16 named perils caused the loss.
Contents Broad Form (HO–4)

The Contents Broad Form is also known as the renter’s or tenant homeowners policy. It doesn’t
provide any coverage for the dwelling or other structures because it’s designed to insure those
who are tenants. The HO–4 insures personal property under Coverage C against loss from the
16 named broad form perils found in the HO–2 and HO–3 forms. Personal property losses are
valued on an actual cash value basis, as they are on the HO–2 and HO–3 forms.
Comprehensive Form (HO–5)

1. The Comprehensive Form provides the broadest coverage of any of the homeowners forms.
2. Coverages A - Dwelling, Coverage B - Other Structures, and Coverage C - Personal Property
provide insurance on an open perils basis.
3. Losses to the dwelling and other structures are valued on a replacement cost basis, losses to
personal property are valued on an actual cash value basis.
Unit-Owners Form (HO–6)

1. The Unit-owners Form provides named perils coverage to the owner of a condominium or
cooperative unit under Coverage A - Dwelling and Coverage C - Personal Property. Coverage
B does not appear in this form; however, if the owners of condominiums or cooperative units
wish to insure other structures, the value of other structures may be included in the Coverage
A limit of insurance.
2. The form insures real property (building and building items) for which the insured is
responsible under the bylaws of the condominium association or cooperative corporation. It
also insures personal property of the insured while anywhere in the world.
Modified Form (HO–8)

1. Coverage is available on a named perils basis. The loss valuation method for the Modified
Coverage Form is typically Actual Cash Value (ACV). However, if exact materials are not
available, they may be replaced with materials that will perform the same function and have
the same efficiency, even if they aren’t of like kind and quality.
HOMEOWNERS POLICY
2. The Modified Coverage Form is often used to insure older homes when the replacement and
market values of the dwelling are disproportionate or if a moral hazard would be created if
insurance were written at 100% of replacement cost. An example of a dwelling that would
be insured under this coverage form is an old Victorian home. If the property were destroyed
in a loss, the insured would not want to restore or replace it exactly as it was before the loss,
or they may not be able to find the necessary materials to recreate the dwelling exactly as
it was. Instead of insuring the dwelling for its replacement value of $1,200,000, the insured
could insure it for a much lower amount of insurance using this form.
3. The HO–8 does not cover the following perils:
■ Falling objects
■ Weight of ice, sleet, or snow
■ Accidental discharge of water or steam
■ Accidental tearing apart, cracking, burning, or bulging of heating or air conditioning
systems
■ Freezing
■ Sudden and accidental damage from artificially generated electrical current

HO-3
HO-2 HO-3 Personal Property HO-5
(Cov A and B)
Named Perils Open Perils Named Perils Open Perils
Fire Everything Fire All perils
Lightning is covered, Lightning covered,
except what is except what
Wind excluded. Wind is specifically
Hail Hail excluded.
Explosion Explosion
Riot or civil commotion Riot or civil commotion
Aircraft Aircraft
Vehicles Vehicles
Smoke Smoke
Volcanic eruption Volcanic eruption
Vandalism or malicious mischief Vandalism or malicious mischief
Theft (limited) Theft (limited)
Falling objects Falling objects
Weight of ice, sleet, or snow Weight of ice, sleet, or snow
Accidental discharge of water or Accidental discharge of water or
steam steam
Accidental tearing apart, cracking, Accidental tearing apart, cracking,
burning, or bulging of HVAC burning, or bulging of HVAC
Freezing Freezing
Damage from artificially generated Damage from artificially generated
electrical current electrical current
CHAPTER FIVE

HO-4 HO-6 HO-8
Named Perils Named Perils Named Perils
Fire Fire Fire
Lightning Lightning Lightning
Wind Wind Wind
Hail Hail Hail
Explosion Explosion Explosion
Riot or civil commotion Riot or civil commotion Riot or civil commotion
Aircraft Aircraft Aircraft
Vehicles Vehicles Vehicles
Smoke Smoke Smoke
Volcanic eruption Volcanic eruption Volcanic eruption
VMM VMM VMM
Theft (limited) Theft (limited) Theft (limited)
Falling Objects Falling Objects
Weight of ice, sleet, or snow Weight of ice, sleet, or snow
Accidental Discharge of water or Accidental Discharge of water or
steam steam
Accidental tearing apart, cracking, Accidental tearing apart, cracking,
burning, or bulging of HVAC burning, or bulging of HVAC
Freezing Freezing
Damage from artificially generated Damage from artificially generated
electrical current electrical current
An owner of a condominium unit would purchase which Homeowner form?
a. HO–2, Broad Form
b. HO–4, Contents Broad Form
c. HO–6, Unit-owners Form
d. HO–8, Modified Coverage Form
HOMEOWNERS POLICY
In what way is the HO–5, Comprehensive Form, different from the HO–3, Special
Form?
a. Personal property is valued at actual cash value
b. Personal property is insured on an open perils basis
c. The dwelling is valued at replacement cost
d. The dwelling is insured on an open perils basis
5.2 Definitions
The named insured is the person or persons designated on the policy’s declarations page and should
be the party or parties holding deed to the property being insured. In situations where real property is
owned by a trust, the named insured will be the trustee(s) living in the insured dwelling.
1. Insured means:
a. The named insured and his or her resident spouse if the resident spouse is a member of
the named insured’s household.
b. Other residents of the named insured’s household who are:
1) Relatives of the named insured, meaning they are related by blood, marriage, or
adoption.
2) Under the age of 21 and in the care of any insured.
c. Full-time students living away at college if they:
1) Are under age 24 and related to the named insured.
2) Were a resident of the named insured’s household before moving away to college; OR
3) Are under age 21 and in the care of the named insured or a resident relative.
d. Under Section II Liability Coverages, any person or organization legally responsible for
covered animals or watercraft owned by an insured, unless custody of such animals or
watercraft is in the course of “business” – as defined by the policy.
e. With respect to a “motor vehicle,” to which liability coverage applies, persons using
a covered vehicle on an insured location with insured’s consent and persons while
engaged in the employment of the named insured or a resident relative.
2. Insured location means:
a. The residence premises.
b. The part of any other premises, structures, or grounds used by the insured as a residence
if it is shown in the Declarations or acquired by the named insured during the policy
period for use as a residence.
c. Any premises used by the named insured described in a. or b. above, such as a boat slip.
d. Any premises not owned by an insured and where the insured is temporarily residing,
such as hotel rooms and summer vacation rentals.
e. Vacant land, other than farm land, owned by or rented to an insured.
f. Land owned by or rented by an insured on which a 1, 2, 3, or 4-family dwelling is being
built as a residence for an insured.
g. Individual and family cemetery plots or burial vaults of an insured.
CHAPTER FIVE
h. Any part of a premises occasionally rented to an insured for other than business purposes,
such as a banquet hall where a wedding reception is hosted.
3. Residence employee means:
a. An employee of, or leased under an agreement to, an insured, whose duties are related
to the maintenance or use of the residence premises. These duties include household and
domestic services, such as those of a gardener or nanny.
b. A person who performs similar duties elsewhere that are not related to any business of
the insured, such as a person hired to paint the insured’s house, as so long as the insured
doesn’t own a business that paints houses.
4. Residence premises means:
a. The one family dwelling where the named insured resides.
b. The 2-, 3-, or 4-family dwelling in which the named insured resides in at least one of the
family units.
c. That part of any other building where the insured resides.
d. The residence premises also includes other structures and the grounds at that location,
such as the 5 acres upon which the insured sits, including the barn, detached garage, and
swimming pool.
5. Business means:
a. A trade, profession, or occupation engaged in on a full-time, part-time, or occasional
basis.
b. Any other activity engaged in for money or other compensation, EXCEPT:
1) Volunteer activities for which no compensation is received other than expense
reimbursement.
2) Home day care services for which no compensation is received other than the mutual
exchange of day care services.
3) Rendering home day care services to a relative of an insured.
4) Any other activity not described above for which no insured receives more than
$2,000 in compensation during the 12 months before the current policy term.
Deductible
1. The deductible applies to all losses unless otherwise noted in the policy.
2. With respect to any one loss, the policy will only pay that part of the total of all loss payable
under Section I that exceeds the deductible amount shown in the declarations – subject to
the policy limits.
3. Although the standard homeowners policy deductible is $250, an insured may choose a
higher or lower deductible. As the deductible increases, the policy premium decreases. For
example, the premium for a policy with a $1,000 deductible will be less than a premium for
a policy with a $250 deductible.
A related, full-time student away at school and under what age is considered an insured
on the Homeowner policy?
a. 18
b. 19
c. 20
d. 24
HOMEOWNERS POLICY
5.3 Section I – Property Coverages
Coverages
Section I Section II
Coverage A - Dwelling Coverage E - Personal Liability
Coverage B - Other Structures Coverage F - Medical Payments to Others
Coverage C - Personal Property
Coverage D - Loss of Use
1. The policy covers:
a. Dwelling on the residence premises shown in the declaration, including structures
attached to the dwelling.
b. Materials and supplies located on or next to the residence premises used to construct,
alter, or repair the dwelling or other structures on the residence premises. For example,
the pile of lumber in the insured’s back yard that will be used to construct a deck off the
kitchen.
2. The policy does not cover:
a. Land on which the dwelling is located.
b. Theft in, to, or from a dwelling under construction, including materials used in the
construction.
c. Vandalism and malicious mischief including ensuing loss, if the dwelling was vacant for
more than 60 consecutive days immediately before the loss.
3. When a limit of liability is chosen for Coverage A – Dwelling, the other three property
coverages (B, C, and D) are automatically issued at limits equaling a specific percentage of
the Coverage A limit of liability. If these limits are inadequate, the insured may purchase
higher limits.
4. In most cases, the insurer requires the named insured to purchase insurance in an amount
that is no less than 80% of the dwelling’s replacement value. If, at the time of a loss, the
amount of insurance on the dwelling is less than 80% of the dwelling’s replacement value,
a penalty will be applied to partial losses. If 80% Replacement cost is not carried, ACV will
apply.

The policy covers other structures on the residence premises that are set apart from the dwelling
by a clear space. Structures connected to the dwelling by only a fence or utility line are
considered set apart, for example, sheds, detached garages, built-in pools.
1. No coverage is provided under Coverage B for 4 types of property:
a. Land, including land on which the other structures are located.
b. Other structures rented or held for rental to anyone who isn’t a tenant of the dwelling,
unless the other structure is used solely as a private garage.
c. Other structures from which any “business” is conducted.
d. Other structures used to store business property that is owned by someone other than an
insured or a tenant of the dwelling.
2. This insurance limit is 10% of the Coverage A limit of liability, does not reduce the Coverage
A limit of liability, and may be increased by endorsement.
CHAPTER FIVE

The policy covers:
1. Personal property owned or used by an insured while it’s anywhere in the world.
2. After a loss and at the named insured’s request: property owned by others while it’s on
the residence premises occupied by an insured or property owned by a guest or residence
employee while located in any residence occupied by an insured.
3. Coverage for property at another residence is limited. If personal property is usually located
at an insured’s residence other than the residence premises, coverage is limited to 10% of
Coverage C or $1,000, whichever is greater. For example, property usually located in a
student’s dormitory or at the insured’s summer home. This limit doesn’t apply to property
being moved because it’s being repaired or rebuilt, located in a newly acquired principle
residence during the first 30 days after being moved, or the residence premises is not fit to
live in or store property in.
4. Special limits of liability apply to certain categories of personal property.
Special Limits
Personal Property Category
of Liability
Money, bank notes, bullion, coins, medals, etc. $200
Securities, deeds, evidences of debt, notes other than bank notes, manuscripts,
$1,500
passports, tickets and stamps.
Watercraft of all types, including their trailers, furnishings, equipment, engines,
and outboard motors. Loss resulting from wind or hail is excluded unless in a $1,500
fully enclosed building.
Trailers or semi-trailers not used with watercraft of all types. $1,500
Loss by theft of jewelry, watches, furs, precious or semiprecious stones. $1,500
Loss by theft of firearms and related equipment, such as holsters and ammunition. $2,500
Loss by theft of silverware, goldware, pewterware, platinum ware, tea sets, trays,
$2,500
trophies, and flatware.
Property on the residence premises used primarily for business purposes (e.g., a
personal computer used by the insured in a home-based business). The limit does not
$2,500
apply to a personal computer used by the insured occasionally when bringing work
home from the office, and used primarily for personal and household purposes.
Property away from the residence premises used primarily for business purposes.
This limit doesn’t apply to electronic apparatus. Different editions of the homeowners $500
policy provide different limits of insurance for this coverage.
Electronic apparatus and accessories while in or on a motor vehicle, but only
if equipped to be operated by power from the motor vehicle while still being
$1,500
capable of operation by other power sources. Accessories include antennas,
tapes, wires, records, disks, etc.
Electronic apparatus and accessories used primarily for “business” purposes while
away from the residence premises and NOT in or upon a motor vehicle, but only
if equipped to be operated by power from the motor vehicle while still being $1,500
capable of operation by other power sources. Accessories include antennas,
tapes, wires, records, disks, etc.
5. Property not covered under Coverage C includes:
a. Property specifically described and insured elsewhere, such as on another policy or by
endorsement to the homeowners policy.
b. Animals, birds, or fish.
c. Motor vehicles, including equipment, parts, and electronic equipment and accessories
HOMEOWNERS POLICY
that can only be operated by the motor vehicle. An exception exists (meaning coverage
is provided) for motor vehicles not required to be registered for use on public roads, used
solely to service an insured’s residence, or designed to assist the handicapped.
d. Aircraft, including its parts, except model or hobby aircraft is covered if it’s not used or
designed to carry people or cargo.
e. Hovercraft, including its parts.
f. Property of roomers, boarders, and other tenants—except those related to an insured.
g. Property in an apartment regularly rented, or held for rental, to others by an insured—
except for property covered under the additional coverage, Landlord’s Furnishings.
h. Property rented or held for rental to others off the residence premises.
i. Business data, credit cards, and electronic fund transfer cards—including data stored in
books of account, on paper records, or on computers.
j. Water or steam.
6. This insurance limit is 50% of the Coverage A limit of liability, does not reduce the Coverage
A limit of liability, and may be increased by endorsement.
Coverage D – Loss of Use

Three types of coverage are provided under Coverage D and all are for indirect, or
consequential, loss. The limit of insurance appearing on the declarations for Coverage D is the
total limit payable for all three types of coverage provided. For example, a wildfire burns near the
insured’s home. If direct damage from the wildfire occurs to the residence premises, Additional
Living Expense and Fair Rental Value coverages are triggered. If direct damage from wildfire
occurs to the named insured’s neighbors, and a civil authority evacuates the named insured, Civil
Authority Prohibits Use coverage is triggered.
1. Additional Living Expense
a. If a property loss covered by Section I of the policy makes the residence premises unfit
to live in, the policy pays for any necessary increase in living expenses incurred by the
named insured to maintain the household’s normal standard of living.
b. Payment is made for the shortest time necessary to repair or replace the damage. If the
insured must relocate permanently, payment will be made for the shortest time it takes
the insured to settle at the new location.
2. Fair Rental Value
a. If a property loss covered by Section I of the policy makes that part of the residence
premises rented to others unfit to live in, the policy pays for the fair rental value of such
premises – less any continuing expenses – while it’s unfit to live in.
b. Payment is for the shortest time required to repair or replace the rented portion of the
premises.
3. Civil Authority Prohibits Use
If a civil authority prohibits the named insured from using the residence premises as a result
of direct damage to neighboring premises by a peril insured against under the homeowners
policy, the policy pays losses under Additional Living Expense and/or Fair Rental Value for
no more than two weeks.
CHAPTER FIVE
4. Loss and expenses due to the cancellation of a lease or agreement are NOT covered.
5. Limits of Coverage
The automatic limits of insurance for Coverage D vary by the homeowners form of coverage:
a. 30% of Coverage A for forms HO–2, HO–3, and HO–5
b. 30% of Coverage C for form HO–4
c. 50% of Coverage C for form HO–6
d. 10% of Coverage A for form HO–8
HO–2 HO–3 HO–5

Broad Form Special Form Comprehensive Form
Settlement Coverage Settlement Coverage Settlement Coverage
Coverage A RC Limit of Liability RC Limit of Liability RC Limit of Liability
Coverage B RC 10% Coverage A RC 10% Coverage A RC 10% Coverage A
Coverage C ACV 50% Coverage A ACV 50% Coverage A ACV 50% Coverage A
Coverage D 30% Coverage A 30% Coverage A 30% Coverage A
HO–6
HO–4 HO–8
Condominium
Tenants Form Modified Form
Owners Form
Settlement Coverage Settlement Coverage Settlement Coverage
Coverage A RC Limit of Liability ACV Limit of Liability
Coverage B ACV 10% Coverage A
Coverage C ACV Limit of Liability ACV Limit of Liability ACV 50% Coverage A
Coverage D 30% Coverage C 50% Coverage C 10% Coverage A
Coverage A – Dwelling does not cover vandalism and malicious mischief if the
dwelling has been vacant for how many days?
a. 20
b. 30
c. 60
d. 90
The amount of insurance provided for Coverage C is what percentage of Coverage A
on a HO–3, Special Form?
a. 15%
b. 25%
c. 35%
d. 50%
HOMEOWNERS POLICY
All of the following special limits of Coverage C are correct, except:
a. $200 for money
b. $2,500 for theft of firearms
c. $1,500 for a trailer not used with watercraft
d. $2,500 for business property away from premises
The automatic limit for Coverage D – Fair Rental Value is what percentage of Coverage A
under an HO–3, Special Form?
a. 10
b. 20
c. 30
d. 50
5.4 Section I – Additional Coverages

Both sections of the homeowners policy provide additional coverages. Under Section I Additional
Coverages, a percentage of the applicable Coverage A, B, C, or D limit of liability applies in certain
circumstances; in other cases, additional limits of insurance apply.
1. Debris Removal
a. The policy will pay the named insured’s reasonable expenses for the removal of debris of
covered property if a covered loss occurs.
b. Payment is included in the limit of insurance for covered property that is damaged. If
debris removal expenses and expenses for damaged property exceed the applicable limit
of insurance, this coverage will provide additional insurance equal to 5% of the limit
available for such expense. For example, the insured’s shed burns to the ground. The
Coverage B limit of liability is $10,000. This coverage will pay a total of $10,000 plus
$500 ($10,000 times 5 %) for the replacement value of the shed plus debris removal
expenses.
c. A limit of $1,000 applies for reasonable expenses to remove from the residence premises
debris of the insured’s trees felled by windstorm, hail, or the weight of ice, snow, or sleet.
2. Reasonable Repairs
When the insured’s property has been damaged by a covered peril, this coverage pays
the reasonable costs incurred by the named insured to take necessary measures to protect
covered property damaged by a covered peril against further damage. For example, a tree
falls on the dwelling’s roof. The insured’s expenses to place a tarp over the hole in the roof
would be covered. This coverage does not increase the limit of insurance that applies to the
covered property.
3. Trees, Shrubs, and Plants
a. Coverage is provided for trees, shrubs, plants, or lawns on the residence premises for the
CHAPTER FIVE
following perils: fire or lightning, explosion, riot or civil commotion, aircraft, vehicles
not owned or operated by a resident of the residence premises, vandalism or malicious
mischief, and theft. Coverage is NOT provided for any other peril, including windstorm
or hail.
b. The limit of insurance is up to 5% of the Coverage A limit of liability and applies to all
trees, shrubs, plants, or lawns. The most paid for loss to any one tree, shrub, or plant is
$500. This limit is additional insurance.
c. No coverage is provided for property grown for “business” purposes.
4. Fire Department Service Charge
This coverage pays up to $500 for the named insured’s contractual liability to pay fire
department charges incurred by a fire department that is called to save or protect covered
property by a peril insured against. Covered charges must be incurred by a fire department
other than that of the jurisdiction in which the covered property is located. For example,
a neighboring fire department is called to assist the fire department of the jurisdiction in
which the insured property is located. This coverage is additional insurance, and the policy
deductible does not apply.
5. Property Removed
Coverage is provided for loss to covered property by any cause while being removed from
a premises endangered by a peril insured against. Coverage applies for no more than 30
days while removed. For example, if a wildfire threatens the insured’s home and property
is removed, loss to the removed property that is caused by flood or earthquake would be
covered during the first 30 days the property is removed. However, if flood threatened the
insured’s home, coverage wouldn’t apply because the endangering peril is not a peril insured
against.
6. Credit Cards, Electronic Fund Transfer Card or Access Device, Forgery, and Counterfeit
Money
Coverage up to $500 is provided for the insured’s legal responsibility because of theft or
unauthorized use of credit cards, electronic fund transfer cards or access devices issued to an
insured. Loss to an insured caused by forgery, alteration of a check or negotiable instrument,
or counterfeit money is also covered. Exclusions exist for use of a covered card or device
by a resident of the named insured’s household, by a person entrusted with a card or access
device, the insured’s failure to comply with credit card requirements, business use of a card,
or the insured’s dishonesty. This coverage also includes defense.
7. Loss Assessment
Coverage up to $1,000 is provided for the named insured’s share of loss assessment charged
during the policy period by a corporation or association of property owners. The assessment
must be made because of direct loss to property owned collectively by all members AND
that was caused by a Peril Insured Against under this policy. This coverage is additional
insurance.
8. Collapse
Coverage is provided for the abrupt falling down or caving in of a building, or a portion of a
building, if the building cannot be occupied for its intended purpose after the collapse.
HOMEOWNERS POLICY
a. Direct physical loss from collapse must be caused by a Coverage C named peril, hidden
decay, hidden insect or vermin damage, weight of contents, equipment, animals, people,
the weight of rain collecting on a roof, or the use of defective materials or construction
methods.
b. The policy does not cover collapse of awnings, fences, patios, swimming pools,
underground pipes, cesspools, etc., unless damage is the direct result of the collapse.
c. This coverage does not increase the limit of insurance that applies to the damaged
property.
9. Glass or Safety Glazing Material
a. Coverage is provided for:
1) The breakage of glass or safety glazing material that is part of a covered building,
storm door, or storm window, including loss caused by earth movement.
2) Direct physical loss to covered property caused solely by the pieces, fragments, or
splinters of broke glass or safety glazing material.
b. NO coverage is provided for loss occurring on the residence premises if the dwelling was
vacant for more than 60 consecutive days before the loss, except coverage is provided for
loss caused by earthquake.
c. This coverage does not increase the limit of insurance that applies to the damaged
property.
10. Landlord’s Furnishings
a. Up to $2,500 coverage is provided for appliances, carpeting, and household furnishings
owned by the named insured and located in each apartment on the residence premises
that is rented to others. Coverage is provided for the 15 named perils (the Coverage C
perils, with the exception of theft).
b. This coverage does not increase the limit of insurance applying to the damaged property.
11. Ordinance or Law
a. The insured may use up to 10% of the Coverage A limit of insurance for increased costs
the insured incurs due to the enforcement of any ordinance or law that requires or
regulates:
1) Construction, demolition, remodeling, renovation, or repair of that part of a covered
building damaged by an insured peril.
2) The demolition or reconstruction of the undamaged part of a covered building, when
that building must be totally demolished because of damage by an insured peril to
another part of that covered building.
3) The remodeling, removal, or replacement of the portion of the undamaged part of a
covered building to complete the remodeling, repair, or replacement to that part of
the covered building damaged by an insured peril.
b. This coverage is additional insurance.
12. Grave Markers
a. The policy will pay up to $5,000 for grave markers, on or away from the residence
premises, for loss caused by a peril insured under Coverage C.
b. This coverage does not increase the limits of insurance that apply to the damaged,
covered property.
CHAPTER FIVE
The Landlord’s Furnishings endorsement provides up to $ _______ of coverage.
a. 500
b. 1,000
c. 2,000
d. 2,500
5.5 Section I – Exclusions

The policy does not provide for loss caused directly or indirectly by any of the following perils, even
if they are caused concurrently or over a widespread area.
1. Ordinance or Law – Losses resulting from the enforcement of an ordinance or law regulating
the construction, repair, remodeling, renovation or demolition of a building are excluded
except what is provided in the additional coverage, Ordinance or Law.
2. Earth Movement – Losses resulting from: earthquake, including land shock waves or tremors
before and after volcanic eruptions, landslides, mudslides, mudflow, subsidence, or sinkhole,
and any earth sinking, rising, or shifting. Direct loss by fire or explosion that ensues is
covered. This exclusion doesn’t apply to loss by theft.
3. Water Damage – Water damage means flood, surface water, tidal water, overflow of a
body of water, water or water-borne material that backs up through sewers or drains or that
overflows from a sump pump, and water that exerts pressure on or seeps or leaks through
a building, foundation, swimming pool, or other structure. Direct loss by fire, explosion, or
theft resulting from water damage is covered. Water damage is excluded whether caused by
human, animal, or natural forces.
4. Power Failure – If the failure of power or utility services takes place off the residence
premises, this exclusion applies. However, if the failure of power or utility services takes
place on the residence premises and is caused by a Peril Insured Against, it doesn’t apply.
5. Neglect – There is no coverage for losses if the insured fails to use all reasonable means to
save and preserve covered property at and after the time of a loss.
6. War – War includes the following, including any consequences of: undeclared war, civil
war, insurrection, rebellion or revolution, warlike act by a military force or personnel,
destruction, seizure or use for a military purpose. Discharge of a nuclear weapon is deemed
warlike even if it occurs accidentally.
7. Nuclear Hazard – Damage is excluded by any nuclear reaction, radiation or radioactive
contamination, or a consequence of any of these.
8. Intentional Loss – No coverage applies to any loss that arises out of any act an insured
commits or conspires to commit with the intent to cause loss. In the event of intentional loss,
no insured is entitled to coverage, including innocent insureds (those who did not cause the
loss, but are covered on the same policy as the person who did caused the loss).
9. Governmental Action – The destruction, confiscation, or seizure of covered property by
order of any governmental or public authority is excluded. The exclusion doesn’t apply to
such acts taken at the time of a fire to prevent its spread, if the fire loss would be covered
under the policy.
HOMEOWNERS POLICY
Which of the following is a Section I exclusion in the Homeowner policy?
a. Governmental action
b. Property removed
c. Loss assessment
d. Debris removal
5.6 Section I – Selected Property Endorsements
Mobile Home Insurance

1. Depending upon the insurer, insurance for mobile homes may be insured on a homeowners
policy by adding a Mobile Home endorsement. If the insurer doesn’t allow the addition of
such an endorsement to its homeowners policy, a separate Mobile Homeowners policy must
be written.
2. Under ISO (Insurance Services Office) rules, an owner occupied mobile home may be
covered under an HO–2 or HO–3 by endorsement. The endorsement amends the definition
of Coverage A (Dwelling) to include a mobile home. Tenants of a mobile home may insure
their personal property under an HO–4 if the insurer’s underwriting guidelines permit.
Other Structures on the Residence Premises - Increased Limits

If the Coverage B limit of insurance is inadequate to insure all other structures on the residence
premises (10% of Coverage A), this endorsement allows the insured to purchase increased
limits for other structures listed in the endorsement. The increased limits generate an additional
premium charge.
Water Back Up and Sump Discharge or Overflow

1. This endorsement allows the insured to buy back some coverage that is excluded under the
Water Damage exclusion. It provides up to $5,000 of coverage for direct physical loss to
property insured under Section I (Coverages A, B, and C) caused by water or waterborne
material that:
a. Backs up through sewers or drains; or
b. Overflows from a sump, sump pump, or related equipment.
2. Coverage is provided even if the sump overflow is caused by equipment breakdown. A
special deductible of $250 applies and replaces any other deductible that may otherwise
apply.
3. Coverage doesn’t apply if damage is caused by the negligence of an insured.
Personal Property Replacement Cost Loss Settlement

1. This endorsement changes the valuation method for most property insured under Coverage C
from actual cash value (ACV) to replacement cost.
2. Also applies to awnings, outdoor antennas and equipment carpeting, and household
appliances.
3. If the following classes of property are separately described and specifically insured in
this policy and NOT subject to agreed value loss settlement, the endorsement also applies
to jewelry, furs and fur garments, cameras and related equipment, musical instruments
and related equipment, silverware, goldware, pewterware, and golfer’s equipment. Other
classes of property separately described and specifically insured are NOT subject to this
CHAPTER FIVE
endorsement.
4. Property NOT eligible for coverage under this endorsement – and that is subject to actual
cash value loss settlement – includes antiques, fine arts, paintings and similar articles of rarity
or antiquity that cannot be replaced, memorabilia, souvenirs, collectors’ items, articles whose
ages and histories contribute to their value, articles not maintained in good or workable
condition, and articles that are outdated or obsolete and are stored or not being used.
5. This endorsement only changes loss valuation – it doesn’t change other policy provisions,
including perils insured against or exclusions.
Scheduled Personal Property Endorsement

1. This endorsement is used to increase limits of liability for certain categories of personal
property and to broaden the perils insured against that apply to that property.
2. Coverage is provided on an open-perils basis and contains very few exclusions; including
wear and tear, insects or vermin, war, and nuclear hazard. Some additional exclusions and
restrictions apply for fine arts, postage stamps, coins, and the breakage of art glass windows,
glassware, statuary, marble, bric-a-brac, porcelains, and similar fragile articles. This
endorsement is also referred to as a Personal Article Floater.
3. Newly acquired property of a class already insured on the endorsement is automatically
covered. The insurer must be notified within 30 days (90 days for fine arts) if new property is
acquired.
4. Scheduled property is insured worldwide.
5. The Section I deductible does not apply to this endorsement.
Earthquake Endorsement
1. Coverage for a loss caused by earthquake, including land shock waves or tremors before,
during, or after a volcanic eruption, is provided to property insured under Coverage A
(Dwelling), B (Other Structures), and C (Personal Property).
2. A single earthquake is defined as 1 or more earthquake shocks that occur within a 72-hour period.
3. The coverage does not cover loss resulting from flood of any nature, or the cost of filling land.
4. A deductible that is a percentage of Coverage A (Dwelling) or Coverage C (Personal
Property), whichever is greater, is included. The total deductible will not be less than $500.
Limited Fungi, Wet or Dry Rot, or Bacteria Coverage Endorsement

1. This endorsement provides a basic property limit option of $10,000 on an annual aggregate
basis during the policy period for:
a. Loss caused by fungi, wet or dry rot, or bacteria.
b. Cost of:
1) Testing the air or property to confirm the existence of fungi, wet or dry rot, or
bacteria.
2) Removal of fungi, wet or dry rot, or bacteria.
3) Tearing out and replacing any part of the building or other covered property to gain
access to fungi, wet or dry rot, or bacteria.
2. Insurers also can offer higher optional coverage limits of $25,000 and $50,000.
Permitted Incidental Occupancies Endorsement

1. With respect to Section I, Coverage B (Other Structures), this endorsement covers a structure
of the residence premises, specifically described, for direct physical loss by an insured peril
for a specified limit of insurance when used to conduct a business.
HOMEOWNERS POLICY
2. The endorsement also allows the Coverage C (Personal Property) special limit of $2,500 to
apply to the described business.
Identity Theft Expense

1. This endorsement will pay up to $15,000 for expenses resulting from an instance of identity
fraud discovered during the policy period.
2. The endorsement does not cover losses arising out of business activity. It carries a $500
deductible and the insured must notify the insurer within 60 days of the loss.
The Water Back Up and Sump Discharge or Overflow endorsement provides how
much coverage for damaged property?
a. $2,500
b. $5,000
c. $7,500
d. $10,000
5.7 Homeowner Section II

The language contained in Section II--Liability Coverages is identical in each of the homeowners
forms. It provides the same coverages contained in a standalone Comprehensive Personal Liability
(CPL) policy. Section II coverages are not subject to a deductible.
Liability Coverages
Coverage E – Personal Liability
Insurance is provided for claims made and suits brought against an insured because of bodily
injury or property damage caused by an occurrence for which the insurance applies.
1. The policy pays up to the limit of liability for the damages for which an insured is legally
liable, including prejudgment interest awarded against an insured.
2. The policy provides a defense, at the insurer’s expense, even if the suit is groundless, false, or
fraudulent. The insurer may investigate and settle any claim or suit it decides is appropriate.
The duty to defend ends when the policy limits have been exhausted by payment of a
judgment or settlement. Payments for defense costs are made in addition to the limit of
liability appearing on the declarations.
Coverage F – Medical Payments to Others

1. The policy will pay necessary medical expenses that are incurred or medically ascertained
within 3 years from the date of an accident causing bodily injury.
2. Legal liability, negligence, and fault do not trigger this coverage. Medical payments to others
is a goodwill coverage and designed to discourage the submission of liability claims.
3. Medical expenses are the reasonable charges for medical, surgical, x-ray, dental, ambulance,
hospital, professional nursing, prosthetic devices, and funeral services.
4. Coverage does not apply to the insured or regular residents of the insured’s household
(except residence employees).
5. Coverage applies to:
a. A person on the insured location with the permission of an insured.
b. A person off the insured location if the bodily injury:
CHAPTER FIVE
1) Arises out of a condition on the insured location or the immediate surroundings.

2) Is caused by the activities of an insured.
3) Is caused by a residence employee in the course of employment by the insured.
4) Is caused by an animal owned by or in the care of an insured.
All of the following are covered by Coverage F – Medical Payments to Others,
except:
a. An injury to the insured while mowing the lawn
b. A neighbor’s injury caused by an insured’s activity
c. An injury to another person caused by a residence employee while mowing the
lawn
d. A guest is injured while visiting the insured at home
5.8 Section II Additional Coverages

The following coverages are provided and payments are made in addition to the limit of liability
appearing on the declarations.
1. Claim Expenses (Supplementary Payments) – Includes the insurer’s expenses for defending a
claim, along with reasonable expenses incurred by an insured at the insurer’s request. Also
covered as claim expenses are premiums on bonds required in a suit defended by the insurer,
the insured’s actual loss of earnings up to $250 a day for assistance in the investigation or
defense of a claim or suit, and post-judgment interest.
2. First-Aid Expenses – Includes expenses incurred by an insured for rendering first aid to others who
sustain bodily injury covered under the policy. No coverage is provided for first aid to an insured.
3. Damage to Property of Others – Pays up to $1,000, at replacement cost, for property
damage to property of others caused by an insured. Payment is made regardless of
negligence. For example, damage caused by an insured to a borrowed lawn mower.
Coverage does not apply to property damage:
a. Covered under Section I of the policy.
b. Caused intentionally by an insured who is 13 years of age or older.
c. To any property owned by an insured.
d. To property owned by or rented to a tenant of an insured or a resident of the named
insured’s household.
e. Arising out of a business engaged in by an insured; acts or omissions in connection with
premises owned, rented, or controlled by an insured that is not the insured location; the
ownership, maintenance, occupancy, operation, use, loading or unloading of aircraft,
hovercraft, watercraft, or motor vehicles.
4. Loss Assessment – Provides Up to $1,000 of coverage for the insured’s share of loss
assessments charged by a corporation or association of property owners, during the policy
period. The loss assessment must be the result of bodily injury or property damage not
otherwise excluded by the policy or liability for an elected director, officer, or trustee who
serves on the board of the association or corporation without being compensated.
HOMEOWNERS POLICY
Section II Additional Coverages includes Damage to Property of Others for what
limit of insurance?
a. $15,000
b. $12,500
c. $1,000
d. $500
5.9 Section II Exclusions

The Section II exclusions fall into 4 distinct categories:
1. Exclusions that apply to Section II – Coverages E and F and the Additional Coverages.
2. Exclusions that only apply to Coverage E – Personal Liability and Coverage F – Medical
Payments to Others.
3. Exclusions that only apply to Coverage E – Personal Liability.
4. Exclusions that apply only to Coverage F – Medical Payments to Others.
Exclusions Applying to Section II in its Entirety

1. Motor Vehicle Liability – The Motor Vehicle Liability exclusion applies to all coverages
in Section II. No coverage is provided for “motor vehicle” liability if at the time of an
occurrence, the “motor vehicle” involved in the loss was registered for use on public roads
or wasn’t registered but was required to be registered. In addition, no coverage is provided
for vehicles that are being operated in or practicing for racing, rented to others, used to carry
people or cargo for a fee, or used for any business purpose. Exceptions to the exclusion,
meaning coverage is given back, exist for the following:
a. Vehicles in dead storage on an insured location, meaning they are physically unable to
be driven, because their batteries have been removed and they’re up on blocks.
b. Vehicles used solely to service an insured’s residence.
c. Vehicles designed to assist the handicapped, so long as the vehicle is being used to assist
a handicapped person, or it is parked on an insured location.
d. A motorized golf cart used on a golfing facility for purposes approved by the facility or
within a private residential community and used as approved by the community.
e. Vehicles designed for recreational use off public roads IF they are not owned by an
insured OR are owned by an insured and used on an insured location.
2. Aircraft Liability – No coverage is provided for “aircraft liability” as defined in the policy.
3. Hovercraft Liability – No coverage is provided for “hovercraft liability” as defined in the
policy.
Exclusions Applying to Coverages E and F

1. Expected or intended injury is excluded and applies even if the insured intended a different
outcome. For example, the insured intended to hit Bob, but hit Joan instead. An exception
exists for the use of reasonable force to protect persons or property. Previous editions of the
homeowners policy only gave back coverage for the protection of persons.
2. Coverage is excluded for bodily injury or property damage arising out of, or in connection
with, a business conducted from an insured location OR engaged in by any insured,
regardless of where the occurrence takes place. The exclusion applies if the insured owns a
CHAPTER FIVE
business or is employed by a business; no distinction is made between the two.

3. Coverage is excluded for bodily injury or property damage arising out of the rendering of or
failure to render, professional services.
4. No coverage is provided for bodily injury or property damage arising out of a premises
owned, rented by, or rented to others by an insured if the premises isn’t an “insured
location.”
5. No coverage is provided for bodily injury or property damage arising from any type of war,
warlike act, or destruction, seizure, or use for a military purpose—including accidental
discharge of a nuclear weapon.
6. Bodily injury or property damage arising out of the transmission of a communicable disease
by an insured is excluded.
7. Bodily injury and property damage arising out of sexual molestation, corporal punishment, or
physical or mental abuse is excluded.
8. Bodily injury or property damage arising out of the use, sale, manufacture, delivery, transfer,
or possession of a controlled substance is excluded. An exception to the exclusion exists
for the legitimate use of prescription drugs by a person following the orders of a licensed
physician.
9. Coverages E and F don’t apply to bodily injury sustained while using a watercraft that is:
a. An inboard motorboat owned by an insured, except while in storage
b. An inboard motorboat with more than 50 horsepower, rented by an insured
c. An outboard motorboat with more than 25 horsepower, owned by an insured.
d. Sailing vessels 26 feet or more in length, owned or rented by an insured
Exclusions Only Applying to Coverage E – Personal Liability

1. For any loss assessment, except as provided under the Additional Coverage, Loss Assessment.
2. Under any contract entered into by an insured. Exceptions exist if the contract is a written
contract that relates directly to the ownership, maintenance, or use of an insured location or
the liability of others is assumed by the named insured prior to an occurrence.
3. Property damage to property owned by an insured.
4. Property damage to property rented to, occupied by, used by, or in the care of an insured.
This is the care, custody, or control exclusion and an exception exists for property damage
caused by the perils of fire, smoke, or explosion. Keep in mind that the Additional Coverage,
Damage to Property of Others, provides $1,000 of coverage, on a replacement cost basis, to
minimize this exclusion.
5. Bodily injury to anyone eligible to receive benefit from any Workers’ Compensation,
occupational disease law, or non-occupational disability law.
6. Bodily injury or property damage for which an insured is covered under any nuclear energy
liability policy.
7. Bodily injury to the named insured or any insured.
Exclusions Only Applying to Coverage F – Medical Payments to Others

Coverage does not apply to bodily injury:
1. To a residence employee if the bodily injury occurs off an insured location AND NOT in the
course of the residence employee’s employment by the insured.
2. To any person who is eligible to receive benefits voluntarily provided or required by law
under any Workers’ Compensation, occupational disease law, or non-occupational disability
HOMEOWNERS POLICY
law.
3. From any nuclear reaction, nuclear radiation, or radioactive contamination—regardless of
how caused.
4. To any person other than a residence employee of an insured who regularly resides on any
part of the insured location. This includes roommates and tenants as well as any insured.
Which of the following is excluded under the Section II exclusions?
a. Vehicle in dead storage
b. Motorized golf cart approved for use while golfing
c. Non-owned vehicle used off public roads
d. Vehicle used to assist the handicapped and parked in a public lot
5.10 Section II Conditions

1. Limit of Liability – A per occurrence limit applies to losses covered under Coverage E
– Personal Liability and a per person limit applies to losses covered under Coverage F –
Medical Payments to Others.
2. Severability of Insurance – Insurance applies separately to each insured; however, this
condition doesn’t increase the limit of liability per any one occurrence.
3. Duties After Occurrence – The named insured or another insured is responsible for
performing the following duties. The insurance company has no duty to provide coverage if
the named insured’s failure to comply with the following duties is prejudicial to the insurance
company.
a. Give the following information in written notice to the insurer or its agent as soon as is
practical:
1) The policy number.
2) The identity of the named insured.
3) Reasonably available information about the time, place, and circumstances of the
occurrence.
4) Names and addresses of any claimants and witnesses.
b. Cooperate with the insurer in the investigation, settlement, or defense of any claims.
c. Promptly forward any notice, demand, summons, or other process to the insurer.
d. At the insurer’s request, aid the insurer in making a settlement, pursuing subrogation
attempts, taking the case to court, and procuring evidence.
e. With respect to Damage to Property of Others, submit to the insurer, within 60 days after
a loss, a sworn statement of loss and show the damaged property.
f. No insured shall, except at his/her own expense, voluntarily make payment, assume
obligation, or incur expense other than for first aid at the time of bodily injury.
4. Duties of an Injured Person – Coverage F – Medical Payments to Others – This condition
applies to third party claimants who are pursuing coverage under the policy. The injured
person, or someone acting on his or her behalf, must:
a. Give the insurer written proof of the claim as soon as practical – and under oath, if
required.
b. Authorize the insurer to obtain copies of medical records and reports.
c. Submit to a physical exam by a doctor of the insurer’s choice when and as often as the
insurer reasonably requires.
CHAPTER FIVE
5. Payment of Claim – Coverage F – Medical Payments to Others – This condition states that
payment under Coverage F is not an admission of liability.
6. Legal Action Against Insurer – All parties must comply with policy provisions before any
suit may be brought against the insurer. Also, no one has the right to enjoin the insurance
company as a party to any action against an insured.
7. Bankruptcy of an Insured – Bankruptcy or insolvency of an insured does not relieve the
insurer of its obligations under the policy.
8. Other Insurance – Insurance is excess over any other collectible insurance, except insurance
written specifically as excess insurance over this policy.
9. Policy Period – The policy only applies to bodily injury or property damage that occurs
during the policy period.
10. Concealment or Fraud – The policy does not provide coverage to an insured who, whether
before or after a loss, has intentionally concealed or misrepresented any material fact or
circumstance, engaged in fraudulent conduct, or made false statements relating to this
insurance.
The duties required of an injured person seeking coverage under Medical Payments
to Others include all of the following, except:
a. Promptly notify the insurer of any notice or demand
b. Submit to a physical exam by the insurer’s physician
c. Cooperate with the insurer
d. Help the insurer in settling the claim
5.11 Selected Homeowner Section II Endorsements
Home Day Care Endorsement

1. The endorsement extends Section I and II coverages to the home day care “business”
described in the schedule provided it is conducted by an insured on the residence premises.
2. The endorsement typically imposes a policy year aggregate limit for the sum of personal
liability and medical payments to others losses. The limit corresponds to the Coverage E
limit shown in the Declarations, with a per person per accident sublimit for day care- related
medical expenses equal to Coverage F.
3. The endorsement does not cover injury to any employee arising out of the “business,” as
described.
Personal Injury Endorsement

1. The endorsement adds liability coverage for “personal injury,” which is defined to include
the following offenses:
a. False arrest, detention, or imprisonment.
b. Malicious prosecution.
c. The wrongful eviction from, wrongful entry into, or invasion of the right of private
occupancy of a room, dwelling, or premises that a person occupies, committed by or on
behalf of its owner, landlord, or lessor.
d. Oral or written publication of material that violates a person’s right of privacy, slanders
or libels a person or organization, or disparages a person’s or organization’s goods,
HOMEOWNERS POLICY
products, or services.
2. Insurance provided by the endorsement does not apply to “personal injury” that is:
a. Caused by or at the direction of an insured with the knowledge the act would violate
another’s rights and inflict personal injury.
b. Arising out of oral or written publication of material with the knowledge of its invalidity.
c. Arising out of oral or written publication of material that took place before the inception
date of the policy.
d. Arising out of a criminal act committed by, or at the direction of, an insured.
e. Arising out of contractual liability assumed by an insured other than an indemnity
agreement that relates directly to the ownership, maintenance, or use of the premises.
f. An offense related directly or indirectly to the employment of an injured party by an
insured.
g. Arising out of or in connection with a business conducted from an insured location or
engaged in by an insured.
h. Arising out of civic or public activities performed by an insured for pay.
i. Sustained by the named insured or an insured.
j. Actual, alleged, or threatened discharge, dispersal, seepage, migration, etc., of pollution.
k. Actual, alleged, or threatened ingestion of, inhalation of, contact with, exposure to,
existence of, or presence of any “fungi,” wet or dry rot, or bacteria.
Home Business Endorsement

1. The endorsement provides for both business property and liability coverages for a variety of
home businesses.
2. The business must be owned by the named insured, or by a partnership, joint venture, or
organization comprised solely of the named insured and resident relatives.
3. Includes coverage for premises operations, advertising injury, and personal injury.
4. There is no coverage for professional services.
Watercraft Liability Endorsement

1. The endorsement amends the liability exclusion pertaining to certain types of watercraft
liability.
2. The exclusion is deleted and replaced with a revised exclusion, which states that Coverage E
and F don’t apply to “watercraft liability” if the involved watercraft is being:
a. Operated in or practicing for any prearranged or organized race, speed contest, or
competition. Sailing vessels and predicted log cruises are not excluded.
b. Rented to others.
c. Used to carry people or cargo for a charge.
d. Used for any “business” purpose.
3. If the watercraft is a sailing vessel or one powered by an inboard or inboard-outdrive engine
or motor, Coverages E and F don’t apply to bodily injury sustained by any employee in
the course of employment. Such exclusion applies if the employee’s principal duties are
in connection with the maintenance, operation, or use of a watercraft designated in the
endorsement.
Limited Fungi, Wet or Dry Rot, or Bacteria Coverage Endorsement
CHAPTER FIVE
1. The endorsement covers the insured’s liability exposure in the event that a third party claims
illness as a result of exposure to mold and the insured is deemed liable for the illness.
2. The basic liability limit is currently $50,000 on an annual aggregate basis during the policy
period for all fungi, wet or dry rot, or bacteria related damages. Insurers can also offer a
higher optional liability coverage limit of $100,000.
Permitted Incidental Occupancies Endorsement

1. The endorsement modifies the Section II exclusions of liability and medical payments in
connection with business pursuits of the insured to allow the necessary and incidental use of
the premises for the business described on the endorsement.
2. The premises must be occupied principally as the insured’s residence; the business must be
conducted by an insured; and there can be no other business conducted on the premises.
The endorsement is commonly used for a studio, office, or private school type of occupancy.
3. The endorsement does not cover bodily injury to any employee of the insured, except
residence employees in the course of their employment.
Business Pursuits Endorsement

1. The endorsement extends liability coverage for the insured’s involvement in a business that
the insured does not own, have financial control over, or have a partnership interest in.
2. The pursuit must be named in the endorsement, and is commonly added for those in the
teaching, sales, and clerical professions.
Which of the following boats is covered under the Watercraft Liability endorsement?
a. A watercraft rented to another person
b. A 20-foot sail boat
c. A jet boat
d. A boat used to practice for a race
Chapter Five — Lightning Facts

1. All homeowners forms with the exception of the Contents Broad Form (HO–4) and Unit-owners
Form (HO–6) require the named insured to be the owner-occupant of the insured dwelling. 5.1
2. The HO–4 Contents Broad Form is designed for tenants of a residential unit and provides no
coverage for buildings and other structures. 5.1
3. The HO–6, Unit-owners Form is designed for the owners of condominium and cooperative
units. Coverage is provided for the building and personal property; other structures coverage is
included in Coverage A – Dwelling. 5.1
4. The HO–2, Broad Form insures the dwelling and other structures for the 16 named perils and
losses. Valuation is on a replacement cost basis. 5.1
5. The HO–2, –3, –4, –6, and –8 forms insure personal property for the 16 named perils and losses
are valued on an actual cash value basis. 5.1
6. The HO–3, Special Form insures the dwelling and other structures on an open perils basis and
losses are valued on a replacement cost basis. 5.1
7. An open perils policy insures covered property for all perils that are not specifically excluded
under the policy. 5.1
HOMEOWNERS POLICY
8. The HO–5, Comprehensive Form insures the dwelling, other structures, and personal property
on an open perils basis. Loss valuation for the dwelling and other structures is on a replacement
cost basis and loss valuation for personal property is on an actual cash value basis. 5.1
9. The HO–8, Modified Coverage Form is used when insuring older homes where replacement
value and market value are disproportionate or when a moral hazard would be created if
insurance were written in an amount equal to 100% of a dwelling’s replacement value. 5.1
10. Full-time students living away at college are included in the definition of “insured” if they are
under age 24 and were a resident of the household before they moved away to college. Full-time
students under age 21 and in the care of the named insured or a resident relative are also defined
as “insured.” 5.2
11. A residence employee is an employee of an insured, or an employee leased under agreement to
the insured, and whose duties are related to the maintenance or use of the residence premises.
5.2
12. The residence premises is a one family dwelling where the named insured resides; a 1–, 2–, 3–,
or 4–family dwelling in which the named insured resides in at least one of the units; or the part
of any other building where the insured resides. The residence premises includes any structures
and the grounds at that location. 5.2
13. A deductible applies to all losses unless otherwise noted in the policy and the insurance
company will only pay that part of the total of all loss payable under Section I that exceeds the
deductible designated on the declarations page – up to the policy limits. 5.2
14. In most cases, the insurer requires the named insured to purchase insurance in an amount that
is no less than 80% of the dwelling’s replacement value. If, at the time of a loss, the amount of
insurance on the dwelling is less than 80% of the dwelling’s replacement value, a penalty will be
applied to partial losses. 5.3
15. The automatic limit of insurance for Coverage B – Other Structures is 10% of the Coverage A
limit of insurance. 5.3
16. Coverage B – Other Structures does not provide insurance for other structures that are rented or
held for rental to anyone who isn’t a tenant of the dwelling, from which business is conducted,
or in which business personal property is stored. 5.3
17. The automatic limit of insurance for Coverage C – Personal Property is 50% of the limit for
Coverage A. 5.3
18. Coverage C – Personal Property applies to personal property owned or used by an insured while
it is anywhere in the world. If personal property is usually located at a residence other than the
residence premises, coverage is limited to 10% of Coverage C or $1,000, whichever amount is
greater. 5.3
19. Special limits of liability apply to certain categories of personal property under Coverage C. The
categories of property to which special limits of liability apply are money, securities, watercraft,
trailers, loss by theft of jewelry, loss by theft of firearms, loss by theft of silverware, business
property, and electronic apparatus. 5.3
20. Certain types of property are not covered under Coverage C – Personal Property, such as
property insured elsewhere, animals, birds, fish, motor vehicles, aircraft, hovercraft, property
or roomers and boarders, property located in apartments rented to others, business data, credit
cards and electronic fund transfer cards, and water or steam. 5.3
21. If a property loss covered by Section I of the policy makes the residence premises unfit to live
in, Coverage D – Loss of Use pays for any necessary increase in living expenses required by the
named insured to maintain the household’s normal standard of living. Coverage is also provided
for the fair rental value of the portion of the dwelling rented to others and in the event a civil
authority prevents the use of the residence premises. 5.3
CHAPTER FIVE
22. Section I – Additional coverages include debris removal; reasonable repairs; trees, shrubs, and
plants; fire department service charge; property removed; credit card, electronic fund transfer
card or access device, forgery, and counterfeit money; loss assessment; collapse, and glass or
safety glazing material. 5.4
23. The limit of insurance for Credit Cards, Electronic Fund Transfer Card, Forgery, and Counterfeit
Money is up to $500. 5.4
24. Loss Assessment coverage provides up to $1,000 for loss assessment charged against an insured
as the owner or tenant of the residence premises by an association or corporation of property
owners for direct damage to property collectively owned by all members. 5.4
25. If a covered building, storm door, or storm window contains glass or safety glazing material, the
additional coverage Glass or Safety Glazing Material covers direct damage to property, as well
as damage caused solely by broken pieces of such glass or glazing material. 5.4
26. Landlord’s Furnishings provides up to $2,500 of coverage, on a named perils basis, for
appliances, carpeting, and household furnishings owned by the insured and located in each
apartment rented to others on the residence premises. Coverage for the peril of theft is NOT
provided. 5.4
27. The insured may use up to 10% of the Coverage A limit of liability for the increased costs
incurred by the insured due to the enforcement of any ordinance or law that requires or regulates
construction, demolition, remodeling, renovation, or repair of that part of a covered building
damaged by an insured peril. 5.4
28. Section I Exclusions include ordinance or law, earth movement, water damage, power failure,
neglect, war, nuclear hazard, intentional loss, and governmental action. 5.5
29. Selected Section I Endorsements include Mobile Home Insurance, Increased Limit – Other
Structures on the Residence Premises, Water Back Up and Sump Discharge or Overflow,
Personal Property Replacement Cost Loss Settlement, and Scheduled Personal Property. 5.6
30. The language of Section II – Liability Coverages is the same in all the homeowners coverage
forms and provides coverage for personal liability and medical payments to others. 5.7
31. Under Coverage E – Personal Liability, insurance is provided for claims made and suits brought
against an insured because of bodily injury or property damage caused by an occurrence to
which the insurance applies. The policy pays up to the limit of liability for the damages for which
an insured is legally liable, including prejudgment interest awarded against an insured. 5.7
32. Coverage F – Medical Payments to Others pays for the necessary medical expenses incurred
within 3 years from the date of an accident causing bodily injury without regard to fault.
Coverage is provided for injury to a person on the insured location with permission, or off the
insured location if the injury is caused by the insured or a residence employee in the course of
employment, or by an animal owned by or in the care of an insured. 5.7
33. Section II – Additional Coverages include Claim Expenses, First Aid Expenses, Damage to
Property of Others, and Loss Assessment. 5.8
34. Motor vehicle liability is excluded under Section II, including Coverages E and F and the
Additional Coverages. 5.8
35. Coverage E exclusions include loss assessments, damage to property owned by an insured;
damage to property in the insured’s care, custody, or control; injury to anyone eligible to receive
worker’s compensation and similar benefits; injury and damage covered by a nuclear energy
liability policy; and bodily injury to an insured. 5.9
36. Coverage F exclusions include bodily injury to a residence employee when not working and
away from an insured location; anyone eligible to receive worker’s compensation and similar
benefits; covered by a nuclear energy liability policy; to a resident of the insured location. 5.9
37. Section II Conditions include Limit of Liability, Severability of Insurance, Duties After
6
Personal Auto Policy
LEARNING OBJECTIVES
1. Recognize and understand the definitions in the personal auto policy
2. Recall Part A – Liability Coverages
3. Identify Part B – Medical Payments Coverages
4. Define Part C – Uninsured Motorists Coverage (UM)
5. Identify Part D – Coverage for Damage to Your Auto
6. Recall Part E – Duties After an Accident or Loss
7. Recognize Part F – General Provisions
8. Identify Selected Endorsements
9. List the factors used to rate the Personal Auto Policy
OVERVIEW
The Personal Auto Policy (PAP) is a personal lines policy that provides several types of
insurance for loss that results from the non-business use of certain types of motor vehicles. The
PAP is designed to cover an individual’s or family’s personal use of an auto, and is comprised
of 6 major parts.
Personal Auto Policy

Part A – Liability Coverage
Part B – Medical Payments
Part C – Uninsured Motorist (UM)
Part D – Coverage for Damage to Your Auto
Part E – Duties After an Accident or Loss
Part F – General Provisions
––––––––––––––PLUS––––––––––––––––
Selected Endorsements
CHAPTER SIX
The Personal Auto Policy was designed to provide insurance for eligible vehicles that are owned
by one or more individuals. Eligible vehicles are private passenger vehicles including cars, SUVs,
passenger vans, and pickups with a gross vehicle weight of 10,000 pounds or less.
The primary use of eligible vehicles must be personal, although incidental business use is
allowed – e.g., making sales calls. Delivery or commercial use of an eligible vehicle renders it
ineligible for the personal auto policy and requires it to be insured on a business auto policy.
6.1 Definitions
The Personal Auto Policy defines words and phrases used throughout the policy. It should be noted
that a private passenger vehicle will be deemed to be owned by a person if it’s leased under a
written agreement for a continuous period of at least 6 months. Some of the definitions are listed
below:
1. You and Your – The named insured listed in the declarations, and the spouse if a resident of
the same household. The named insured should always be the person or persons to whom
the vehicle is titled and registered, unless it’s a leased vehicle.
2. Private Passenger Auto – Shall be deemed to be owned by a person if the auto is owned or
leased under contract for a continuous period of at least 6 months.
3. Bodily Injury – Bodily harm, sickness, or disease, including death that results.
4. Business – Includes trade, profession, or occupation. The courts have determined that
business activities have two components: they are continuous in nature and offer the
opportunity for profit.
5. Family Member – A person related to the named insured by blood, marriage, or adoption
who is a resident of the named insured’s household. A family member includes a ward or
foster child.
6. Occupying – Means in, upon, getting in, getting on, getting out, or getting off a vehicle.
7. Property Damage – Physical injury to, destruction of, or loss of use of tangible property.
8. Trailer – A vehicle designed to be pulled by a private passenger auto or a pickup or van.
Trailer also includes a farm wagon or farm implement while it’s being towed by a private
passenger auto pickup, or van.
9. Your Covered Auto – If a vehicle meets any of the following four definitions, it is a “your
covered auto.”
a. Any vehicle shown in the Declarations.
b. A newly acquired auto.
c. Any trailer that the named insured owns.
d. Any auto or “trailer” the named insured doesn’t own while being used as a temporary
substitute for any other vehicle described in this definition, which is out of the normal use
because of:
1) Breakdown
2) Repair
3) Servicing
4) Loss
5) Destruction
PERSONAL AUTO POLICY
10. Newly Acquired Auto – Any of the following types of vehicles for which the insured becomes
the owner during the policy period:
a. A private passenger auto.
b. A pickup or van, for which no other insurance policy provides coverage, if the auto:
1) Has a gross vehicle weight of 10,000 pounds or less.
2) Is not used for delivery or transportation of goods and materials, unless such use is
incidental to the insured’s business of installing, maintaining, or repairing furnishings
or equipment, For example, if the insured is a plumber; he may use his pickup or van
for the transportation of his tools.
c. For all coverages EXCEPT Part D – Coverage for Damage to your Auto, coverage begins
on the date the named insured becomes the owner.
1) If newly acquired auto is an additional vehicle, insured must report to insurer within
14 days.
2) A replacement auto for another with all coverages except collision and
comprehensive (other than collision) is covered for liability and medical payments
for the remainder of the policy period, even if the insured does not report the
replacement.
d. Under Part D, Coverage for Damage to your Auto automatic coverage begins on the date
the named insured becomes the legal owner of the vehicle.
1) The insured must report the newly acquired auto to the insurer for coverage to
continue. If the insured doesn’t report as required, coverage ends after either 4 or 14
days.
2) If the Declarations page indicates that either Collision or Other than Collision
coverage applies to at least one vehicle, the insured has 14 days to report for either
coverage to apply. Automatic coverage ends after 14 days if the insured doesn’t
report.
3) If the Declarations page indicates that NO Collision or Other than Collision coverage
applies to at least one vehicle, the insured has 4 days to report for coverage to apply.
Automatic coverage ends after 4 days if the insured doesn’t report.
Under Part D, Within how many days must an insured report the purchase of a new
vehicle that is replacing an existing vehicle covered by collision coverage?
a. 4
b. 5
c. 14
d. 15
A private passenger auto includes a leased vehicle as long as the lease contract is
continuous for how many months duration?
a. 3
b. 6
c. 9
d. 12
CHAPTER SIX
A ____________vehicle is a covered vehicle when Your Covered Auto is being
repaired due to a covered loss.
a. Substitute
b. Replacement
c. Temporary substitute
d. Conditional
6.2 Part A – Liability Coverage
Insuring Agreement
1. The insurer will:
a. Pay damages for bodily injury or property damage for which any insured becomes legally
responsible.
b. Settle or defend any claim or suit asking for such damages.
c. Pay all defense costs it incurs, in addition to the liability limits. The insurer’s duty to settle
or defend ends when the limit of liability is exhausted.
2. The insurer will not defend or settle any suit or claim that is not covered under this policy.
3. The policy defines insured in Part A as:
a. The named insured or any family member for the ownership, maintenance, or use of any
auto.
b. Any person using the covered auto with permission.
c. A person or organization, for “your covered auto,” if legally responsible for an insured.
Supplementary Payments
In addition to the limit of liability, the insurer also makes other payments:
1. If a bail bond is required because of an accident, the policy will pay up to $250 for the
cost of the bail bond so long as the accident resulted in a covered bodily injury or property
damage claim.
2. If defending a suit, the insurer will pay premiums on appeal bonds and bonds to release
attachments.
3. Any interest that accumulates after a judgment has been entered will also be paid by the
insurer if it defends a suit.
4. The policy pays up to $200 a day for loss of earnings because the insurer requests attendance
at hearings or trials. This does not include loss of other earnings.
5. The policy will also pay for reasonable expenses incurred at the insurer’s request. This does
NOT include traffic fines.
Part A Exclusions
1. Liability coverage is not provided for any insured who:
a. Intentionally causes bodily injury or property damage.
b. Causes property damage to property he or she owns or is transporting.
c. Causes property damage to property rented to, used by, or in the care of that insured. An
exception exists for damage to a residence or private garage – this is the care, custody, or
control exclusion.
d. Is responsible for causing bodily injury to an employee (of that insured) during the course
of employment by that insured.
e. Owns or is operating a vehicle while it’s being used as public or livery conveyance
(meaning it has been hired out to the general public). A vehicle used in a share-the-
expense car pool is not considered a public or livery conveyance.
f. Is employed or engaged in the business of selling, repairing, servicing, storing, road
testing or parking motor vehicles. An exception exists if the vehicle is being used by an
insured, a family member, or a partner or employee of these. For example, Mary’s son is
a mechanic. If he’s test-driving Mary’s car and crashes it, the exception to the exclusion
applies – meaning he has coverage. However, if his co-worker crashes Mary’s car, the
exception doesn’t apply because the co-worker is not related to Mary, nor is he her
partner or employee.
g. Is using a vehicle while employed or engaging in business. However, a coverage
giveback applies to private passenger autos, pickups, vans, and owned trailers used with
such vehicles.
h. Is using a vehicle without the reasonable belief that he or she is entitled to drive it. Family
members always have a reasonable belief of entitlement to drive a “your covered auto”
under this coverage.
2. Liability coverage is not provided for the ownership, maintenance, or use of:
a. Vehicles that have fewer than four wheels, such as motorcycles.
b. Vehicles designed mainly for use off public roads, such as snowmobiles or ATVs. An
exception applies for off-road vehicles used by an insured in a medical emergency,
“trailers,” or non-owned golf carts.
c. Vehicles owned by the insured that are not insured on this policy OR not owned by the
insured but are furnished to the insured or available for the insured’s regular use, such as
a company car.
d. Vehicles owned by a family member that aren’t insured by this policy OR not owned but
are furnished to a family member or available for the family member’s regular use, such
as a company car.
e. Vehicles located inside a racing facility for the purpose of competing, practicing, or
preparing for a race or speed contest.
CHAPTER SIX
Limit of Liability
The maximum limit paid under Part A – Liability Coverage is shown on the policy’s Declarations.
That limit applies per accident for all bodily injury and property damage arising from that one
accident, including damages for care, loss of services, and a death.
1. The limit shown in the Declarations is the most the insurer will pay in any one accident,
regardless of the number of:
a. Insureds
b. Claims made
c. Vehicles or premiums shown in the Declarations
d. Vehicles involved in the accident
2. If the loss is covered under more than one part of the policy, payment will not be duplicated.
3. Personal auto policies may have liability limits written as:
a. Split Limits – The amounts of coverage for bodily injury and property damage are
separate. Split limits are expressed using 3 separate limits: a bodily injury (BI) limit per
person, a bodily injury (BI) limit per accident, and a separate limit for property damage
(PD) per accident. If Part A of a policy is written with limits of 100/300/50, the policy will
provide coverage of $100,000 per person for BI with a maximum BI aggregate limit of
$300,000 per accident. Additionally the policy will provide a $50,000 limit for PD per
accident.
Example
An insured causes a car accident that leaves the driver of the other car and 2
passengers suffering injuries of $30,000 each and $15,000 in damage to the
other vehicle. The insured’s policy has limits of 25/50/10. Based on the limits
of liability, the policy will pay $25,000 BI per person (maximum $50,000 per
accident) and will only pay $10,000 in PD.
b. Combined Single Limit – The limit of the policy may be applied to bodily injury (BI) and/
or property damage (PD). A combined single limit policy has a maximum aggregate per
accident, regardless of the type of loss (BI or PD).
Out of State Coverage

When a “your covered auto” is being driven outside the state in which it is principally garaged
(and also within the coverage territory), Part A – Liability Coverage extends to provide coverage
as required by the financial responsibility or compulsory insurance laws of that state or Canadian
province. For example, if the insured’s policy doesn’t provide Personal Injury Protection (PIP)
coverage and the state in which the vehicle is being driven requires it, the insured’s personal
auto policy will provide PIP coverage at required limits while the insured is in that state.
Financial Responsibility
When the policy is certified as future proof of financial responsibility, the policy shall comply
with the law to the extent required.
Other Insurance
1. If other auto liability insurance is in place at the time of the loss, the personal auto policy
will only pay its share of the loss. That share is the proportion the policy’s limit bears to all
insurance in place. For example, if the policy provides $100,000 of property damage liability
insurance and another policy also provides $100,000 of property damage liability insurance,
the insured’s policy will only pay ½ of the liability loss. Because the total insurance in
place is $200,000 and the limit of liability provided by the insured’s policy is $100,000, the
insured’s policy pays ½ of the total insurance in place.
2. This policy pays liability losses on an excess basis for non-owned vehicles. For example, the
covered loss involves a car the insured borrowed from his neighbor. The insurance in place
on the neighbor’s car must pay first (it’s primary insurance) and then this policy will pay (it’s
excess insurance).
Each of the following is a Part A – Liability Coverage Supplementary payment,
except:
a. Payment for all defense costs
b. $200 a day for loss of earnings due to an insurer request to assist in the trial
c. $250 for the cost of a bail bond
d. Premiums on appeal bonds
The limit of liability is the most paid by the insurer regardless of all of the following,
except:
a. Number of insureds
b. Premiums shown
c. Number of vehicles involved
d. Amount of surcharge to be applied to the policy
6.3 Part B – Medical Payments Coverage
Insuring Agreement
1. The insurer will pay reasonable expenses incurred for necessary medical and funeral services
caused by an accident, sustained by an insured, and incurred within 3 years of the accident.
2. Unlike Liability Coverage, Medical Payments Coverage does NOT require an insured to be
legally responsible for causing injuries.
3. The policy defines insured in Part B, as:
a. The named insured or any family member occupying any auto or as a pedestrian when
struck by a motor vehicle designed for use mainly on public roads. These vehicles do
NOT have to be owned by the insured and include any type of trailer.
b. Any other person, such as a passenger, while occupying the insured auto.
CHAPTER SIX
Part B Exclusions
Although legal liability on the part of an insured is not required for Medical Payments
Coverage to apply, bodily injury sustained by an insured is NOT covered under the following
circumstances when an insured:
1. Is occupying a vehicle with fewer than 4 wheels.
2. Is occupying a vehicle being used as a public or livery conveyance. A share-the-expense car
pool is NOT public or livery conveyance.
3. Is occupying any vehicle that is located for use as a residence or premises – for example
living in one’s car or a permanently located motor home or trailer used as a residence.
4. Sustains bodily injury in the course of employment and Workers’ Compensation benefits are
either required or available.
5. Is occupying or struck by a vehicle owned by the insured that is not a “your covered auto”
and is either owned by the insured OR furnished to the insured or available for the insured’s
regular use, such as a company car.
6. Is occupying or struck by a vehicle owned by a family member that is not a “your covered
auto” and is either owned by a family member OR furnished to a family member or available
for the family member’s regular use, such as a company car.
7. Is using a vehicle without having a reasonable belief that he/she is entitled to drive the car.
8. Is using a vehicle while engaged in business; however, a coverage giveback applies to private
passenger autos, pickups, vans, and owned trailers used with such vehicles. This exclusion
applies to the business use of trucks and other commercial vehicles.
9. Injuries sustained because of, or as a result of, any type of war or nuclear hazard or action.
10. Injuries sustained when occupying a vehicle located inside a racing facility for the purpose of
competing, practicing, or preparing for a race or speed contest.
Limit of Liability
The limit of liability shown in the Declarations is the maximum the insurer will pay for each
person injured in any one accident. This is the most the policy will pay regardless of the number
of insureds, claims made, vehicles or premiums shown in the Declarations, or vehicles involved
in the accident. If the loss is covered under more than one Part of the policy, payment will not be
duplicated.
Other Insurance
If there is other applicable auto Medical Payments insurance, the insurer will pay only the
proportion that its limit of liability bears to the total of all applicable limits. However, coverage
for non-owned vehicles shall be excess over any other collectible auto insurance providing
payment for medical or funeral expense.
A Medical Payments claim will be paid by the insurer within how many months from
the date of the occurrence?
a. 18
b. 24
c. 36
d. 60
Which of the following uses of a vehicle is not excluded under the Medical Payments
coverage?
a. Insured uses a truck for incidental purposes
b. A neighbor uses the insured’s car without permission
c. An insured drives a company car
d. An insured rides a motorcycle
6.4 Part C – Uninsured Motorists Coverage (UM)
Insuring Agreement
Part C – Uninsured Motorists Coverage (UM) provides insurance to insured persons injured in
accidents that are caused by another party. The other party must be legally responsible for bodily
injury to an insured that arises out of the ownership, maintenance, or use of an “uninsured motor
vehicle.” If the other party is NOT legally responsible (or not at-fault), this coverage doesn’t
apply.
1. The insurer will pay damages that an insured is legally entitled to recover from the owner
or operator of an uninsured motor vehicle because of bodily injury. Unless the policy
specifically states that Uninsured Motorist Physical Damage (UMPD) is also provided, this
section of the policy only applies to bodily injury damages.
2. In addition to the definition of “insured” that applies to the entire policy, the definition of
“insured” for UM means:
a. The named insured or any family member.
b. Any person occupying a “your covered auto.”
c. Any person who is entitled to recover damages because of bodily injury sustained by
an insured and covered by the policy. For example, if Sue sustains bodily injury in
an accident caused by an uninsured motorist, her children will be entitled to recover
damages for loss of care when Sue is unable to care for them because she broke both her
legs in the accident.
3. Part C – Uninsured Motorists Coverage contains a definition for “uninsured motor vehicle.”
An uninsured motor vehicle is one that:
a. Doesn’t have insurance or a bond in place at the time of the accident.
b. Has insurance in place at the time of the accident. However, the bodily injury liability
limits are less than those required by the financial responsibility or compulsory insurance
laws in place in the state where the insured’s “your covered auto” is principally garaged.
c. Is a hit-and-run vehicle. The owner or operator of the vehicle can’t be identified AND
must hit:
1) The named insured or a family member.
2) A vehicle occupied by the named insured or a family member; or
3) “Your covered auto.”
d. Has insurance, but the insurer either denies the claim or becomes insolvent.
4. The following types of vehicles are NOT included in the definition of “uninsured motor
vehicle”:
a. A vehicle that’s owned by the named insured or a family member OR a vehicle that’s
furnished or available for the regular use of the named insured or a family member, such
as a company car.
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b. A vehicle that is owned or operated by someone who is self-insured, unless the owner or
operator is or becomes insolvent.
c. A vehicle owned by any government agency.
d. A vehicle that operates on rails or crawler treads, such as a train or piece of mobile
equipment like a bulldozer.
e. A vehicle designed mainly for use off public roads, such as a snowmobile or ATV.
f. A vehicle permanently located for use as a residence, such as a motor home or trailer in a
campground.
Part C Exclusions
Coverage is NOT provided when any insured sustains bodily injury under the following
circumstances:
1. An insured or family member is injured when occupying, or struck by, a vehicle owned by
the named insured or a family member and the vehicle is not insured by this policy.
2. An insured or a legal representative settles an Uninsured Motorists Bodily Injury Liability
claim and that settlement impairs the insurance company’s ability to recover payments made
to any insured.
3. An insured is occupying a “your covered auto” while it is being used as a public or livery
conveyance.
4. An insured is using a vehicle without a reasonable belief that he or she is entitled to drive
it. Family members always have a reasonable belief of entitlement to drive a “your covered
auto” under this coverage.
5. While insured by Workers’ Compensation or disability insurance. No payment will be made
under this coverage for injuries that might benefit any insurer, or self-insurer, under any
Workers’ Compensation or disability benefits law. This means that if Workers’ Compensation
or disability insurance is in place, that coverage must pay before this coverage applies.
6. If the insured is legally responsible for punitive or exemplary damages, this coverage does not apply.
Limit of Liability
The limit of liability shown in the Declarations is the maximum the insurer will pay in any one
accident. This is the most the insurer will pay regardless of the number of insureds, claims made,
vehicles or premiums shown in the Declarations, or vehicles involved in the accident. If the loss
is covered under more than one Part of the policy, payment will not be duplicated.
Other Insurance
1. If more than one policy is in place and provides UM, the total amount the insured may
collect cannot exceed the highest limit applying to any one vehicle. For example, if the
insured’s limits are 100/300 and the limits on the other policy are 50/100, the most the
insured may collect is 100/300.
2. If the loss occurs while the insured is occupying a non-owned vehicle, the policy covering
the non-owned vehicle is primary, and the insured’s coverage is excess.
3. If more than one policy applies, the insurer pays only its share of the loss, which is the
proportion that its limit of liability bears to the total amount of all applicable coverage.
Arbitration
If the insurer and the insured do not agree on the recovery of damages or the amount recoverable
by the insured, each party may select an arbitrator (at each party’s expense) who then jointly
select a third arbitrator (with the expense split equally by each party). A decision agreed upon by
the arbitrators will be binding as to the insured’s entitlement to, and the amount of, damages.
Underinsured Motorists Coverage (UIM)

This coverage is slightly different from Uninsured Motorists Coverage, and may be required by
state statutes as part of the Uninsured Motorists Coverage. In other states, coverage is optional
or added by endorsement. Underinsured Motorists Coverage (UIM) protects the insured against
drivers who do have auto liability insurance, but whose coverage limits are inadequate or
insufficient to respond to claims. The coverage pays only up to the amount that exceeds the limit
of liability of the at-fault party.
Which of the following is covered under Part C – Uninsured Motorist Coverage?
a. Punitive damages awarded for the insured
b. Accident was caused by a hit-and-run driver
c. The insured is also covered by Workers’ Compensation
d. A family member is struck by an insured vehicle
An uninsured motor vehicle is any of the following, except:
a. A company car
b. A vehicle that does not have insurance
c. A vehicle insured by an insolvent insurance company
d. A vehicle with liability limits less than the state requirement
6.5 Part D – Coverage for Damage to Your Auto

Coverage Part D of the personal auto policy addresses coverage for damage to the insured’s auto,
also known as physical damage coverage. Part D provides first-party property damage coverage for
the insured’s covered autos and also provides some coverage for non-owned vehicles being operated
or used by the insured and family members.
Insuring Agreement
1. Part D – Coverage for Damage to Your Auto pays for direct and accidental damage,
regardless of fault, subject to the policy’s exclusions – and those contained in this coverage
part. Covered vehicles are Your Covered Auto and non-owned autos. Part D of the policy is
the only section that defines non-owned auto.
a. A deductible applies and will be the amounts shown on the Declarations for Collision
coverage and Other Than Collision coverage, which is also known as comprehensive
coverage. The deductibles for Collision and Other Than Collision coverages need not be
the same.
b. If this coverage pays for damage to a non-owned auto, the broadest coverage appearing
on the Declarations will apply.
2. Collision – The upset of the covered vehicle or a non-owned auto, or its impact with another
vehicle or object, such as a tree. Collision is the single named peril in the policy.
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3. Other Than Collision (OTC, Comprehensive) – Provides coverage on an open perils basis,
which means all causes of loss other than a collision loss and not excluded in the policy.
OTC, or Comprehensive, includes but is not limited to the following causes of loss:
■ Missiles or falling objects
■ Fire
■ Theft or larceny
■ Explosion or earthquake
■ Windstorm
■ Hail, water, or flood, including a flash flood
■ Malicious mischief or vandalism
■ Contact with a bird or an animal
■ Breakage of glass (If caused by an accident, this loss may be applied to collision coverage
instead, in order to avoid a double deductible).
4. The policy defines non-owned auto as:
a. Any private passenger auto, pickup, van, or trailer not owned by, furnished, or available
for the regular use of the named insured or a family member, while being used by the
named insured or a family member.
b. Any auto or trailer being used as a temporary substitute for the covered auto, while the
covered auto is out of normal use due to:
■ Breakdown
■ Repair
■ Servicing
■ Loss
■ Destruction
Transportation Expenses
1. The insurer will pay, without application of a deductible, a maximum of $20 per day, up
to $600, for transportation expenses incurred because of a collision or comprehensive loss.
If the damaged auto is a non-owned auto, coverage only applies if the insured is legally
responsible for the loss.
2. If the loss is caused by a total theft of the covered auto or a non-owned auto, the insurer will
only pay expenses incurred during the period beginning 48 hours after the theft, and ending
when the auto is returned to use or the insurer pays for the loss.
3. If the loss is caused by a peril other than theft of the auto, the insurer will only pay expenses
beginning when the auto is withdrawn from use for more than 24 hours.
Part D Exclusions
No coverage is provided for:
■ An insured vehicle being used as a public or livery conveyance. The exclusion does not
apply to a share-the-expense car pool.
■ Damage solely a result of wear and tear, freezing, equipment breakdown, or road
damage to tires. These are all maintenance issues and are excluded under other types of
property insurance.
■ Losses due to war or nuclear hazard.
■ Electronic equipment, unless it’s permanently installed in the vehicle. Examples of

electronic equipment include radios, stereos, tape decks, CD systems, navigation systems,
Internet access systems, computers, telephones, televisions, two-way mobile radios,
scanners, and CB radios.
■ Tapes, records, disks, or other media used with electronic equipment.
■ A total loss to Your Covered Auto due to destruction or confiscation or non-owned auto
by government or civil authorities.
■ A trailer, camper, or motor home if it isn’t shown on the Declarations, unless the vehicle
is a non-owned trailer, or is acquired during the policy period and the insured reports the
purchase within 14 days.
■ A non-owned auto when used by the insured or a family member who doesn’t have a
belief of entitlement to use the non-owned auto.
■ Loss to radar and laser detection devices and equipment.
■ Custom furnishings and equipment in any pickup/van. Custom furnishings and equipment
include special carpeting and insulation, furniture or bars, height-extending roofs, and
custom murals, paintings, decals, and graphics. The following items are not considered
custom furnishings or equipment: any cap, bed liner, or cover in or upon any pickup.
■ A non-owned auto being used in the auto business.
■ Any auto when located at a racing facility for organized racing.
■ Under Part D if either state law or the rental agreement prevent the rental car company
from recovering damages from the insured. Many insurers automatically cover a rental
vehicle with the same coverage as the insured has on his/her own personal auto policy.
If the insured only has liability coverage on a personal auto policy and rents a car for
vacation, the rental car is not fully insured by the insured’s PAP. The insured will need to
fill this gap by buying the rental agency’s insurance or upgrading his or her own policy.
Limit of Liability
1. The insurer’s limit of liability for loss is the lesser of the actual cash value (ACV) of the
vehicle or the amount necessary to repair or replace the vehicle with another of like kind and
quality.
2. In the event of a total loss, adjustments will be made for depreciation and physical condition
when determining the ACV.
3. If a repair or replacement results in better than like kind or quality, the insurer will not pay for
the amount of the betterment.
4. There is a maximum limit of $1,500 for a non-owned trailer and $1,000 for certain electronic
equipment.
Payment of Loss
1. When paying for losses covered under Part D, the insurer may make payment in cash or by
repairing or replacing the stolen or damaged property.
2. If making payment in the form of cash, the insurer will include any sales tax that applies to
the stolen or damaged property.
3. If stolen property is recovered, the insurer has the option of keeping the stolen property (at
agreed or appraised value) or returning it to the named insured. If the insurer returns the
stolen property, it must pay for any damage that resulted from the theft.
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No Benefit to Bailee
If a bailment relationship exists with respect to the covered vehicle, the policy will not make
payment for the benefit of anyone who had care, custody, or control of the covered auto. For
example, if the insured’s vehicle was in the repair shop for servicing and the mechanic damaged
the vehicle, this policy wouldn’t make payment; the repair shop’s insurance would have to pay
because of its legal liability as a bailee.
Other Sources of Recovery

1. If other insurance is in place, or if another party is available to make payment for a covered
loss, this policy only pays its proportionate share of the loss (as we’ve seen in the other
coverage parts).
2. If a loss occurs and the covered auto is a non-owned auto, this policy will pay on an excess
basis. Primary coverage is considered insurance provided by the vehicle’s owner, any other
property coverage that may be in place, and any other source of recovery, such as the
insurance purchased by the driver of the vehicle.
Appraisal
1. If the insured and the insurance company are unable to agree about the amount of a loss,
either party may demand an appraisal. Each party selects, and pays for, its own appraiser.
2. The appraisers prepare separate appraisals of the actual cash value and amount of loss. If
they fail to agree, they select an umpire to whom they submit their differences.
3. If any two of the three parties agree, that decision is binding. The insured and insurer share
the expenses of the umpire and appraisal.
Comprehensive covers all of the following losses, except:
a. Falling objects
b. Theft
c. Contact with a deer
d. Rollover
The insurer’s limit of liability for a vehicle damaged by a loss under Part D is which
of the following?
a. Actual cash value
b. Replacement value
c. The lesser of actual cash value and replacement value
d. The greater of actual cash value and replacement value
6.6 Part E – Duties After an Accident or Loss

If an insured person, or anyone else, wishes to seek coverage under the personal auto policy, he/she
must comply with certain duties. Failure to comply with these duties may result in claim denial if the
failure to comply harms the insurance company.
1. In the event of a covered loss, Persons submitting claims to the insurance company are
required to:
a. Notify the insurer promptly about how, when, and where the accident or loss occurred.
In addition, the insurer must be provided with the names and addresses of anyone with
injuries or anyone who witnessed the accident or loss.
b. Cooperate with the investigation and settlement of any claim.
c. Promptly send to the insurer any copies of notices or legal papers received.
d. Submit to a physical exam as reasonably required by the insurer.
e. Authorize the insurer to obtain copies of medical reports and other pertinent records.
f. Submit a proof of loss when required by the insurer.
2. When seeking Uninsured Motorists Coverage, the insured must promptly notify the police if a
hit-and-run driver is involved and provide legal papers if a lawsuit is filed.
3. An insured making a claim under Part D must protect the property from further damage,
notify the police promptly if the vehicle is stolen, and allow the insurer to inspect and
appraise the damaged vehicle before its repair or disposal.
Which of the following is not a duty of the insured if the insured’s vehicle is damaged
when it hit a tree?
a. Submit a proof of loss
b. Call the police
c. Promptly notify the insurance company
d. Submit to a physical exam
6.7 Part F – General Provisions

The General Provisions of the personal auto policy apply to all sections of the policy. They spell out
the obligations of both the named insured and the insurance company.
Bankruptcy
Bankruptcy or insolvency of an insured does not relieve the insurer of its obligations under the policy.
If the insured declares bankruptcy, the insurer must still comply with all obligations of the policy.
Changes
No changes may be made unless they are contained in a written endorsement issued by the
insurance company. The insurer may also adjust the policy premium if changes occur that affect
information that determines premium rates, such as number or type of vehicles insured, drivers of
insured vehicles, the overnight locations of vehicles, and insurance coverages, deductibles, and
limits of liability.
If the insurer makes a change that broadens coverage under the current edition of the insured’s
policy, and the change doesn’t generate a premium charge, the change automatically applies to
the insured’s policy.
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Fraud
No coverage is provided for any insured who commits fraud, makes fraudulent statements, or
engages in fraudulent activity with respect to a claim for any accident or loss.
Legal Action Against the Insurer

No legal action may be taken against the insurance company by anyone unless he/she has
complied fully with the policy. In addition, no one may sue the insurance company until it
agrees in writing that the insured has a legal obligation to pay for damages.
Right to Recover Payment

If the insurance company makes a claim payment, the person on behalf of whom payment was
made must assign its rights to recover damages from another party to the insurance company. If
a claimant recovers from another party after the insurer has made payment, that claimant must
reimburse the insurance company.
Policy Period and Territory

The policy only provides coverage for accidents and losses that occur during the policy period
and within the policy territory. The policy territory is the United States of America, its territories
and possessions, Puerto Rico, and Canada, and while being transported between their ports.
Mexico is NOT in the policy territory.
Termination
The policy may be terminated by either the named insured or the insurance company.
1. Cancellation
a. The named insured may cancel the policy for any reason by either returning it to the
insurer or giving the insurer advance written notice of the date the cancellation is to take
effect.
b. During the first 60 days of a new policy, an insurer may cancel the policy for any reason
by mailing notice to the named insured shown on the Declarations. Notice of at least 10
days is required for cancellation due to non-payment of premium, and at least 20 days
advance written notice for all other reasons.
c. After the policy has been in effect for 60 days, the insurer may cancel only for the
following reasons:
1) Non-payment of premium.
2) The policy was obtained through fraud or material misrepresentation, meaning the
application contained false information and, had the insurer been provided with
accurate information, would not have issued the policy.
3) Suspension or revocation of the driver’s license of the named insured, any driver who
is a household resident of the named insured, any driver who regularly uses a Your
Covered Auto.
d. State law will supersede this provision.
2. Non-renewal – The insurer may elect to non-renew a policy; if non-renewing the policy, the
insurer must give the insured written notice before the end of the policy period. At least 20
days advance written notice must be provided (some states require 30, 45 or 60 days notice).
In most cases, state law requires the insurer to list the reason for non-renewal on the notice.
State law prevails.
3. Automatic Termination – The policy automatically terminates if the insured, or a legal

representative, fails to accept or pay for a renewal or continuation of the policy. In addition,
coverage automatically terminates if the named insured secures other auto insurance on an
auto shown on the Declarations.
4. Other Termination Provisions
a. Proof of mailing of any notice constitutes sufficient proof of notice.
b. If the policy is cancelled, the insured may be entitled to a premium refund. If so, the
insurer will send the refund.
c. The effective date of cancellation stated in the notice will become the end of the policy
period.
Transfer of Your Interest in This Policy

The named insured may not transfer or assign his/her interest in the policy without the insurer’s
written consent. However, if the named insured dies, the resident spouse will automatically
become the named insured. By the same token, if the named insured dies, his/her legal
representative will automatically become the named insured but only with respect to legal
responsibility for maintenance or use of any Your Covered Auto. This automatic coverage is
provided until the end of the policy period.
Two or More Auto Policies

If two or more policies issued by the same insurer apply to the same accident, the maximum limit
of liability that will be paid will not exceed the policy with the highest limit.
If an insurer non-renews an insured’s policy for underwriting reasons, what is the
minimum number of days’ notice to the insured?
a. 20
b. 30
c. 45
d. 60
After an automobile policy has been in effect for 60 days, the insurer may cancel the
policy for any of the following reasons, except:
a. Non-payment of premium
b. Material misrepresentation of information on the application by the insured
c. Submission of four or more claims during a single policy period
d. Suspension of the driver’s license of the named insured’s or household resident
CHAPTER SIX
Extended Non-Owned Coverage for a Named Individual (PP 03 06)

1. This endorsement provides coverage by removing or altering some of the Personal Auto
Policy’s exclusions or limitations.
2. The endorsement covers non-owned autos furnished or available for the insured’s regular
use.
3. The endorsement provides excess liability coverage, for the individual named on the
endorsement and for the business use of a commercial type vehicle that the named insured
does not own.
4. The endorsement can be used to provide excess liability coverage for the use of a vehicle as
a public or livery conveyance.
5. An extra premium charge applies for liability and medical payments purchased by this
endorsement.
Towing and Labor Costs Coverage Endorsement (PP 03 03)

1. This endorsement provides payment, at the designated amount, for towing to a garage or for
labor performed at the site of disablement.
2. The coverage applies per occurrence and to either a Your Covered Auto or the insured’s use
of a non-owned auto.
Miscellaneous Type Vehicle Endorsement (PP 03 23)

1. This endorsement changes the policy by adding a definition for “miscellaneous type vehicle,”
which means a motor home, motorcycle, or other similar type vehicle, ATV, dune buggy,
or golf cart. In addition, to the definitions section of the policy, the endorsement amends
“your covered auto” and “newly acquired auto” to include any “miscellaneous type vehicle”
shown on the endorsement. The definition does not include snowmobiles.
2. Various exclusions under Parts A, B, and D are also amended to remove exclusions for
damage to, and injuries arising out of, vehicles having fewer than 4 wheels and vehicles
designed mainly for off-road use.
3. The endorsement excludes coverage for any non-owned vehicles, other than a temporary
substitute vehicle.
Named Non-owner Coverage for a Named Individual

1. This endorsement provides liability, medical payments, and uninsured motorists coverage
for individuals who do not own vehicles, but often borrow or rent autos. The endorsement
is also designed for individuals who need to prove financial responsibility. Definitions are
amended by this endorsement, which also amends certain exclusions. Part D – Coverage for
Damage to your Auto is NOT provided by this endorsement.
2. The endorsement covers only the person named in the endorsement; a spouse and family
members may be included if that option is selected on the endorsement. The endorsement
provides only Liability, Medical Payments, and Uninsured Motorists Coverages.
Excess Electronic Equipment Coverage

1. This endorsement provides coverage for electronic equipment that is permanently installed
in the vehicle in a location not used by the auto manufacturer. Coverage increases the policy
limit from $1,000 to the amount shown on the endorsement.
2. Includes $200 of coverage for tapes, records, discs, and other media used with covered
excess electronic equipment.
Limited Mexico Coverage

1. This endorsement provides coverage on an excess basis and only for losses and accidents
that occur in Mexico and within 25 miles of the U.S. border. In addition, coverage only
applies if the insured’s visit to Mexico is of 10 or fewer days duration.
2. Coverage only applies if existing liability insurance is in place, and was issued by a licensed
insurance company organized in Mexico.
3. No coverage is provided for anyone who is a citizen or resident of Mexico.
Optional Limits Transportation Expenses Coverage

1. This endorsement is used when the insured wishes to increase the limits of liability for transportation
expenses that are provided in the personal auto policy ($20 per day, $600 maximum).
2. The vehicle is described on the schedule along with the increased daily limit and the
increased maximum limit.
3. The endorsement does NOT change or broaden the insurance that is provided for
Transportation Expenses in Part D – Coverage for Damage to your Auto.
Joint Ownership Coverage Endorsement (PP 03 34)

1. This endorsement amends the definition of “you” and “your” to refer to 2 or more
individuals, other than husband and wife, who reside in the same household, or to non-
resident relatives who jointly own the insured vehicle.
2. Non-resident relatives – 2 or more persons related by blood, marriage, or adoption who
reside in separate households. This includes a ward or foster child.
What is the purpose of the Extended Non-Owned Coverage for a Named Individual
endorsement?
a. Coverage is extended 25 miles into Mexico
b. Covers non-owned vehicles furnished for the insured’s regular use
c. Covers an individual who does not own a car
d. Extends coverage for a leased vehicle
Chapter Six — Lightning Facts

1. The named insured is listed in the Declarations, and includes the spouse if a resident of the same
household. 6.1
2. A family member is a person related to the named insured by blood, marriage, or adoption,
including a ward or foster child who is a resident of the household. 6.1
3. A covered auto is any vehicle shown in the Declarations, a newly acquired auto, any trailer the
insured owns, or a non-owned auto or trailer while being used as a temporary substitute vehicle. 6.1
4. A temporary substitute vehicle is a non-owned vehicle used in place of an insured vehicle that is
out of normal use due to breakdown, repair, servicing, loss, or destruction. 6.1
5. A newly acquired auto is one to which the named insured takes title and either replaces an
existing vehicle owned by the named insured, or a vehicle that increases the total number of
vehicles owned by the named insured. 6.1
6. The Supplementary Payments under Part A – Liability Coverage include the cost of bail bonds,
appeal bonds, post-judgment interest, loss of earnings, and reasonable expenses while assisting
the insurer in the defense of a claim. 6.2
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7. Part A Exclusions include bodily injury or property damage intentionally caused by an Insured;
property in the insured’s care, custody, and control; bodily injury to an insured’s employee
while working for the insured; using a vehicle as public or livery conveyance; working in the
automobile business or using a vehicle while engaged in business; and a vehicle used by a
person without the reasonable belief of entitlement to drive it. 6.2
8. Part A Liability does not apply to vehicles with fewer than four wheels, vehicles that are owned
but not insured, uninsured vehicles owned by family members; vehicles furnished for the regular
use of the named insured or family members; and vehicles inside a racing facility used for
competing in, practicing in, or preparing for a race. 6.2
9. The maximum limit paid under Part A – Liability Coverage is shown on the policy’s Declarations
and applies per accident for all bodily injury and property damage arising from one accident,
including damages for care, loss of services, and death. 6.2
10. If a loss is covered under more than one Part of the policy, payment will not be duplicated or stacked. 6.2
11. When a covered auto is driven outside the state in which it is principally garaged, Part A
– Liability Coverage extends to provide coverage required by the financial responsibility or
compulsory insurance laws of that state or Canadian province. 6.2
12. If other insurance applies at the time of the loss, the personal auto policy will only pay its share
of the loss in the proportion the policy’s limit bears to all insurance in place. 6.2
13. Under Medical Payments coverage, the insurer will pay reasonable expenses incurred within 3
years of the accident. The limit applies per person and payments are only made for necessary
medical and funeral services caused by the accident. 6.3
14. Medical payments coverage applies, regardless of fault, to any insured occupying any auto or as
a pedestrian when struck by a motor vehicle designed for use mainly on public roads. 6.3
15. Part B, Medical Payment exclusions include an insured occupying a vehicle with fewer than 4
wheels, using a vehicle as a public or livery conveyance or a residence, struck by an uninsured
vehicle owned or furnished to an insured family member, using a vehicle without the reasonable
belief of entitlement to drive it, using a vehicle while engaged in business, or when Workers’
Compensation benefits apply, or injuries sustained due to war, nuclear hazard, or racing. 6.3
16. Part C – Uninsured Motorists Coverage (UM) provides insurance to persons injured in accidents
caused by another party who is legally responsible for injuries to an insured that arise out of the
ownership, maintenance, or use of an uninsured motor vehicle. 6.4
17. Excluded under Part C are accidents involving an owned vehicle that is uninsured, a vehicle
while being used as a public or livery conveyance, the insured using a vehicle without the
reasonable belief of entitlement to drive it, using a vehicle while engaged in business, when
Workers’ Compensation benefits apply, and punitive or exemplary damages. 6.4
18. The process of arbitration is used when the insurer and the insured do not agree on the recovery
of damages or the amount recoverable by the insured. Each party selects an arbitrator who then
jointly select a third arbitrator who determines the insured’s amount of damages. 6.4
19. Underinsured Motorists Coverage (UIM) covers the insured against drivers who have auto
liability insurance but the coverage limits are inadequate. UIM coverage will pay the amount
over the at-fault driver’s coverage up to the UIM limit. 6.4
20. Part D – Coverage for Damage to Your Vehicle, also known as the physical damage coverages
collision and other than collision, pays for direct and accidental damage, regardless of fault, to
the insured’s covered vehicles and non-owned autos. 6.5
21. Collision is the upset of the covered vehicle or a non-owned auto or its impact with another
vehicle or object. 6.5
22. Other Than Collision (OTC, Comprehensive) provides open perils coverage for loss caused by
any peril that is not excluded in the policy. 6.5
23. A non-owned auto is any private passenger auto, pickup, van, or trailer not owned by, furnished
to, or available for the regular use of the named insured or a family member, while being used by
the named insured or a family member. 6.5
24. Transportation expenses coverage pays for the cost of transportation expenses incurred as a
result of a covered collision or other than collision loss. No deductible applies and the limit of
coverage is up to $20 per day, or a total of $600. 6.5
25. If a loss is caused by a total theft of the covered auto or a non-owned auto, the insurer will only
pay transportation expenses incurred during the period that begins 48 hours after the theft and
ends when the auto is returned to use or the insurer pays for the loss. Payments begin 24 hours
after loss caused by all other covered perils. 6.5
26. Part D exclusions include an insured vehicle being used as a public or livery conveyance;
damage as a result of wear and tear; freezing; mechanical breakdown; road damage to tires; war
or nuclear hazard; tapes, records, disks, or other media; and electronic equipment unless it’s
permanently installed in the vehicle. 6.5
27. Part D exclusions also include total loss by government or civil authorities; loss to radar or laser
detection devices and equipment; coverage for custom furnishings and equipment in any pickup
or van; a non-owned auto being used in the auto business; or any auto when located at a racing
facility for organized racing. 6.5
28. The Part D limit of liability for loss is the lesser of the actual cash value (ACV) of the vehicle or
the amount necessary to repair or replace the vehicle with another of like kind and quality. Part
D does not pay for betterment. 6.5
29. Part E – Duties After an Accident or Loss include prompt notification of any claims and legal
papers received; cooperation in the claims investigation and settlement; submission to a physical
exam; authorization for the insurer to obtain copies of medical reports and records; submission
of a requested proof of loss; notification to the police if a hit-and-run driver is involved; and
protection of property from further damage. 6.6
30. Part F – General Provisions include bankruptcy or insolvency of an insured; changes to the
policy; fraud; legal action against the insurer; right to recover payment; policy period and
territory; policy termination provisions; transfer of the insured’s interest in the policy; and
accident payments involving two or more insured auto policies. 6.7
31. Selected endorsements for the personal auto policy include Extended Non-Owned Coverage
for a Named Individual, Towing and Labor Costs Coverage Endorsement, Miscellaneous Type
Vehicle Endorsement, Named Non-owner Coverage for a Named Individual, Excess Electronic
Equipment Coverage, Limited Mexico Coverage, Optional Limits Transportation Expenses
Coverage, and Joint Ownership Coverage Endorsement. 6.8
7
Miscellaneous Personal Lines
Coverage
LEARNING OBJECTIVES
1. Recognize the components of a personal article floater
2. Give four examples of personal article floaters
3. Identify components of Personal Watercraft Insurance
4. Understand the intent and use of the National Flood Insurance Program (NFIP)
5. Recognize the purpose of the Personal Umbrella policy
OVERVIEW
Personal lines insurance doesn’t only pertain to personal auto, homeowners insurance and
dwelling property policies. Other types of policies are also available for the protection of
personal lines clients. This chapter discusses insurance policies that specifically address three
types of personal lines coverage:
1. Insurance for property that’s ineligible for coverage under auto, homeowners, or dwelling
policies—usually because of the value, type, or use of the property.
2. Insurance offering coverage with broader perils or a broader coverage territory than is
provided by auto, homeowners, or dwelling policies.
3. Insurance for perils that are specifically excluded under the auto, homeowners, or dwelling
policies.
7.1 Personal Inland Marine Insurance

Personal Inland Marine coverage can be attached by endorsement to a Homeowners or Dwelling
Policy; it may also be written as a separate policy. Personal Inland Marine Insurance is a form of
coverage used to insure moveable property against direct loss. Since moveable property is known as
floating property, the word floater is often used.
1. Personal Articles Floater (Scheduled Article Floater) – The basic form used to insure
“individual” items of personal property on a scheduled basis.
a. Claims are normally settled on an “actual cash value basis” with some exceptions.
b. Coverage is provided worldwide, with some exceptions.
c. Coverage is provided on an open perils basis with very few exclusions. Typical
exclusions are wear and tear, insects or vermin, intentional loss, and war. Specific classes
of property have additional exclusions. For example, a collection of glassware may have
specific exclusions for breakage caused by certain perils.
MISCELLANEOUS PERSONAL LINES COVERAGE
d. Coverage may be provided for classes of property consisting principally of the following:
Jewelry Golfer’s Equipment
Furs Fine Arts
Cameras Stamp Collections
Musical Instruments Coin Collections
Silverware and Goldware China and crystal
2. Several floaters have additional features:
Personal Jewelry Floater
1. Coverage may be written on a valued or actual cash value basis.
2. The floater contains a “Pair and Sets Clause”. If a covered loss occurs to an item that is part
of a set, the value of the remaining item(s) is reduced based on the difference between the
value of the total set and the value of each item individually. This is because each item is
worth more as a “set” than on its own. For example, if a pair of diamond earrings is valued
at $2,000, and a loss occurs to one earring, the value of the pair drops by more than 50%.
If one earring by itself is valued at $800, the total loss is $1,200. The “Pair and Sets Clause”
specifies the conditions and the policy limit should this type of loss occur.
3. When insuring most items on a floater, the insured must submit an appraisal that documents both
a description of the property to be insured and its value. Some insurers require appraisals for
all insured items; others only require appraisals for items insured in excess of a certain amount,
such as $2,500. An appraisal is usually required at or before the time insurance is bound.
4. Newly acquired items are automatically insured if they are the same class of property already
insured by the floater. The limit of coverage is no more than a specific percentage of the value
shown on the schedule. Automatic coverage for newly acquired items is only provided for 30 days.
Personal Effects Floater
1. This floater provides open peril coverage for items worn or carried by tourists and travelers.
2. The coverage applies worldwide, but not at the insured’s home.
Fine Arts Floater
1. This floater covers such items as paintings, etchings, pictures, tapestries, rare manuscripts,
and antiques.
2. The floater provides automatic coverage for 90 days for newly acquired items.
3. Coverage is usually written on a valued, or agreed, basis.
4. Additional exclusions include:
a. Loss caused by the restoration or repairing process.
b. Breakage that is not caused by fire, lightning, explosion, aircraft, collision, windstorm,
earthquake, flood, malicious mischief, theft, or derailment or overturn of a conveyance.
c. Mysterious disappearance.
Cameras Floater
1. The insured items are scheduled, with the exception that blanket coverage is provided on
items such as shades, filters, etc.
2. Automatic coverage is provided on newly acquired items for 30 days at a limit of insurance
up to 25% of the limit designated on the schedule.
Musical Instrument Floater
1. No coverage is provided if the covered instruments are played for remuneration, or a fee.
Anyone playing for hire must purchase an endorsement and pay an additional premium.
2. The insured must report newly acquired items within 30 days.
CHAPTER SEVEN
Which of the following statements about the Personal Jewelry Floater is correct?
a. The Pair and Sets Clause does not apply
b. Coverage is written on a replacement cost basis
c. Automatic coverage for newly acquired items is only provided for 30 days
d. An appraisal of the item is optional
Which of the following types of property are covered by the Personal Effects Floater?
a. Paintings, etchings, and pictures
b. Personal property carried by travelers
c. Golfer’s equipment
d. Coin collections
7.2 Personal Watercraft Insurance

1. Boatowners Policy – The Boatowners policy is a package policy that provides both property
and liability coverage and is similar in design to the homeowners policy. The coverage it
provides is similar to that provided by the personal auto policy. The policy is generally used
to insure boats that can be towed by a car.
a. Section I of the policy provides open perils coverage for the hull, motor, trailer,
equipment, and accessories manufactured for marine use. Losses are settled on an actual
cash value (ACV) basis.
b. Section II provides Watercraft Liability, Medical Payments for passengers, and Uninsured
Boaters coverages. (Does not include Personal Injury Liability).
2. Yacht Policy – A Yacht policy is designed for larger vessels, many of which have crew
members.
a. Larger vessels are normally insured under the complete package of yacht coverages,
which includes in addition to Hull Insurance, Protection and Indemnity and Medical
Payments.
b. A “Lay Up Warranty” applies when the insured boat is in storage and allows for a
return of premium due to the reduced risk of the boat not being used when laid up. If
the insured operates the yacht during the lay-up period (or lives on it), no coverage is
provided.
c. Each yacht policy contains a navigation territory that states where the boat will be
navigated, such as on inland lakes and waterways. The insured does NOT have coverage
if the boat is navigated outside the designated territory. If the insured wishes to change or
broaden the navigation territory, the insurer must issue an endorsement.
d. In addition to providing property and liability coverage, a yacht policy also offers the
following coverages:
■ Protection and indemnity coverage for the insured’s legal liability for bodily injury
and damage to property of others.
■ Personal property coverage for property on the yacht.
■ Coverage for fuel spills, commercial towing, and dinghies.
Section I of the Boatowners policy provides what type of coverage for the hull?
a. Actual cash value
b. Replacement cost
c. Stated value
d. Open perils
7.3 Difference in Conditions (DIC) Insurance

1. DIC insurance requires the use of a special form designed to fill in the coverage gaps
contained in a property policy. There is no standard policy form.
2. DIC coverage is generally written on an open perils basis, excluding losses by perils that are
covered under standard property forms (such as fire, lightning, windstorm, hail, etc.).
3. The form does not contain a Coinsurance or Pro Rata Clause, and the form may be written
for an amount of insurance different from the limit of insurance provided by the policy it
complements.
4. When written to supplement an underlying policy, DIC coverage normally carries a high
deductible, such as $10,000 or more.
5. The DIC form is often written to provide coverage in the event of earthquake, flood, collapse,
and subsidence.
Which of the following is correct about Difference in Conditions (DIC) Insurance?
a. Flood is a peril that can be covered by this policy
b. It is written on a standard form similar to the property form
c. Fire and lightning are typical covered perils
d. The Coinsurance Clause is included on all policies
7.4 Earthquake Endorsement

1. The peril of earthquake, or earth movement, is excluded on virtually all property policies.
It may be added to most homeowners policies by endorsements and, in some jurisdictions,
such as California, may also be purchased as a separate policy.
2. Included in the peril of earthquake are earth movement, land shock waves or tremors,
landslide, mudslide, mudflow, sinkhole, and the rising, sinking, or shifting of the earth.
3. All earth movements occurring within a 72-hour period are considered a single occurrence of
earth movement.
In order to be considered a single occurrence, the Earthquake endorsement covers all
earth movement that occurs within what time period?
a. 12 hours
b. 36 hours
c. 48 hours
d. 72 hours
CHAPTER SEVEN
7.5 National Flood Insurance Program (NFIP)

1. A federal program that enables certain property owners to purchase flood insurance. The
Federal Insurance Administration administers the program under the Federal Emergency
Management Agency (FEMA). The federal government makes payment for, or subsidizes, all
flood losses.
2. Flood policies are available from participating private insurers who participate in the Write
Your Own (WYO) Program, and directly from the NFIP. Agents do not have authority to bind
coverage with the NFIP, but all licensed agents and brokers may write flood insurance with
the NFIP.
3. Communities in flood-prone areas must have established an approved flood control program
in order to participate in the NFIP and are called participating communities. If a property
owner lives in a community that is not a participating community, the property owner
CANNOT purchase flood insurance, regardless of the degree of flood risk.
4. Flood policies provide protection for direct loss to insured property such as a dwelling and
its contents. Flood is defined as a general and temporary condition of partial or complete
inundation of land. The land MUST be normally dry land and the flood must involve:
a. 2 or more acres of the insured’s land, OR the insured’s entire piece of property AND an
adjacent piece of property.
b. The inundation of land may be the result of:
■ Overflow of inland or tidal waters, such as a tidal wave generated by a hurricane.
■ Unusual and rapid accumulation or runoff of surface waters.
■ Mudflow caused by accumulation of water.
■ Collapse or destabilization of land along a shoreline resulting from erosion or the
effect of waves or water currents exceeding normal, cyclical levels.
5. Dwellings eligible for coverage must have 2 or more rigid outside walls, a fully secured roof,
and be affixed on a permanent foundation. Coverage is available for both the building and
personal property, however, NO coverage is provided for personal property in basements.
6. Exclusions include personal property located in basements, loss of profits, loss of access
to property, business interruption, additional living expenses, ordinance or law, earth
movement, theft, fire, explosion, wind, freezing, and damage to lawns, trees, shrubs, plants
and growing crops.
7. The NFIP also does not cover money, securities, livestock, wharves, piers, bridges, docks and
other structures on or entirely over water.
NFIP Eligibility, Limits and Conditions

1. Coverage is provided on 1- to 4- family dwellings under the (Dwelling Form).
2. Coverage is provided on other residential buildings and non-residential buildings under the
General Property Form.
3. Coverage is provided for buildings owned by a residential condominium association under
the Residential Condominium Building Association Form (RCBAP).
4. Under FEMA regulations, in order to obtain, renew, or change a federal loan, a property
owner must purchase flood insurance if the property is located in a special flood hazard area
(SFHA).
5. Two separate programs of coverage are available: the Emergency Program (for communities
in the earliest stage of participation in the NFIP) and the Regular Program. Maximum limits of
insurance apply to property insured under both programs.
6. The Emergency Program offers a $35,000 maximum amount of coverage on 1- to 4-family

dwellings and a maximum $100,000 on other residential and non-residential buildings.
The maximum amount of coverage for contents in a single-family dwelling is $10,000 and
$100,000 on other residential and non-residential buildings.
7. The Regular Program offers a $250,000 maximum amount of coverage on residential
buildings and $500,000 on non-residential buildings. The maximum amount of coverage for
contents in a residential building is $100,000 and $500,000 on non-residential buildings.
8. Coverage becomes effective on the 30th calendar day after the applicant completes the
application and pays the premium.
9. Property is insured on an actual cash value basis, except 1- to 4-family residences and
residential condominiums may be insured on a replacement cost basis.
10. Property removed to protect it from flood is covered for 45 days at other locations.
11. Coverage up to $30,000 applies to the increased cost of compliance with flood plain
management ordinances or laws that regulate the repair or rebuilding of property damaged in
a flood.
12. Each type of property loss is subject to a deductible. The deductible applies separately to
the building and to personal property, including any attached structure and debris removal
expense.
Example
A loss that involves damage to both the building and contents would result in a $1,000
deductible (2 x $500 = $1,000).
Write Your Own (WYO Program)

1. The WYO Program is a cooperative effort involving FEMA and the private sector that
allows existing property and casualty insurance companies to write, issue, and service
flood insurance under their own names. It is estimated that over 90% of the flood insurance
policies in force are maintained by WYO companies. The remaining policies are written and
maintained directly by FEMA.
2. WYO companies, according to guidelines and regulations of the NFIP, may structure their
flood insurance business within their existing personal lines business. This provides incentive
for producers or agents to place their flood business with the WYO companies they represent.
The National Flood Insurance Program (NFIP) sells flood insurance in which of the
following types of communities?
a. Communities that border a large body of water
b. Participating communities
c. Farm communities
d. Communities with a population less than 300,000
A single-family dwelling may purchase up to what amount of flood insurance in the
NFIP’s Emergency program?
a. $35,000
b. $50,000
c. $100,000
d. $250,000
CHAPTER SEVEN
7.6 Fair Access to Insurance Requirements (FAIR)

1. Most states have established a Fair Access to Insurance Requirements program, called a
FAIR plan, to provide basic property insurance to property owners who are unable to secure
coverage in the standard property marketplace. Most FAIR plans operate in a similar fashion.
2. FAIR plans are utilized when existing homeowners or dwelling property coverage is being
cancelled or non-renewed due to loss history or the property owner or the property fail to
meet other underwriting guidelines of an insurer. Insurance may also be purchased from a
FAIR plan when a dwelling is currently uninsured, and no carrier in the standard marketplace
will write coverage.
3. In some states, the insured must certify the inability to secure coverage elsewhere.
4. Farm property isn’t eligible for coverage, though certain types of incidental business use may
be allowed.
5. Agents don’t have binding authority, and coverage is usually bound only after the receipt of
the application and first premium payment by the insured.
Which of the following is not eligible for coverage under a Fair Access to Insurance
Requirements program?
a. Homeowner
b. Rental dwelling
c. Farm property
d. Uninsured dwelling property
7.7 Personal Umbrella Policy

Personal umbrella coverage is liability insurance provided on an excess basis. Each contract is
unique and may contain provisions and language not found in other umbrella policies. Personal
umbrella coverage may be issued as an endorsement added to a homeowners policy or as a
standalone policy.
1. The purpose of the umbrella policy contains three elements:
■ It provides an additional layer of liability insurance after the limits of underlying primary
policies are exhausted due to paid claims.
■ It provides coverage on a broader basis than the primary policies.
■ It drops down to provide first-dollar coverage when the underlying primary policies don’t
provide coverage.
2. Coverage is usually written in increments of $1 million, with a single limit per occurrence
covering claims for both Bodily Injury/Property Damage, and Personal Injury in excess of the
insured’s underlying policy limits.
3. Insurance companies issuing umbrella coverage require their insureds to have underlying
primary insurance in place. “Primary” insurance pays before the umbrella pays and
“underlying” insurance provides coverage for the same risks that are insured under an
umbrella policy. For example, every umbrella policyholder must also have personal auto and
personal liability insurance in place. If the insured owns recreational vehicles, watercraft, or
rental property, those exposures must also be insured on underlying primary policies.
4. The umbrella acts as excess coverage over the limits of these underlying primary policies.
5. If the coverage in an umbrella is broader than the underlying policy—meaning the primary
policy doesn’t insure a loss—the umbrella will “drop down” and cover the entire loss. When
an umbrella policy drops down and acts as a primary policy, the insured pays a self-insured
retention, which is a method of loss cost-sharing. The only time the insured must pay a
self-insured retention is when the umbrella drops down. If the primary policy pays its limit,
and then the umbrella policy makes payment, the insured does NOT pay the self-insured
retention.
Example
Umbrella policies ordinarily cover personal injury losses caused by an insured,
while the underlying Personal liability policy (i.e., homeowners) may only
cover bodily injury and property damage. In the event a personal injury claim is
submitted against the insured under such a circumstance, the umbrella would
“drop down” and act as primary insurance for that claim.
6. The personal umbrella policy is generally designed to provide coverage on a worldwide basis
to third parties and does not pay benefits directly to an insured.
7. Common personal umbrella liability exclusions include:
■ Losses arising from bodily injury and property damage if the insured fails to maintain the
required underlying insurance.
■ Intentional injury.
■ Damage to property in the care, custody, or control of an insured.
■ Aircraft.
■ Business pursuits.
■ Professional Liability.
■ Directors and Officers Liability.
■ Discrimination.
All of the following are true regarding the Personal Umbrella Policy, except:
a. The Umbrella acts as a contributory liability policy
b. The policy requires underlying coverage for automobiles and homes
c. The Umbrella can provide broader coverage than the primary policy
d. The policy is written for higher liability limits
Which of the following perils is covered under the Personal Umbrella?
a. Aircraft
b. Personal injury
c. Bailee
d. Intentional injury
The self-insured retention in the Umbrella is described as which of the following?
a. Excess coverage
b. An Endorsement
c. A method of cost-sharing
d. Primary coverage
CHAPTER SEVEN
7.8 Mobile Home Insurance

1. Insurance on mobile homes may be written by adding a Mobile Home Endorsement to a
Homeowners Policy, or by writing a separate Mobile Homeowners Policy.
2. When mobile homes are insured by writing a separate policy, the policy includes Section
I - Property and Section II - Liability, which are similar to the corresponding sections in a
homeowners policy.
3. Under the mobile homeowners policy, Coverage A (Mobile Home), insures the mobile
home itself; property installed on a permanent basis, (such as appliances, floor coverings,
dressers and cabinets, attached structures, and utility tanks). Coverages B, C, and D are
nearly identical to the same coverages under the homeowners policy, except that Coverage
C - Personal Property is generally written at 40% of Coverage A, instead of at 50%. The
Additional Coverage, Property Removed, is generally expanded to include up to $500 for
reasonable expenses incurred while moving the mobile home when threatened by a covered
peril.
4. The mobile homeowners policy may be written on an open perils basis with losses to the
mobile home valued on a replacement cost basis, with other items of property being valued
on an actual cash value basis.
5. Typically, the endorsements available for attachment to a homeowners policy are also
available for coverage with a mobile homeowners policy. Endorsements unique to the
mobile homeowners policy are the Transportation/Permission to Move Endorsement and the
Mobile Home Actual Cash Value Settlement Endorsement. The Transportation/Permission to
Move Endorsement provides coverage for collision, upset, stranding, or sinking for up to 30
days while the mobile home is being moved to a new location. The Mobile Home Actual
Cash Value Settlement Endorsement may be used when the insured does not desire to insure
the mobile home to 80% of replacement cost.
7.9 Crop, Hail, and Windstorm Insurance

Crop insurance is a specialized policy that protects the insured against reduced yield because of a
covered loss to crops before they are harvested.
Crop/Hail Insurance
1. This is private insurance, not reinsured by the federal government. This policy provides
named perils coverage.
2. Other perils that may be included in addition to hail are:
a. Fire, lightning, wind.
b. Freezing, drought, insects and disease.
3. The rates for crop hail insurance are developed by the Crop Hail Insurance Actuarial
Association (CHIAA). Crop-hail insurance is rated on an acreage basis and the insured can
choose a wide variety of coverage options.
4. Typically, coverage begins at 12:01 a.m. following the date the application is signed,
provided the crop is clearly visible above the ground. However, this will vary by insurer and
state. Changes will be addressed in the state law chapter if applicable.
5. The policy is typically written with deductibles (normally a 5% yield reduction). Policies
can be written to cover a percentage of expected yield, such as 50% or 100%. If a crop is
expected to yield 10,000 bushels but yields only 5,000, the policy will cover the unrealized
5,000 bushels.
6. The coverage ceases when the crop is harvested (1 growing season).
7. The payment of an insured loss reduces the total amount of available insurance.
8. The policy includes a replanting provision designed to reduce both the insured’s and
the insurer’s losses. The insurer may reimburse the insured up to 20% of the amount of
insurance. The reimbursement does not reduce the amount of insurance available for the
crop.
9. Exclusions – These may vary by company but common exclusions include:
a. Until normal visible (crop must be above ground)
b. Failure to harvest a mature crop
c. Non-owned property (share crop)
d. Loss from injury to buds, blossoms or blooms, unless the crop is affected
e. Injury to leaves, vines, etc unless crops are also damaged or affected
f. Injury to trees, bushes, fruit or nut crops
Multi-Peril Crop Insurance (MPCI)

1. The coverage is written by private insurers and is reinsured by the Federal Crop Insurance
Corporation (FCIC).
2. Coverage may be provided for approximately 200 different types of crops, but 5 major crops
account for 90% of the liability assumed (corn and maize, cereal grains, soybeans, tobacco,
and cotton).
3. Covered causes of loss include: adverse weather conditions, fire, insects, plant disease,
wildlife, earthquake, and volcanic eruption.
Windstorm Insurance Coverage

Windstorm damage is covered under the peril of wind in standard property insurance policies. In
some states, exclusionary endorsements may be added to property policies to exclude coverage
for the peril of wind or windstorm. These states are Alabama, Delaware, Florida, Georgia,
Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, South
Carolina, and Texas. Because these states are at high risk for wind loss caused by hurricane, they
have established wind and/or wind and hail associations that provide a marketplace of last resort
for those who are unable to purchase insurance for the peril of wind on their primary property
policies. In these and other states, some insurers require mandatory wind deductibles of a certain
dollar amount, such as $2,500 or higher, based on the geographic location of property (such as
within a certain distance of the sea coast) or prior wind losses.
Chapter Seven — Lightning Facts

1. Personal Inland Marine Insurance is a form of coverage that is written on a homeowners policy
by endorsement or as a stand-alone policy. It insures moveable property against direct loss. 7.1
2. The Personal Articles Floater (Scheduled Article Floater) provides worldwide coverage when
used to insuring individual personal property on an itemized or scheduled basis. 7.1
3. Coverage under a Personal Articles Floater is covered on an open perils basis, and claims are
settled on an actual cash value basis with some exceptions. 7.1
4. Typical exclusions in a Personal Articles Floater include wear and tear, insects or vermin,
intentional loss, and war. Specific classes of property also have additional exclusions. 7.1
5. Valuation of property under a Personal Articles Floater is on a valued or actual cash value basis,
depending upon the type of property. Specific classes of property insured are jewelry, furs,
cameras, musical instruments, silverware and gold ware, golfer’s equipment, fine arts, stamp
collections, coin collections, and china and crystal. 7.1
CHAPTER SEVEN
6. The Boatowners policy is a package policy that provides both property and liability coverage and
is used to insure boats that can be towed by a car. 7.2
7. A Yacht policy is designed for larger vessels with crew members and includes Hull Insurance:
protection and indemnity coverage, medical payments coverage, personal property coverage for
property on the yacht, coverage for fuel spills, and commercial towing. 7.2
8. A Lay Up Warranty applies when the insured boat or yacht is in storage and allows for a return
of premium due to the reduced risk of loss while the boat is laid up. If the insured operates or
lives on the craft during the lay–up period, no coverage applies. 7.2
9. The Difference in Conditions (DIC) Insurance is an open perils policy with a high Deductible. It
is used to fill coverage gaps in a property policy such as the perils of earthquake, flood, collapse,
and subsidence. 7.3
10. The Earthquake Endorsement covers earth movement that is excluded on virtually all property
policies, and in some jurisdictions may also be purchased as a separate policy. 7.4
11. The Earthquake Endorsement covers the perils of earthquake, earth movement, land shock waves
or tremors, landslide, mudslide, mudflow, sinkhole, and the rising, sinking, or shifting of the
earth. 7.4
12. All earth movements occurring within a 72-hour period are considered a single occurrence of
earth movement. 7.4
13. The National Flood Insurance Program (NFIP) is a federal program administered by FEMA,
which enables property owners to purchase flood insurance. Losses are paid or subsidized by the
federal government. 7.5
14. Flood policies are available from participating private insurers under the Write Your Own
(WYO) Program, as well as directly from the NFIP. 7.5
15. Communities in flood-prone areas must have established an approved flood control program in
order to participate in the NFIP. Only property located in participating communities is eligible for
flood insurance. 7.5
16. Flood is a general and temporary condition of partial or complete inundation of at least 2
acres of normally dry land. It involves the overflow of inland or tidal waters, unusual and rapid
accumulation or runoff of surface waters, mudflow, or collapse or destabilization of land from
erosion or the effect of waves or water currents exceeding normal, cyclical levels. 7.5
17. The Emergency Program applies when a community is in its earliest stage of participation in the
NFIP. 7.5
18. Each loss to property is subject to a $500 deductible, which applies separately to the building
and to personal property, including any appurtenant structure and debris removal expense. 7.5
19. The Write Your Own (WYO) Program is a cooperative effort involving FEMA and the private
sector that allows existing property and casualty insurance companies to write, issue, and service
flood insurance under their own names. 7.5
20. A Fair Access to Insurance Requirements program, called a FAIR plan, provides basic property
insurance to property owners who are unable to secure coverage in the standard property
marketplace. Reasons for ineligibility in the standard market include loss history or the failure of
the client or property to meet other underwriting guidelines of an insurer. 7.6
21. The policy territory under a personal umbrella is worldwide and coverage is written at a base
limit of $1 million. 7.7
22. The insured pays a self-insured retention, a form of cost-sharing, if the personal umbrella policy
drops down to cover a loss not insured by an underlying primary policy. 7.7
8
Commercial Property Insurance
LEARNING OBJECTIVES
1. Recognize the structure and components of the commercial package policy
2. Identify the causes of loss forms
3. Name the various types of covered property under the Building and Property Coverage form
4. List the Additional Coverages and Coverage extensions under the Building and Personal
Property Coverage form
5. Define exclusions, limits of insurance, deductible, and loss conditions
6. Identify optional coverages under the Building and Property Coverage form
7. Compare and contrast the coverage forms available under the Commercial Package policy
8. Recognize endorsements available to the coverage forms
OVERVIEW
To accomplish maximum flexibility, the Insurance Services Office (ISO) implemented the
Commercial Package Policy (CPP). The commercial lines policy forms and endorsements
are arranged by coverage part. A uniform policy format eliminates redundant information if
multiple coverage parts are written on a single package policy. This chapter will discuss the
Commercial Package Policy (CPP), the causes of loss forms that may be attached to it, and
optional endorsements.
Common Policy Declarations Common Policy Conditions
Commercial Commercial Equipment Farm Property

Property Inland Marine Breakdown & Liability
Coverage Part Coverage Part Coverage Part Coverage Part
Commercial General Commercial Crime Commercial Automo-

Liability Coverage Part Coverage Part bile Coverage Part
Commercial Package Policy
CHAPTER EIGHT
8.1 Components of a Commercial Package Policy

Every CPP includes a Common Policy Declarations and Common Policy Conditions form. These
policy sections apply to the entire policy, regardless of the types of coverage written. For example,
one client may wish to package Crime and Commercial General Liability coverages; another
client may wish to package Inland Marine and Business Auto coverages. Although each client will
have different and specific coverage forms, their policies will contain the same common policy
declarations and common policy conditions form. The CPP contains four key components:
1. The Common Policy Declarations Page shows the Who, What, When, Where, and how
much that applies to the insurance provided by the policy. It defines each of the coverage
parts included on the policy. Each coverage part also contains its own unique declarations
page:
a. Who: The Named Insured, which is the individual or business entity for whom insurance
is provided.
b. What: A description of the business being insured.
c. When: The policy period, which includes the effective and expiration dates. Commercial
package policies are written for terms of one year.
d. Where: The mailing address of the named insured.
e. How Much: On the common declarations, this includes the total premium charged for
each coverage part as well as the total policy premium. If a premium does not appear
next to a coverage part on the common declarations, no coverage is provided.
2. The Common Policy Conditions contains the legal obligations and duties of the insured and
insurer, such as:
a. Cancellation – Who may cancel and when written notice must be given. The First Named
Insured has the right to cancel the policy. The insurance company may also cancel the
policy, subject to insurance regulations and the contents of the insurance contract.
b. Changes – The First Named Insured has the right to request policy changes. Changes can
only be made, in writing, with the consent of the insurer.
c. Examination of Your Books and Records – The insurer may examine the insured’s books
and records anytime during the policy period and up to 3 years afterward.
d. Inspections and Surveys – The insurer has the right, but is not obligated, to make
inspections and surveys at anytime. These surveys are for purposes of underwriting and
rating and are not safety inspections.
e. Premiums – The First Named Insured is responsible for the premium payments and will
be the recipient of any return premiums.
f. Transfer of Your Rights and Duties Under This Policy – The insured’s rights may not be
transferred without the written consent of the insurer, unless the insured dies, and then
rights are automatically transferred to the insured’s legal representative.
3. Interline Endorsements – These endorsements coordinate the coverage contained in one
coverage part of the policy with other coverage parts to prevent duplication.
4. The available Coverage Parts – The Coverage Parts available on a Commercial Package
Policy include:
a. Commercial Property, which may consist of one or more of the following:
1) Building and Personal Property Coverage Form
2) Commercial Builders Risk Coverage Form
3) Condominium Association Form
4) Condominium Unit-Owners Coverage Form
COMMERCIAL PROPERTY INSURANCE
5) Business Income Coverage Form

6) Extra Expense Coverage Form
7) Legal Liability Coverage Form
b. Commercial Inland Marine Coverage Part
c. Equipment Breakdown (formerly called Boiler & Machinery)
d. Farm Property and Liability Coverage Part
e. Commercial General Liability Coverage Part
f. Commercial Crime Coverage Part
g. Commercial Automobile Coverage Part
The Common Policy Conditions in commercial property insurance includes all of the
following, except:
a. Inspections and surveys
b. Changes
c. Transfer of rights
d. Fire department service charge
8.2 Causes of Loss Forms

There are three Causes of Loss forms available to specify the perils covered under the property
coverage parts of the policy. More than one Causes of Loss Form may be attached to the coverage
part with different causes applying to different locations or classes of property. Most exclusions in the
commercial property policy are found in the causes of loss form.
1. Causes of Loss – Basic Form
The Basic Form provides coverage for the following causes of loss (perils): fire, lightning,
windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler
leakage, sinkhole collapse, and volcanic action.
The exclusions contained in the Causes of Loss – Basic Form include ordinance or law, earth
movement; governmental action, nuclear hazard, utility services, war and military action;
water or fungus, wet or dry rot, and bacteria. A special exclusion exists for business income
and extra expense coverages.
a. Vandalism does not include coverage for theft but does cover building damage caused by
the breaking or exiting of burglars.
b. Smoke does not include coverage for smoke from agricultural smudging or industrial
operations. The basic causes of loss form contains a Limitation provision that specifies
loss of animals is covered but only if they are killed or their destruction is made
necessary.
c. The basic form includes the Additional Coverage – Limited Coverage for Fungus, Wet
Rot, Dry Rot, and Bacteria. The Limit of insurance is up to $15,000 for all covered losses
that take place during the 12-month period that begins with the policy’s inception date.
CHAPTER EIGHT
2. Causes of Loss – Broad Form

Includes the perils contained in the basic form, plus 3 additional causes of loss:
a. Falling Objects – Damage caused by falling objects, but not to the object itself. Coverage
for the interior of the building and its contents is only if the exterior of the building is first
damaged by the falling object.
b. Weight of Ice, Snow, or Sleet – Does not include coverage for personal property outside
of buildings or structures.
c. Water Damage Caused by Accidental Discharge – Coverage for water damage is
provided when accidental discharge or leakage of water or steam occurs as the direct
result of the breaking apart or cracking of a plumbing, heating, air conditioning, or other
system or appliance that is located on the described premises and contains water or
steam. Coverage is NOT provided for discharge or leakage from an automatic sprinkler
leakage system, a sump or related equipment, roof drains, gutters, downspouts, etc.
Neither is coverage provided if continuous or repeated seepage or leakage of water takes
place over a period of 14 or more days. Plumbing is not covered. The Causes of Loss –
Broad Form contains the same exclusions, additional coverages, and limitation found in
the basic form; however, it also includes the Additional Coverage – Collapse.
3. Causes of Loss – Special Form
Instead of providing coverage for named causes of loss, the special form provides coverage
for risks of Direct Physical Loss unless the peril or cause of loss is specifically excluded or
limited. Coverage under the special causes of loss form is on an open perils basis.
The Limitations section of the special causes of loss form contains language not found in the
basic and broad forms, such as:
a. No coverage is provided for most damage to steam boilers and equipment due to events
inside the boilers and equipment.
b. No coverage is provided for damage to the interior of a building caused by rain, snow,
sleet, ice, sand, or dust unless the exterior of the building or structure first sustains
damage.
c. No coverage is provided for inventory shortage.
d. No coverage is provided for the following, unless specifically endorsed: fragile articles
and builders machinery, tools, and equipment.
e. Special limits of insurance apply to the following classes of personal property: $2,500 for
furs and fur garments; $2,500 for jewelry, watches, jewels, precious and semi-precious
stones, gold, silver, etc.; $2,500 for patterns, dies, molds, and forms; and $250 for
stamps, tickets, and letters of credit.
Which of the following is excluded under the Basic Causes of Loss form?
a. Utility services
b. Sinkhole collapse
c. Volcanic action
d. Sprinkler leakage
Which of the following perils is not one of the three included on the Broad Causes of
Loss Form?
a. Water damage from accidental discharge
b. Steam boiler explosion
c. Falling objects
d. Weight of ice, snow or sleet
Commercial Property Coverage Part
8.3 Building and Personal Property Coverage Form

1. Coverage – The Building and Personal Property Coverage Form describes how property
coverage applies to the following classes of property: buildings, business personal property
of the insured, and personal property of others. There is no liability coverage provided by this
form.
a. Covered Property
1) Building or structure described in the Declarations, including:
a) Completed additions; outdoor fixtures; and permanently installed fixtures,
machinery, and equipment. For example, a print shop that owns four commercial
printers that are affixed to the cement floor would insure the printers as building
items rather than items of business personal property.
b) Personal property owned by the named insured and used to service and maintain
the insured buildings, structures, and premises. Lawn mowing and snow removal
equipment not otherwise excluded fall into this category of business personal
property. Also included are materials and supplies of the business that are on the
premises or within 100 feet of the premises.
c) If the named insured is making an addition to an insured building or structure,
or conducting alterations or repairs on an insured building or structure, the
materials, equipment, supplies, and temporary structures used in connection with
these activities are insured as building items if they are located on the described
location or within 100 feet of it.
2) Business Personal Property owned by the insured – Some business personal property
is only insured if it is located in or on a building described on the Declarations OR
within 100 feet of it (i.e., in the open or inside a vehicle). Covered business personal
property includes:
■ Furniture and Fixtures – Such as office furniture and shelving.
■ Machinery and Equipment – Such as refrigerators and telephone systems.
■ Stock – Merchandise held in storage or for sale, raw materials, and supplies
used for packing or shipping such stock.
■ Any other personal property owned by the named insured and used in the
named insured’s business.
■ Tenants’ improvements or betterments made to the part of a building
occupied, but not owned, by the named insured.
■ Leased personal property for which the named insured has a contractual
obligation to insure, unless insured elsewhere on the policy.
CHAPTER EIGHT
3) Personal Property of Others – For coverage to apply, the property must be in the
care, custody, or control of the named insured AND be located in or on a building
shown on the Declarations, in the open (or in a vehicle) within 100 feet of the
described premises. Any claim payment will be made only to the owner of the
insured property.
b. Property Not Covered – Although most classes of property may be insured on the
Building and Personal Property Coverage Form, certain classes of property are not
covered. They are either uninsurable or must be insured separately. Types of property not
covered on the Building and Personal Property Coverage Form include:
■ Accounts, bills, currency, food stamps, or other evidences of debt, money, notes,
and securities are not covered.
■ Animals, unless they are owned by others and boarded by the named insured OR
owned by the insured when they are “stock” and inside buildings.
■ Autos held for sale, including cars, trucks, motorcycles, motor homes, etc.
■ Bridges, roadways, sidewalks, patios, and other paved surfaces.
■ Contraband, stolen property, or property used in the course of illegal
transportation or trade.
■ The cost of excavations, grading, backfilling, or filling.
■ The foundations of buildings, structures, machinery, or boilers if the foundations
are below the lowest basement floor or the surface of the ground if there is no
basement.
■ Land, including land on which covered buildings and structures are located,
water, growing crops, and lawns.
■ Personal property while it is being transported in the air or on water.
■ Bulkheads, pilings, piers, wharves, or docks.
■ Property insured by this policy under another coverage part, or property
specifically insured on another policy.
■ Retaining walls that are not part of a building and underground pipes, flues, and
drains.
■ Electronic data, including information, facts, and computer programs and the cost
to replace or restore such information.
■ Vehicles and self-propelled machines, including aircraft and watercraft, if they’re
licensed for use on public roads OR are operated principally away from the
described premises.
■ Property manufactured, processed, or warehoused by the insured.
■ Rowboats and canoes out of water at the described location.
■ Motorized vehicles that are not autos and are held for sale by the insured.
■ When outside of buildings: grain, hay, straw, other crops; fences, radio and TV
antennas and their wiring, masts or towers; trees, shrubs, or plants that are not
“stock.”
c. Covered Causes of Loss – The Building and Personal Property Coverage Form requires
the insured to select one or more of the cause of loss forms to be attached. These forms
vary and allow the insured to select the appropriate form for a particular class or type of
property. For example, the insured may want building items to be insured under a special
causes of loss form and business personal property to be insured under a broad causes of
loss form.
d. Additional Coverages – The coverages extend the insurance provided and are
automatically included at no extra cost to the insured.
1) Debris Removal – Pays the expense of removing debris following a covered loss and
is subject to a maximum of 25% of the coverage applying to direct physical loss.
However, in the event of a total loss where the limit of insurance on the building is
exhausted, the policy will pay up to an additional $10,000 for debris removal.
Example
If a building insured for $100,000 suffers $80,000 of direct fire damage and
incurs debris removal costs of $15,000, the policy will pay $95,000.
2) Preservation of Property – Provides open peril coverage for a maximum period of

30 days on insured property that is being moved or temporarily stored at another
location because of endangerment by a covered peril.
3) Fire Department Service Charge – Provides, as an additional amount of insurance, up
to $1,000 for the payment of fire department service charges when the department is
called to protect insured property. No deductible applies to this coverage.
4) Pollutant Clean up and Removal – Pays the insured’s expense, up to $10,000
aggregate limit, for each described location in a policy period, to extract pollutants
from land or water at the described premises if the discharge or escape of the
pollutants is caused by or results from a covered cause of loss.
5) Increased Cost of Construction – In the event of damage to a covered building
for a loss to which Replacement Cost Optional Coverage applies, the insurer will
pay the increased costs, up to a $10,000 aggregate limit, incurred to comply with
enforcement of an ordinance or law regulating the repair, rebuilding, or replacement
of damaged parts.
6) Electronic Data – Pays up to $2,500 aggregate in any one policy year, regardless of
the number of locations, for the cost to replace or restore electronic data that has
been destroyed or corrupted by a covered cause of loss.
e. Coverage Extensions – If a coinsurance percentage of 80% is shown in the Declarations,
the insured may extend the insurance provided by the Commercial Property Coverage
Part as follows:
1) Newly Acquired or Constructed Property
a) Coverage may be extended to cover new buildings to be constructed on the
described premises, and newly acquired or constructed property at other
locations. The coverage limit is $250,000 at each building.
b) Coverage may be extended to cover newly acquired business personal property,
up to $100,000 at each building.
c) This automatic coverage ends at the earliest of the following 3 circumstances:
(1) The policy expires.
(2) The end of 30 days.
(3) The values of the newly acquired or constructed property are reported to the
insurance company.
2) Personal Effects and Property of Others – Personal effects of the insured and the
personal property of others in the insured’s care, custody, and control are covered for
up to $2,500 at each described premises. Coverage does not include loss by theft.
CHAPTER EIGHT
3) Valuable Papers and Records – Cost of Research

a) Pays for loss or damage by a covered peril that requires the replacement or
restoration of lost information on valuable papers and records.
b) The maximum amount paid is $2,500 at each described premises, unless a higher
limit is shown in the Declarations.
4) Property Off Premises
a) A limit of $10,000 of coverage is extended for the insured’s covered property
(other than stock) while it is temporarily at a location the insured does not own,
lease, or operate.
b) This includes property located at a fair, trade show, or exhibition.
c) Exclusions from coverage include property that is in or on a vehicle or in the care,
custody, or control of the named insured’s salesperson if the salesperson is not at
a fair, trade show, or exhibition.
5) Outdoor Property
a) The insured may extend a maximum amount of $1,000 to cover loss to outdoor
fences, detached signs, antennas, trees, shrubs, and plants. A sublimit of $250
applies to any one tree, shrub, or plant.
b) The perils covered by this extension are fire, lightning, explosion, riot or civil
commotion, and aircraft.
6) Non-Owned Detached Trailers
a) Extends insurance that applies to the insured’s business personal property to apply
to loss or damage to trailers the named insured does not own, provided the trailer
is used in the insured’s business, is in the insured’s care, custody, or control at the
described premises, and the insured has the contractual responsibility to pay for
loss or damage to the trailer.
b) The most the insurer will pay for loss or damage is $5,000 unless a higher limit is
shown in the Declarations.
c) Loss or damage is not covered while the trailer is attached to any motor vehicle or
during hitching or unhitching operations.
2. Exclusion and Limitations – The applicable Causes of Loss Form shown in the Declarations
contains the applicable coverage exclusions and limitations.
3. Limits of Insurance – The most the policy will pay for loss or damage in any one occurrence
is the limit of insurance shown in the Declarations.
a. The most the policy will pay for loss or damage to outdoor signs attached to the building
is $2,500 per sign in any one occurrence.
b. The limits applicable to the Fire Department Service Charge and Pollutant Clean Up and
Removal Additional Coverages are in addition to the limits of insurance.
4. Deductible – The policy will not pay for a loss until the amount of loss exceeds the
deductible amount shown in the Declarations. The standard deductible is $500.
5. Loss Conditions – In addition to the Common Policy Conditions and the Commercial Property
Conditions, the following conditions, most of which were discussed previously, apply:
a. Abandonment
b. Appraisal
c. Duties in the Event of Loss or Damage
d. Loss Payment – The insurer has the option of making payment for the value of the lost
or damaged property or the cost to repair or replace. If it chooses, it may also take the
property at an agreed or appraised value or actually arrange for the repair, rebuilding, or
replacement of damaged property.
e. Recovered Property – The insured, not the insurance company, has the option of keeping
any recovered property and reimbursing the insurer for the amount of the loss settlement
already received. Regardless of who retains the recovered property, the insurer pays the
costs of recovery and any expenses required to repair the recovered property, subject to
the limit of insurance.
f. Vacancy
1) If, at the time of loss, the building where loss or damage occurs has been vacant for
more than 60 consecutive days before the loss, there is no coverage for loss resulting
from the following perils: vandalism, sprinkler leakage, building glass breakage,
water damage, and theft or attempted theft. For all other covered causes of loss, loss
payment will be reduced by 15%.
2) If the insured is a tenant, the portion of the building rented or leased to the insured is
considered vacant if it doesn’t contain enough business personal property to conduct
customary operations. If the insured is the owner or general lessee of the building, it
is considered vacant unless at least 31% of its total square footage is used to conduct
customary operations. Buildings under construction or renovation are not considered
vacant.
3) If an insured desires coverage for vandalism, sprinkler leakage, building glass
breakage, theft or attempted theft, and water damage for a building that remains
vacant beyond the basic 60 days stated in the vacancy provision, it may request a
vacancy permit endorsement to cover the excluded perils during a term of vacancy.
This endorsement allows the 60-day Vacancy Condition to be waived for the “permit
period.” If the insurer doesn’t agree to add the endorsement, the insured should
purchase a specialty vacant property policy.
g. Valuation – In the event of a loss, the value of covered property will be determined as
follows:
1) Actual cash value at the time of loss, except as provided below.
a) If the coinsurance requirement is met, and the loss is $2,500 or less, the policy
will pay for building repairs or replacement. However, the following property will
continue to be valued at actual cash value even when attached to the building:
(1) Awnings or floor coverings
(2) Appliances
(3) Outdoor equipment or furniture
b) Stock the named insured has sold, but not delivered, at selling price, less
discounts and expenses the insured otherwise would have had.
c) Glass at the cost of replacement with safety glazing material if required by law.
d) Tenant’s Improvements and Betterments at actual cash value if repairs are made
promptly, at a proportion of the insured’s original cost if repairs are not made
promptly, and no payment is made if repairs or replacement are paid for by
others.
6. Additional Conditions – The following conditions apply in addition to the Common Policy
Conditions and the Commercial Property Conditions.
a. Coinsurance – The insured is required to insure all covered property to a percentage of
its replacement value; failure to do so results in a penalty in the event of partial losses.
The coinsurance percentage is shown on the Declarations; and the standard coinsurance
percentage is 80%. Any applicable loss penalty is determined based on the percentage of
insurance to value. For example, assume a building with a $100,000 replacement value
were insured on a policy with an 80% coinsurance percentage and suffered a $10,000
CHAPTER EIGHT
loss. If the amount of insurance on the dwelling were $40,000, the policy would only pay
50% of the $10,000 loss, or $5,000, before application of the deductible. Because the
building is insured to one-half the amount required by the coinsurance clause ($80,000),
the loss penalty will be 50%.
The formula that is applied in the event of a partial loss is as follows:
Amount of Insured Carried

X Amount of Loss = The amount the insurer pays
Amount of Insurance Required
$40,000
X $10,000 = $5,000
$80,000
b. Mortgage Holders – The policy will pay to each mortgage holder shown in the
Declarations its share of a covered loss or damage, in order of precedence, as its interests
may appear.
1) The mortgage holder will be paid, even if coverage is denied to the insured, subject
to certain provisions. Payment will be made to the mortgage holder, but only if the
mortgage holder:
a) Pays any premiums due if the insured hasn’t done so.
b) Submits a signed, sworn, proof of loss within 60 days of being notified that the
insured failed to submit such proof of loss; AND
c) Has notified the insurer of any change in ownership, occupancy, or substantial
change in risk about which it was aware.
2) If the insurer pays a mortgage holder, it must assign its rights of recovery, and rights
under the terms of the mortgage, to the insurer. If the insurer cancels the policy, it
must give all mortgage holders advance written notice subject to the terms of the
policy.
7. Optional Coverages – The following coverages are automatically included in the policy.
However, coverage is not activated unless appropriate designations appear in the
Declarations.
a. Agreed Value
1) The coinsurance clause is suspended when this optional coverage applies.
2) The insured and insurer agree on value specified on the Declarations page.
3) This optional coverage only applies to loss or damage that occurs after the effective
date of the optional coverage and before the agreed value expiration date shown in
the Declarations.
4) This coverage does not automatically renew; the insured must choose it.
b. Inflation Guard
1) The limit of insurance for property subject to this additional coverage automatically
increases by the annual percentage shown in the Declarations.
2) This percentage of increase is applied to the policy at the rate of 1/365 of each day.
c. Replacement Cost
1) The insured may purchase coverage for replacement cost loss valuation instead of the
actual cash value method of valuation contained in the form.
2) This optional coverage does not apply to:
a) Personal property of others.
b) Contents of a residence.
c) Works of art, antiques, rare articles, etc.

d) Stock, unless the stock option is shown in the Declarations.
3) Tenants’ improvements and betterments are NOT considered personal property of
others under this coverage.
d. Extension of Replacement Cost to Personal Property of Others
This optional coverage allows replacement cost loss settlement, instead of actual cash
value loss settlement, to apply for loss to personal property of others.
How much can be paid under the Business and Personal Property Coverage Form for
debris removal due to a covered loss?
a. $1,000
b. $5,000
c. 15% of Coverage A
d. 25% of the loss
What is the limit of coverage for business personal property away from the premises
under the Business and Personal Property coverage form?
a. $1,000
b. $5,000
c. $10,000
d. $15,000
A building is considered vacant unless what percentage of the building’s total square
footage is rented or used to conduct customary operations?
a. 10%
b. 20%
c. 26%
d. 31%
8.4 Builders Risk Coverage Form

1. Property coverage is provided on buildings or structures under construction if they are designated
in the Declarations. The following types of property are covered IF they are to be permanently
located in or on covered buildings and structures OR within 100 feet of its premises:
a. The foundations of buildings and structures.
b. Fixtures and machinery that will become part of the covered buildings and structures.
c. Equipment used to service the covered buildings and structures.
d. The insured’s building materials and supplies used for construction.
2. Property not covered includes land, lawns, trees, shrubs, plants, outside antennas, and signs
that are not attached to buildings.
3. Builders risk coverage begins on the effective date of the policy or at the time the insured
becomes legally responsible for the property if that date occurs after the policy’s effective date.
CHAPTER EIGHT
4. Coverage ends automatically at the earliest of the following events, if they occur before the
end of the policy period:
a. The policy expires or is canceled.
b. The covered property is accepted by a purchaser.
c. The insured’s interest in the property ends.
d. The insured abandons the property and doesn’t intend to complete construction.
e. 90 days after construction is complete.
f. 60 days after any covered building is partially or fully occupied OR is put to its intended use.
5. The form does not provide liability coverage.
6. The standard builders risk coverage form is written on a completed value basis. The limit of
coverage is chosen and reflects the anticipated replacement value of the covered building(s)
and structure(s) when construction is completed.
7. If an insured is working on several projects at a time, the builders risk reporting form will be
added to the policy by endorsement. It allows the limit of insurance to be adjusted based on
reports filed per the reporting period on the policy; reporting periods can be daily, weekly,
monthly, or quarterly.
8. Failure to submit reports as required results in penalties that range from 25% of the amount
the insurer would otherwise have paid or the amount contained on the most recently filed
report before the loss.
9. Coinsurance applies to builders risk policies and the coinsurance percentage appears on the
Declarations. The policy does not pay any losses to a greater extent than the proportion the
actual limit of insurance on the Declarations bears to the value of property on the date of
completion.
10. The causes of loss on the builders risk form appearing on the Declarations are the same as
those used with the Building and Personal Property Coverage Form.
The Builder’s Risk Coverage form automatically ends at the earliest of all of the
following, except:
a. Policy expires
b. Property is sold
c. Property is abandoned
d. 60 days after construction is complete
8.5 Condominium Association Coverage Form

1. This form is used in place of the Building and Personal Property Coverage Form when
insuring property in the name of a condominium association.
2. Coverage includes the buildings and the fixtures that are a part of the building, such as
refrigerators, air conditioners, and other appliances, if the Association Agreement requires the
association insure the property.
3. If the unit-owner has insurance covering the same property, the association’s coverage will
be primary.
The Condominium Association Coverage Form is used in place of which coverage
form when insuring a condo building insured by the association?
a. Dwelling property
b. Homeowner Policy
c. Building and Personal Property Coverage form
d. Condominium HO–6 policy
8.6 Condominium Commercial Unit-Owners Coverage Form

1. This form is used for commercial unit-owners instead of the personal lines Unit-owners
Coverage Form (HO–6), which is used by the owners of residential condominium and
cooperative units.
2. Only the business personal property of the unit-owner is insured.
3. In the event of duplicate coverage issued by this policy and the policy issued to the
condominium association or cooperative corporation, the Unit-Owners Form acts as excess
insurance.
4. Covered property includes fixtures, improvements and alterations, and appliances owned by
the insured and making up part of the building.
The Condominium Commercial Unit-Owners Coverage covers each of the following,
except:
a. Improvements
b. Fixtures
c. Appliances
d. Personal property
8.7 Time Element (Business Income) Coverage Forms
Business Income and Extra Expense Coverage

1. These time element coverages provide insurance for two distinct types of indirect loss that result
from the necessary suspension of the insured’s operations due to a covered property loss:
a. Loss of business income.
b. Extra expense.
2. Business income is the net income (profit or loss before income taxes) that would have
been earned had the covered loss not occurred PLUS normal, ongoing operating expenses,
including payroll.
3. Extra expense is the necessary expenses incurred by the insured during the “period of
restoration” that would not have been incurred had the covered loss not occurred.
4. The Period of Restoration begins 72 hours after the time of loss, and ends on the earlier of
the date when the property should be repaired or rebuilt with reasonable speed, or the date
when business is resumed at a new permanent location.
CHAPTER EIGHT
5. Three forms of business income coverage exist:

a. Business Income and Extra Expense Coverage Form
b. Business Income Without Extra Expense Coverage Form
c. Extra Expense Coverage Form
6. Coinsurance applies to Business Income coverage and if, at the time of loss, the limit of
insurance shown on the declarations fails to meet the coinsurance percentage shown on the
Declarations, a loss penalty will apply. The coinsurance provision may be suspended if the
Optional Coverage, Agreed Value, is purchased.
7. Coverage is subject to the causes of loss forms applying to the forms of commercial property
coverage attached to the policy. If the direct cause of a property loss is NOT covered by
the cause of loss form attached to the Building and Personal Property Coverage Form or the
Builders Risk Coverage Form, then NO business income or extra expense coverage will apply.
Extra Expense Coverage Form

Extra expense means the necessary additional expenses incurred during the period of restoration,
and which the insured would not have incurred if there had been no direct physical loss.
Examples of such expenses include relocation expenses and costs to equip a temporary location.
Extra expense coverage may be purchased without business income coverage by clients that
will not suffer a consequential loss of business income after a property loss, but that would incur
additional expenses.
In the Business Income Coverage Form, Period of Restoration begins _______ after the time of
loss?
a. 55 days
b. 72 hours
c. 86 years
d. 100 months
8.8 Legal Liability Coverage Form

1. This coverage form provides coverage for the insured’s legal liability for loss or damage to
real or personal property owned by others when it is in the insured’s care, custody, or control
and is damaged by a covered peril.
2. It is most commonly written for the tenant of a commercial building when the tenant, under
the terms of a lease, is legally responsible for damage to the building.
3. The form also covers for loss of use of the property, and provides defense coverage.
Each of the following is covered under the Legal Liability Coverage Form, except:
a. Damage to real or personal property owned by others when it is in the insured’s
care
b. Loss of use
c. Defense costs
d. Loss of income
8.9 Endorsements Available
Ordinance or Law Coverage (CP 04 05)

This endorsement responds if the enforcement of any building, zoning, or land use law, results in:
1. The loss in value of the undamaged portion of a building because of enforcement of an
ordinance or law that requires demolition of the undamaged parts of a building.
2. Demolition site and clearance of the undamaged parts of a building.
3. Increased cost of repairing or reconstructing damaged parts of a building.
Peak Season Limit of Insurance (CP 12 30)

1. Coverage is provided for a specified increase in the business personal property limit of
insurance during a designated period of time, such as the Christmas shopping season.
2. The insured chooses the property for which the value will be increased, the amount of the
insurance, and the applicable time period.
Value Reporting Form (Full Value Form) (CP 13 10)

1. Under this form, an insured that owns business personal property that fluctuates in value is
protected for the values actually at risk.
2. The insured pays an advance premium at the beginning of the policy period.
3. Reports are filed either daily, weekly, monthly, or quarterly. The final premium is based upon
the average values reported and is determined at the end of the policy year.
4. This form may be attached to the Building and Personal Property Form and the Condominium
Commercial Unit-Owners Form.
5. The insured is required to report 100% of values with each report. Late reporting or under-
reporting will result in a penalty in the event of a loss.
Spoilage (CP 04 40)

1. Coverage is provided on perishable property in the care, custody, or control of the insured at
the insured premises.
2. This endorsement includes losses due to breakdown, contamination and power outage.
a. Breakdown or contamination includes changes in temperature or humidity as the result of
mechanical failure of refrigeration, cooling, or humidity-control equipment at the insured
location.
b. Power outage includes changes in temperature or humidity as the result of interruption of
electrical power either on or off the insured premises.
Earthquake and Volcanic Eruption Endorsement

1. The Earthquake and Volcanic Eruption Endorsement must be added to one of the causes of
loss forms (basic, broad, or special) and cannot be purchased alone.
2. The only causes of loss provided by this endorsement are earthquake and volcanic eruption.
All earthquake shocks and volcanic eruptions that occur within any 168-hour period are
considered a single earthquake or volcanic eruption.
3. Separate deductibles apply to each building, and personal property located at each building,
and personal property in the open. The deductibles are chosen by the insured as a percentage
of the limit of liability applying to each class of property. The deductible does NOT apply to
business income and/or extra expense coverage.
CHAPTER EIGHT
Vacancy Permit ( CP 04 50)

1. Extends coverage on a building that has been vacant or unoccupied beyond the limitation
period specified in a policy (usually 30 or 60 days).
2. Usually, the permit is granted free of charge when the structure is in an area with satisfactory
fire protection.
3. The perils of Vandalism and sprinkler leakage are excluded under this endorsement.
The Ordinance or Law Coverage endorsement covers each of the following losses,
except:
a. Demolition of the undamaged parts of a building
b. Increased cost of repairing damaged parts of the building
c. Loss of value in the damaged portion of the building
d. Clearance of the undamaged parts of a building
Chapter Eight — Lightning Facts

1. Every Commercial Package Policy includes a Common Policy Declarations and Common Policy
Conditions that apply to the entire policy regardless of the types of coverage written or the
endorsements added to the policy. 8.1
2. The Common Policy Declarations Page shows the who, what, when, where, and how much of
the entire policy, each of the coverage parts included on the policy, and a Declarations page for
each coverage part. 8.1
3. The Common Policy Conditions contains the legal obligations and duties of the insured and
insurer, including cancellation, changes, examination of your books and records, inspections and
surveys, premiums, and transfer of your rights and duties under this policy. 8.1
4. The interline endorsements coordinate the coverage in multiple coverage parts of the policy to
prevent redundancy. 8.1
5. The basic causes of loss form covers fire, lightning, windstorm, hail, aircraft, riot or civil
commotion, vehicles, explosion, smoke, vandalism, sprinkler leakage, sinkhole collapse, and
volcanic action. It also provides limited coverage for fungus, wet rot, dry rot, and bacteria. The
limit of insurance is up to $15,000 for all losses occurring in a 12–month period that begins with
the policy effective date. 8.2.
6. The broad causes of loss form includes the perils listed in the basic causes of loss form, plus the
perils of falling objects, weight of ice, snow, or sleet, and water damage caused by accidental
discharge. 8.2
7. The special causes of loss form provides insurance for losses caused by risks of direct physical loss
except those perils that are specifically limited or excluded; this form provides open perils coverage. 8.2
8. The Building and Personal Property Coverage Form covers buildings, business personal property
of the insured (including furniture and fixtures, machinery and equipment, and stock) and
personal property of others. It does not provide liability coverage. 8.3
9. The Building and Personal Property Coverage Form contains Additional Coverages, including
debris removal, preservation of property, fire department service charge, pollutant clean up and
removal, increased cost of construction, and electronic data. 8.3
10. If a coinsurance percentage of 80% is shown in the Declarations, the insured may extend
coverage under the following Coverage Extensions: Newly Acquired or Constructed Property,
Personal Effects and Property of Others, Valuable Papers and Records, Property off Premises,
Outdoor Property, and Non-Owned Detached Trailers. 8.3
11. The standard deductible is $500 and the policy will not pay for a loss until the amount of the loss
exceeds the deductible. 8.3
12. The Builders Risk Coverage Form covers buildings or structures under construction, their
foundations, attached fixtures and machinery, equipment used to service the buildings and
structures, and building materials and supplies on the described premises, or within 100 feet of
it, that will be permanently located in or on covered buildings and structures. 8.4
13. The standard builders risk coverage form is written on a completed value basis. The limit of
coverage is chosen and reflects the anticipated replacement value of the covered building and
structure when construction is completed. 8.4
14. The Condominium Association Coverage Form is used in place of the Building and Personal
Property Coverage Form when insuring buildings and fixtures that are a part of the building
insured by a condominium association. It includes coverage for building items such as
refrigerators, air conditioners, and other appliances, owned by the Association. 8.5
15. Time element coverage forms insure indirect losses such as the loss of business income and extra
expenses that result from the necessary suspension of the insured’s business operations due to a
covered property loss. 8.7
16. Business income is the net income (net profit or loss before income taxes) that would have been
earned had the covered loss not occurred plus normal, ongoing operating expenses, including
payroll. 8.7
17. Extra expense is the necessary expenses incurred by the insured during the period of restoration
that would not have been incurred had the covered loss not occurred. 8.7
18. The three forms of business income coverage are the Business Income and Extra Expense
Coverage Form, Business Income without Extra Expense Coverage Form, and Extra Expense
Coverage Form. 8.7
19. The Legal Liability Coverage Form is written for a commercial tenant who, under the terms of a
lease, is responsible for damage to the building. It covers the insured’s legal liability for loss or
damage to real or personal property of others that is in the insured’s care, custody, or control and
is caused by a covered peril. 8.8
20. Endorsements are available and include the Ordinance or Law Coverage, Peak Season Limit of
Insurance, Value Reporting Form, Spoilage, Earthquake and Volcanic Eruption Endorsement, and
Vacancy Permit. 8.9
9
Commercial General Liability Coverage
LEARNING OBJECTIVES
1. Identify the four legal liability exposures
2. Recognize the areas of General Liability Exposure to a Business
3. Differentiate between the Occurrence Form and Claims Made Form
4. Recognize the highlights of:
■ Section I – Coverages
■ Section II – Who is an Insured
■ Section III – Limits of Insurance
■ Section IV – Commercial General Liability Conditions
■ Section V – Definitions
5. Identify the 3 options available under Pollution Liability Coverage
OVERVIEW
Every business has certain legal liability exposures that must be covered under a general
liability policy. In this chapter, we will discuss Commercial General Liability. This type of
liability insurance can be written as a mono-line policy or as a part of a commercial package
policy. Commercial General Liability coverage also is referred to as CGL coverage.
9.1 Legal Liability Exposures

Every business has certain legal liability exposures that must be covered, most notably the following:
Premises and Operations Exposure

1. An insured business conducts its operations both at its own premises and elsewhere. For
example, an accountant conducts operations at his or her office and also away from the
office when visiting clients, the bank, the post office, networking events, etc.
2. If a business, or anyone acting on its behalf, causes bodily injury or property damage, the
business may be considered legally liable for such injury or damage. CGL coverage is
provided for the insured’s legal liability for bodily injury or property damage arising out of
the insured’s premises or the insured’s operations.
3. Covered occurrences must take place during the policy period and within the coverage
territory.
COMMERCIAL GENERAL LIABILITY COVERAGE
Products Exposure
1. A product, as defined by the CGL policy, means any goods or products that are
manufactured, sold, handled, distributed, or disposed by the insured and others conducting
business under the insured’s name. Real property, such as buildings and land, are not
considered a product.
2. Goods and merchandise are not typically considered a product until after their sale by the
insured and once they leave the insured’s premises.
3. Not only does this exposure leave a business vulnerable to legal liability for defects in
product design or manufacture, it also leaves a business exposed to liability for the failure to
warn or explain with respect to its products.
4. Examples of products exposures include:
a. A restaurant customer who contracts food poisoning after eating spoiled fish; and
b. A man who suffers an eye injury after the pen he’s using explodes.
5. Coverage applies to bodily injury or property damage the product causes, but not to loss to
the product itself, and the injury or damages must occur away from the premises the insured
owns or rents.
Example
An aircraft manufacturer builds an aircraft altimeter that fails and causes an aircraft
to crash.
Completed Operations Exposure

1. When a business performs services or work, such as installation, construction, or repair, it’s
vulnerable to lawsuits and claims resulting from improper or defective workmanship. This
exposure typically begins after the insured’s operations have been completed and the insured
leaves the job site. Injury or damage must occur away from the premises the insured owns or
rents. Examples of completed operations exposures include:
a. A cabinetmaker who builds kitchen cabinets and, a week after he installs them in a
customer’s kitchen, one of the cabinets falls off the wall and injures the customer’s family
dog.
b. A carpet cleaner uses a solvent that emits a chemical that causes injury to his customer.
2. Coverage will pay for bodily injury and/or property damage caused by negligent or faulty
workmanship by an insured, but will not pay for the cost to replace the work that caused the loss.
Example
A ramp the insured has built and completed at a customer’s business later
collapses, causing injury. If the ramp had collapsed while being built, premises and
operations liability insurance would apply; however, because the ramp collapsed
after work was completed and the insured had left the site, Completed Operations
liability insurance applies.
Contingent Liability Exposure

1. The liability of others arises when a business is held legally liable for the actions, or failures
to act, of other parties, such as sub-contractors or independent contractors.
2. Owners and Contractors Protective (OCP) liability, arises out of the work an independent
contractor or sub-contractor performs for, or on behalf of, the insured. For example, ABC
Building hires Paul’s Plumbing to replace the sink in Harry Homeowner’s kitchen. If Paul
damages the cherry cabinets in Harry’s kitchen while doing his work, ABC Building may be
considered legally liable for Paul’s actions.
CHAPTER NINE
3. A business may also be held legally liable for the actions of, or failures to act, of parties per
the language of a contract or legal agreement. This is called Contractual Liability. Examples
of such contracts and agreements include:
a. A lease of premises.
b. A service contract.
c. A hold harmless or indemnification agreement.
Which of the following legal liability exposures is covered if the employee of a
business causes bodily injury to another person while working at the insured’s
business location?
a. Premises and Operations
b. Products
c. Completed operations
d. Contingent liability
Which of the following is not considered a product liability exposure?
a. Product distributed to customers
b. Goods stored on the insured premises
c. Product consumed by a person at a restaurant
d. Goods manufactured and sold to customers
Which of the following legal liability exposures is covered if a business employs an
independent contractor?
b. Products
Which of the following legal liability exposures is covered if bodily injury or property
damage is caused by the insured’s negligent or faulty work?
b. Products
9.2 Commercial General Liability Coverage Forms

The Commercial General Liability Coverage Part of the Commercial Package Policy is available in
two forms of coverage:
1. Occurrence Form
2. Claims-Made Form
The forms are identical in all respects, except for the way coverage is activated, or triggered. In the
occurrence form, insurance coverage is triggered when an “occurrence” takes place during the
policy period and within the coverage territory. Essentially, determining the coverage trigger is a
single-step process.
Step 1. Did the loss occur during the policy period? If the answer is yes, coverage is triggered.
In a claims-made form, coverage is triggered if an “occurrence” takes place AFTER the retroactive
date AND is REPORTED within the policy period.
Determining the coverage trigger in the claims-made form is a two-step process:
Step 1. Did the loss occur AFTER the retroactive date?
Step 2. Was the loss REPORTED during the policy period?
If the answer to both questions is yes, then coverage is triggered.
Occurrence Form
An occurrence form provides coverage for losses that take place during the policy period. It
doesn’t matter when the loss is reported; what matters is when the loss occurred. The key in this
form is the date the loss actually happened and if it happened when the policy was in effect.
Claims-Made Form
A claims-made form provides coverage for losses that take place after the retroactive date and
before the end of the policy period, and for which claims are made during the policy period
or an extended reporting period. The Claims-Made Form offers the same coverage as an
Occurrence Form, but is the preferred form of coverage for insurers issuing coverage on risks
that have the potential to generate claims long after an occurrence that caused injury or damage.
Provisions that are unique to the Claims-Made Form include:
1. Retroactive Date
a. A date specified in the Declarations, after which an occurrence must take place to be
covered. If an occurrence takes place before the retroactive date, it’s not covered, even if
a claim is made during the policy period.
b. The retroactive date may be the policy’s effective date or any date in the past that the
insurer agrees to, such as the effective date of the first claims-made policy issued to the
insured.
2. Extended Reporting Period (Tail Coverage) – If a claims-made policy isn’t renewed or
replaced, the claims-made form contains a provision for the extension of time during
which claims must be reported. This time frame is called an extended reporting period or
tail coverage. The policy provides for two different options: one is included in the policy
at no charge and the other requires the addition of an endorsement and the payment of an
additional premium.
a. Basic Extended Reporting Period (BERP) – This extended reporting period is a provision
in a claims-made form and allows claims to be reported after the policy term for a
specific period of time, such as 60 days after the policy’s expiration or cancellation date.
CHAPTER NINE
b. Supplemental Extended Reporting Period (SERP)

1) An optional reporting period of unlimited duration may be purchased by endorsement
if requested within 60 days of the end of the policy term. The SERP isn’t available for
purchase after 60 days beyond policy expiration.
2) The SERP covers claims arising from occurrences that took place after the retroactive
date and before the end of the policy term, regardless of when the claim is made.
3) Cost may be up to 200% of the CGL’s annual premium.
4) Premium for this optional coverage is a one-time charge and is fully earned at
issuance.
5) The SERP can’t be cancelled and no refunds are made.
Which form provides coverage for a loss that takes place during the policy period and
is not required to be reported within a certain time frame?
a. Special Coverage Form
b. Occurrence Form
c. Claims-Made Form
d. CGL
9.3 Section I – Coverages
Coverage A – Bodily Injury and Property Damage Liability

1. Insuring Agreement – The insurer will pay those sums the insured becomes legally obligated
to pay as damages because of bodily injury and/or property damage to which coverage
applies, provided the occurrence took place during the policy period and in the coverage
territory.
a. The coverage territory includes the United States of America including its territories and
possessions, Puerto Rico, and Canada.
b. If the insured’s products are made or sold in the coverage territory and a suit is brought
in the coverage territory, the policy would then respond to a product-related claim
worldwide.
c. The insurer has the right and duty to defend the insured against any suit seeking damages.
There is no duty to defend any claim or suit to which insurance does not apply.
2. Exclusions – Coverage A doesn’t cover bodily injury or property damage arising from:
a. Expected or Intended Injury – Expected or intended injury is the result of the insured’s
intention to cause injury. The intentional act is only excluded when the insured should
have expected or intended to cause injury. An exception exists for bodily injury resulting
from the use of reasonable force to protect persons or property.
b. Contractual Liability – Liability assumed by the insured under a contract with two
exceptions:
1) Liability that would exist whether the contract was in place or not.
2) A contract that is specifically listed as being covered under the policy.
c. Liquor Liability – This exclusion only applies to insureds who are in the business of
manufacturing, distributing, selling, serving, or furnishing alcoholic beverages.
1) Liquor Legal Liability Insurance, or Dram Shop Liability Insurance, is available under
a separate policy for businesses who need coverage to fill the coverage gap created
by the exclusion.
2) This exclusion does not apply to a building owner who leases space to a bar.
Host Liquor Liability is provided for those who only have incidental exposure. For
example, if the insured is an insurance agency and is hosting its annual Christmas
party, the exclusion won’t apply. However, if the insured is a restaurant that serves
alcohol and is hosting its annual Christmas party, the exclusion WILL apply.
d. Workers’ Compensation – No liability coverage is provided if the insured has a
legal obligation to provide Workers’ Compensation insurance, disability benefits,
unemployment compensation, or any similar type of insurance. This exclusion applies
whether or not the insured actually purchased any coverage required by law. The CGL
policy excludes these perils because they may be insured elsewhere and, in many
jurisdictions, the insured is required by law to provide coverage.
e. Employer’s Liability – No liability coverage is provided for bodily injury to an employee
of the insured that arises out of and during the course of employment by the insured or
while performing duties related to the insured business. In addition, no liability coverage
is provided to the spouse, child, parent, or sibling of any employee who’s injured while
on the job. The exclusion applies regardless of the reason for the employers legal liability.
f. Pollution – No liability coverage is provided for bodily injury and property damage
arising out of actual, alleged, or threatened pollution or the escape of “pollutants.” The
exclusion also applies to the cost of clean-up. This coverage may be purchased with a
Pollution Extension Endorsement.
g. Aircraft, Auto, and Watercraft – No liability coverage is provided for bodily injury or
property damage arising out of the ownership, maintenance, use, or entrustment to others
of aircraft, autos, and watercraft IF such crafts and vehicles are owned by, operated by,
rented to, loaned to, or being loaded or unloaded by any insured This coverage may be
purchased on a separate policy or under a business auto coverage part.
h. Transportation of Mobile Equipment – No liability coverage is provided for bodily injury
or property damage arising out of the transportation of “mobile equipment” by an auto
that’s owned by, operated by, rented to, or loaned to any insured. Neither is liability
coverage provided for the use of “mobile equipment” in, or while practicing or preparing
for any prearranged racing, speed, demolition, or stunting activity. Mobile equipment
subject to compulsory insurance or financial responsibility laws is considered an “auto”
and must be insured on the business auto policy.
i. War Exclusion – No liability coverage is provided for bodily injury or property damage
resulting from war – regardless of how caused and whether damage is a direct or
indirect loss. War includes undeclared and civil war, warlike action by a military force,
insurrection, rebellion, revolution, usurped power, etc.
j. Damage to Property – This exclusion applies to the insured’s own property and any
property in the care, custody, or control of the insured. The Commercial Property Part
and the Commercial Inland Marine Part of the Commercial Package Policy provide this
coverage.
k. Damage to Insured’s Product – No coverage is provided for damage to the insured’s own
product. Also excluded is damage that arises out of the product or any of its parts.
l. Damage to Insured’s Work – No coverage is provided for damage to the insured’s work
that is included in the Products or Completed Operations Hazards. An exception exists
for damage caused by the work performed by a sub-contractor.
m. Damage to Impaired Property or Property Not Physically Injured – No property damage
liability coverage is provided for “impaired property”—which is property that has not
been physically injured—IF the damage arises out of a defect, deficiency, inadequacy, or
dangerous condition in the insured’s product or work.
CHAPTER NINE
n. Product Recall – Coverage is excluded when the product, work, or property is withdrawn
or recalled from the market, or from use, by a person or organization because of a known
or suspected defect, deficiency, inadequacy, or dangerous condition. In addition to
the loss of use being excluded, the withdrawal, recall, inspection, repair, replacement,
adjustment, removal, or disposal of the insured’s product, work, or any impaired property
is also excluded. This is sometimes called the Sistership Exclusion.
o. Personal and Advertising Injury – This coverage is provided under Coverage B.
p. Electronic Data – No liability coverage is provided for damages arising out of the loss of
electronic data, including loss of use, corruption of data, and the inability to access or
manipulate electronic data. The exclusion defines electronic data as being information,
facts, and programs that are stored as or on; created or used on; or transmitted to or from
computer software.
Which of the following is NOT an exclusion in the CGL policy?
a. Insured’s Product
b. Insured’s Work
c. Impaired Products
d. Host Liquor Liability for those with incidental exposure
Coverage B – Personal and Advertising Injury

Insuring Agreement – The policy provides protection for liability arising from “personal and
advertising injury” offenses that are committed in the coverage territory and during the policy
period.
1. Personal and advertising injury offenses include:
a. False arrest, detention, or imprisonment.
b. Malicious prosecution.
c. Wrongful eviction from wrongful entry into, or invasion of privacy of the right of private
occupancy.
d. Libel or slander.
e. Violation of privacy.
f. Use of another’s idea in the insured’s “advertisement.”
g. Infringement of copyright, trade dress, or slogan in the insured’s “advertisement.”
2. The policy will pay those sums the insured becomes legally obligated to pay as damages
because of personal and advertising injury to which the insurance applies.
3. The insurance company has the right and duty to defend the insured against any suit seeking
damages because of personal and advertising injury. The policy doesn’t provide defense
coverage to anyone else, including anyone named in a contract or hold harmless agreement,
unless they are also an “insured.”
4. Coverage B excludes a number of offenses. Neither coverage nor defense applies to the
following types of offenses that cause damage:
a. The insured’s knowledge that an act will violate another’s rights and would inflict
personal and advertising injury.
b. The oral or written publication of material by the insured, or at the insured’s direction,
when knowing the material is false.
c. Criminal acts committed by, or at the direction of, the insured.
d. Contractual liability unless the insured would be liable for the act in the absence of the
contract.
e. Breach of contract.
f. The failure of the insured’s goods, products, or services to conform to advertising
statements.
g. Damage that arises out of the wrong description of goods, products, or services.
Coverage C – Medical Payments

1. Insuring Agreement – The insurer will pay for medical expenses, due to the bodily injury,
caused by an accident on the insured’s premises or because of the insured’s operations. The
accident must take place in the coverage territory and during the policy period. Expenses
include first aid administered at the time of the accident, and expenses that have been
incurred and reported within one year of the date of the accident. These payments are made
regardless of fault.
2. Exclusions – No payments is made under Coverage C for the following:
Any insured (other than a volunteer worker)
Any person hired by the insured or the insured’s tenant
A person who normally occupies any portion of the insured premises
Injuries that should be covered by Workers’ Compensation and similar laws
Athletic activities
Injuries within the products-completed operations hazard
Coverage A exclusions
Supplementary Payments – Coverages A and B

Supplementary Payments apply only to Coverages A and B, are paid in addition to any
applicable limit of liability, and include:
1. All claim-related expenses incurred by the insurance company.
2. The cost of bail bonds, up to $250.
3. The cost of bonds to release attachments.
4. All reasonable expenses incurred by the insured, at the insurer’s request, including actual loss
of earnings up to $250 per day to the insured for time off from work.
5. All court costs taxed against the insured in a suit.
6. Payments for prejudgment interest, which is the amount of interest that accrues on a
judgment from the time of the accident or loss until the insurer makes payment or offers to
make payment.
7. Payments for post-judgment interest, which is the amount of interest that accrues on a
judgment after it’s entered and before the insurer has paid or offered to pay.
8. Supplementary payments do NOT reduce the limits of insurance provided by the policy.
CHAPTER NINE
Which of the following is not a peril covered by personal injury?
a. Wrongful eviction
b. Breach of contract
c. Malicious prosecution
d. Libel
9.4 Section II – Who is an Insured

The Declarations indicates who is an insured; certain other parties are also an insured based on that
designation.
1. The following persons are an insured based on the designation on the Declarations--but only
with respect to the conduct of the insured business:
a. If an individual is designated, the individual and his or her spouse are insureds.
b. If a partnership or joint venture is designated, the partnership, joint venture, and
members, partners, and their spouses are insureds.
c. If a limited liability company (LLC) is designated, the LLC, its members, and its managers
are insureds.
d. If a trust is designated, the trust and its trustees are insureds.
e. If any other type of organization is designated, the organization, its executive officers, its
directors, and its stockholders are insureds.
2. Even if not designated on the Declarations, the following parties are also insureds when
performing duties related to the conduct of the insured’s business:
a. The insured’s volunteer workers and employees who are not executive officers, directors,
or managers.
b. Any other person while acting as the insured’s real estate manager.
c. Any person or organization having temporary custody of the insured’s property if the
insured dies.
d The insured’s legal representative if the insured dies, but only with respect to duties as
legal representative.
3. Newly acquired or formed organizations are also insured EXCEPT partnerships, joint
ventures, or LLCs. The named insured must maintain ownership or majority interest for
the organization to be an insured and no other similar insurance must be available to that
organization. Coverage for newly acquired or formed organizations is only provided for 90
days after acquisition or establishment or until the expiration of the policy, whichever occurs
first.
All of the following are insured under the CGL, except:
a. A person participating in an athletic event
b. A volunteer worker acting on behalf of the insured
c. A partner
d. A stockholder
9.5 Section III – Limits of Insurance

1. The Limits of Insurance shown in the Declarations are the most the insurer will pay regardless
of the number of insureds, claims made, suits brought, or persons or organizations making
claims or bringing suits.
2. The General Aggregate Limit shown is the most the insurer will pay, during the policy period,
for medical expenses under Coverage C, damages under Coverage A (except damages that are
included in the Product and Completed Operations Hazard), and damages under Coverage B.
3. The Products-Completed Operations Aggregate Limit is the most the insurer will pay,
during the policy period, for losses payable under Coverage A included in the Product and
Completed Operations Hazard.
4. The Personal and Advertising Injury Limit is the most the insurer will pay under Coverage
B for the sum of all damages because of all personal and advertising injury sustained by any
one person or organization.
5. The Per Occurrence Limit is the most the insurer will pay for damages under Coverage A and
medical expenses under Coverage C because of bodily injury or property damage arising out
of any one occurrence.
6. The Medical Expense Limit is the most the insurer will pay under Coverage C for all medical
expenses because of bodily injury sustained by any one person.
The most the insurer will pay during the policy period for medical expenses under
Coverages A, B, and C is which of the following limits of liability?
a. Personal and Advertising Injury Limit
b. Medical Expense Limit
c. General Aggregate Limit
d. Per Occurrence Limit
9.6 Section IV – Commercial General Liability Conditions

These conditions apply in addition to the Common Policy Conditions.
1. Bankruptcy – Neither bankruptcy nor insolvency of the insured or of the insured’s estate will
relieve the insurer from its obligations.
2. Duties in the Event of Occurrence, Claim, or Suit – The insured must see that the insurer is
notified as soon as practicable, in writing, of an occurrence or an offense that may result in a
claim. The notice should include when and where the occurrence or offense took place, the
names and addresses of injured persons and witnesses, and the nature of any injury or damage.
3. Legal Action Against the Insurer – The insured cannot sue the insurer until all terms have
been fully complied with, such as notice of occurrence, etc.
4. Other Insurance – Coverage may be written as primary or as excess. When written on a
primary basis and other collectible primary insurance is also available, the loss is shared
either on a contribution basis or by limit of liability.
5. Premium Audit – The advance premium is only a premium deposit, and the earned premium
will be based on an audit at the end of the policy period. The insured must maintain records
necessary for the insurer to compute the premium, as premiums are based on sales, receipts,
payroll, or some combination thereof. An additional premium is required if the earned
premium is greater than the premium deposit.
CHAPTER NINE
6. Representations – The named insured agrees that all statements made in the application
are accurate and complete, that the statements are based on representations made by the
named insured to the insurer, and that the insurer has issued the policy based upon such
representations.
7. Separations of Insureds (Severability) – The term insured is used severally and not
collectively in the policy, and it is to be applied as meaning the insured against whom claim
is made or suit is brought. The insurance afforded applies separately to each insured. Multiple
suits against multiple insureds do not increase the amount of insurance for that occurrence or
policy period.
8. Transfer of Rights of Recovery Against Others to the Insurer (Subrogation) – The insured
agrees to transfer to the insurer any rights to recover any payment the insurer has made on
behalf of the insured.
9. When the Insurer Does Not Renew – If the insurer decides not to renew, the First Named
Insured is to be notified, in writing, 30 days before the expiration date.
10. The Insured’s Right to Claim Information (Claims Made Form only) – The insurer will
provide, upon cancellation, non-renewal, or written request of the First Named Insured, a
summary of paid claims, claims for which the insurer has established reserves, and notices
received by the insurer of occurrences that could give rise to claims.
The Condition that states that the insurance applies separately to each insured is
called _____________.
a. Insured’s Right
b. Severability
c. Legal Action
d. Other Insurance
9.7 Section V – Definitions

A notice broadcast or published to the general public or specific market segments about
Advertisement
the insured’s goods, products, or services to attract customers or supporters.
The coverage territory of the CGL is the United States, its territories and possessions,
Coverage Puerto Rico, and Canada. International waters and airspace are included in the coverage
Territory territory but only if injury or damage occurs in the course of travel or transportation
between any places included in the coverage territory.
An accident, including continuous or repeated exposure to substantially the same
Occurrence
general harmful conditions.
Insured individuals and organizations often enter into legal contracts and, many times,
the insured assumes liability in those contracts. An insured contract is such a contract
Insured Contract that is insured by the policy. In other words, if the insured assumes liability under an
insured contract, that liability is transferred to the insurance company according to the
terms of the insurance policy.
Includes bodily injury, sickness, or disease sustained by a person, including death
Bodily Injury
resulting from any of these at any time.
Impaired Tangible property, other than an insured’s product or work, which cannot be used
Property because it is thought or known to be defective, inadequate, deficient, or dangerous.
Physical injury to tangible property, including all loss of use of the damaged property.
Property
“Property damage” is also loss of use of tangible property that is not physically injured
Damage
(Electronic data is not tangible property.)
■ Employee includes a leased worker. A leased worker is a full or part-time employee
who has contracted with an employee leasing service (also known as a professional
Employee employer organization).
■ Employee does not include a temporary worker. Temporary workers are employees of
the supplying company.
A person who is not an employee of the insured but who donates his/her work and acts
Volunteer
at the direction of the insured. A volunteer worker is not paid a fee, salary, or other
Worker
compensation by the insured for work performed for the insured.
Any goods or products (other than real property) that are manufactured, sold, handled,
Your Product distributed, or disposed of by the named insured, others trading under the named insured’s
name, or a person or organization whose business the named insured has acquired.
Work or operations performed by the named insured or on the named insured’s
behalf. Your work includes materials, parts, or equipment furnished in connection
with such work or operations. Your work also includes warranties or representations
Your Work
made at any time with respect to the fitness, quality, durability, performance, or use of
“your product” and also includes the providing of, or failure to provide, warnings or
instructions.
Use the acronym LEASE to remember the 5 items automatically covered under insured contracts.
1. Lease of Premises – A tenant of a building that is leased is automatically covered for the
space the business occupies under any lease agreement.
2. Easement Agreement – Business Liability exposure begins where the city, county, or state
easement ends.
3. Agreement to Indemnify the Municipality – If a business wants to display a sign on city
property to advertise a special event, the city municipality may require a Hold Harmless
Agreement from the business to indemnify the city municipality from any liability that may
arise in the event the sign fell and caused any damage or injury to anyone.
4. Sidetrack Agreement (Hold Harmless Agreement) – A contractual agreement where one
party assumes the liability of a situation and relieves the other part of responsibility.
CHAPTER NINE
5. Elevator Maintenance Agreement – A contract agreement where the elevator maintenance

company assumes the liability pertaining to the operation of the elevator from the business or
building owner where the elevator operates.
In addition to these five contracts, any other contract or agreement pertaining to the insured’s
business under which one assumes the tort liability of another party to pay for “bodily injury” or
“property damage” to a third person or organization.
Which of the following is not included in the definition of an insured contract?
a. Contract for lease of premises
b. Sidetrack agreement
c. Easement agreement
d. Tenant agreement
9.8 Pollution Liability Coverage

The Pollution Exclusion incorporated in the policy excludes bodily injury or property damage arising
out of the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape
of pollutants. Insurers have three options available that they may use at their discretion, on an
individual account basis, to provide “Buy Back” coverage to insureds:
1. Pollution Liability Coverage Form (Designated Sites) – This form provides coverage on
a claims-made basis with its own limit of liability. Coverage includes a leak from a waste
disposal facility located on the premises. The form provides coverage for clean up imposed
by governmental direction if the cost is incurred because of environmental damage caused
by a pollution incident.
2. Limited Pollution Liability Coverage Form (Designated Sites) – This form is identical to the
Pollution Liability Coverage Form; except that it does not include clean up.
3. Pollution Extension Endorsement – This endorsement deletes the Pollution Exclusion for
bodily injury and property damage liability, but continues to exclude clean up costs.
Each of the following provides buy back coverage for the insured, except:
a. Pollution liability coverage for designated sites
b. Limited pollution liability coverage
c. Modified pollution extension endorsement
d. Pollution extension endorsement
Chapter Nine — Lightning Facts

1. The Premises and Operations exposure under a general liability policy applies to an insured
business that conducts its operations both at its own premises and elsewhere. 9.1
2. The Products Exposure under a general liability policy applies to the bodily injury or property
damage caused by any goods or products that are manufactured, sold, handled, distributed, or
disposed by the insured and others conducting business under the insured’s name. 9.1
3. The Completed Operations Exposure under a general liability policy applies to occurrences that
occur after the insured’s operations have been completed and result from improper or defective
workmanship, installation, construction, or repair. 9.1
4. The Contingent Liability Exposure under a general liability policy applies when the liability of
others causes the insured to be legally liable for the actions of, or failures to act, of other parties,
such as sub–contractors or independent contractors. 9.1
5. The Commercial General Liability Coverage Part of the Commercial Package Policy is under the
Occurrence Form or the Claims-Made Form. The difference between the forms is the coverage
trigger, or the event(s) that activate coverage. 9.2
6. The Occurrence Form trigger is an occurrence that takes place during the policy period and within
the coverage territory. No requirement exists with respect to the reporting of a covered loss. 9.2
7. The Claims-made Form trigger is an occurrence that takes place after the retroactive date, before
the end of the policy period, AND for which a claim is reported within the policy period or
during any applicable extended reporting period. 9.2
8. The Retroactive Date is a date specified in the Declarations of a claims-made liability coverage
form and after which an occurrence must take place to be covered. If a loss occurs before the
retroactive date, even if a claim is reported during the policy period or during any extended
reporting period, no coverage applies. 9.2
9. The CGL’s Coverage A Insuring Agreement states that the insurer will pay if the insured is legally
obligated to pay for covered bodily injury and/or property damage, provided the occurrence took
place during the policy period and in the United States of America including its territories and
possessions, Puerto Rico, and Canada. 9.3
10. Products liability claims are covered worldwide if the insured’s products are made or sold in the
coverage territory and a lawsuit is brought in the coverage territory. 9.3
11. Coverage A Exclusions include Expected or Intended Injury, Contractual Liability, Liquor
Liability, Workers’ Compensation, Employer’s Liability, Pollution, Aircraft, Auto, and Watercraft,
Transportation of Mobile Equipment, and War. 9.3
12. Coverage A Exclusions also include Damage to Property, Damage to Insured’s Product, Damage
to Insured’s Work, Damage to Impaired Property or Property Not Physically Injured, Product
Recall, Personal and Advertising Injury, and Electronic Data. 9.3
13. Coverage B – Personal and Advertising Injury provides protection for liability arising from
personal and advertising injury offense committed in the coverage territory and during the policy
period. 9.3
14. Personal Injury includes libel; slander; false arrest, detention, or imprisonment; malicious
prosecution; wrongful entry; wrongful eviction; and invasion of privacy. 9.3
15. Advertising Injury includes the use of another’s idea in the insured’s “advertisement” and
infringement of copyright, trade dress, or slogan in the insured’s “advertisement.” 9.3
16. Coverage C – Medical Expense pays for medical expenses for bodily injury incurred in the
covered territory and during the policy period that are caused by an accident on the insured’s
premises or because of the insured’s operations. 9.3
CHAPTER NINE
17. Medical Payment Exclusions include bodily injury sustained by a person participating in an
athletic event, covered under the products-completed operations hazard, excluded under
Coverage A, covered by a Workers’ Compensation or similar law, or to any insured, employee,
or tenant of the described location. 9.3
18. Supplementary Payments under Coverages A and B are paid in addition to any applicable limit
of liability and include all claim–related expenses, up to $250 for the cost of bail bonds and
the releasing of attachments, reasonable expenses incurred by the insured, court costs, and
prejudgment and post-judgment interest. 9.3
19. The Declarations indicates who is an insured based on the insured’s legal status. Certain other
parties are also an insured based on that designation and are described in the section titled Who
is an Insured. Persons and organizations are only insureds with respect to their conduct on behalf
of the insured business. 9.4
20. An Insured also includes volunteer workers and employees, other than executive officers or
managers, for acts within the scope of their service or employment of or by the insured, or any
person or organization while acting on behalf of the insured’s business. 9.4
21. The General Aggregate Limit is the most the insurer will pay during the policy period for medical
expenses under Coverage C, damages under Coverage A except those included in the Product
and Completed Operations Hazard, and damages under Coverage B. 9.5
22. The Products-Completed Operations Aggregate Limit is the most the insurer will pay, during
the policy period, for losses payable under Coverage A that are included in the Product and
Completed Operations Hazard. 9.5
23. The Personal and Advertising Injury Limit is the most the insurer will pay under Coverage B
for the sum of all damages because of all personal and advertising injury sustained by any one
person or organization. 9.5
24. The Per Occurrence Limit is the most the insurer will pay for damages under Coverage A and
medical expenses under Coverage C because of bodily injury or property damage arising out of
any one occurrence. 9.5
25. The Medical Expense Limit is the most the insurer will pay under Coverage C for all medical
expenses because of bodily injury sustained by any one person. 9.5
26. The Commercial General Liability Conditions include Bankruptcy; Duties in the Event of
Occurrence, Claim, or Suit; Legal Action against the Insurer; Other Insurance; Premium; Audit;
Representations; Severability; Subrogation; Insurer Does Not Renew; and Insured’s Right to Claim
Information. 9.6
27. The coverage territory is the United States, its territories and possessions, Puerto Rico, and
Canada. International waters and airspace are included in the coverage territory but only if injury
or damage occurs in the course of travel or transportation between any places included in the
coverage territory. 9.7
28. An “Insured Contract” is a lease of premises, a sidetrack agreement, an easement or license
agreement, an obligation to indemnify a municipality, an elevator maintenance agreement, or
that part of a contract pertaining to the insured’s business. 9.7
29. An insured’s work or operations is performed by the named insured or on his behalf, and
includes materials, parts, or equipment furnished in connection with the work or operations,
warranties or representations made at any time with respect to the fitness, quality, durability,
performance, or use, and not providing warnings or instructions. 9.7
10
Commercial Auto Coverage
LEARNING OBJECTIVES
1. Identify the role of the Commercial Auto Coverage Part
2. Recognize the usage of the Business Auto Coverage Form
3. Identify the usage of the Garage Coverage Form
4. Differentiate between the Truckers Coverage Form and the Motor Carrier Coverage Form
5. List Selected Commercial Auto Endorsements
6. Understand the Commercial Carrier Regulations
OVERVIEW
Commercial auto insurance can be written as a monoline policy, or as a part of the
Commercial Package Policy. More than one coverage form may be used on a policy when
issued as part of the Commercial Package Policy:
1. One or more Commercial Auto Declaration Forms.
2. One or more of the following Commercial Auto Coverage Forms:
a. Business Auto Coverage Form
b. Garage Coverage Form
c. Truckers Coverage Form
d. Motor Carrier Coverage Form
e. Business Auto Physical Damage Coverage Form
3. Endorsements may be added to any of the coverage forms.
10.1 Business Auto Coverage Form

1. The Business Auto Coverage Form:
a. Is used to cover owned, leased, hired, rented, or borrowed private passenger autos,
trucks, trailers, and semitrailers that are owned or used by the insured.
b. Provides liability coverage for trailers being towed by a covered vehicle.
c. Does not provide automatic coverage for physical damage to trailers.
2. Covers non-owned vehicles, including autos owned by employees while being used in the
business.
3. The only types of mobile equipment that may be insured are those required to be registered
to drive on public roads.
4. Vehicles that are sold, stored, or repaired for others may NOT be insured on the business
auto coverage form, as these vehicles are insured on the garage coverage form.
CHAPTER TEN
The Business Auto Coverage Form covers all of the following, except:
a. Owned private passenger autos
b. Mobile equipment registered to drive on public roads
c. Automatic coverage for physical damage to trailers
d. Automobiles owned by employees used for business purposes
10.2 Section I – Covered Autos

Symbol 1 Any Auto, if it is used in the insured business, regardless of ownership.
Symbol 2 Owned Autos Only, whether or not specifically listed on the policy.
Owned Private Passenger Autos Only; a business may wish to provide insurance
Symbol 3
differently for its cars than for its dump trucks or vehicles used for delivery.
Symbol 4 Owned Autos Other Than Private Passenger Autos Only.
Symbol 5 Owned Autos Subject to No Fault Laws.
Symbol 6 Owned Autos Subject to a Compulsory Uninsured Motorist Law.
Symbol 7 Specifically described vehicles listed on the declarations page.
Hired Autos Only, which are those the insured leases, hires, rents or borrows, except any
Symbol 8 auto the insured leases, hires, rents, or borrows from an employee. These vehicles may
not be owned by the insured.
Non-owned Autos Only, which are those the insured does not own, lease, hire, rent
Symbol 9 or borrow, and are used in connection with the insured’s business. This includes autos
owned by an employee of the insured or a member of the employee’s household.
Mobile Equipment Subject to Compulsory or Financial Responsibility or Other Vehicle
Insurance Law, which triggers protection for autos that are otherwise described as
Symbol 19 “mobile equipment” but are required to be licensed and registered to be operated on
public roadways. This symbol is necessary since mobile equipment is excluded from the
definition of “auto” under the business auto policy.
Which of the following is not a Symbol under Section I – Covered Autos?
a. Any auto
b. Specifically described on Declarations
c. Owned Autos Subject to No Fault
d. Dealers auto liability coverage
10.3 Section II – Liability Coverage

1. Coverage
Coverage is provided for bodily injury or property damage caused by an accident for which
the insured is legally responsible. The accident must occur within the policy territory, during
the policy period, and result from the ownership, maintenance, or use of a covered auto.
a. Who is an Insured
1) The named insured for any covered vehicle.
2) Anyone else using a covered vehicle with permission of the named insured.
3) Anyone liable for the conduct of an insured, but only to the extent of that liability.
COMMERCIAL AUTO COVERAGE
b. Coverage Extensions
1) Supplementary Payments – In addition to the limit of liability, supplementary
payments include claims expenses incurred by the insurer, up to $2,000 for the cost
of bail bonds required because of an accident, reasonable expenses incurred by the
insured at insurer’s request, including up to $250 per day for an insured’s actual loss
of earnings, costs taxed against an insured in a lawsuit defended by the insurer, and
post-judgment interest.
2) Out-of-State Coverage Extensions – If the financial responsibility of other states and
jurisdictions require an insured vehicle to possess certain coverages and limits of
liability when driving within their boundaries, the liability coverages provided by the
business auto coverage form automatically conforms to the types of coverages and
limits of liability required by any jurisdiction within the policy’s coverage territory
when being used in that jurisdiction.
2. Exclusions
Liability coverage does not apply to:
a. Expected or Intended Injury
b. Contractual – Liability assumed under any contract or agreement.
c. Workers’ Compensation – Bodily injury sustained by an employee while on the job.
d. Employee Indemnification and Employer’s Liability – A legal liability of the named
insured due to work-related accidents other than injuries covered by Workers’
Compensation statute.
e. Fellow Employee – Bodily injury to a fellow employee of the insured arising out of the
course of the fellow employee’s employment or while performing duties related to the
conduct of the insured’s business.
f. Care, Custody, or Control – Damage to property owned or transported by the insured, or
in the insured’s care, custody, or control.
g. Handling of Property – Before it is moved from the place where it is accepted by the
insured or after it is moved to the place of final delivery by the insured; this is covered by
the CGL policy.
h. Movement of Property by Mechanical Device – Bodily injury or property damage
resulting from the movement of property by a mechanical device (unless the device is
attached to a covered vehicle).
i. Operations – Bodily injury or property damage arising out of the operation of mobile
equipment. (Such as power cranes.)
j. Completed Operations – Bodily injury or property damage arising out of the insured’s
work, after that work has been completed or abandoned.
k. Pollution – The exclusion is designed to eliminate coverage for pollutants being
transported by a covered auto.
l. War
m. Racing
3. Limit of Liability – The most the insurer will pay for the total of all damages and covered
pollution cost or expense combined, resulting from any one accident, is the limit of liability
shown in the Declarations. The limit of liability is paid regardless of the number of:
a. Covered autos
b. Insureds
c. Premiums paid
d. Claims made
e. Vehicles involved in an accident
CHAPTER TEN
Which of the following is NOT an “insured” under the Business Auto Coverage form?
a. Fellow employee
b. Named insured
c. Person using a borrowed auto with permission of the insured
d. Person liable for the conduct of the insured
10.4 Section III – Physical Damage Coverage

1. Coverage
a. The insurer will pay for a loss to a covered auto or its equipment under:
1) Comprehensive – Coverage is provided for physical damage to a covered auto or its
equipment on an open perils basis. The single peril excluded is collision, which is a
vehicle’s impact with another object or its overturn.
2) Specified Causes of Loss – Coverage includes fire, lightning, or explosion; theft;
windstorm, hail, or earthquake, flood, mischief or vandalism, and the sinking,
burning, collision or derailment of a conveyance transporting the covered vehicle. If
coverage for other perils is desired, Comprehensive should be purchased.
3) Collision – Coverage is provided for the covered auto’s impact with another object or
its overturn.
b. Towing – The policy pays up to the limit in the Declarations for the costs of towing and
labor incurred each time a covered private passenger type auto is disabled. Labor must be
performed at the place of disablement.
c. Glass Breakage – Hitting a Bird or Animal – Falling Objects or Missiles – If the insured
carries Comprehensive coverage, the insurer will pay for glass breakage, loss caused by
hitting a bird or animal, and loss caused by falling objects or missiles. If glass breakage is
caused by a collision, the insured may elect to have the loss considered a collision loss.
d. Coverage Extensions
1) Transportation Expenses – The policy pays up to $20 per day and up to a maximum
of $600, for temporary transportation expenses of the insured for the total theft of a
private passenger auto. Transportation expenses begin 48 hours after the theft of the
vehicle and end when the covered auto is returned to use or the insurer pays for its
loss.
2) Loss of Use Expenses – If the insured hires a vehicle per a written rental contract or
agreement, and without a driver, this coverage extension pays for loss of use expenses
to the hired auto if loss is caused by a covered loss. The most paid for loss of use is
$20 per day and up to a maximum $600.
2. Exclusions – The insurer will not pay for loss caused by, or resulting from any of the following
perils:
a. Nuclear hazard, war, or military action.
b. Professional or Organized racing, demolition contest, or stunt activity.
c. Wear and tear, freezing, mechanical or electrical breakdown, or blowouts, punctures, or
road damage to tires.
d. Loss to any tapes, records, discs, electronic equipment, radar, or laser detectors. This
exclusion does not apply to equipment designed SOLELY for the reproduction of sound
that is permanently installed in the covered vehicle.
3. Limit of Insurance – The most the insurer will pay for a loss, in any one accident, is the
lesser of the actual cash value of the damaged or stolen property, or the cost of repairing or
replacing the damaged or stolen property with property of like kind and quality.
4. Deductible
a. The Declarations page of the commercial auto policy shows a deductible next to each of
the physical damage coverages purchased by the insured.
b. The standard deductible for collision, comprehensive, and specified causes of loss are
$500; higher and lower deductibles are available.
c. The deductible shown on the declarations applies per covered auto, per loss.
d. The Comprehensive deductible does not apply to fire or lightning losses.
What is the maximum the insurer will pay for a covered transportation expenses
claim?
a. $200
b. $400
c. $600
d. $800
10.5 Section IV – Business Auto Conditions

The following conditions apply in addition to the Common Policy Conditions:
1. Loss Conditions – Appraisal, duties in the event of an accident, legal action against the
insurer, loss payment, and transfer of rights of recovery.
2. General Conditions – Bankruptcy; concealment, misrepresentation, or fraud; liberalization;
other insurance; premium audit; policy period, coverage territory; no benefit to bailee for
physical damage.
General Conditions in the business auto policy apply to which of the following?
a. Appraisal
b. Legal action against the insured
c. Transfer of rights
d. Bankruptcy
10.6 Section V – Definitions

1. Accident – Includes continuous or repeated exposure to the same conditions that results in
“bodily injury” or “property damage.”
2. Auto – A land motor vehicle, trailer, or semitrailer, designed for travel on public roads or
any other vehicle subject to a compulsory or financial responsibility law or motor vehicle
insurance law in the jurisdiction where the vehicle is licensed or principally garaged. Mobile
equipment is not an “auto.”
3. Insured – Any person or organization qualifying as an insured in the Who is an Insured
provision of the applicable coverage. Except with respect to the Limit of Insurance, the
coverage afforded applies separately to each insured who seeks coverage or against whom a
claim or “suit” is brought.
CHAPTER TEN
4. Loss – Direct and accidental loss or damage.

5. Mobile Equipment – Any of the following types of land vehicles, including any attached
machinery or equipment:
a. Bulldozers, farm machinery, forklifts and other vehicles designed for use principally off
public roads.
b. Vehicles maintained for use solely on or next to premises owned or rented by the named
insured.
c. Vehicles that travel on crawler treads.
d. Vehicles, whether self-propelled or not, that are maintained primarily to provide mobility
to permanently mounted power cranes, shovels, loaders, diggers, drills, and road
construction or resurfacing equipment (i.e., graders, scrapers, or rollers).
6. Pollutants – Any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be
recycled, reconditioned, or reclaimed.
7. Suit – A civil proceeding in which damages are alleged because of “bodily injury,” “property
damage,” or “covered pollution cost or expense” and to which the policy applies. A “suit”
includes an arbitration proceeding and any other alternative dispute resolution proceeding.
8. Trailer – A semi-trailer.
10.7 Garage Coverage Form

1. The Garage Coverage Form is designed to provide automobile liability and physical damage
coverage, as well as general liability insurance for businesses that are engaged in the sale,
service, parking, or storage of automobiles. Eligible businesses include automobile vehicle
dealerships, sales agencies, repair shops, service stations, storage garages, and public parking
places.
2. It eliminates the coverage gaps and overlaps found when other commercial lines policies are
written by writing the following coverages on the same form:
a. Premises liability
b. Products liability
c. Auto liability
d. Auto physical damage coverage
e. Garagekeepers coverage
Section I – Covered Autos

1. The garage coverage form provides a schedule of covered auto designation symbols in a
similar fashion to the business auto coverage form. In addition to the nine types of vehicles
insured by the business auto coverage form, the garage coverage form also includes symbols
for vehicles that are unique to the auto business. Symbols 1-9 on the Business Auto Policy
are the same as symbols 21-29 in the Garage Coverage Form. There are two unique symbols
under the Garage Coverage Form:
a. Symbol 30 – “Autos” left with the insured for service, repair, storage, or safekeeping.
b. Symbol 31 – Dealers “autos” physical damage coverages.
2. Coverage is typically written using a blanket limit of insurance.
3. Because an auto business is a bailee, and legally responsible for the vehicles left in its care,
custody, or control, special insurance coverage is required.
4. The limit of liability for customers’ vehicles is usually expressed as a blanket limit, such as
$100,000 for the total of all customer vehicles in the insured’s care, custody, or control.
Section II – Liability Coverage

1. The garage coverage form provides two types of liability coverage. Liability coverage is
provided for:
a. Garage Operations – Other than Autos is similar to commercial general liability
insurance.
b. Garage Operations – Covered Autos is similar to business auto insurance.
2. Provides bodily injury and property damage liability coverage for losses resulting from garage
operations. In addition, the form includes coverage for Premises and Operations Liability,
Products Liability, and Completed Operations Liability.
3. Does not cover property in the care and custody of the insured, injuries covered by Workers’
Compensation, and liability arising from pollution or product recall.
4. A $100 deductible applies to all losses resulting from property damage to an auto as a result
of work performed on that auto by the insured.
Section III – Garagekeepers Coverage

The garage coverage form also provides garagekeepers coverage, which is insurance for
amounts the insured is legally obligated to pay for loss or damage to a customer’s vehicle and/
or equipment while it’s in the insured’s care for servicing, repair, parking, or storing. The insured
may select the following coverage options that apply to customer’s vehicles:
1. Comprehensive Coverage
2. Specified Causes of Loss – This coverage covers fire, lightning, explosion, theft, mischief, or
vandalism.
3. Collision Coverage
Section IV – Physical Damage Coverage

The garage coverage form provides physical damage coverage for covered autos the named
insured owns, hires, rents, leases, or borrows in the same fashion the business auto coverage
form provides coverage. The coverage is for the insured’s own vehicles and is the same as
Physical Damage Coverage under the Business Auto Coverage Form.
Which of the following covers the insured’s legal obligations for damage to a
customer’s car?
a. Auto liability
b. Garagekeepers
c. Physical damage
d. General liability
Which of the following is covered under Section III – Garagekeepers on the Garage
Coverage form?
a. Completed Operations
b. Vehicles and equipment owned by others in the care of the insured
c. Uninsured Motorists
d. Garage Operations
CHAPTER TEN
10.8 Business Auto Physical Damage Coverage Form

The Business Auto Physical Damage Coverage Form contains virtually the same language as Section
III of the Business Auto Coverage Form and only provides physical damage coverage. The symbol
designations are limited to 5, instead of 9, and include:
1. Owned autos only
2. Owned private passenger autos only
3. Owned autos other than private passenger autos only
4. Specifically described autos
5. Hired autos only
This form can be included as part of a commercial package policy.
Which of the following is NOT one of the five symbol designations on the Business
Auto Physical Damage Coverage form?
a. Autos left for service
b. Owned autos only
c. Hired autos only
d. Specifically described autos
10.9 Truckers and Motor Carrier Coverage Forms

The Truckers Coverage Form and the Motor Carrier Coverage Form were designed to provide
insurance for the unique exposures of common carriers and contract carriers.
1. A common carrier is a business, individual, or organization that carries persons or property
for a fee, from one place to another. The persons or property being transported are, or belong
to, the general public. A trucker is a common carrier and may transport goods belonging to
several customers at the same time.
2. A contract carrier is a business, individual, or organization that carries persons or property
for a fee, from one place to another. The persons or property being transported are only
those of certain customers and NOT the general public. Unlike a common carrier, a contract
carrier may refuse to carry persons or property for a fee.
3. Common carriers, or truckers, may use either of the coverage forms.
4. Contract carriers, or motor carriers, may only use the Motor Carrier Coverage Form.
The Truckers Coverage Form

The Truckers Coverage Form covers business exposures of motor carriers for hire who transport
the goods of others.
The Motor Carrier Coverage Form

The Motor Carrier Coverage Form provides coverage for business exposures due to the
transportation of goods owned by others for hire AND transporting their own property.
1. The motor carrier coverage form was designed to replace the truckers coverage form after
the motor transportation industry was deregulated. It allows for greater flexibility in arranging
insurance for the shipping of goods because the coverage provided, and the definition of
insured, is based on the written agreements between the carrier/shipper and its customers
rather than on government regulation.
2. Because truckers and motor carriers often hire independent owner/operators, these coverage
forms contain two special coverage conditions.
a. The first condition is contained in the Other Insurance Clause. The insurance of the
insured trucker or motor carrier is primary, and the hired vehicle’s coverage is excess.
However, the insured’s coverage will be excess if the insured leases a vehicle to another
motor carrier.
b. The second condition is called Trailer Interchange Coverage. Trailer interchange
coverage is physical damage coverage (comprehensive, specified causes of loss, and/or
collision coverage) for non-owned trailers and their equipment if they sustain a loss and
the insured is legally responsible for the damage.
All of the following statements regarding a common carrier covered under the
Truckers and Motor Carrier Coverage form are correct, except:
a. A business individual that carries the general public from one place to another for a
fee
b. A common carrier can also use the Motor Carrier Coverage Form
c. A common carrier must use the Trucker Coverage Form
d. A trucker that transports goods belonging to several customers at the same time
What coverage under the Motor Carrier Coverage form provides physical damage
coverage for non-owned trailers and equipment in the event of an at-fault accident?
a. Other Insurance Clause
b. Truckers Physical Damage Coverage
c. Trailer Interchange Coverage
d. Commercial Truckers Coverage
10.10 Commercial Carrier Regulations
The Motor Carrier Act of 1980

1. The Motor Carrier Regulatory Reform and Modernization Act, known as the Motor Carrier
Act of 1980, deregulated the trucking industry. This deregulation affected price and entry
controls in U.S. transportation, no longer allowing rate bureaus to interfere with a motor
carrier’s right to charge its own rates.
2. As a result of the Motor Carrier Act of 1980, the number of motor carriers doing business
increased and the consumer costs associated with trucking decreased, as did wages to
truckers.
3. The Act requires certain vehicles to carry specific minimum limits of liability insurance
for the protection of the public and the environment. Those minimum limits range from
$750,000 to $5 million per accident, depending upon the type of merchandise being
transported (e.g., non-hazardous merchandise vs. specific types of hazardous substances).
CHAPTER TEN
The Endorsement for Motor Carrier Policies of Insurance for Public Liability
(Form MCS–90)
This endorsement provides evidence of financial responsibility, on behalf of the motor carrier,
to the Interstate Commerce Commission (ICC). The endorsement must be included on all
policies, and a policy must meet the financial responsibility requirements of the Department of
Transportation. The form must be carried in the cabin of the vehicle and must show:
1. The names of the motor carrier and the insurance company.
2. The policy number and policy dates.
3. Whether the insurance providing coverage is primary or excess.
4. The limits of liability provided by the policy.
The passage of the Motor Carrier Act of 1980 resulted in all of the following, except:
a. Deregulation of the trucking industry
b. Prohibition of rating bureaus to develop the rates
c. Mandatory minimum liability limits
d. Increase in truckers wages
10.11 Selected Commercial Auto Endorsements
Auto Medical Payments Coverage

1. This endorsement allows the insured to purchase Medical Payments Coverage. The
commercial auto forms do not automatically include this coverage.
2. Coverage is written with a limit per person, per accident, and pays up to the limit for
necessary medical and funeral expenses resulting from bodily injury incurred within 3 years
of an accident.
Uninsured Motorists Coverage

1. This endorsement allows the insured to purchase Uninsured Motorists Coverage (the
commercial auto forms do not automatically include this coverage).
2. The coverage provides payment for bodily injury to the insured and vehicle occupants when
struck by an uninsured driver who is legally responsible for the accident.
Individual Named Insured

1. This endorsement is used to add family members to the definition of “insured” under any of
the auto coverage forms. It also eliminates the fellow employee exclusion for bodily injury to
the employees of the named insured or any family member.
2. If the named insured owns at least one private passenger auto and insures it on the business
auto policy for physical damage coverage, personal auto coverage will extend to non-owned
autos as covered autos.
3. When purchased, the endorsement applies to all family members who are residents.
Mobile Equipment
1. This is an endorsement that allows mobile equipment such as bulldozers, forklifts, and road
construction equipment to be considered covered autos.
2. This type of equipment is not normally covered, except for liability arising while being
carried or towed by a covered auto.
Drive Other Car – Broadened Coverage for Named Individuals

1. This endorsement may be added to any of the auto coverage forms and is designed for
individuals who do not personally own and insure an auto.
2. This endorsement provides coverage for liability, auto medical payments, comprehensive,
collision, uninsured motorists, and underinsured motorists – if a limit of liability and premium
is shown on the endorsement’s schedule. Coverage applies to vehicles owned by the named
insured and non-owned autos that aren’t owned by the individual named in the endorsement
or any family member of that individual.
3. Coverage is provided for the individual named on the endorsement and is extended to the
named individual’s resident spouse.
Rental Reimbursement Coverage

1. The Rental Reimbursement Coverage endorsement may be added to all 5 of the business
auto coverage forms and pays for rental reimbursement expenses incurred as the result of a
covered loss to a vehicle named in the endorsement’s schedule.
2. Because the business auto coverage forms only provide temporary transportation expenses
coverage for the total theft of private passenger type vehicles, this is a valuable endorsement
for businesses that own other types of vehicles and/or who want rental reimbursement
coverage in the event of losses other than total thefts.
Optional Limits – Loss of Use Expenses

The Optional Limits – Loss of Use Expenses endorsement may be added to all five of the business
auto coverage forms to increase the daily and maximum limits of liability paid for loss of use
expenses under Hired Physical Damage coverage.
Auto Loan/Lease Gap Coverage

1. The Auto Loan/Lease Gap Coverage endorsement may be added to all five of the business
auto coverage forms. It pays any unpaid amount due on a lease or loan for a covered auto
less other expenses, including the amount paid under physical damage coverage, overdue
loan or lease payments, financial penalties, etc.
2. This is beneficial to an insured if the actual cash value of an insured vehicle is less than its
outstanding loan.
Lessor – Additional Insured and Loss Payee

This endorsement is used when the insured leases a vehicle and the owner/lessor requires that it
be designated on the auto policy as additional insured and loss payee.
Designated Insured
This endorsement may be added to any of the auto coverage forms. It contains a schedule that
lists a person or organization that is considered an insured under the liability coverage provided
by the policy but does NOT change any of the provisions of the policy.
Which of the following is true about the Individual Named Insured endorsement?
a. Protects the named insured who does not own a car
b. Applies to all resident family members
c. Adds business coverage to a personal private passenger auto
d. Coverage is provided only to those individuals listed on a Schedule
CHAPTER TEN
Chapter Ten — Lightning Facts

1. The Business Auto Coverage Form covers owned, leased, hired, rented, or borrowed private
passenger autos, trucks, trailers, and semitrailers that are owned and used by the insured. 10.1
2. The Business Auto Coverage form provides liability coverage for trailers being towed by a
covered vehicle, but does not provide automatic coverage for physical damage. 10.1
3. Section I – Covered Autos contains Symbols designations 1-9 and 19 that describe the types of
autos covered under the Business Auto Coverage form. 10.2
4. Section II – Liability Coverage is provided for bodily injury or property damage caused by an
accident for which the insured is legally responsible. An accident must occur within the policy
territory, during the policy period, and result from the ownership, maintenance, or use of a
covered auto. 10.3
5. An Insured is the named insured for any covered vehicle, anyone else using a covered vehicle
with permission of the named insured, and anyone liable for the conduct of an insured, but only
to the extent of that liability. 10.3
6. The Coverage Extensions include Supplementary Payments and Out–of–State Coverage. 10.3
7. Liability exclusions include expected or intended injury, contractual, Workers’ Compensation,
employee indemnification and employer’s liability, fellow employee, care, custody, or control,
handling of property, movement of property by mechanical device, operations, completed
operations, pollution, war, and racing. 10.3
8. Section III – Physical Damage Coverage includes comprehensive, specified causes of loss, and
collision coverages, towing, glass breakage, and coverage extensions including transportation
expenses and loss of use expenses. 10.4
9. Comprehensive covers physical damage to a covered auto or its equipment on an open perils
basis. Coverage is not provided for loss by collision, which is a covered vehicle’s impact with
another vehicle or object, or overturn. 10.4
10. Specified Causes of Loss provides coverage for the perils of fire, lightning, explosion, theft, wind,
hail, earthquake, flood, mischief or vandalism, and sinking, burning, collision or derailment of a
conveying vehicle. 10.4
11. Collision covers a covered vehicle’s impact with another vehicle or object, or overturn. 10.4
12. Transportation Expenses begin 48 hours after the total theft of a private passenger auto and pays
up to $20 per day, to a maximum of $600, for temporary transportation expenses. 10.4
13. Exclusions include nuclear hazard, war, or military action, organized racing, demolition contest,
or stunt activity, wear and tear, freezing, mechanical or electrical breakdown, blowouts or
punctures, and tapes, records, discs, electronic equipment, radar, or laser detectors. 10.4
14. The Limit of Insurance is the most the insurer will pay for all loss in any one accident. The
amount paid will be the lesser of the actual cash value of the damaged or stolen property or
the cost of repairing or replacing the damaged or stolen property with property of like kind and
quality. 10.4
15. A Deductible applies per covered auto and per accident to comprehensive, specified causes of
loss, and collision purchased by the insured. The standard deductible is $500, but higher and
lower deductibles are available. 10.4
16. The Loss Conditions apply in addition to the Common Policy Conditions and include appraisal,
duties in the event of an accident, legal action against the insurer, loss payment, and transfer of
rights of recovery. 10.5
17. The General Conditions apply in addition to the Common Policy Conditions and covers
bankruptcy, concealment, misrepresentation, or fraud, liberalization, other insurance, premium
audit, policy period, and include territory. 10.5
18. The Garage Coverage Form provides automobile liability and physical damage coverage, as well
as General Liability coverage for an insured that is engaged in the sale, service, repair, parking,
or storage of automobiles. 10.6
19. The Garage Coverage Form eliminates the coverage gaps and overlaps found when other
commercial lines policies are combined to provide Premises liability, Products liability Auto
liability, Auto physical damage coverage, and Garagekeepers coverage. 10.6
20. Section I – Covered Autos of the garage coverage form provides a schedule of covered auto
designation symbols in a similar fashion to the business auto coverage form and adds two unique
symbols for the Garage Coverage Form. 10.6
21. The garagekeepers limit of liability for customers’ vehicles is usually expressed as a blanket limit
covering the total of all customer vehicles in the insured’s care, custody, or control. 10.6
22. Section II – Liability Coverage provides bodily injury and property damage liability coverage for
losses resulting from garage operations, premises and operations liability, products liability, and
completed operations liability. 10.6
23. Section III – Garagekeepers Coverage is physical damage insurance for amounts the insured is
legally obligated to pay for loss or damage to a customer’s vehicle and/or equipment while it’s in
the insured’s care for purposes of selling, servicing, repairing, parking, or storing. 10.6
24. Section IV – Physical Damage Coverage provides physical damage coverage for covered autos
the insured owns, hires, rents, leases, or borrows and is the same as Physical Damage Coverage
under the Business Auto Coverage Form. 10.6
25. The Business Auto Physical Damage Coverage Form provides physical damage coverage
for covered autos that meet any of five symbol designations; this form may be included on a
commercial package policy. 10.7
26. The Truckers Coverage Form and the Motor Carrier Coverage Form provide insurance for the
unique exposures of common carriers and contract carriers. 10.8
27. A common carrier is a business individual or organization that carries the general public or
property owned by the general public for a fee, from one place to another, and may use either of
the coverage forms. 10.8
28. A contract carrier is a business, individual or organization that carries persons or property of
certain customers only, from one place to another, for a fee and may refuse to carry persons or
property. A contract carrier may only use the Motor Carrier Coverage Form. 10.8
29. The Truckers Coverage Form covers business exposures of motor carriers for hire that transport
the goods of others. 10.8
30. The Motor Carrier Coverage Form covers business exposures of a firm transporting the goods of
others for hire and transporting their own property. 10.8
31. The Motor Carrier Act of 1980 deregulated the trucking industry and requires certain vehicles
to carry specific minimum limits of liability insurance for the protection of the public and the
environment depending upon the type of merchandise being transported. 10.9
32. The Endorsement for Motor Carrier Policies of Insurance for Public Liability (Form MCS–
90) provides evidence of financial responsibility meeting the DOT financial responsibility
requirements, on behalf of the motor carrier, to the Interstate Commerce Commission (ICC).
10.10
11
Commercial Crime Part
LEARNING OBJECTIVES
1. Define burglary, robbery, theft and mysterious disappearance
2. Know the general definitions in a Crime Policy
3. Recognize the Crime Coverage Forms
4. List the 8 types of coverage Insuring Agreements
OVERVIEW
Commercial Crime insurance, also called Fidelity Insurance, provides coverage for the perils
of theft, robbery, and burglary. Crime insurance protects businesses from employee and other
types of dishonesty, specifically: loss of money, securities, or personal property resulting
from crime. Typical crime insurance claims allege employee dishonesty, embezzlement,
forgery, robbery, safe burglary, computer fraud, wire transfer fraud, counterfeiting, and
other criminal acts. Crime insurance also indemnifies banks, bankers, brokers, or financial or
moneyed corporations or associations. Commercial crime coverage forms may be added to the
commercial package policy or coverage can be written on its own policy.
11.1 Definitions of Crimes
Burglary
1. Burglary – The taking of property from inside the premises or a locked safe or vault by
a person who commits forcible entry into, or exit from, the property of another while
trespassing.
2. Premises – The interior of that portion of a building occupied by the insured.
a. The burglar does not have the owner’s permission to be on the premises.
b. Visible signs of forced entry or exit must also exist. Most burglaries occur when a
premises is unoccupied.
Robbery
1. Robbery – The taking of property from the care and custody of a person by one who has:
a. Caused or threatened bodily harm to that person.
b. Committed an obviously unlawful act witnessed by that person.
2. Robbery includes the taking of property in the presence of an employee.
Theft
1. The broadest of the crime coverages, theft includes any act of stealing. For example, when a
shoplifter steals items while a store is open.
2. Coverage includes losses by burglary or robbery.
COMMERCIAL CRIME PART
Mysterious Disappearance
1. The loss of property when the cause of loss is not known.
2. This is NOT theft, burglary, or robbery.
General Definitions
A person in the insured’s service, whom the insured compensates and has the
Employee right to direct. A person remains an employee for a period of 30 days after
termination.
Coins, currency, bank notes in current use, travelers checks, money orders,
Money and registered checks held for sale to the public. The definition of money does
not include evidences of debt.
Negotiable and non-negotiable instruments or contracts representing money or
Securities other property, including tokens, tickets, revenue stamps, and other stamps in
current use, and evidences of debt in connection with charge or credit cards.
Property Other than Any tangible property, other than money and securities, which has intrinsic
Money and Securities value.
The insured, or any of the insured’s partners or employees, while having care
Messenger
and custody of covered property while outside the premises.
The insured or any of the insured’s partners or employees, while having care
Custodian and custody of covered property while inside the premises, excluding any
person while acting as a watchperson or janitor.
Any person the insured retains specifically for the purpose of having care and
Watchperson
custody of property inside the premises and who has no other duties.
Which of the following is not considered a theft loss?
a. Burglary
b. Attempted theft
c. Robbery
d. Mysterious disappearance
What is the taking of property from the care of a person by threatening bodily harm?
a. Burglary
b. Attempted theft
c. Robbery
d. Mysterious disappearance
For the purposes of crime policies, how long is a person an employee after
employment is terminated, regardless of the reason for termination?
a. 15 days
b. 30 days
c. 60 days
d. 180 days
CHAPTER ELEVEN
Which of the following has the care and custody of the insured’s property outside the
premises?
a. Employee
b. Watchperson
c. Custodian
d. Messenger
11.2 Crime Coverage Forms

Crime insurance is written on two different types of coverage forms. Although crime insurance is
property insurance, its coverage forms are similar to liability coverage forms. The Loss-Sustained
Form is similar to the Occurrence form and the Discovery Form is similar to the Claims-made Form.
Loss Sustained Form

The Loss–Sustained Form provides coverage for losses that both took place and were discovered
during the policy period OR that took place within the policy period and were discovered within
one year of the termination of the policy period.
Discovery Form
The Discovery Form provides coverage for losses that are discovered during the policy period,
but that did not necessarily occur during the policy period. Discovery Forms typically, though
not always, require the use of a Retroactive Date.
Commercial Enterprises
In addition to being written on two types of policy forms, crime coverage is written for 2 types of
commercial enterprises.
1. The Commercial Crime Coverage Forms (both Loss-Sustained and Discovery) are designed
for private businesses. The insuring agreements of these policies and forms contain one limit
of insurance for all types of employee theft.
2. The Government Crime Coverage Forms (both Loss-Sustained and Discovery) are designed
for government entities. They contain two different employee theft insuring agreements. One
contains a separate loss limit that applies to each employee theft loss and the other contains
its own loss limit for all losses occurring due to one employee.
Each of the following is true of a Discovery crime coverage form, except:
a. Covers a loss that was discovered within one year of the termination of the policy
period
b. Covers a loss that was discovered during the policy period
c. Might require the use of a Retroactive Date
d. Covers a loss that did not necessarily occur during the policy period
Commercial Crime policies are written for which of the following commercial
enterprises?
a. Private
b. Government
c. Publicly held
d. Volunteer
11.3 Insuring Agreements

The Crime coverage forms offer 8 types of coverage, or Insuring agreements. The insured may
choose one, several, or all of the coverages. None of them are mandatory.
Employee Theft or Dishonesty (Form A)

1. Employee Theft covers acts of theft by an employee that result in loss of, or damage to,
money, securities, and other property.
2. Examples of employee theft include an employee stealing money from the cash register or
several employees stealing office supplies.
Forgery or Alteration
1. Forgery or Alteration insures against the forgery or alteration of checks, drafts, promissory
notes, and similar items regarding the payment of a sum of money that are made or drawn by
the insured or someone acting on behalf of the insured.
2. Forgery is the signing of the name of another person or organization with intent to deceive; it
does not mean a signature that consists in whole or in part of one’s own name signed with or
without authority, in any capacity, for any purpose.
3. An example of forgery is the company accountant stealing money by signing the business
owner’s name to a $1,000 check made payable to the accountant’s husband—without the
business owner’s knowledge or permission.
Inside the Premises: Theft of Money and Securities

This coverage insures against three specific types of loss.
1. Covers theft, disappearance, or destruction of money and securities inside the insured’s
premises, or inside a banking premises, when committed by a person present on the premise.
2. Covers damage to the insured’s premises or its exterior when caused by an attempted or
actual theft.
3. Covers loss or damage to a locked safe, vault, cash register, cash box, or cash drawer that
results from actual or attempted entry into such property. Vandalism, if not related to a theft,
is not covered. Accounting errors are also excluded.
Note
Resulting fire loss from vandalism, theft, burglary, or robbery isn’t covered by the crime
forms; such coverage is found under the standard property forms.
CHAPTER ELEVEN
Inside the Premises: Robbery or Safe Burglary – of other Property

1. Covers most types of tangible property, including jewelry, firearms, computers, etc., from loss
or damage resulting from an actual or attempted robbery of a custodian.
2. Coverage is also provided for the actual or attempted robbery of a safe inside the insured’s
premises, damage to the premises or its exterior, and damage to a locked safe, vault, cash
register, etc.
Outside the Premises

1. Insures money and securities in the hands of a messenger or armored car service for loss
resulting directly from theft, disappearance, or destruction. Other types of property are only
covered for direct loss or damage from actual or attempted robbery.
2. The following types of property are excluded: motor vehicles, vandalism or malicious
mischief, deception or trickery, property transferred without authorization or under threat.
Computer Fraud
1. Computer Fraud covers losses when a computer is fraudulently used to transfer money,
securities, and other property from the insured premises, banking premises, OR to a person or
place outside the insured premises.
2. This is not computer insurance; it provides fraud insurance for acts committed when using a
computer.
Fund Transfer Fraud

1. Covers loss of funds resulting from a fraudulent instruction that directs a financial institution
to transfer, pay, or deliver funds from the insured’s transfer account.
2. Funds are money and securities and a transfer account is an account maintained by the
insured at a lending institution from which electronic, cable, or written instructions can be
initiated by the insured to transfer, pay, or deliver funds.
Money Orders and Counterfeit Money

Covers the insured’s acceptance in good faith of money orders and counterfeit money received in
exchange for merchandise or services during the course of conducting regular business activities.
Which of the following is covered under the Outside the Premises crime insuring
agreement?
a. Armored car stolen during a robbery
b. Transfer of property without authorization
c. Money in the hands of a messenger
d. Vandalism
The Commercial Crime Coverage form offers how many types of insuring
agreements?
a. 2
b. 4
c. 6
d. 8
The Inside the Premises: Theft of Money and Securities insuring agreement covers
each of the following types of loss, except:
a. Theft of money inside the insured’s premises committed by a person present on the
premises
b. Accounting errors
c. Damage to the insured’s premises or its exterior caused by a theft or attempted theft
d. Damage to a locked safe, vault, cash register, box, or draw caused by a theft or
attempted theft
11.4 Other Crime Coverages
Extortion (CR 04 03)

Another type of commercial crime coverage is Extortion, and coverage can be added by
endorsement to the Commercial Crime coverage form or policy.
1. If a loss of money, securities, or property occurs because a threat was made to the insured to
do either of the following:
a. Cause bodily harm to any of the following persons who were kidnapped, or allegedly
kidnapped:
1) Director, trustee, partner, member, manager.
2) Employee or a relative or guest of any of these.
b. Cause damage to the insured premises or property inside the insured premises.
2. An exclusion applies if the loss occurs after the insured failed to report the extortionist’s
demands to an associate, local law enforcement, or the Federal Bureau of Investigation.
Guests’ Property
Covers property of guests while it is in a safe deposit box on the premises of the insured, such as
a hotel, motel, or lodging facility. This coverage is added by endorsement.
What is required if the insured adds the Extortion endorsement to the Commercial
Crime form and wants coverage for a kidnapping?
a. Agree to a personal background check when requested by the underwriter
b. Immediately contact a newspaper or TV for help in identifying the kidnapper
c. Contact a law enforcement agency
d. Name the persons to be covered by the endorsement
Chapter Eleven — Lightning Facts

1. Burglary is the taking of property from inside the premises or from a locked safe or vault by a
person who commits forcible entry into, or exit from, the property of another while trespassing.
11.1
2. Robbery is the taking of property from the care and custody of a person by one who has caused
or threatened bodily harm to that person, committed an obviously unlawful act witnessed by that
person, and includes the taking of property in the presence of an employee. 11.1
CHAPTER ELEVEN
3. Theft is any act of stealing and includes losses by burglary or robbery. 11.1
4. Mysterious disappearance is not considered theft, burglary, or robbery; it is the loss of property
when the cause of loss is not known. 11.1
5. A messenger is the insured, or any of the insured’s partners or employees, while having care and
custody of covered property while outside the premises. 11.1
6. A custodian is the insured or any of the insured’s partners or employees, while having care and
custody of covered property while inside the premises, excluding any person while acting as a
watchperson or janitor. 11.1
7. A watchperson is any person the insured retains specifically for the purpose of having care and
custody of property inside the premises and who has no other duties. 11.1
8. The Loss-Sustained Form, like the Occurrence form, provides coverage for losses that both took
place and were discovered during the policy period OR that took place within the policy period
and were discovered within one year of the termination of the policy period. 11.2
9. The Discovery Form, like the Claims-made Form, requires the use of a retroactive date, and
provides coverage for losses that are discovered during the policy period, but did not necessarily
occur during the policy period. 11.2
10. The Commercial Crime Coverage Form, written on either a Loss-Sustained or Discovery Form, is
designed for private businesses and the insuring agreement contains one limit of insurance for all
types of employee theft. 11.2
11. The Government Crime Coverage Form, written on either a Loss-Sustained or Discovery Form, is
for government entities and contains a separate theft loss limit that applies to each employee or
contains its own loss limit for all theft losses occurring due to one employee. 11.2
12. The Crime coverage forms offer eight optional insuring agreements and the insured may choose
one, several, or all of the coverages. 11.3
13. Employee Theft or Dishonesty covers loss of, or damage to, money, securities, and other
property committed by an employee, whether acting alone or in collusion with others, that
results directly from theft. 11.3
14. Forgery or Alteration insures against the forgery or alteration of checks, drafts, promissory notes,
and similar items regarding the payment of a sum of money that are made or drawn by the
insured or someone acting on behalf of the insured. 11.3
15. Inside the Premises: Theft of Money and Securities covers theft, disappearance, or destruction of
money and securities inside the insured’s premises, including damage to the insured’s premises
or its exterior and loss or damage to a locked safe, vault, cash register, cash box, or cash drawer
that results from actual or attempted entry into such property. 11.3
16. Inside the Premises: Robbery or Safe Burglary – of other Property covers most types of tangible
property from loss or damage resulting from an actual or attempted robbery of a custodian, and
includes coverage for the actual or attempted robbery of a safe inside the insured’s premises and
damage to the premises or its exterior. 11.3
17. Outside the Premises insures money and securities in the hands of a messenger or armored car
service for loss resulting directly from theft, disappearance, or destruction. 11.3
18. Extortion may be added by endorsement to the Commercial Crime coverage form to insure loss
of money, securities, or property due to a threat made to the insured to cause bodily harm to
employees, relatives, or guests who were kidnapped, or allegedly kidnapped or cause damage to
the insured premises or property inside the insured premises. 11.4
12
Miscellaneous Commercial Policies
LEARNING OBJECTIVES
1. Understand the Nationwide Marine definition
2. Identify the 6 broad classes of property that may be insured under Inland Marine contracts
3. Differentiate between controlled (filed) and uncontrolled (non-filed) lines of coverage forms
4. Recognize the Commercial Inland Marine Coverage Forms and Floaters
5. Identify the Transportation Coverages
6. Differentiate between Umbrella and Excess Liability Insurance
7. Define Professional Liability Insurance
8. Compare and contrast Surety and Fidelity Bonds
9. Identify the key components of Equipment Breakdown Protection Coverage Form
10. Recognize the Selected Endorsements
11. List the Farm Property Coverages
12. List the Farm Liability Coverages
Overview
This chapter will review a wide range of miscellaneous commercial policies. The Nationwide
Marine Definition defines 6 broad classes of property that may be insured under marine
contracts. Marine insurance addresses property that is portable in nature or at an unnamed
location. Ocean Marine Insurance and Inland Marine Insurance provides such coverage for
these properties.
Umbrella and Excess Liability Insurance provides an additional layer of insurance protection
above and beyond the limits of liability. This chapter will also describe Special or Professional
Liability Insurance that is available for businesses or professionals that have a higher than
average exposure for being legally liable for damages other than bodily injury or property
damage.
Additional miscellaneous coverages reviewed in this chapter include Bonds, Equipment
Breakdown Coverage, Farm Property and Liability Coverages, Aviation Insurance, and Crop,
Hail, and Windstorm Insurance.
CHAPTER TWELVE
12.1 Commercial Inland Marine Insurance

Initially, Ocean Marine insurers provided practically all of the transportation insurance needed in
this country because most major cities were located on coasts or major rivers; and most goods were
shipped either by ocean or inland waterways. The advent of first the railroad, followed by motor
trucks and airplanes, created a new system of transportation and, with it, a demand for insurance to
protect goods in transit over land.
Nationwide Marine Definition

The Nationwide Marine Definition is a guideline that was established in 1953 by the National
Association of Insurance Commissioners (NAIC). It was revised in 1976 for the purpose of
classifying inland marine, marine, and transportation exposures into categories of insurance. All
property must contain an element of transportation to be eligible under inland marine coverage
forms. Specifically, it must be in transit, be moveable, bear a relationship to transportation or
communication, or be held in the possession of a bailee, who is someone other than the property
owner.
The Nationwide Marine Definition defines 6 broad classes of property that may be insured under
marine contracts. The 6 classes are:
1. Imports, which may be insured at any location and must remain segregated from other
property so it can be easily identified.
2. Exports, which may be insured at any location and acquires its character when being
prepared for export and must retain that character unless diverted for domestic trade.
3. Domestic Shipments and Property in Transit, which involves shipments on consignment, for
sale or distribution, for approval or auction, while in transit, while in the custody of others,
and while being returned and DOESN’T include coverage while on premises owned, leased,
or operated by the consignor.
4. Instrumentalities of Transportation or Communication, which DO cover items that are
often at a fixed location because they play an important role in the transportation and
communication industries. These items are NOT easily insured on traditional commercial
property policies. They include the following types of property: bridges, tunnels, transmission
towers, including radio and television transmitting equipment, piers, wharves, slips,
docks, dry-docks, marine railways, pipe lines, outdoor cranes, loading bridges, and similar
equipment.
5. Personal Property Floaters typically insure personal property on an open perils basis
and, when covered on a floater, this type of property is excluded from coverage on the
Homeowners and/or Dwelling policies. It involves property that is usually NOT located at the
insured’s residence.
6. Commercial Property Floater Risks insure property pertaining to a business, profession, or
occupation. Examples include:
a. Physicians’ and Surgeons’ Equipment Floaters
b. Pattern, Tool, and Die Floaters
c. Theatrical Floaters
d. Film Floaters
e. Salesman’s Sample Floaters
f. Tools and Equipment Floaters
g. Builders’ Risk & Installation Floaters
MISCELLANEOUS COMMERCIAL POLICIES
Inland Marine Policies

1. Generally, the property insured under these policies is property that is only covered on land.
2. The coverage is designed to protect against losses to property that is mobile in nature,
primarily while the property is away from the owner’s premises.
3. Inland marine policies are designed primarily to cover property in transit, moveable property,
property particular to transportation and communication risks, and property in the possession
of bailees.
4. The coverage is generally written on an open perils basis and contains few exclusions.
5. The policies are not used to cover furniture and fixtures at fixed locations. The only inland
marine policies that insure property at fixed locations are those issued to insureds in the
transportation and communications industries because such property cannot be insured on
other property policies.
6. Typical exclusions on an inland marine policy include:
a. Governmental action
b. War and nuclear hazard
c. Consequential loss
d. Dishonest and criminal acts of an insured
e. Weather conditions
f. Acts and decisions
7. The exclusions of earthquake and water are usually found only in inland marine policies that
insure buildings.
Commercial Inland Marine Classes

Inland Marine Coverage Forms are divided into two lines of coverage: controlled (filed) and
uncontrolled (non-filed).
1. Controlled lines of coverage, or filed lines, are those that use policy forms, endorsements,
and rates that are filed by insurers with the departments of insurance in each of the states
where they write insurance. These forms are governed by the rules contained in the
commercial lines manual, or any other approved manual. The most common forms of
coverage in the controlled lines are:
■ Accounts receivable
■ Commercial articles floater
■ Jewelers block coverage
■ Sign coverage
■ Valuable papers
■ Records coverage, and equipment dealers coverage
2. Uncontrolled lines of coverage, or unfiled lines, are those that use policy forms,
endorsements, and rates that are not filed with or through any rating bureau or state
department of insurance. They are developed by individual insurers for individual risks and,
consequently, the forms and coverage differ from insurer to insurer. A majority of commercial
inland marine insurance is uncontrolled, such as:
■ Builders risk coverage
■ Contractors equipment floaters
■ Electronic data processing (EDP) coverage
■ Installation floaters
■ Transportation floaters
CHAPTER TWELVE
The Nationwide Marine Definition includes all of the following classes of property,
except:
a. Imports
b. Personal Property Floaters
c. Instrumentalities of Transportation
d. Umbrella
The Controlled Inland Marine Coverage forms provide insurance for which of the
following?
a. Builders risk
b. Transportation floater
c. Signs
d. Installation floater
12.2 Commercial Inland Marine Coverage Forms and

Floaters
Bailees Customers Form

A bailee is a person or organization that accepts into its temporary care property owned by
others. Bailees typically accept personal property into their care for storage, repair, servicing, or
safekeeping. Examples of bailees include a dry cleaner or an auto repair shop.
The Bailees Customers Form provides open perils coverage for covered personal property of
others while it’s in the care, custody, or control of the insured. Covered property does NOT
include certain types of property that are uninsurable or that must be insured on another policy
or form of inland marine coverage, such as:
■ Accounts, bills, records, documents, deeds
■ Animals, birds, or fish
■ Autos, trucks, trailers, aircraft, watercraft
■ Furs, jewelry, watches, precious or semi-precious stones
■ Property accepted by the insured for storage
■ Property shipped by mail
■ Contraband or property in the course of illegal transportation or trade
■ Property owned by the insured
Installation Floater
The primary property insured under the installation floater is moveable property, such as
electrical, plumbing, or heating equipment to be installed in a building. Property, such as
carpeting, tile, glass, elevators, and machinery, can also be included in coverage. Insurance
is provided during installation, and sometimes after installation, until construction has been
completed and the property has been accepted by the owner OR when the interest of the insured
ends, whichever occurs earliest.
Builders Risk Coverage

Builders risk coverage insures buildings and structures that are in the course of construction,
along with machinery, equipment, supplies, and fixtures that will eventually become part of the
insured buildings and structures. Scaffolding and temporary structures can also be included in
coverage.
Eligible buildings can be commercial, residential, or farm. The coverage form is similar to the
Building and Personal Property Coverage Form and provides insurance on an open perils basis.
The perils of theft and vandalism often contain limits and/or specific conditions, such as for
accidental loss, damage, or destruction of property in which the insured has an insurable interest.
Contractors Equipment Floater

Contractors equipment coverage provides open perils coverage on the insured’s equipment, such
as mobile tools, equipment, and machinery, including forklifts, compressors, generators, and
small hand tools. Coverage is also provided for similar property of others in the insured’s care,
custody, or control.
No coverage is provided for:
■ Autos, trucks, aircraft, boats
■ Plans, blueprints, designs
■ Property loaned, leased, or rented to others
■ Contraband and personal property of employees
Electronic Data Processing Coverage (Computer Systems Coverage Form)

This form insures computers, component parts, associated peripheral equipment including
printers and faxes, and systems used exclusively in the insured’s computer operations, such as
air conditioning, fire suppression, and electrical equipment. The form also insures data stored on
software, tapes, discs, drums, or cells.
The form does NOT provide coverage for the following types of property:
■ Property leased to others and located off-premises
■ Accounts, records, documents, etc.
■ Laptops and notebooks
■ Contraband
■ Stock in trade
Note
Extra Expense Coverage is available as an optional coverage.
Equipment Dealers Floater

Equipment dealers coverage provides insurance for property consisting primarily of mobile
agricultural and construction equipment, including property of others in the dealer’s care,
custody, or control, such as binders, reapers, harvesters, tractors, bulldozers, and road scrapers.
The following types of property are excluded:
■ Aircraft, watercraft, motor vehicles
■ Accounts, bills, currency, deeds
■ Property leased, rented, or sold. Coverage includes property owned by others in the
dealer’s care, custody, or control.
CHAPTER TWELVE
Commercial Articles Coverage Form

Commercial articles coverage provides insurance for fine arts, cameras, musical instruments, and
their related equipment when used for business or commercial purposes.
Jewelers Block Coverage

Block policies and floaters provide insurance for both business personal property and goods for
sale during the normal course of the insured’s business. Coverage is typically written on an Open
Perils basis with the usual exclusions: war; wear and tear; delay and loss of market; flood; and
earthquake. Specific block or dealers policies have exclusions designed to meet the needs of that
particular business and its exposures.
A Jeweler’s Block floater provides insurance for jewels, watches, gold, silver, platinum, pearls,
and precious and semi-precious stones. Two optional coverages are available and, if not
purchased, no coverage applies for:
1. Show Windows – Provides theft coverage for articles in a show window if the window is
broken or smashed. Different limits apply when the business is open or closed and whether
the window is protected by a security system.
2. Money – Provides coverage for theft of money from locked safes or vaults on the insured’s
premises.
Accounts Receivable Coverage Form

Accounts receivables coverage provides insurance when the insured’s business records are
destroyed in a loss caused by a covered peril, and the business is unable to collect money it’s
owed. The policy pays for the uncollected sums plus the expenses involved with reconstructing
records, along with extra collection fees. Accounts receivables coverage also pays for interest on
loans and other reasonable expenses. Typical exclusions include those involving dishonest acts
of the insured, its employees and authorized persons; bookkeeping or accounting errors; bad
debts; alteration or falsification of records; war; governmental action; and nuclear hazard.
Signs Floater
Signs coverage provides coverage insurance for neon signs, automatic or mechanical signs, and
street clocks, as well as billboards, ordinary fixed or plastic-faced signs. Coverage is provided
for property of the insured and similar property of others in the care, custody, or control of the
insured.
Valuable Papers and Records Floater

Valuable papers and records coverage provides insurance for the destruction of valuable papers
and records by a covered cause of loss. Examples of covered property include maps, blueprints,
manuscripts, films, illustrations, abstracts, deeds, books, mortgages, etc. Money and securities are
NOT covered.
Which of the following is covered under the Electronic Data Processing Floater?
a. Laptops
b. Printers
c. Accounts and records
d. Notebooks
12.3 Transportation Coverages
Common Carrier Cargo Liability – Motor Truck Cargo Coverage

1. Motor truck cargo coverage is provided for loss or damage to property arising from the
legal liability of the carrier. It covers the interest of the trucker—not the shipper, owner, or
consignee—when loss or damage to the cargo occurs. Coverage is written on one of two
forms:
a. Bill of lading form, which is written on an open perils basis.
b. Named perils form, which varies by insurer.
2. When a common carrier accepts property to be transported, it issues a Bill of Lading, which
serves as both a contract and a receipt for goods accepted into the carrier’s care. The type
of Bill of Lading determines what party is liable for damage that might occur during the
transportation of the property. The two types of Bill of Lading are:
a. Straight – A straight bill of lading doesn’t contain a value limitation for the cargo being
shipped, meaning the carrier is legally responsible for the full value of transported goods
while it is in the carrier’s care.
b. Released – A released bill of lading is issued when the carrier and shipper agree that the
carrier’s responsibility is limited to the value stated on the bill of lading.
3. The cost for transporting a shipment via a released bill of lading is less expensive than
shipping via a straight bill of lading.
Motor Truck Cargo Forms

1. There are two basic types of cargo forms:
a. Motor Truck Cargo Carrier’s Legal Liability Form.
b. The Motor Truck Cargo Owner’s Form.
2. Motor Truck Cargo Carrier’s Legal Liability Form
The Motor Truck Cargo Carrier’s Coverage Form provides property coverage for the insured’s
cargo under the following terms:
a. The property is owned by others and is covered property (meaning it’s not a type of
property that’s excluded in the form).
b. The insured has accepted the property for transportation as a contract or common carrier.
c. The insured has issued a bill of lading or a shipping receipt.
d. The insured is legally liable for loss or damage to the cargo.
3. Motor Truck Cargo Owners Coverage Form
The Motor Truck Cargo OWNERS Coverage Form provides OPEN PERILS property coverage
for the insured’s cargo under the following terms:
a. The property is owned by the insured.
b. The property is covered property (meaning it’s not a type of property that’s excluded in
the form).
c. The property is located in or on a land vehicle OWNED or OPERATED by the insured
AND is in transit at the time of loss.
CHAPTER TWELVE
Transit Coverage Forms

Transit coverage forms are used when the insured purchases inland marine insurance for
shipments of goods via common or contract carriers.
1. Annual Transit Coverage Form – Covered property is the insured’s personal property or the
property of others in the insured’s care, custody, or control. Property must be in transit when
shipped by any type of carrier or vehicle, or in any land vehicle owned or operated by the
insured. Coverage applies while covered property is in the custody of the carrier for hire until
it’s either delivered to its destination or returned to the insured.
2. Trip Transit Coverage Form – This form is used by those who do not make regular shipments,
but wish to insure a single shipment. Covered property is the property described in the
Declarations and that isn’t otherwise excluded. Coverage applies while covered property is in
the custody of the carrier for hire or in any vehicle owned or operated by the insured while in
transit.
3. Both forms may be written on an open or named perils basis.
12.4 Commercial Ocean Marine Insurance

1. Ocean Marine Coverage insures the transportation of property (goods and merchandise) by
vessels crossing domestic and foreign waters, including inland or aviation transit connected
with the shipment. This is the oldest form of property insurance.
2. There are no standard Ocean Marine policies and coverage is generally unregulated with
respect to both forms and rates.
3. Property covered on an Ocean Marine policy must be insured to its full value in order for the
loss to be fully covered. There is no formal coinsurance provision in an ocean marine policy,
however, a penalty is assessed at the time of loss if property is underinsured. For example, if
the insured purchases coverage in an amount equaling 50% of the full value of the property
insured, the loss payment for partial loss will be 50% of the loss.
4. Ocean marine policies contain warranties, which are seldom found in other property
policies. Warranties are promises made by the parties to the contract and the payment of
losses is contingent upon those warranties. If the warranties are breached, losses aren’t paid.
There are two types of warranties:
a. Express warranties are written into the policy contract, such as the exclusion of coverage
for war, strike, riot, and civil commotion.
b. Implied warranties aren’t always written into the contract but are generally understood
by all parties and binding upon them. Examples of implied warranties include the ship’s
soundness for sailing, the professional qualifications of the captain and crew, and the
legal purpose of the voyage.
5. Breach of an implied warranty will void the contract. These warranties include:
a. Legality – All voyages must be made legally and for a legal purpose. Any loss that occurs
as the result of an illegal purpose will not be covered.
b. Seaworthiness – The vessel must be seaworthy at the time insurance goes into effect and
upon the insurer’s subsequent inspections. The vessel must always be in the command of
a qualified and experienced captain and crew. The vessel must comply with safety and
operational requirements.
c. No Deviation in Voyage – The ship must sail the course that was filed with the insurer at
the time the policy was underwritten. Exceptions that don’t void coverage in the event a
loss include a deviation in voyage to avoid bad weather, make necessary repairs, save a
human life, or obtain medical care.
6. Ocean Marine Insurance provides the following types of coverage:

a. Hull Insurance – Covers physical damage to the vessel. Coverage may be written on a
named perils basis on one of two types of policies:
1) A Voyage policy, which covers the vessel for a specific voyage, or
2) A Time policy, which covers the vessel for a specific period of time (usually 12
months). Named perils include perils of the sea, jettison, piracy, fire and explosion,
and lightning.
b. Cargo Insurance – Covers physical damage losses to merchandise while in transit. Cargo
insurance can be written on an open perils basis. Certain shipping considerations affect
coverage:
1) FOB (Free On Board) Point of Shipment – The seller is responsible for damages until
the property is placed safely on a vessel (to be shipped) or when a bill of lading has
been issued. The buyer is responsible for damages from that point on.
2) FOB Point of Destination – The seller is responsible for damages until the property
reaches its final destination (which includes the shipping) and is delivered based on
the terms of the contract.
3) The difference in these two methods of shipping is, essentially, who is legally
responsible for the cargo at the time of the loss. If cargo is shipped FOB Point of
Shipment, the shipper is responsible for insuring cargo during shipment. If cargo is
shipped FOB Destination, the seller is responsible for insuring cargo during shipment.
c. Freight Insurance – Freight insurance, or freight revenue insurance, provides coverage
when the prepayment of freight is lost due to a partial loss to cargo or a voyage that isn’t
completed. Freight Revenue may be insured in a number of ways and depends upon the
agreement between the shipper and carrier. If the shipper is required by agreement to
pay the carrier’s freight bill without regard to delivery of the goods, the freight revenue is
considered part of the cargo and is insured in the cargo’s limit of insurance. If the freight
revenue depends upon the safe delivery of the goods, it’s insured as part of the hull value.
d. Protection and Indemnity Insurance (P & I Insurance) is liability insurance purchased by
ship owners for virtually all types of maritime liability pertaining to the use of a vessel.
Coverage includes:
1) Cargo lost or damaged through the insured’s negligence.
2) Damage to other property, including fixed objects, such as wharves, docks, and other
vessels, when not caused by collision.
3) Damage to property on board the insured vessel when caused by collision.
4) Injuries to seamen resulting from the vessel’s lack of seaworthiness, for other job-
related injuries, and general damages subject to the Jones Act caused by negligence.
7. General Average – A partial loss sustained voluntarily, but done so to save a vessel or
cargo from a total loss. An example of a general average loss is jettisoning part of the cargo
(throwing it overboard) to prevent a vessel from sinking. When a general average loss occurs,
the owners of the vessel and all cargo share proportionally in the loss.
8. Particular Average – A partial loss sustained by a specific vessel or cargo. The loss is NOT
shared by anyone other than the party with insurable or financial interest in the loss.
9. The Running Down Clause – Part of a hull policy that provides coverage for legal liability of the
shipper or carrier for claims arising out of collisions caused by the shipper or carrier. This clause
covers the negligence of the shipper or carrier that results in damage to the property of others.
10. Inchmaree Clause – Covers direct damage caused by the bursting of boilers, breaking of
propeller shafts, or loss due to faults or errors in navigation by the crew. When this clause is
added to the policy, it broadens the types of losses that are covered for the hull.
CHAPTER TWELVE
Under Ocean Marine Coverage, breach of each of the following implied warranties will
void the contract, except:
a. Express
b. Legality
c. Seaworthiness
d. No deviation in voyage
Protection and Indemnity (P&I) Insurance is similar to which of the following
coverages?
a. Physical Damage
b. Liability
c. Uninsured Motorist
d. Medical Payments
12.5 Umbrella and Excess Liability Insurance

The primary intent of purchasing any form of excess coverage is to obtain an additional layer of
insurance protection above and beyond the limits of liability provided by another liability insurance
policy. Umbrella liability is a specific form of excess coverage designed to insure against catastrophic
losses. One of the eligibility requirements for purchasing a commercial umbrella or excess liability
policy is the existence of primary, underlying insurance.
1. Excess Liability Insurance – Insurance purchased for the purpose of extending the limits of
liability on another policy.
2. Commercial Umbrella Insurance – Commercial Umbrella Insurance provides coverage
against catastrophic losses, extends liability limits, and provides more comprehensive
coverage than that contained in underlying primary insurance.
3. Primary insurance responds to a loss before all other insurance that might be in place to
coverage a particular loss. An example of primary insurance is a commercial auto policy.
4. Underlying insurance is specific insurance that insures the same risk insured by excess or
umbrella policy AND that will respond before the excess or umbrella insurance responds.
An umbrella or excess insurer requires other commercial liability insurance to be in place to
insure against the risks faced by a business person or commercial enterprise. For example,
underlying primary coverage MUST be in place on the following business risks before an
insurer will issue a commercial umbrella or excess liability policy:
a. Commercial General Liability – Provides liability insurance for the business’ premises,
operations, products, and completed operations—along with a few other exposures.
b. Employer’s Liability – Provides liability insurance for the business in the event an
employee sues the business for injuries that fall outside Workers’ Compensation statute.
c. Commercial Auto Liability – For exposures pertaining to vehicles owned, used, leased, or
hired by the business.
d. Liquor Liability – For businesses that have this exposure.
5. NO excess or commercial umbrella policy is “standard.” Each policy contains its own
insuring agreement, definitions, exclusions, conditions, and requirements for underlying
primary insurance and limits.
6. Coverages include Bodily injury and property damage:

a. Insured must be legally liable.
b. Required underlying primary insurance must pay first.
c. Sometimes personal injury is covered.
d. Defense is provided, either inside or outside the limits of liability.
e. Additional coverages are included.
f. Standard limits range from $1 to $10 million; higher limits are available, usually up to
$25 million or $50 million. In most cases, if the umbrella insurer requires $1 million
of underlying coverage to be in place and, at the time of a loss no underlying coverage
was in place, the umbrella insurer will pay damages in excess of the first $1 million. In
other words, if a judgment were rendered against the insured for $2 million, the umbrella
carrier would only pay $1 million of the loss and the insured would be responsible for
the first $1 million – even if no primary underlying policy were in effect at the time of the
loss.
7. Because umbrella and excess policies are not standard, their exclusions may vary widely.
Most contracts contain exclusions that mirror the exclusions in the underlying coverage,
especially if the same insurer writes both the underlying and excess policies. Common
exclusions found in commercial umbrella and excess liability policies include:
a. Professional Services (i.e., exposures that are covered by E&O, D&O, Medical
Malpractice)
b. Employment Practices Liability
c. Product Recall
d. Workers’ Compensation and Employer’s Liability
e. War and Terrorism
f. Expected or Intentional Injury
g. Contractual Liability
8. Coverage is normally written on an occurrence basis and usually applies worldwide.
9. Self-Insured Retention – As with personal umbrella policies, a commercial umbrella policy
has a self-insured retention, which is a form of cost-sharing that applies when the policy
drops down to act as primary coverage because the underlying primary policy doesn’t cover
a loss.
All of the following underlying coverages must be purchased in order to qualify for
the Umbrella and Excess Liability policy, except:
a. CGL
b. Employer’s Liability
c. Liquor Liability
d. Workers’ Compensation
CHAPTER TWELVE
12.6 Specialty or Professional Liability Insurance

1. Some businesses and business persons possess unique characteristics that expose them to
losses that are specifically excluded under other liability policies. Examples of such losses
include economic loss and indirect, or consequential, loss. Specialty liability insurance is
available for those businesses and professionals that have a higher than average exposure
for being legally liable for causing economic or indirect loss. This means that, with a few
exceptions, they’re more likely to be legally liable for damages OTHER than bodily injury
or property damage. These policies are written on non-standard forms with unique policy
provisions and conditions.
2. Professional Liability Insurance is a generic term that refers to insurance that protects
professionals from losses that arise out of their professional conduct. When professionals
practice in special fields and hold themselves out to the general public as having greater than
average expertise in particular areas, they are held to higher standards of care. Most losses
resulting from the specialist’s failure to meet reasonable standards of care in his or her field
are excluded on other liability policies. Professional liability insurance does NOT provide
coverage for bodily injury or property damage.
3. The most common forms of professional liability insurance are Errors & Omissions (E&O) and
Medical Malpractice.
4. Fiduciary Responsibilities – Directors and officers of corporations have many and varied
fiduciary responsibilities. These include the duties of care and loyalty, in addition to
exhibiting due diligence when handling the money and property of the corporation.
Board members of non-profit institutions may have special fiduciary duties to advance the
charitable goals of the institutions and protect their assets. Allegations of wrongful or tortuous
conduct may require directors and officers to defend themselves personally from such
claims, and to face substantial liability exposure. The most common forms of liability for
insuring these fiduciary responsibilities are Directors & Officers (D&O) Liability and Fiduciary
Liability.
5. Exposures – Professional liability policies insure against a wide range of perils, many of
which are specifically excluded under other forms of liability coverage:
a. Fraud or breach of contract
b. Conflict of interest
c. Malpractice or neglect
d. Government investigation
e. Errors and omissions
f. Cyber risks, such as:
1) Business-to-Business (B2B) exposures
2) Business-to-Consumer (B2C) exposures
3) Internet Service Providers (ISP), mobile, cellular exposures
4) Internal technology infrastructure exposures
5) Corporate “brochure” web site exposures
6. Who is an Insured – As with commercial general liability policies, the insureds are those
named in the declarations and can include:
a. Executive officers and directors
b. Stockholders and trustees
c. Volunteer workers and employees
7. Duty to Defend – Depending upon the type of coverage, the insurer may not have the duty
to defend, as it has in most other insurance policies. Certain professional liability policies
require the insurer to pay for defenses costs but do not require the insurer to actually handle
defense. Because some professionals, such as doctors and attorneys, wish to have control
over whether to settle a loss, it’s very important to understand fully how the defense provision
works in a professional liability policy.
8. Policy Triggers – Professional liability policies are typically written on claims-made forms
of coverage – either pure claims made or claims-made and reported. The pure claims-made
form requires claims to be made during the policy period. Claims-made and reported forms
require claims to be both made AND reported during the policy term.
Directors and Officers Liability (D&O)

Directors and Officers Insurance is typically written to protect the directors and officers of a
corporation or other legal entity for wrongful acts committed while acting in their capacity as
directors and officers for the organization.
Medical Malpractice Insurance

Malpractice Insurance is typically written for medical professionals – such as doctors, surgeons,
nurses, and dentists – whose negligent acts or omissions may injure or harm patients. Other
professions covered by malpractice insurance include social workers and beauticians. This is the
only type of professional liability that may include coverage for bodily injury.
Errors and Omissions (E&O) Insurance

Errors & Omissions Insurance is typically written for professionals who provide services, such as
insurance agents, adjusters, real estate agents, architects, accountants, attorneys, surveyors, and
appraisers, whose negligent acts or omissions may result in financial harm to a third party.
Employment Practices Liability Insurance (EPLI)

EPLI provides businesses with liability coverage against claims made by employees, former
employees, and potential employees alleging their legal rights were violated. Some insurance
companies provide this coverage by endorsement to the BOP; other insurance companies
provide coverage on standalone policies. EPLI provides coverage against various types of claims
that are typically excluded on other liability policies, including:
1. Sexual harassment
2. Discrimination
3. Wrongful termination
4. Breach of employment contract
Coverage includes defense and typically excludes punitive damages and civil/criminal fines
assessed against the insured. Workers’ Compensation and Employer’s Liability are also excluded.
Fiduciary Liability Insurance

Provides errors and omissions insurance for businesses with respect to their administration of
employee benefit plans, such as pensions, profit-sharing, and medical insurance. The Employee
Retirement Income Security Act of 1974 (ERISA) increased the legal liabilities of fiduciaries that,
in turn, increased many business’ exposures to fiduciary liability claims.
CHAPTER TWELVE
Liquor Liability Insurance

Provides legal liability coverage for businesses in the business of selling, serving, distributing,
manufacturing, and furnishing alcoholic beverages based on common law and statutory liability.
Under Dram Shop Liability laws, a business selling or serving alcohol to an intoxicated person ,
or contributing to the intoxication of an individual, may be held liable for bodily injury caused to
or by the actions of that individual.
The Internet Liability and Network Protection Policy

The Internet Liability and Network Protection policy provides liability coverage on a claims-
made basis for risks that are specific to business use of the internet, such as network security,
electronic publishing liability, and loss of data. The policy provides the following five insuring
agreements:
1. Insuring Agreement A (Website Publishing Liability) provides liability coverage for wrongful
acts committed in the course of internet publishing.
2. Insuring Agreement B (Network Security) pays for the insured’s liability for a network-
related security breach.
3. Insuring Agreement C (Replacement Or Restoration Of Electronic Data) pays for loss or
recovery of data resulting from a virus or other malware.
4. Insuring Agreement D (Cyber Extortion) pays for losses resulting from threats such as virus or
denial of service attacks.
5. Insuring Agreement E (Business Income And Extra Expense) pays for indirect loss due to
business interruption resulting from an attack or extortion attempt.
Which of the following perils is not insured under a professional liability insurance
policy?
a. Government investigation
b. Cyber risks
c. Discrimination
d. Fraud
12.7 Bonds
Bonds are contracts that involve three parties:
1. Principal (Obligor) – The party owing the duty, performance, or honesty and is usually
the party purchasing the bond. The Principal is also called the Obligor and is usually the
insurance agent’s client or insured.
2. Surety (Guarantor) – The party guaranteeing the duty, performance, or honesty of the
Principal. The Surety issues the bond, is also called the Guarantor, and is usually an
insurance company.
3. Obligee – The party paid by the Surety if the Principal fails to perform (because this is the
party harmed by the principal’s dereliction of duty). If the Principal fails to perform as agreed,
the (Surety) must perform in lieu of the Principal because of the requirements of Suretyship.
Suretyship is the assumption of liability for the obligations of another; in other words, a
guarantee. The Surety has a legal right of action against the Principal in the event of default
until the amount of the loss is recovered. The defaulting Principal MUST repay the Surety.
Surety Bonds (Performance Bonds)

Surety bonds guarantee that specific obligations will be fulfilled. If the principal defaults, the
surety must perform the contract, duty, or obligation of the principal, or indemnify the obligee for
actual loss. Consequently, before accepting a risk, the surety considers the principal’s ability to
perform, financial capability, and previous contracts. Surety bonds are generally written for the
duration of the contract, and they are written under the following categories:
1. Contract Bonds – Guarantee that contractors perform according to a construction contract.
If a contractor fails to perform according to the contract, the Surety is responsible to the
Obligee for the bond limit, which usually equals the value of the completed contract. The
following types of contract bonds may be required in connection with a contract:
a. Bid Bond – A guarantee that the contractor making the bid will, upon acceptance of the
bid by the contractor’s customer (the Obligee), proceed with the contract and replace the
Bid Bond with a Performance Bond. Failure to do so results in default and the Surety will
pay the contractor’s customer (the Obligee) the difference between the contractor’s bid
and the next highest bid.
b. Performance Bond – A guarantee that the contractor will perform, as agreed in the
contract. If the contractor defaults, the Surety will pay the Obligee the value of the bond,
which is usually the value of the contract.
c. Labor and Materials Bond – A guarantee that bills for labor and materials called for in a
construction contract will be paid when due. This bond can be written separately or as
part of a Performance Bond.
2. Court Bonds – Required by the court to enforce certain behavior; there are two types of court bonds:
a. Judicial Bonds guarantee that certain parties fulfill their statutory obligations in
connection with court proceedings.
b. Fiduciary Bonds guarantee the honest and faithful performance of executors, trustees,
and other fiduciaries. This type of bond is often required by statute in order to protect the
interests of those for whom the fiduciary acts.
3. License and Permit Bond – A bond required by municipalities or other public bodies as
a condition for granting a license or permit to engage in a specified activity. The bond
guarantees that the party seeking the license or permit will comply with applicable laws or
regulations. Examples include:
a. Contractor’s license bonds guarantee that a contractor complies with laws pertaining to
his/her trade.
b. Tax bonds guarantee a business complies with laws pertaining to payment of taxes.
c. Broker’s bonds, such as insurance, mortgage, or title agency bonds guarantee that the
broker performs according to law.
d. Motor vehicle dealer bonds guarantee that the dealer performs according to law.
Fidelity Bonds (Honesty Bonds)

1. Fidelity Bonds are designed to cover an employer from direct loss due to fraudulent
and dishonest acts (namely theft) by their employees. They are commonly referred to as
“dishonesty insurance.”
2. Several types of Fidelity Bonds are designed for the needs of employers.
a. An Individual Bond is used when an employer wishes to bond a single employee.
b. A Name Schedule Bond is used when an employer wishes to bond several employees
who are all named in the bond.
c. A Position Schedule Bond is available to employers that desire to bond a specific position,
regardless of who fills the position, or how often the person filling the position is replaced.
CHAPTER TWELVE
d. A Blanket Bond is for an employer that desires to cover all existing employees of a firm
without exception, as well as any new employees.
Bonds are contracts that involve all of the following parties, except:
a. Obligee
b. Director
c. Surety
d. Principal
Which of the following bonds is not a type of Fidelity Bond?
a. Individual
b. Name Schedule
c. Blanket
d. Court
12.8 Equipment Breakdown Coverage

Equipment Breakdown Coverage, formerly known as Boiler & Machinery Coverage, is insurance
for loss due to the equipment breakdown of most types of equipment, such as boilers, machinery,
refrigeration systems, air conditioning systems, electrical equipment, etc. The resulting Business
Income and Extra Expense loss is often covered, as well. Equipment Breakdown is excluded in most
standard property insurance policies.
Coverage may be added by endorsement to a policy or written as a monoline policy. The primary
form of coverage is the Equipment Breakdown Protection Coverage Form and, while individual
policies and endorsements provide the same basic coverage, their forms vary among insurers.
Equipment Breakdown Protection Coverage Form (EB 00 20)

1. Coverage – The following types of coverage are provided by the Equipment Breakdown
Protection Coverage Form:
a. Property Damage – The form pays for direct damage to covered property located at the
premises described in the Declarations.
b. Expediting Expenses – The form pays for the necessary extra costs the insured incurs to
make temporary repairs, and to expedite the permanent repairs or replacement.
c. Business Income and Extra Expense – The form pays the actual loss of business income
during the period of restoration, and the necessary extra expense the insured incurs, to
operate the business during the period of restoration.
d. Spoilage Damage – The form will pay for spoilage damage to raw materials, property in
process, or finished products (provided the spoilage damage is due to lack or excess of
power, light, heat, steam or refrigeration, and certain other stipulated conditions are met).
e. Newly Acquired Premises – This form provides automatic coverage to newly acquired
premises.
f. Ordinance or Law Coverage – Provides coverage for loss in value of undamaged property
due to enforcement of ordinances or laws concerning repair or replacement of damaged
equipment.
g. Errors and Omissions – Coverage pays for loss or damage not otherwise payable due to
an unintentional error or omission.
h. Brands and Labels – Provides coverage to allow the named insured to either stamp a
brand of “salvage” or remove the label from damaged goods and re-label at the insurer’s
expense.
2. Definitions – The following definitions apply to the Equipment Breakdown Protection
Coverage Form:
a. Breakdown – Failure of pressure or vacuum equipment; mechanical failure including
rupture or bursting caused by centrifugal force; or electrical failure including arcing
that causes damage to covered equipment and necessitates its repair or replacement.
“Breakdown” does not include:
1) Malfunction, including but not limited to, adjustment, alignment, calibration,
cleaning, or modification.
2) Defects, erasures, errors, limitations, or viruses in computer equipment and programs.
3) Leakage at any valve, fitting, shaft seal, gland packing, joint, or connection.
4) Damage to any vacuum tube, gas tube, or brush.
5) Damage to any structure or foundation supporting the covered equipment or any of
its parts.
6) The functioning of any safety or protection device.
7) The cracking of any part on an internal combustion gas turbine exposed to the
products of combustion.
b. Business Income – Net income (net profit or loss before income taxes) that would have
been earned or incurred, and continuing normal operating expenses incurred, including
payroll.
c. Objects Covered – Equipment built to operate under internal pressure or vacuum;
electrical or mechanical equipment that is used in the generation, transmission or
utilization of energy; communication equipment, and computer equipment; and
equipment for any of the preceding that is owned by a public or private utility and used
solely to supply utility services to the insured’s premises.
d. Covered Property – Property the insured owns, or property that is in the insured’s care,
custody, or control and for which the insured is legally liable.
e. Extra Expense – The additional cost the insured incurs to operate their business, during
the period of restoration, over and above the cost the insured would have incurred during
the same period, had no “breakdown” occurred.
f. One Breakdown – If an initial “breakdown” causes other “breakdowns” all will be
considered “one breakdown.” All “breakdowns” at any one premises that manifest
at the same time and are the direct result of the same cause will be considered “one
breakdown.”
g. Period of Restoration – The period of time that begins at the time of the “breakdown”
or 24 hours before the insurer receives notice of the “breakdown,” whichever is later,
and ends 5 consecutive days after the date when the damaged property is repaired or
replaced with reasonable speed and similar quality.
CHAPTER TWELVE
3. Exclusions – The following exclusions appear in the Equipment Breakdown Protection

Coverage Form:
a. Combustion Explosion
b. Ordinance or Law, except as specifically provided
c. Earth Movement
d. Nuclear Hazard
e. War and Military Action
f. Water, flood, mudslide, water backup or sump overflow
g. Failure to protect property
h. Failure to use dispatch in resuming business
i. Loss resulting from a test, such as an electrical insulation breakdown test; a hydrostatic,
pneumatic, or gas pressure test.
j. Indirect loss resulting from an accident to an object.
4. Although the Equipment Breakdown Protection Coverage Form contains many conditions
that are similar to the conditions in other property policies, it contains its own unique
conditions. One of the most important is the Suspension condition. If covered equipment
is found to be in, or exposed to, a dangerous condition, the insurance company may
immediately suspend coverage against the loss. Advance notice is not required but written
notice must be mailed or delivered to the insured’s last known address or the address where
the covered equipment is located. Once suspended, coverage can only be reinstated by
endorsement.
Selected Endorsements
1. Actual Cash Value (BM 99 59) – This endorsement, when added to the Equipment
Breakdown Protection Coverage Form, changes the property damage method of valuation to
state that the insurer will pay the lesser of:
a. The cost to repair or replace the damaged property with property of the same kind,
capacity, size, or quality on the same site or another site, whichever is less costly.
b. The actual cash value of the damaged property.
Note
The valuation of covered property will be as of the time of the“breakdown”, and the
insurer will not pay for damaged property that is obsolete or useless to the insured.
2. Business Income - Report of Values (BM 15 31) – This endorsement is no longer widely
used, but when it is used it is completed and signed by the named insured or its authorized
representative and sent to the insurer in order to establish “actual” total net profits, fixed
charges, and expenses for the immediate 12-month policy period that is expiring and to
also “estimate” what the same values are expected to be for the upcoming 12-month policy
period. The endorsement is used to determine the amount of the insurer’s payment to the
insured in the event of a loss of income.
The Equipment Breakdown Protection Coverage Form does not provide which of the
following types of coverage?
a. Earth movement damage
b. Property damage
c. Spoilage damage
d. Errors and omissions
Under the Equipment Breakdown Protection Coverage Form, the _____________
condition will apply if the covered equipment is subject to a dangerous exposure.
a. Cancellation
b. Period of Restoration
c. Suspension
d. Covered Property
12.9 Farm Insurance

The Farm Forms have evolved to keep pace with the changes in farming operations. Unlike the farms
of the past, farms today often are large business operations. In addition to the exposure of a farm
dwelling, most modern farms are characterized by a heavy investment in land, buildings, livestock,
and farm equipment. Farm insurance includes Farm Property Coverage, and Farm Liability Coverage.
Additional specialized forms include the Mobile Agricultural Machinery and Equipment Form and
the Livestock Coverage Form.
Farm Property Coverage Form

The policy will pay for direct physical loss or damage to covered property at the insured location
or elsewhere, as specifically provided, caused by, or resulting from, a covered cause of loss. For
coverage to apply, there must be a limit shown in the Declarations.
Coverages include:
Dwellings provides insurance for the residential dwellings owned and occupied by the
Coverage A
insured. It includes attached structures.
Other Private Structures provides insurance for detached private garages and other
Coverage B
private structures. These structures must be used personally – and not for farm purposes.
Household Personal Property provides insurance for household personal property owned
Coverage C
by the insured and family members while on the premises.
Coverage D Loss of Use provides insurance for additional living expense and fair rental value.
Scheduled Farm Personal Property provides insurance for specific types of property if a
designation appears on the Declarations for that type of property. For example, grain and
Coverage E
hay, farm products, poultry (other than turkeys), and computers and related equipment
used for farm management.
Unscheduled Farm Personal Property provides insurance for all items of farm personal
property on the insured location except for those specifically excluded. A few types of
Coverage F
property are covered off-premises, however, coverage is not provided for household or
personal property usual to a dwelling (that type of property is insured under Coverage C).
Other Farm Structures provides insurance for described farm buildings and structures and
Coverage G their attached sheds and permanent fixtures. Also covered are silos if described on the
Declarations, portable fences and structures, corrals, pens, chutes, etc.
CHAPTER TWELVE
1. Causes of Loss – The insured may choose either Basic, Broad, or Special Form causes of loss.
a. Basic:
■ Fire or Lightning
■ Windstorm or Hail
■ Explosion
■ Riot or Civil Commotion
■ Aircraft
■ Vehicles
■ Smoke
■ Vandalism
■ Theft
■ Sinkhole Collapse
■ Volcanic Action
■ Collision (Coverages E & F only)
■ Earthquake Loss to Livestock
■ Flood Loss to Livestock
b. Broad – Includes the Basic Causes of Loss, plus the following:

■ Electrocution of Covered Livestock
■ Attacks on Covered Livestock by Dogs or Wild Animals
■ Accidental Shooting of Covered Livestock
■ Drowning of Covered Livestock From External Causes
■ Loading/Unloading Accidents
■ Breakage of Glass or Safety Glazing Material
■ Falling Objects
■ Weight of Ice, Snow, or Sleet
■ Sudden and Accidental Damage to Heating or Air Conditioning Systems
■ Accidental Discharge or Leakage of Water or Steam From a System or Appliance
Containing Water
■ Freezing of Plumbing, Heating, Air Conditioning, Fire Protective Systems, or
Appliances
■ Sudden and Accidental Damage From Artificially Generated Electricity
c. Special – Provides open perils coverage for insured property other than livestock, poultry,
other animals, bees, fish, worms, hay, and plants, trees or shrubs. The special form will
not pay for dishonest or criminal acts committed by the insured or employee, and release
or escape of pollutants or contaminants unless caused by a specified cause of loss.
2. Exclusions – The forms do not cover losses caused directly or indirectly by ordinance or law,
earth movement (other than sinkhole collapse), government action, intentional loss, nuclear
hazard, off-premises services, war and military action, or flood or surface water.
3. Additional Coverages
a. Coverages A, B, C, E, F, and G:
1) Debris Removal
2) Reasonable Repairs
3) Damage to Property Removed for Safekeeping
4) Fire Department Service Charge
b. Coverages A, B, C, and D only:

1) Removal of Fallen Trees – The policy will pay up to $500 for any 1 loss, regardless of
the number of fallen trees.
2) Credit Cards and Fund Transfer Cards; Forgery; Counterfeit Currency – The policy
will pay up to $500 for any 1 loss.
c. Coverages E and F only – Cost of Restoring Farm Operations Records.
d. Coverages E, F, or G – Extra Expense.
e. Collapse – Applies only when Broad or Special Covered Causes of Loss are specified in
the Declarations.
f. Pollutant Clean Up and Removal – From land or water at the insured location if caused
by or resulting from a covered cause of loss.
4. Limits of Insurance – Applicable limits of insurance in the farm coverage forms are shown
on the Declarations page for each class of property insured. If no designation appears on the
Declarations, coverage is NOT provided.
5. Deductible – The standard deductible is $250.
6. Farm Property Conditions: Loss Conditions
■ Abandonment
■ Appraisal
■ Duties in the Event of Loss or Damage
■ Insurance Under Two or More Coverages
■ Legal Action Against the Insurer
■ Loss Payment
■ Pairs, Sets, or Parts
■ Other Insurance
■ Recovered Property
■ Transfer of Rights of Recovery Against Others to the Insurer
■ Unoccupancy and Vacancy
7. Definitions
a. Business Property – Property pertaining to any trade, profession, or occupation other than
farming.
b. Dwelling – A building used for family residential purposes; includes mobile homes,
modular homes, and prefabricated homes.
c. Farm Personal Property – Equipment, supplies, and products used in farming.
d. Insured – The named insured and resident relatives, along with any other person under
age 21 and in the care of the insured.
e. Insured Location – Any location described in the Declarations.
f. Livestock – Cattle, sheep, swine, goats, horses, mules, and donkeys.
g. Money – Currency, coins, and bank notes in current use and having a face value.
h. Pollutants – Any solid, liquid, gaseous, or thermal irritant or contaminant.
i. Poultry – Fowl kept by the insured for use or sale.
j. Securities – Negotiable and non-negotiable instruments or contracts presenting either
money or other property.
CHAPTER TWELVE
Farm Liability Insurance

The Farm Liability Coverage Form may be written as a standalone policy or as part of a farm
package policy. The Farm Liability Coverage Form contains three major coverages: H, I and J.
1. Coverage H (Bodily Injury and Property Damage Liability)
a. Coverage H pays sums the insured becomes legally obligated to pay for losses arising
from bodily injury or property damage. Fire damage liability is included.
b. Coverage includes products liability from the sale of farm products.
2. Coverage I (Personal and Advertising Injury Liability)
Coverage I provides for payment of sums the insured becomes legally obligated to pay for
losses arising from personal or advertising injury, to which the insurance applies. An offense
must be related to the farming business. For example, the insured unknowingly libels a
neighbor’s farm products.
3. Coverage J (Medical Payments)
a. Coverage J provides third-party payments for reasonable medical expenses arising out of
an accident, if the expenses are incurred and reported within 3 years of the accident date.
b. The Medical Payments limit applies per person, and payment is made regardless of fault.
Additional Forms
1. Mobile Agricultural Machinery and Equipment Coverage Form
a. The Mobile Agricultural Machinery and Equipment Form provides insurance for mobile
devices used in the everyday operation of a farm, including accessories, tools and spare
parts specifically designed and intended for such mobile devices. The insured chooses
the specific causes of loss form to apply.
b. The following types of property are specifically excluded under this coverage form:
aircraft, watercraft, automobiles, motorcycles, mobile homes, snowmobiles, trucks,
vehicles licensed for use primarily on public roads, irrigation equipment, contraband, etc.
2. Livestock Coverage Form
a. The Livestock Coverage Form provides insurance for livestock of a class shown on
the Declarations against loss by death or destruction. Limits can be shown on the
Declarations with a limit per animal within a class OR with a limit per class with a
sublimit for individual animals.
b. Livestock is defined as cattle, sheep, swine, goats, horses, mules, and donkeys; POULTRY
is NOT livestock.
c. NO coverage is provided for livestock that is:
1) In the custody of a common or contract carrier.
2) In public stockyards, sales barns or yards, etc.
3) In packing plants or slaughterhouses.
Which of the following is not a Coverage in covered under the Farm Property Coverage
form?
a. Coverage E – Scheduled Farm Personal Property
b. Coverage F – Unscheduled Farm Personal Property
c. Coverage G – Other Farm Structures
d. Coverage H – Livestock
The Farm Liability Insurance policy covers each of the following, except:
a. Coverage H – Bodily Injury and Property Damage
b. Coverage I – Personal and Advertising Injury
c. Coverage J – Medical Payments
d. Coverage K – Non-farming Liability
12.10 Aviation Insurance

Aviation insurance is a specialty coverage offered by select insurers. Two basic coverages are aircraft
hull and aircraft liability.
1. Aircraft hull insurance provides insurance for physical damage to the airplane. Coverage
is offered at 3 different levels, or causes of loss. The premium for each type of coverage
increases as the number of perils covered increases.
a. Ground only provides coverage when the hull is on the ground and not in motion;
covered losses would include fire, theft, vandalism, etc.
b. Ground including taxi provides coverage when the hull is on the ground and not in
motion PLUS losses that occur during taxi; for example, a collision with another plane
when taxiing on a runway.
c. All risk provides coverage when on the ground, during taxi, and in flight.
2. Aircraft liability insurance provides coverage for the insured’s legal liability for bodily injury
or property damage that arises out of the ownership or use of an aircraft. A combined single
limit of coverage is purchased and applies per occurrence. In addition, policyholders may
also purchase a sublimit of coverage that limits loss payments to a single person or passenger.
For example, an aircraft liability policy may have a $1 million per occurrence limit with
a sublimit of $100,000. This means that if a loss occurs, the most the policy will pay is $1
million for all claims arising from the loss, and the most it will pay per person or passenger is
$100,000.
Which of the following is not an Aviation Insurance Cause of Loss?
a. Ground only
b. Ground including taxi
c. Ground taxi only
d. All Risk
CHAPTER TWELVE
12.11 Crop, Hail, and Windstorm Insurance

Growing crops are excluded from coverage in the Farm Property Coverage form; therefore, a
separate line of insurance is available. Crop insurance is a specialized policy that protects the
insured against reduced yield because of a covered loss to crops before they are harvested.
Crop/Hail Insurance
1. This is private insurance, not reinsured by the federal government. This policy provides
named perils coverage.
2. Other perils that may be included in addition to hail are:
a. Fire, lightning, wind.
b. Freezing, drought, insects and disease.
3. The rates for crop hail insurance are developed by the Crop Hail Insurance Actuarial
Association (CHIAA). Crop-hail insurance is rated on an acreage basis and the insured can
choose a wide variety of coverage options.
4. Typically, coverage begins at 12:01 a.m. following the date the application is signed,
provided the crop is clearly visible above the ground. However, this will vary by insurer and
state. Changes will be addressed in the state law chapter if applicable.
5. The policy is typically written with deductibles (normally a 5% yield reduction). Policies
can be written to cover a percentage of expected yield, such as 50% or 100%. If a crop is
expected to yield 10,000 bushels but yields only 5,000, the policy will cover the unrealized
5,000 bushels.
6. The coverage ceases when the crop is harvested (1 growing season).
7. The payment of an insured loss reduces the total amount of available insurance.
8. The policy includes a replanting provision designed to reduce both the insured’s and
the insurer’s losses. The insurer may reimburse the insured up to 20% of the amount of
insurance. The reimbursement does not reduce the amount of insurance available for the
crop.
9. Exclusions – These may vary by company but common exclusions include:
a. Until normal visible (crop must be above ground)
b. Failure to harvest a mature crop
c. Non-owned property (share crop)
d. Loss from injury to buds, blossoms or blooms, unless the crop is affected
e. Injury to leaves, vines, etc unless crops are also damaged or affected
f. Injury to trees, bushes, fruit or nut crops
Multi-Peril Crop Insurance (MPCI)

1. The coverage is written by private insurers and is reinsured by the Federal Crop Insurance
Corporation (FCIC).
2. Coverage may be provided for approximately 200 different types of crops, but 5 major crops
account for 90% of the liability assumed (corn and maize, cereal grains, soybeans, tobacco,
and cotton).
3. Covered causes of loss include: adverse weather conditions, fire, insects, plant disease,
wildlife, earthquake, and volcanic eruption.
Windstorm Insurance Coverage

Windstorm damage is covered under the peril of wind in standard property insurance policies. In
some states, exclusionary endorsements may be added to property policies to exclude coverage
for the peril of wind or windstorm. These states are Alabama, Delaware, Florida, Georgia,
Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, South
Carolina, and Texas. Because these states are at high risk for wind loss caused by hurricane, they
have established wind and/or wind and hail associations that provide a marketplace of last resort
for those who are unable to purchase insurance for the peril of wind on their primary property
policies. In these and other states, some insurers require mandatory wind deductibles of a certain
dollar amount, such as $2,500 or higher, based on the geographic location of property (such as
within a certain distance of the sea coast) or prior wind losses.
Which peril is excluded on the Crop and Hail Insurance policy?
a. Drought
b. Freezing
c. Wildlife
d. Insects and disease
Chapter Twelve — Lightning Facts
Commercial Inland Marine Insurance

1. All eligible property for coverage on an Inland Marine Policy must be in transit, be moveable,
bear a relationship to transportation or communication, or be held in the possession of a bailee.
12.1
2. The Nationwide Marine Definition defines six broad classes of property: imports, exports,
domestic shipments, property in transit, instrumentalities of transportation or communication,
personal property floaters, and commercial property floaters. 12.1
3. Written on an open perils basis, Inland Marine Policies protect property on land that is mobile in
nature, primarily while the property is away from the owner’s premises. 12.1
4. Typical exclusions on an inland marine policy include governmental action, war and nuclear
hazard, consequential loss, dishonest and criminal acts of an insured, weather conditions, and
acts and decisions, and earthquake and water on a policy insuring buildings. 12.1
5. Controlled Inland Marine Coverage Forms are those that are filed with the Department of
Insurance by insurers, governed by the rules contained in an approved manual. Controlled
lines of coverage typically provide accounts receivable coverage, commercial articles floaters,
jewelers block coverage, signs coverage, valuable papers and records coverage, and equipment
dealers coverage. 12.1
6. Uncontrolled Inland Marine Coverage Forms are developed by individual commercial inland
marine insurers are not filed with any department of insurance or rating bureau and differ from
insurer to insurer. They typically provide builders risk coverage, contractors equipment floaters,
electronic data processing coverage, installation floaters, and transportation floaters. 12.1
7. The accounts receivables floater provides coverage when the insured’s business records are
destroyed in a loss caused by a covered peril and the business is unable to collect money it’s
owed. 12.1
8. A bailee is a person or organization that accepts into its temporary care property owned by
others for storage, repair, servicing, or safekeeping. 12.2
CHAPTER TWELVE
9. The Bailees Customers Form provides open perils coverage for covered personal property of
others while it’s in the care, custody, or control of the insured. 12.2
10. The builders risk floater provides open perils coverage for buildings and structures in the course
of construction, including scaffolding and temporary structures, machinery, equipment, supplies,
and fixtures that will eventually become part of the buildings and structures. 12.2
11. The Commercial Articles Floater provides coverage for fine arts, cameras, musical instruments,
and their related equipment when used for business or commercial purposes. 12.2
12. The Contractors Equipment Floater provides open perils coverage on the contractor’s
equipment, such as mobile tools, equipment, and machinery, including forklifts, compressors,
generators, and small hand tools. 12.2
13. Electronic Data Processing coverage (Computer Systems Coverage Form) insures computers,
their component parts, associated peripheral equipment such as printers and faxes, and systems
used exclusively in the insured’s computer operations, such as air conditioning, fire suppression,
and electrical equipment. 12.2
14. Equipment Dealers coverage provides insurance for property consisting primarily of mobile
agricultural and construction equipment, including property of others in the dealer’s care,
custody, or control, such as binders, reapers, harvesters, tractors, bulldozers, and road scrapers.
12.2
15. The primary property insured under an installation floater is moveable property, such as
electrical, plumbing, or heating equipment, carpeting, tile, glass, elevators, and machinery to be
installed in a building. 12.2
16. Block policies and floaters provide insurance on an open perils basis for both business personal
property and goods for sale during the normal course of the insured’s business. Coverage and
exclusions are designed to meet the needs of that particular business and its unique exposures.
12.2
17. Jeweler’s block coverage provides insurance for jewels, watches, gold, silver, platinum, pearls,
and precious and semi-precious stones with optional coverages for show windows and money.
12.2
18. A Signs Floater provides coverage for the property of the insured and similar property of others
in the care, custody, or control of the insured for neon signs, automatic or mechanical signs, and
street clocks, billboards, ordinary fixed or plastic–faced signs. 12.2
19. A Valuable Papers and Records Floater provides coverage for the destruction of valuable papers
and records, excluding money and securities, by a covered cause of loss. 12.2
20. Common Carrier Cargo Liability - Motor Truck Cargo Coverage is provided for loss or damage
to cargo arising from the legal liability of the carrier. It covers the interest of the trucker, not the
shipper, owner, or consignee. 12.3
21. Motor Truck Cargo Coverage can be written on a Bill of Lading form, which serves as both a
contract and a receipt for goods accepted into the carrier’s care and is insured on an open perils
basis. 12.3
22. The Motor Truck Cargo Coverage can be written on a Named Perils form, under which the
covered perils vary by insurer. 12.3
23. The Motor Truck Cargo Carrier’s Legal Liability Coverage Form provides property coverage for
the insured’s cargo. If the property owned by others is covered property, the insured has issued
a bill of lading or a shipping receipt, and the insured is legally liable for loss or damage to the
cargo, coverage is provided. 12.3
24. The Motor Truck Cargo Owners Coverage Form provides open perils coverage for the insured’s
covered cargo if it is owned by the insured and located in or on a land vehicle owned or
operated by the insured and in transit at the time of loss. 12.3
25. The Annual Transit Coverage Form covers the insured’s property or property of others in the insured’s
care, custody, or control while it is in transit and until it is delivered – so long as it was shipped by
any type of carrier or vehicle, or in any land vehicle owned or operated by the insured. 12.3
26. The Trip Transit Coverage Form insures a single shipment described in the Declarations.
Coverage applies while the covered property is in the custody of the carrier for hire or in any
vehicle owned or operated by the insured while in transit. 12.3
Commercial Ocean Marine Insurance

1. Ocean marine coverage insures the transportation of goods and merchandise by vessels crossing
domestic and foreign waters, including inland or aviation transit connected with the shipment.
Property must be insured to its full value to avoid a penalty in the event of a partial loss. 12.4
2. Ocean marine insurance provides hull coverage that insures physical damage to the vessel and
may be written on a named perils basis, which include perils of the sea, jettison, piracy, fire and
explosion, and lightning. 12.4
3. Cargo Insurance covers physical damage losses to merchandise while in transit and can be
written on an open perils basis. 12.4
4. Protection and Indemnity Insurance (P & I Insurance) covers cargo lost or damaged through the
insured’s negligence, damage to other property not caused by collision, damage to property on
board the insured vessel when caused by collision, and injuries to seamen resulting from the lack
of the vessel’s seaworthiness. 12.4
5. A general average is a partial loss sustained voluntarily in order to save a vessel or cargo from a
total loss, and the owners of the vessel and all the cargo share proportionally in the loss. 12.4
6. A particular average is a partial loss sustained by a specific vessel or cargo and the loss is not
shared by anyone other than the party with insurable or financial interest in the loss. 12.4
7. The Running Down Clause is part of a hull policy that covers the negligence of the shipper or
carrier that results in damage to the property of others. 12.4
8. The Inchmaree Clause broadens the types of losses that are covered for the hull and covers direct
damage caused by the bursting of boilers, breaking of propeller shafts, or loss due to faults or
errors in navigation by the crew. 12.4
Umbrella and Excess Liability Insurance

1. Umbrella Liability Insurance is a form of excess coverage written on an occurrence basis and
usually applies worldwide. It is designed to insure against catastrophic losses. 12.5
2. Excess Liability Insurance is purchased for the purpose of extending the limits of liability on
another policy. 12.5
3. Commercial Umbrella liability insurance provides coverage against catastrophic losses, drops
down to act as primary insurance when underlying primary policies don’t cover losses, and
provides broader coverage than underlying primary insurance. 12.5
4. Primary insurance responds to a loss before all other insurance that might be in place to cover a
particular loss. 12.5
5. Underlying insurance is specific insurance that insures the same risk insured by excess coverage
and will respond before the excess insurance responds. 12.5
6. Commercial general liability insurance provides coverage for the insured’s legal liability arising
from its premises, operations, products, and completed operations. 12.5
7. Employer’s Liability provides liability insurance for the business in the event an employee sues
the business for injuries that fall outside Workers’ Compensation law. 12.5
8. Commercial auto liability insurance provides coverage for exposures pertaining to vehicles
owned, used, leased, or hired by the insured. 12.5
CHAPTER TWELVE
9. Typical exclusions found in umbrella and excess liability are professional services, employment
practices liability, product recall, Workers’ Compensation and employer’s liability, war and
terrorism, expected or intentional injury, contractual liability. 12.5
10. Commercial umbrella policies contain a Self-Insured Retention, which is the insured’s form of
cost-sharing that applies when the policy drops down to pay losses as if it were a primary policy.
12.5
Specialty or Professional Liability Insurance

1. Specialty Insurance is available on non-standard forms with unique policy provisions and
conditions for those professionals that have a higher than average exposure for being legally
liable for causing economic or indirect loss. 12.6
2. Professional Liability Insurance is a generic term that refers to insurance that protects
professionals from losses that arise out of their professional conduct where they are held to
higher standards of care. 12.6
3. Directors and Officers (D&O) Liability Insurance is typically written to protect the directors and
officers of a corporation or other legal entity for wrongful acts committed while acting in their
capacity as directors and officers for the organization. 12.6
4. Medical malpractice insurance is written for medical professionals whose negligent acts or
omissions may injure or harm patients. 12.6
5. Errors and Omissions (E&O) Insurance is typically written for professionals who provide services
– such as insurance agents, adjusters, real estate agents, architects, accountants, attorneys,
surveyors, and appraisers – whose negligent acts or omissions may result in financial harm to a
third party. 12.6
6. Employment Practices Liability Insurance (EPLI) provides businesses with liability coverage,
including defense costs, for claims made by employees, former employees, and potential
employees alleging their legal rights were violated. Typical covered perils include harassment,
discrimination, wrongful termination, and breach of employment contract. 12.6
7. Fiduciary Liability Insurance provides errors and omissions insurance for businesses with respect
to their administration of employee benefit plans, such as pensions, profit-sharing, and medical
insurance. 12.6
8. Liquor liability insurance provides coverage for businesses that manufacture, sell, distribute, or
furnish alcoholic beverages. Coverage is based on common law and statutory liability (i.e., dram
shop laws). 12.6
Bonds
1. Bonds are contracts that involve three parties, the obligor, surety, and the obligee. 12.7
2. The Principal (obligor) is the party owing the duty, performance, or honesty and is usually the
party purchasing the bond (i.e., the insurance agent’s client). 12.7
3. The Surety (guarantor) is the party guaranteeing the duty, performance, or honesty. The Surety
has a legal right of action against the Principal in the event of default. The Surety is often an
insurance company. 12.7
4. The Obligee is the party paid by the Surety if the Principal fails to perform. 12.7
5. Surety Bonds (Performance Bonds) guarantee that specific obligations will be fulfilled if the
principal defaults and the surety must perform the contract, duty, or obligation of the principal,
or indemnify the obligee for actual loss. 12.7
6. Contract Bonds guarantee that contractors perform according to a construction contract; and if a
contractor fails to perform according to the contract, the Surety is responsible to the Principal for
the bond limit, which usually equals the value of the completed contract. 12.7
7. A Performance Bond guarantees that the contractor will perform, as agreed in the contract. 12.7
8. Court bonds are required by the court to enforce certain behavior. 12.7
9. A Judicial Bond guarantees that certain parties fulfill their statutory obligations in connection
with court proceedings. 12.7
10. A Fiduciary Bond guarantees the honest and faithful performance of executors, trustees, and
other fiduciaries, and is often required by statute in order to protect the interests of those for
whom the fiduciary acts. 12.7
11. Fidelity Bonds (Honesty Bonds) cover an employer from direct loss due to fraudulent and
dishonest acts of their employees, such as from theft. They are commonly referred to as
dishonesty insurance. 12.7
Equipment Breakdown Coverage

1. Equipment Breakdown Coverage, formerly known as Boiler & Machinery Coverage, is insurance
for loss due to the mechanical breakdown of most types of equipment, such as boilers,
machinery, refrigeration systems, air conditioning systems, and electrical equipment. 12.8
2. The Equipment Breakdown Protection Coverage Form covers property damage and expediting
expenses, business income and extra expense, spoilage damage, newly acquired premises,
ordinance or law, errors and omissions, and brands and labels. 12.8
3. “Breakdown” is the failure of pressure or vacuum equipment, mechanical failure including
rupture or bursting caused by centrifugal force, or electrical failure including arcing that causes
damage to covered equipment and necessitates its repair or replacement. 12.8
4. “Business Income” is net income, or the net profit or losses before income taxes, that would have
been earned or incurred, and continuing normal operating expenses incurred, including payroll.
12.8
5. “Extra Expense” is the necessary additional cost the insured incurs to operate the business during
the period of restoration, over and above the cost the insured would have incurred to operate the
business during the same period, had no breakdown occurred. 12.8
6. If an initial breakdown causes other breakdowns, all will be considered “one breakdown.” 12.8
7. The Actual Cash Value Endorsement to the Equipment Breakdown Protection Coverage Form
states that the method of valuation to determine what the insurer will pay the Insured in the event
the loss is the lesser of the cost to repair or replace the damaged property or the actual cash value
of the property, whichever is less. 12.8
Farm Insurance
1. Farm insurance includes Farm Property Coverage, Farm Liability Coverage and additional
coverage forms such the Mobile Agricultural Machinery and Equipment Form and the Livestock
Coverage Form. 12.9
2. The Farm Property Coverage Form will pay for direct physical loss or damage to covered
property at the insured location or elsewhere, caused by, or resulting from a covered cause of
loss. 12.9
3. Coverage A – Dwellings provides insurance for the residential dwellings on the farm that are
owned and occupied by the insured, including attached structures. 12.9
4. Coverage B – Other Private Structures provides insurance for detached private garages and other
private structures used personally and not for farm purposes. 12.9
5. Coverage C – Household Personal Property provides insurance for household personal property
owned by the insured and family members while on the premises. 12.9
6. Coverage D – Loss of Use provides insurance for additional living expense and fair rental value.
12.9
CHAPTER TWELVE
7. Coverage E – Scheduled Farm Personal Property provides insurance for specific types of property
listed on the Declarations, such as grain and hay, farm products, poultry and computers and
related equipment used for farm management. 12.9
8. Coverage F – Unscheduled Farm Personal Property provides insurance for all items of farm
personal property on the insured location except for those specifically excluded. 12.9
9. Coverage G – Other Farm Structures provides insurance for described farm buildings and
structures and their attached sheds and permanent fixtures. 12.9
10. The insured may choose the Basic, Broad, or Special Causes of Loss Form. 12.9
11. Farm Insurance Exclusions include losses caused directly or indirectly by ordinance or law, earth
movement other than sinkhole collapse, government action, intentional loss, nuclear hazard, off-
premises services, war and military action, or flood or surface water. 12.9
12. Under a farm policy, the applicable limits of insurance are shown on the Declarations page for
each class of property insured, and if no designation appears on the Declarations, coverage is not
provided. 12.9
13. The farm property loss conditions include abandonment, appraisal, duties in the event of loss or
damage, insurance under two or more coverages, legal action against the insurer, loss payment,
pairs, sets, or parts, other insurance, recovered property, transfer of rights of recovery against
others to the insurer, and unoccupancy and vacancy. 12.9
14. “Livestock” is cattle, sheep, swine, goats, horses, mules, and donkeys. 12.9
15. “Poultry” is fowl kept by the insured for use or sale. 12.9
16. The Farm Liability Coverage Form may be written as a standalone policy or as part of a farm
package. It contains three major coverages: H, I and J. 12.9
17. Coverage H (Bodily Injury and Property Damage Liability) pays sums, that the insured becomes
legally obligated to pay, arising from bodily injury or property damage and includes product
liability from the sale of farm products. 12.9
18. Coverage I (Personal and Advertising Injury Liability) provides for payment of sums, that the
insured becomes legally obligated to pay, arising from personal or advertising injury, to which
the insurance applies and related to the farming business. 12.9
19. Coverage J (Medical Payments) provides third-party payments to one person regardless of fault
for reasonable medical expenses arising out of an accident, if the expenses are incurred and
reported within three years of the accident date. 12.9
20. The Mobile Agricultural Machinery and Equipment Form provides insurance for mobile devices
used in the everyday operation of a farm, including accessories, tools and spare parts specifically
designed and intended for such mobile devices. 12.9
21. The Livestock Coverage Form provides insurance for livestock, such as cattle, sheep, swine,
goats, horses, mules, and donkeys as shown on the Declarations per animal within a class or
with a limit per class and sublimit per animal against loss by death or destruction. 12.9
Aviation Insurance
1. Aviation insurance is specialty coverage for aircraft hull and aircraft liability insurance. 12.10
2. Aircraft hull insurance provides insurance for physical damage to the airplane. Three different
causes of loss are available: ground only, ground including taxi, and all risk coverage. 12.10
3. Aircraft liability insurance provides coverage for the insured’s legal liability for bodily injury or
property damage that arises out of the ownership or use of an aircraft. 12.10
Crop/Hail and Windstorm Insurance

1. Crop/Hail insurance is a specialized policy that protects the insured against reduced yield
because of a covered loss to crops before they are harvested. 12.11
2. Crop/Hail Insurance is private insurance and not reinsured by the federal government, and
provides named peril coverage including hail and fire, lightning, wind, freezing, drought, insects
and disease. 12.12
3. The Crop/Hail Insurance policy term begins at 12:01 a.m. following the date the application is
signed, provided the crop is clearly visible above the ground, and coverage ceases when the crop
is harvested (1 growing season). 12.11
4. Multi-Peril Crop Insurance (MPCI) is written by private insurers and is reinsured by the Federal
Crop Insurance Corporation (FCIC). Coverage may be provided for approximately 200 different
types of crops, primarily corn and maize, cereal grains, soybeans, tobacco, and cotton. 12.11
5. MPCI covered causes of loss include adverse weather conditions, fire, insects, plant disease,
wildlife, earthquake, and volcanic eruption. 12.11
6. Windstorm Insurance Coverage is excluded under the standard property insurance policies
written in many states that are at high risk for wind loss caused by hurricane. Wind and/or wind
and hail associations were developed to provide insurance as a last resort for those who are
unable to purchase insurance for the peril of wind on their primary property policies. 12.11
13
Businessowners Coverage Form
LEARNING OBJECTIVES
1. Identify risks that are eligible and ineligible for the businessowners policy
2. Recognize the parts of Section I - Property in the Businessowners Coverage Form
3. Recognize the parts of Section II - Liability in the Businessowners Coverage Form
4. Identify the Section III - Common Policy Conditions in the Businessowners Coverage Form
5. List the Selected Property Endorsements
OVERVIEW
The Businessowners policy is a package policy that combines property and liability coverages.
It’s the commercial lines equivalent of the homeowners policy. For eligible businesses, the cost
of insurance on a BOP is more competitive than if the insured business purchased property
and liability coverages on separate policies or together on a commercial package policy. The
BOP includes additional insurance coverages that can only be provided by endorsement on
monoline or package policies. In addition, the Businessowners policy doesn’t use different
causes of loss forms. The liability coverages available on the BOP are the same as those
provided by the commercial general liability policy: premises and operations, personal
and advertising injury, products and completed operations liability, and medical payments
coverage. The property and liability sections of the BOP contain their own definitions,
exclusions, additional coverages, coverage extensions, and conditions. The common policy
conditions apply to both property and liability sections of the BOP.
13.1 Businessowners Policy Features

Unlike the Commercial Package Policy, which was designed to accommodate the needs and
exposures of larger businesses, the BOP contains features that are automatically included and better
serve the needs and exposures of small to medium-sized businesses. Such features include:
1. The method of valuation on the building and business personal property is replacement cost,
provided that at the time of the loss the limit of insurance on the lost or damaged property is
80% or more of the full replacement cost of the property.
2. The limit of insurance for the building automatically increases by an annual percentage
shown in the Declarations. The increase is the building limit times the percentage of annual
increase shown in the Declarations, divided by 365 (the amount of insurance applicable on
any given day).
3. Business Income and Extra Expense coverages are automatically included, and the policy
pays the actual loss sustained for up to 12 consecutive months during the “period of
restoration” following a covered direct loss. The “period of restoration” begins 72 hours
after the time of direct physical loss, and ends when repairs are completed or when business
resumes at a new permanent location.
BUSINESSOWNERS COVERAGE FORM
What is the method of property valuation used under the Businessowners Policy
(BOP)?
a. Actual Cash Value
b. Replacement Cost
c. Depreciation
d. Stated Value
13.2 Eligible Risks

The Businessowners policy was designed for small to medium sized businesses that don’t engage
in high-risk or highly specialized operations. Businesses that generate sales over $6 million or
that occupy more than 35,000 square feet of space are ineligible, unless otherwise noted. Other
requirements also apply. Each insurer will have specific eligibility requirements but most conform to
certain standards. The types of businesses eligible for a BOP include:
Apartment buildings of any size, including residential condominium
Apartment Buildings
associations.
Office buildings that are occupied primarily for office purposes that do not
Office Buildings exceed 6 stories in height or contain more than 100,000 square feet in total
area.
Service and processing businesses such as bakeries, laundromats, dry
Service or Processing
cleaners, funeral homes, and print shops.
Buildings and business personal property for businesses operating as wholesalers
Wholesalers provided that no more than 25% of annual gross sales are derived from retail
operations, and no more than 25% of the total floor area is open to the public.
Eligible contractors include those whose total annual payroll does not
Contractors exceed $300,000, and no more than 10% of total annual gross sales comes
from subcontracted work.
Restaurants Fast-food restaurants and others with limited cooking.
Buildings are limited to 3 stories in height; the motel may not be seasonal in
Motels
its operation, and may not contain a bar or cocktail lounge.
The total annual gross receipts from the sale of gasoline must not exceed 75%
Convenience Food/
of the total annual gross receipts. Auto service repair, car wash operations,
Gasoline Stores
and propane or kerosene tank filling operations are not allowed.
Buildings are limited to 2 stories in height. Cold storage or storage of
Self-Storage Facilities
industrial materials, chemicals, pollutants, and waste do not qualify.
Condominium Commercial
Mercantile, wholesale, service or processing, and contracting occupancies.
Unit-Owners
Ineligible Risks
1. Automobile repair and service stations; automobile, mobile home, and motorcycle dealers;
and parking lots or garages are ineligible, unless these operations are incidental to an
otherwise eligible risk.
2. Restaurants, bars, and grills are ineligible (unless fast-food restaurant or others with limited
cooking).
3. Places of amusement are not eligible.
4. Manufacturers are ineligible.
CHAPTER THIRTEEN
Each of the following is a characteristic of an eligible risk for the BOP, except:
a. Apartment building
b. Building occupies 20,000 square feet of area
c. Small business
d. Manufacturing occupancy
Businessowners Coverage Form

13.3 Section I Property
Coverage – Section I addresses the property coverages afforded by the policy. This section provides
details of covered property, property not covered, additional coverages, coverage extensions,
exclusions, limits of insurance, deductibles, property conditions, property general conditions,
property definitions, and optional coverages – if shown on the declarations with a premium charge.
1. Covered Property
a. Buildings and structures at the premises described in the Declarations, including:
■ Completed additions.
■ Fixtures, including outdoor fixtures.
■ Permanently installed machinery and equipment.
■ The insured’s personal property in apartments, rooms, or common areas furnished by
the insured as landlord.
■ Personal property owned by the insured that is used to maintain or service the
buildings or structures, or the premises, including: firefighting equipment; outdoor
furniture; floor coverings; and appliances used for refrigerating, ventilating, cooking,
dish washing, or laundering.
■ Outdoor furniture.
■ If not covered by other insurance: additions under construction, alterations and
repairs to the buildings or structures; materials, equipment, supplies, and temporary
structures, on or within 100 feet of the described premises.
b. Business Personal Property located in or on the buildings at the described premises or in
the open (or in a vehicle) within 100 feet of the premises, including:
■ Property the insured owns that is used in the insured’s business.
■ Property of others that is in the insured’s care, custody, or control.
■ Tenant’s improvements and betterments, which are fixtures, alterations, installations,
or additions made a part of the building or structure that the tenant occupies but does
not own; including structures that the tenant acquired or made at their expense, but
cannot legally remove.
■ Leased personal property for which the insured has a legal responsibility to insure.
2. Property Not Covered
a. Aircraft, automobiles, motor trucks, and other vehicles subject to motor vehicle
registration.
b. Money or securities, except as provided in the Money and Securities Optional Coverage
or Employee Dishonesty Optional Coverage.
c. Land, including land on which the property is located, water, growing crops, or lawns.
d. Outdoor fences, radio or television antennas, satellite dishes, and their lead-in wiring,
masts or towers, signs (other than signs attached to the building), trees, shrubs, or plants.
e. Watercraft and associated equipment, while afloat.
f. Accounts, bills, food stamps, other evidence of debt, accounts receivable or valuable
papers and records, except as otherwise provided in the policy.
g. Computers that are permanently installed or designed to be permanently installed in any
aircraft, watercraft, motor truck, or other vehicle subject to motor vehicle registration,
except while held as stock.
h. Electronic data other than as provided under additional coverages.
i. Animals, unless held for sale or being boarded for others by the insured, or, if owned by
the insured as stock while inside the building.
j. Property transferred per unauthorized instructions is not covered.
3. Covered Causes of Loss – Risk of direct physical loss (open peril), unless the loss is excluded.
4. Limitations
a. The insurer will not pay for loss or damage to property that is missing, where the only
evidence of loss or damage is a shortage discovered when taking inventory, or other
instances where there is no physical evidence to show what happened to the property.
b. For loss or damage by theft, the following types of property are covered only up to
$2,500 for:
■ Furs, fur garments, and garments trimmed with fur.
■ Jewelry, watches, pearls, precious and semi-precious stones, bullion, gold, silver,
platinum, and other precious alloys or metals.
■ Patterns, dies, molds, and forms.
c. No coverage is provided for loss to steam and hot water boilers, pipes, engines, or
turbines if it is caused by an equipment breakdown, other than an explosion.
d. Loss to the interior of a building or structure is not covered unless the exterior also
sustains damage.
e. Animals and fragile articles are only covered if loss is caused by the “specified causes of
loss” or glass breakage.
5. Additional Coverages
The policy will pay up to an additional $10,000 for debris removal
expense, for each location, in any one occurrence of physical loss or
Debris Removal damage to covered property if the total of the actual debris removal
expense plus the amount paid for the direct physical loss or damage
exceeds the limit of insurance on the covered property.
The policy will cover on an open perils basis, for up to 30 days, property
Preservation
while being moved or temporarily stored at another location to save and
of Property
protect it from damage by a covered peril.
The policy will pay up to $2,500 for the insured’s liability for fire
Fire Department
department service charges assumed by contract or agreement prior to
Service Charge
loss, or required by local ordinance.
Collapse is defined as an abrupt falling down or caving in of a building
Collapse or any part of a building with the result that the building or part of the
building cannot be occupied for its intended purpose.
Water Damage, Other
The policy will pay the cost to tear out and replace any part of the
Liquids, Powder,
building or structure to repair damage to the system or appliance from
or Molten Material
which the water or other substance escaped.
Damage
CHAPTER THIRTEEN
The policy will pay for the actual loss sustained for a period of 12
consecutive months after the date of direct physical loss or damage.
However, ordinary payroll expenses are paid only for 60 days following
Business Income
the direct physical loss or damage, unless a greater number of days is
shown in the Declarations. This additional coverage is not subject to the
limits of insurance in Section I.
The policy will pay for the necessary extra expenses the insured incurs
for up to 12 consecutive months after the date of direct physical loss or
Extra Expense
damage. This additional coverage is not subject to the limits of insurance
in Section I.
The policy will pay up to $10,000 per location for pollution cleanup and
Pollution Cleanup and
removal due to a covered loss occurring during each separate 12 month
Removal
period.
The coverage applies when civil authorities prohibit access to the
described premises due to a covered loss that occurs within 1 mile of the
Civil Authority
insured’s property. The coverage begins 72 hours after the action occurs
and ends 4 consecutive weeks after the coverage begins.
The policy will pay up to $1,000 for any one loss resulting from the
Money Orders and
insured having accepted, in good faith, money orders issued by the post
Counterfeit Paper
office, bank, or counterfeit paper currency during the regular course of
Currency
business.
The policy will pay up to $2,500 for any one loss resulting directly from
Forgery or Alteration forgery or alteration of any check or similar instrument that the insured,
or someone impersonating the insured, has issued.
The policy will pay up to $10,000, for each building, for the increased
Increased Cost costs incurred to comply with enforcement of an ordinance or law that
of Construction regulates the repair, rebuilding, or replacement of damaged parts of a
covered building following a covered loss.
The policy will pay the actual loss of business income (up to $5,000)
Business Income from
sustained by the insured due to physical loss or damage at the premises of
Dependent Properties
a dependent property caused by or resulting from a covered cause of loss.
The policy will pay for the expenses incurred to install temporary plates,
Glass Expenses board up openings, and to remove or replace obstructions when repairing
or replacing glass that is part of a building.
Electronic Data Up to $10,000
Interruption of For interruptions caused by the specified causes of loss and certain
Computer Operations computer viruses – Up to $10,000.
Limited Fungi, Wet
Up to $15,000
Rot, and Dry Rot
6. Coverage Extensions
a. Newly Acquired or Constructed Property – Each building is insured for up to $250,000
for up to 30 days. Business personal property at each building is covered for up to
$100,000 for up to 30 days.
b. Personal Property Off Premises – The insured may extend up to $10,000 of the insurance
that applies to Business Personal Property to property while it is in the course of transit or
at premises the insured does not own, lease, or operate. This extension does NOT cover
money, securities, valuable papers and records, or accounts receivables.
c. Outdoor Property – The insured may extend the insurance provided by the policy to
apply to their outdoor fences, radio and television antennas, signs (other than signs
attached to buildings), trees, shrubs, and plants. The most the policy will pay is $2,500,
but not more than $1000 for any one tree, shrub, or plant.
d. Personal Effects – The insured may extend the insurance that applies to Business Personal
Property to apply to personal effects owned by the insured, the insured’s officers,
partners, managers, or employees up to $2,500 at each described premises.
e. Valuable Papers and Records – The insured may extend the insurance that applies
to Business Personal Property to apply to direct physical loss of valuable papers and
records it owns or that are in its care, custody, or control up to $10,000 at the described
premises, and up to $5,000 away from the described premises.
f. Accounts Receivable – The insured may extend the insurance that applies to Business
Personal Property to apply to the direct physical loss of records of accounts receivable
up to $10,000 at the described premises, and up to $5,000 away from the described
premises.
Exclusions
The policy does not cover loss or damage caused directly or indirectly by any of the following:
Ordinance or law
■ Ordinance or law
■ Earth movement
■ Governmental action
■ Nuclear hazard
■ Utility failure that occurs off-premises
■ War and military action
■ Water
■ Certain computer-related losses relating to failure, malfunction, or inadequacy of
computer hardware, software, operating systems, and networks
■ Fungi, wet or dry rot
■ Pollution
■ Neglect
■ Collapse
■ Wear and tear
■ Equipment breakdown
■ Electrical apparatus
■ Virus or bacteria
■ Smoke, vapor or gas from agricultural smudging or industrial operations
■ Artificially generated electrical current
■ Loss of use, loss of market or delay
■ Steam apparatus
■ Dishonesty of an insured
■ False pretenses
■ Exposed property
■ Errors or omissions
■ Installation, testing, or repair
■ Electrical disturbance
■ Negligent work
■ Loss or damage to products resulting from errors and omissions during production
CHAPTER THIRTEEN
Limits of Insurance
1. The most the policy will pay for loss or damage, in any one occurrence, is the applicable
limit of insurance under Section I – Property, as shown in the Declarations.
2. The most the policy will pay for damage to outdoor signs attached to the building is $1,000
per sign per occurrence.
3. The limit of insurance for Buildings will automatically increase by 8% unless a different
percentage is shown in the Declarations.
4. An automatic seasonal increase applies to the limit of insurance for business personal
property. If no percentage is shown on the declaration, the policy automatically provides a
limit increase of 25% for seasonal fluctuations in value. This seasonal increase only applies
if the limit shown for business personal property in the Declarations is at least 100% of the
insured’s average monthly values during the 12 months immediately preceding the loss.
Deductibles
1. Once a loss exceeds the deductible shown in the Declarations, the policy pays the amount of
the loss or damage in excess of the deductible, up to the applicable limit of insurance shown
on the Declarations under Section I – Property.
2. The standard deductible is $500 and the insured may choose a higher or lower deductible.
Other special deductibles may apply to Optional Coverages, if any are chosen.
3. No deductible applies to the following Additional Coverages: Fire Department Service
Charge, Business Income, Extra Expense, and Fire Extinguisher Recharge Systems.
Loss and General Conditions

1. The BOP will make loss payment, at the insurer’s option, in one of the following ways after a
property loss:
a. Payment for the value of the lost or damaged property.
b. Payment for the cost to repair or replace the lost or damaged property.
c. Take all or part of the property at an agreed or appraised value.
d. Repair, rebuild, or replace damaged property with property of like kind and quality.
2. No loss payment will exceed the insured’s financial interest in covered property.
3. Coverage is provided for a party wall, which is a wall that separates adjoining units or
buildings owned by different parties. The insured is paid a proportion of the loss based on the
insured’s proportion of the wall to the adjoining owner’s proportion of the wall. If the other
owner does not repair his proportion of the wall, the insurance will pay for the entire wall
and subrogate against the adjoining owner.
4. Loss settlement includes property valuation at replacement value for most types of covered
property unless the declarations page shows loss settlement is on an actual cash value basis.
Although a true coinsurance provision is NOT included in the BOP, an insurance-to-value
provision is included. This means that in the event of a partial loss, if property is insured for
less than 80% of its replacement value, a penalty will be applied to the loss payment.
5. Resumption of operations – If the insured is able to use damaged or undamaged property to
resume operations after a covered business income loss—and doesn’t do so—the policy will
reduce the amount of the business income loss payment to the extent of the resumption of
operations that should have been made.
6. The vacancy provision of the BOP is the same as that found in the commercial building and
personal property coverage form.
a. If the insured is a tenant, the rented unit is considered vacant if it doesn’t contain enough
personal property for the insured to conduct customary operations.
b. If the insured is a building owner or the general lessee of an entire building, the building
is considered vacant if less than 31% of building’s square footage is not rented to lessees,
or used by the building owner, to conduct customary operations.
c. Buildings under construction or renovation are NOT vacant.
d. If the building where a loss occurs has been vacant for 60 or more consecutive days
before a loss, NO coverage is provided for losses of the following types: vandalism,
sprinkler leakage (unless the system was protected against freezing), building glass
breakage, water damage, theft, or attempted theft.
Note
The vacant building doesn’t have to be the insured’s building; it can be the building
where covered property is located at the time of loss.
e. If a loss caused by other perils occurs in or to a vacant building, a penalty of 15% will be
applied to the loss payment.
Optional Coverages
If shown as applicable by an entry in the Declarations:
1. Outdoor Signs – This coverage provides insurance for direct physical loss (open perils) of, or
damage to, all outdoor signs at the described premises.
2. Money and Securities – This coverage provides insurance for money and securities used
in the insured’s business against theft, disappearance, or destruction while: at a bank or
savings institution; within the living quarters of the insured, or the living quarters of partners,
managers, or employees of the insured; at the described premises; or in transit between any
of these places.
3. Employee Dishonesty – This coverage provides insurance for Business Personal Property,
including money and securities, resulting from dishonest acts committed by any of the
insured’s employees acting alone or in collusion with other persons.
4. Equipment Breakdown – This coverage provides insurance for equipment breakdown to
pressure, mechanical, or electrical machinery and equipment owned by the insured or in the
insured’s care, custody, or control, and at the described premises.
Section I – Property of the BOP covers which of the following types of property?
a. Outdoor furniture
b. Land
c. Pet animals
d. Accounts, bills, and other evidences of debt
Which covered causes of loss form is used for the BOP?
a. Actual Cash Value
b. Replacement Cost
c. Open perils
d. Stated Value
CHAPTER THIRTEEN
The insured may extend up to how much of the insurance for business personal
property to property located off-premises?
a. $1,000
b. $5,000
c. $7,500
d. $10,000
The Additional Coverage for business income pays for the actual loss of business
income for up to how many months after the date of the direct physical damage to
the property?
a. 6
b. 12
c. 18
d. 24
Which of the following is not covered under the BOP?
a. Business income
b. Interruption of computer operations caused by a virus
c. Electronic data valued at $10,000
d. Errors or Omissions
Each of the following standard limitations under the BOP’s Section I – Property limits
of insurance is correct, except:
a. $1,000 per outdoor sign attached to the building per occurrence
b. The Business Personal Property limit will automatically increase by 25% each year
subject to the average monthly values during the past year
c. A loss or damage occurrence is limited to the applicable limit of insurance shown
in the Declarations
d. The Buildings limit of insurance will automatically increase by 10% each year
13.4 Section II – Liability Coverages

1. Business Liability – Section II addresses the liability coverages afforded by the policy. This
section provides details of the liability and medical expenses coverages, exclusions, who is
an insured, limits of insurance, liability general conditions, and definitions.
a. Liability coverage is provided for sums for which the insured becomes legally liable to
pay as damages for bodily injury, property damage, or personal injury and advertising
injury, including liability assumed under an insured contract.
b. Coverage applies to:
1) Bodily injury or property damage caused by an occurrence that takes place in the
coverage territory during the policy period.
2) Personal injury and advertising injury caused by an offense arising out of the insured’s
business, but only if the offense takes place in the coverage territory during the policy
period.
c. Bodily injury includes damages claimed by any person or organization for care, loss of
services, or death resulting at any time from the bodily injury.
d. Includes defense.
e. Coverage Extension – Supplementary Payments.
f. In addition to the limit of insurance for Section II – Liability, the insurer will pay:
1) All expenses incurred by the insurer.
2) Up to $250 for the cost of bail bonds, required because of accidents or traffic
violations arising out of the use of any vehicle to which coverage for bodily injury
applies.
3) The cost of bonds to release attachments, but only for bond amounts within the limit
of insurance.
4) All reasonable expenses incurred by the insured, at the request of the insurer,
including actual loss of earnings for up to $250 per day for time off work.
5) All costs taxed against the insured in a suit.
6) Prejudgment interest awarded against the insured on the part of any judgment.
7) All interest on the full amount of any judgment that accrues before the judgment is
paid.
2. Medical Expenses
a. Covers necessary medical expenses for bodily injury, caused by an accident, occurring
on the premises the insured owns or rents, or due to the insured’s operations.
b. The accident must take place in the coverage territory and during the policy period.
c. The expenses must be incurred within 1 year of the date of the accident.
d. Payments are made regardless of fault.
e. The insurer will pay reasonable expenses for:
1) First aid administered at the time of an accident.
2) Necessary medical, surgical, x-ray, and dental services, including prosthetic devices.
3) Necessary ambulance, hospital, professional nursing, and funeral services.
Exclusions
1. Exclusions Applicable to Business Liability Coverage:
■ Expected or Intentional Injury
■ Contractual Liability
■ Liquor Liability
■ Workers’ Compensation and Similar Laws
■ Employer’s Liability
■ Pollution
■ Aircraft, Auto, or Watercraft
■ Mobile Equipment – Transportation of mobile equipment
■ War
■ Professional Services
■ Damage to Insured’s Property
■ Damage to Insured’s Product
■ Damage to Insured’s Work
CHAPTER THIRTEEN
■ Damage to Impaired Property or Property Not Physically Injured

■ Recall of Products, Work, or Impaired Property
■ Personal and Advertising Injury – Caused by or at the direction of the insured with
the knowledge that the act would violate the rights of others and inflict personal and
advertising injury; knowledge of oral or written publication of material known to be
false; offenses that took place before the beginning of the policy period; losses arising
out of breach of contract, failure to conform to advertised quality, or the wrong price.
Also excluded are injuries committed by an insured whose business is advertising,
broadcasting, publishing, or telecasting.
2. Exclusions Applicable to Medical Expenses Coverage:
■ To any insured, except volunteer workers.
■ To a person hired to do work for, or on behalf of, any insured or tenant of any insured.
■ To any person, if benefits for the bodily injury are payable, or if benefits must be provided
under Workers’ Compensation.
■ To a person injured on that part of the premises the insured owns or rents and that the
person normally occupies.
■ To a person injured while taking part in athletics.
■ To bodily injury incurred within the products/completed operations hazard.
■ To bodily injury excluded under Business Liability Coverage.
■ Due to war, including civil war, insurrection, rebellion, or revolution.
Who is an Insured
1. Those that are designated in the Declarations as:
a. A sole proprietorship or Individual – Named insured and his/her spouse.
b. A partnership or joint venture – The named insured, members, partners, and their
spouses.
c. A limited liability company – Named insured, members, and managers.
d. An organization other than a partnership, joint venture, or limited liability company. The
named insured, executive officers and directors, and stockholders.
e. A trust – Named insured and its trustees with respect to trustee duties.
2. Each of the following is also an insured:
a. Volunteer workers, while performing duties related to the conduct of the insured’s
business, and employees of the named insured.
b. Any person or organization, while acting as the named insured’s real estate manager.
c. Any person or organization having temporary custody of the named insured’s property,
until a legal representative is appointed if the named insured dies.
d. The insured’s legal representative if the named insured dies. A party is an insured only
with respect to the conduct of the insured business.
Liability and Medical Expenses Limits of Insurance

1. The Limits of Insurance shown in the Declarations, is the most the insurer will pay regardless
of the number of insureds, claims made or suits brought, or persons or organizations making
claims or bringing suits.
2. The Liability and Medical Expenses limit shown in the Declarations applies per occurrence
for bodily injury, property damage, and medical expenses, and per person or organization for
personal injury and advertising injury.
3. The Medical Expenses limit shown in the Declarations is the most the insurer will pay for all
medical expenses sustained by any one person.
4. The Damage to Premises Rented to You limit shown in the Declarations applies to damage
arising out of any one fire or explosion for property damage caused to premises rented to the
insured or temporarily occupied by the insured with the permission of the owner.
5. Two aggregate limits apply:
a. Products-completed operations aggregate – All claims for bodily injury, and property
damage that occur during the policy period and fall within the products completed
operations hazard; aggregate limit is twice the Liability and Medical Expenses limit
b. General aggregate – All losses, except those that fall within the products-completed
operations hazard, including medical expenses personal injury and advertising injury
offenses committed; aggregate limit is twice the Liability and Medical Expenses limit
c. The aggregate limits do not apply to losses that involve Damages to Premises Rented to
You.
Liability and Medical Expenses General Conditions

1. Bankruptcy – Bankruptcy or insolvency of the insured does not relieve the insurer of its
responsibilities under the policy.
2. Duties in the Event of Occurrence, Offense, Claim, or Suit – The insurer must be notified, as
soon as practical, of an occurrence or an offense that may result in a claim.
3. Financial Responsibility Laws – When the policy is certified as proof of financial
responsibility for the future under the provisions of any motor vehicle financial responsibility
law, the insurance provided by the policy will comply with that law.
4. Legal Action Against the Insurer – No person or organization has a right under the policy to
sue the insurer unless all terms of the policy have been fully complied with.
5. Separation of Insureds – Insurance applies as if each named insured were the only named
insured, and separately to each insured against whom claim is made or suit is brought.
Liability and Medical Expenses Definitions

Section II – Liability of the Businessowners Coverage Form contains a list of definitions that
clarify policy language. The definitions in this section are similar to those found in the CGL and
CPP. It’s important to remember that the definition of “your product” includes:
1. Warranties and representations relating to the fitness of the product.
2. Warnings and instructions for safe use of the product.
3. Containers for the product.
CHAPTER THIRTEEN
Each of the following individuals is an insured under the BOP, except:
a. The insured’s legal representative if the insured dies
b. Any person acting as the named insured’s real estate manager
c. A sole proprietor’s minor child
d. The manager of a limited liability company
Under Section II – Liability & Medical Expenses, who is covered for medical expenses
after being injured while at an insured premises?
a. A person taking part in athletics
b. A tenant of the insured
c. A client of the insured
d. A cleaning crew hired by the insured
13.5 Section III – Common Policy Conditions

1. Cancellation
a. The First Named Insured shown in the Declarations may cancel this policy by mailing or
delivering to the insurer advance written notice of cancellation.
b. The insurer may cancel the policy by mailing or delivering to the first Named Insured
written notice of cancellation at least:
1) 5 days before the effective date of cancellation if any of the following conditions exists.
a) The building has been vacant or unoccupied 60 or more consecutive days.
b) After damage by a covered cause of loss, if permanent repairs to the building:
(1) Have not started; and
(2) Have not been contracted for within 30 days of initial payment of loss.
2) 10 days before the date of cancellation if the insurer cancels for non-payment of premium.
3) 30 days before the date of cancellation if the insurer cancels for any other reason.
4) Notice must be mailed to the last known mailing address.
5) All requirements of notice as contained in the policy may be superseded by state law.
2. Changes – The First Named Insured shown in the Declarations is authorized to make policy
changes with the insurer’s consent and only by written endorsement issued by the insurer.
3. Concealment, Misrepresentation and Fraud – Policy is void in any case of fraud by the
insured as it relates to the policy.
4. Examination of Your Books and Records – Insurer may examine and audit the books and
records as they relate to the policy during the policy period and up to 3 years afterward.
5. Inspection and Surveys – The insurer has the right, but is not obligated, to make inspections
and surveys at any time. Inspections and surveys don’t warrant that conditions are safe or
comply with law.
6. Insurance under Two or More Coverages – If two or more insurance policies apply to the
same loss or damage, the policy will not pay more than the actual amount of loss.
7. Liberalization – If the insurer adopts any revision that would broaden coverage under the
policy without additional premium within 45 days prior to, or during, the policy period, the
broadened coverage will immediately apply to the policy.
8. Other Insurance
a. If there is other insurance in place to cover the same loss or damage, the insurer will only
pay for the amount of covered loss or damage in excess of the amount due from that
other insurance.
b. Business Liability Coverage is excess over any other insurance that insures for direct
physical loss or damage.
9. Premiums – The first Named Insured shown in the Declarations:
a. Is responsible for the payment of all premiums; and
b. Will be the payee for any return premiums insurer pays.
10. Transfer of Rights of Recovery Against Others to Us – If any person or organization for
whom the insurer makes payment under the policy has rights to recover damages from
another, those rights are transferred to insurer to the extent of insurer’s payment.
11. Transfer of Your Rights and Duties under this Policy – Insured’s rights and duties under this
policy may not be transferred without insurer’s written consent except in the case of death of
an individual Named Insured.
The BOP may be cancelled by which of the following insureds?
a. Named insured
b. Owner
c. Any partner
d. First named insured
13.6 Property Endorsements
Earthquake Endorsement (BP 10 03)

1. This endorsement, when added to the policy, extends coverage to include earthquake and
volcanic eruption losses.
2. The coverage continues for up to 168 hours after policy expiration if an earthquake or
volcanic eruption began before the policy expired.
Protective Safeguards Endorsement (BP 04 03)

1. This endorsement specifies that the insured is required to maintain the protective safeguards
listed in this endorsement (i.e. automatic sprinkler systems, automatic fire alarms, and/or
security services).
2. The policy will not pay for loss or damage caused by fire if the insured had prior knowledge
that the safeguards were suspended or impaired and failed to notify the insurer, or failed to
maintain any protective device in working order.
3. The insured must notify the insurer if the automatic sprinkler system is off for more than 48
hours.
Named Perils Endorsement (BP 10 09)

1. This endorsement provides named perils coverage in lieu of the open perils coverage that is
provided automatically by the Businessowners Coverage Form.
2. The endorsement limits coverage to 12 listed causes of loss.
CHAPTER THIRTEEN
Hired Auto and Non-Owned Auto Liability Endorsement (BP 04 04)

The Hired and Non-owned Auto Liability endorsement is added to the BOP to provide business
auto coverage when the insured business doesn’t own autos. This endorsement extends the
BOP’s business liability coverage for bodily injury and property damage for:
1. The maintenance or use of a hired auto by the insured, or its employees, in the insured’s
business; and
2. The use of any non-owned auto in the insured’s business by any person.
3. The endorsement amends certain exclusions in the BOP with respect to liability. Specifically,
it removes some exclusions and replaces them with others. Essentially, this endorsement
adds business auto coverage to the BOP, but only for vehicles the insured hires, leases, rents,
borrows, and doesn’t own.
4. Hired auto liability coverage applies to autos leased, hired, or borrowed by the named
insured, such as the rental of a vehicle while traveling on company business.
5. Non-owned auto liability coverage applies only to those non-owned autos used by persons
other than the named insured in the course of the named insured’s business. For example,
an employee using his/her own vehicle in the course of the insured’s business would have to
rely on his/ her own auto insurance for liability coverage.
The Utility Services – Direct Damage Endorsement (BP 04 56)

Provides coverage at the limits of liability shown on the endorsement if the interruption of water,
communication, or power supply services causes a direct loss to covered property. Of course,
damage must be caused by a covered peril. No coverage is provided under this endorsement for
loss to electronic data.
The Utility Services – Time Element Endorsement (BP 04 57)

Provides coverage at the limits of liability shown on the endorsement for loss of Business Income
or Extra Expenses if the interruption of water supply services, communication, or power causes
a direct loss to covered property. Of course, damage must be caused by a covered peril. No
coverage is provided under this endorsement for loss to electronic data.
The Named Perils endorsement:
a. Changes the open perils coverage to named perils coverage
b. Extends bodily injury and property damage liability to the use of any non-owned
auto
c. Provides coverage for damage caused by the interruption of power to the insured
premises
d. Excludes hired and non-owned auto liability coverage
Chapter Thirteen — Lightning Facts

1. The method of valuation for the building and business personal property is replacement cost,
provided that at the time of the loss the limit of insurance on the lost or damaged property is at
least 80% of the full replacement cost of the property. 13.1
2. Business income and extra expense coverages are automatically included, and the policy pays
the actual loss sustained incurred by the insured for up to 12 consecutive months during the
period of restoration following a direct loss. 13.1
3. The period of restoration begins 72 hours after the time of direct physical loss, and ends when
repairs are completed or when business resumes at a new permanent location. 13.1
4. The businessowners policy (BOP) was designed for small to medium sized businesses that don’t
engage in high–risk or highly specialized operations with sales usually under $6 million and that
occupy less than 35,000 square feet of space. 13.2
5. The types of businesses eligible for a BOP include apartment buildings, office buildings, service
or processing shops, wholesalers, contractors, certain restaurants, convenience/gasoline stores,
self-storage facilities, and commercial condominium unit-owners. 13.2
6. Ineligible BOP risks include automobile repair and service stations; automobile, mobile home,
and motorcycle dealers; parking lots or garages; most restaurants, bars, and grills; places of
amusement; and manufacturers. 13.2
7. Covered property under Section I of the BOP includes buildings and structures at the premises
described in the Declarations. It also includes completed additions and fixtures, uninsured
construction materials located in or on the buildings within 100 feet of the described premises,
and permanently installed machinery and equipment 13.3
8. Covered property under Section I of the BOP also includes the property owned by the insured
and furnished as landlord or that is used to maintain or service the premises, outdoor furniture,
business property located in or on the buildings or within 100 feet of the described premises, and
leased property for which the insured has a legal responsibility to insure. 13.3
9. Property Not Covered under Section I of the BOP, unless otherwise insured, includes vehicles
subject to registration, land, outdoor fences, antennas, satellite dishes, towers, unattached signs,
trees, shrubs, or plants. 13.3
10. Property Not Covered under Section I of the BOP also includes watercraft and its equipment
while afloat, money or securities, accounts, bills, food stamps, other evidence of debt, accounts
receivable, valuable papers and records, electronic data except as provided under additional
coverages, and animals, unless held for sale or being boarded for others by the insured. 13.3
11. The BOP automatically provides coverage for special form causes of loss, or open perils
coverage. 13.3
12. There are BOP coverage limitations and restrictions on coverage for inventory shortage, loss or
damage by theft of certain property, equipment breakdown, transferred property, interior building
damage, and animals and fragile articles. 13.3
13. BOP Additional Coverages include Debris Removal, Preservation of Property, Collapse, Money
Orders and Counterfeit Paper Currency, Forgery or Alteration, Increased Cost of Construction,
Business Income from Dependent Properties, and Glass Expenses. 13.3
14. No deductible applies to BOP Additional Coverages for Fire Department Service Charge,
Business Income, Extra Expense, and Fire Extinguisher Recharge Systems. 13.3
15. Other BOP Additional Coverages are Water Damage, Other Liquids, Powder, or Molten Material
Damage, Pollution Cleanup and Removal, and limits on electronic data, interruption of computer
operations, and fungi, wet rot, and dry rot. 13.3
16. The annual limit of insurance for Buildings will automatically increase by 8% unless a different
percentage is shown in the Declarations. 13.3
17. An automatic seasonal increase applies to the limit of insurance for business personal property. If
no percentage is shown on the declaration, the policy automatically provides a limit increase of
25% for seasonal fluctuations in value. This seasonal increase only applies if the limit shown for
business personal property in the Declarations is at least 100% of the insured’s average monthly
values during the 12 months immediately preceding the loss. 13.3
18. The BOP includes property valuation at replacement value for most types of covered property
unless the Declarations page shows that loss settlement is to be made on an actual cash value
basis. 13.3
CHAPTER THIRTEEN
19. The BOP insurance-to-value provision means that in the event of a partial loss, if property is
insured for less than 80% of its replacement value, a penalty will be applied to the loss payment.
13.3
20. If the building where a loss occurs has been vacant for 60 or more consecutive days before a
loss, no coverage is provided for losses caused by vandalism, sprinkler leakage, building glass
breakage, water damage, theft, or attempted theft. 13.3
21. The BOP Optional Coverages include Outdoor Signs, Money and Securities, Employee
Dishonesty, and Mechanical Breakdown. 13.3
22. Section II – Business Liability covers sums for which the insured becomes legally liable to pay
as damages caused by an occurrence that takes place in the coverage territory during the policy
period for bodily injury, property damage, or personal injury and advertising injury, including
liability assumed under an insured contract, and defense costs. 13.4
23. The BOP liability coverage extensions are Supplementary Payments and Medical Expenses. 13.4
24. The BOP exclusions applicable to business liability coverage are expected or intentional injury,
contractual liability, liquor liability, Workers’ Compensation and employer’s liability, pollution,
aircraft, auto, or watercraft, transportation of mobile equipment, and war. 13.4
25. Other BOP exclusions applicable to business liability coverage are professional services, damage
to insured’s property, product, and work, damage to impaired property or property not physically
injured, recall of products, work, or impaired property, personal and advertising injury, breach of
contract, failure to conform to advertised quality, or the wrong price, and injuries committed by
an insured whose business is advertising, broadcasting, publishing, or telecasting. 13.4
26. A BOP insured is designated in the Declarations as a sole proprietorship or individual, a
partnership or joint venture, a limited liability company, or an organization other than a
partnership, joint venture, or limited liability company. Other individuals who are insured
include, in certain circumstances, the spouse of an insured who is a sole-proprietor or
partnership, and certain members and managers of LLCs. 13.4
27. A BOP insured is also a volunteer worker, any person or organization while acting as the named
insured’s real estate manager or having temporary custody of the named insured’s property, and
if the named insured dies, the insured’s legal representative. 13.4
28. The Liability and Medical Expenses limits shown in the Declarations apply per occurrence
for bodily injury, property damage, and medical expenses, and per person or organization for
personal injury and advertising injury. 13.4
29. The aggregate limits for bodily injury or property damage during the policy period that fall
within the products-completed operations hazard is twice the Liability and Medical Expenses
limit shown in the Declarations. 13.4
30. The Liability and Medical Expenses General Conditions are Bankruptcy, Duties in the Event of
Occurrence, Offense, Claim, or Suit, Financial Responsibility Laws, Legal Action Against the
Insurer, and Separation of Insureds. 13.4
31. An insured’s product includes warranties and representations relating to the fitness of the product,
warnings and instructions for safe use of the product, and containers for the product. 13.4
32. The BOP’s Section III – Common Policy Conditions include Cancellation, Changes,
Concealment, Misrepresentation and Fraud, Examination of Your Books and Records, Inspection
and Surveys, Insurance under Two or More Coverages, Liberalization, Other Insurance,
Premiums, Transfer of Rights of Recovery Against Others to Us, and Transfer of Your Rights and
Duties under this Policy. 13.5
33. Selected BOP Property Endorsements include the Earthquake Endorsement, Protective
Safeguards, Named Peril Endorsement, The Utility Services – Direct Damage Endorsement, The
Utility Services – Time Element Endorsement, and Hired Auto and Non-Owned Auto Liability
Endorsement. 13.6
14
Workers’ Compensation Insurance
LEARNING OBJECTIVES
1. Differentiate between Compulsory versus Elective types of employment laws
2. Recognize Employment Conditions in Workers’ Compensation Insurance
3. Identify benefits provided by State Law
4. Define the Second Injury Fund
5. Explain how the Workers’ Compensation and Employers Liability Insurance Policy works
6. Recognize the 6 parts contained in the Workers’ Compensation Policy
OVERVIEW
The National Council on Compensation Insurance (NCCI) developed the Workers’
Compensation and Employers Liability Insurance Policy, which we’ll refer to as the Workers’
Compensation policy. It is the industry standard policy in most states. Each of the states has its
own laws pertaining to the statutory liability of employers for their employees. The Workers’
Compensation policy provides compulsory insurance benefits that coincide with the Workers’
Compensation acts and statutes of each state.
In order to be covered under the Workers’ Compensation policy, an injury must arise
from, and be related to, the injured worker’s job duties. The policy also provides benefits
for employers’ liability, which responds to an injured worker’s allegations that the insured
business was negligent. Workers’ Compensation benefits are NOT provided for injuries that are
not related to employment.
Workers’ Compensation insurance addresses different types of Workers’ Compensation laws,
exempt workers, federal programs, Workers’ Compensation benefits, employer’s liability
benefits, and the policy itself.
Workers’ Compensation insurance is the exclusive remedy for workplace injuries. This means
an injured worker cannot obtain other insurance for workplace injuries or their related medical
expenses and lost wages. Injured workers are not permitted to sue an employer for injuries if
covered by Workers’ Compensation insurance.
Payment of Workers’ Compensation benefits is made regardless of the negligence of either the
employer or the employee. Even if an employee contributed to his own injury, benefits must
be provided.
CHAPTER FOURTEEN
14.1 Types of Laws

Prior to Workers’ Compensation laws going into effect, an employee had to sue the employer and
prove negligence to receive such benefits. The employer had three common law defenses to avoid
paying claims:
1. Assumption of Risk – This defense placed all the risk on the employee as being responsible
for knowing the work conditions prior to employment.
2. Fellow Servant Rule – Removed the employer’s negligence if a fellow employee contributed
in any way to the loss.
3. Contributory Negligence – Used to argue that the employee was partially at fault and
therefore was not eligible to recover benefits from the employer.
Once Workers’ Compensation laws became effective, all work related injuries and occupational
diseases became the responsibility of the Employer. This insurance became the sole source of
remedy and the employee no longer had the right to sue the employer for damages.
Compulsory vs. Elective

1. Compulsory – In jurisdictions where Workers’ Compensation benefits are mandated by state
law, employers are required to provide Workers’ Compensation benefits to their employees
– either via insurance or self-insurance. If the provisions of a policy do not comply with the
state law, the insurer is required to provide all legally mandated benefits.
2. Elective – In jurisdictions where Workers’ Compensation benefits are not mandated by state
law, employers have the choice to accept or reject state Workers’ Compensation laws. If an
employer chooses to reject the Workers’ Compensation laws and an employee is injured,
the employee may then file a claim or lawsuit against the employer for injuries; and the
employer is denied the use of common law defenses, such as assumption of risk, contributory
negligence, and negligence of a fellow employee.
3 While most Workers’ Compensation statutes compel employers to provide coverage, they
also protect employers from being sued. If an employer provides Workers’ Compensation
insurance in compliance with state law, its employees cannot sue it for workplace injuries.
4. If an employer violates state law by NOT providing Workers’ Compensation benefits, the
Workers’ Compensation statute doesn’t protect the employer from lawsuits. Essentially, an
employer doing business without providing Workers’ Compensation benefits is exposing itself
to unlimited liability for workplace injuries PLUS the fines and penalties imposed by the state
for violating the law.
Monopolistic vs. Competitive States

1. Monopolistic States – Workers’ Compensation insurance is only available through a state
fund.
2. Competitive States – Workers’ Compensation insurance is available through private insurers
as well as any state fund that may exist.
Which of the following types of Workers’ Compensation laws is available through a
state fund?
a. Compulsory
b. Elective
c. Monopolistic
d. Competitive
WORKERS’ COMPENSATION INSURANCE
14.2 Employment Conditions
Employment Covered
Because Workers’ Compensation insurance responds to workplace injuries, it only provides
coverage if an employment relationship exists between the employer and the injured person. An
employer-employee relationship exists if the employer:
1. Retains the right to direct the way work shall be completed.
2. Supplies the necessary equipment and tools to complete the work.
3. Determines the work hours.
4. Determines the end results of the work to be completed.
5. Controls the frequency and timing of compensation for work.
Another class of workers commonly employed are independent contractors. In most states, employers
are not required to cover independent contractors over whom the employer does not retain the rights
to control them, is not required to withhold taxes from any compensation, and who commonly work
for multiple employers. Agents need to refer to their state’s Workers’ Compensation Law to determine
how their state defines an independent contractor. For example, many state laws consider independent
contractors who work solely for one employer and in the same trade to be statutory employees.
Exempt Workers
1. Workers’ Compensation statutes require employers to provide benefits to all employees
unless an employee is exempt.
2. Some states exempt workers of employers with fewer than 1 to 3 employees.
3. Some states exempt workers based on job duties. Examples include:
a. Agricultural workers, such as farm and ranch laborers.
b. Domestic employees.
c. Casual laborers – Those whose work is non-recurring or irregular.
d. Independent Contractors – Plumbers, electricians, and landscapers who work under
contract for more than one employer. The definition of independent contractor varies by
state, as do requirements for Workers’ Compensation and exempt status.
e. Sole – Owners, Partners, and Corporate Officers.
Covered Injuries
Covered injuries are those that arise out of, and in the course of, employment. This means:
1. The injury must occur while the employee is at work or working.
2. The employee is working the hours he/she is designated, or expected, to work.
3. The employee is performing the duties that he/she was employed to do.
4. The injury must arise from a risk that is reasonably related to employment.
The employer can deny benefits to an employee who intentionally injures himself/herself or if the
injury results from intoxication.
Occupational Disease
An occupational disease must arise out of the course of employment and be caused by
conditions that are particular to that employment.
For example, An employee who contracts a cold in the winter may not be eligible for benefits
because the cold could have been contracted while the employee was not working. However, a
coal miner who develops respiratory problems will likely be eligible for benefits.
CHAPTER FOURTEEN
Each of the following is an exempt worker under Workers’ Compensation statutes,
except:
a. Employee in a company of 100 employees
b. Sole proprietor
c. Independent contractor
d. Farm laborer
All of the following are covered injuries occurring during the course of employment,
except:
a. Injury must occur while the employee is at work
b. Injury occurs while the employee is playing in a company softball game
c. The employee is performing regular job duties
d. Illness is contracted on the job
14.3 Federal Workers’ Compensation Laws

In addition to state Workers’ Compensation programs, federal laws governing certain types of
employees:
1. The Federal Employers Liability Act (FELA) applies to interstate railroad workers.
2. The U.S. Longshoremen and Harbor Workers’ Compensation Act applies to workers who
load, unload, build, or repair ships (but not to the crew of the ship).
3. The Jones Act or Merchant Marine Act of 1920 applies to sailors injured by the negligence of
others.
4. The Federal Employees Compensation Act applies to all U.S. civilian employees.
5. Defense Base Act applies to workers on military bases outside the United States.
Which of the following Workers’ Compensation programs applies to sailors injured
due to the negligence of others?
a. Federal Employer’s Liability Act
b. Jones Act
c. Harbor Workers’ Compensation Act
d. Defense Base Act
14.4 Benefits Provided (Determined by State Law)

Each state determines benefit levels, benefit types, and definitions of disability. The following are
common definitions:
1. Medical Benefits – Unlimited coverage for all necessary medical (including hospital)
expenses related to the covered injury that occurred during the policy period.
2. Disability Income Benefits – Benefits are generally limited to the period of disability.
An injury, from which an employee is expected to recover and return to work,
but is unable to do any work while recovering. Benefits begin after a waiting
Temporary period of several days. Retroactive benefits will be paid back to the initial date
Total of disability if the disability lasts beyond a certain period. The benefit amount is
a percentage of the employee’s average weekly wage, subject to minimum and
maximum limits. In most states, it is 66 2/3%.
An injury that prevents an employee from being able to do any work for the rest
Permanent of his/her life. Benefits are subject to the same weekly benefit percentage and the
Total same minimum and maximum limits as Temporary Total. In most states, benefits
are paid for life.
An injury after which an employee is able to do some work, but is unable to
Temporary
earn his/her usual wage until full recovery. Benefits are usually calculated as a
Partial
percentage of the difference in the wages.
An injury after which an employee is able to do some work, but will never fully
Permanent
recover. An employee can still earn a wage, but not as much as he/she would
Partial
have earned if the injury had not occurred.
A schedule of benefits applies to specific permanent partial injuries, such as a
Scheduled
dollar amount for the loss of an eye, or a hand. These benefits are usually paid in
Benefits
addition to other benefits.
3. Rehabilitation Benefits – Physical therapy and vocational training are utilized with the
objective of returning the injured employee to work as soon as possible. These benefits are
usually paid by the insurer; however, some states have established special state funds to pay
for rehabilitation costs that are funded by taxes levied against insurers and self-insureds.
4. Death and Survivor Benefits (Funeral Expense Benefit) – A statutory maximum amount,
varying from state to state, is provided as a burial allowance. Survivor income benefits are
a percentage of the deceased worker’s wages and are also provided to the surviving spouse
(and usually end at remarriage); and/or children (until age 18, and sometimes longer if a full-
time student).
Second Injury Fund

1. The Second Injury Fund pays compensation on behalf of an employer to an employee who
has already suffered a prior disabling injury, and now sustains a subsequent injury, and the
combination of the two injuries creates a greater disability than the second injury would have
created by itself.
2. The employer is responsible only for compensation that would have been paid had the second
injury occurred without the existence of the prior injury, and the fund pays the difference.
3. This fund is designed to encourage employers to hire people with disabilities by limiting their
liability for subsequent injuries.
4. The second injury fund is usually funded by assessments against insurers and self-insurers,
but may also be financed through general state revenues.
CHAPTER FOURTEEN
Which disability income benefit covers an injury that allows an employee to do some
work, but is unable to earn his or her usual wage until full recovery?
a. Temporary Total
b. Permanent Partial
c. Temporary Partial
d. Scheduled Injury
14.5 Workers’ Compensation and Employers Liability

Insurance Policy
1. The employers liability section of the policy doesn’t pay for medical expenses incurred by
the injured employee. In order for the policy to pay, the insured MUST be legally liable
for injuries and damages sustained by an employee that are not addressed by Workers’
Compensation statute or that are sustained by third parties and/or dependents of the injured
worker. Employers liability pays all sums for which the insured is legally obligated to pay:
a. For injuries to employees that arise out of employment but claimed against the insured in
a capacity other than as employer.
b. For care and loss of services.
c. For consequential injury to dependents of an injured worker.
d. For damages claimed by a third party as a result of a worker’s injuries.
2. The Workers’ Compensation policy, like other policies, contains various parts that address
coverages and conditions. The standard NCCI policy is only 6 pages because the details
regarding payment of benefits are contained in each state’s Workers’ Compensation act and
statutes. The policy Workers’ Compensation contains the following parts:
a. General Section
b. Part One – Workers’ Compensation Insurance
c. Part Two – Employers Liability Insurance
d. Part Three – Other States Insurance
e. Part Four – Your Duties if Injury Occurs
f. Part Five – Premium
g. Part Six – Conditions
General Section
1. The Policy – Establishes that the policy is a contract between the employer and the insurer.
The terms of the policy may not be changed or waived, except by endorsement.
2. Who is Insured – Establishes that the employer is the insured.
3. Workers’ Compensation Law – The law of each state or territory named in the Information
Page.
4. State – Any state in the United States, including the District of Columbia. An injured
employee is entitled to benefits provided by the state where the injury occurs.
5. Locations – All workplaces, locations, and states listed in the Information Page.
The Employers Liability pays for all the following for which the insured is legally
obligated to pay, except:
a. Care and loss of services
b. Injuries claimed by a third party as a result of worker’s injuries
c. Consequential injury to dependents
d. Intentional injury by the employee
14.6 Part One – Workers’ Compensation Insurance

1. How This Insurance Applies – This insurance applies to bodily injury by accident, bodily
injury by disease, or bodily injury resulting in death.
a. The accident must occur during the policy period.
b. The bodily injury must be caused or aggravated by the conditions of employment.
2. The Insurer Will Pay – The insurer will promptly pay the benefits due.
3. The Insurer Will Defend – The insurer will defend any claim for benefits payable by this
insurance. The insurer reserves the right to investigate and settle claims.
4. The Insurer Will Also Pay – The following amounts, in addition to other amounts payable:
a. Expenses incurred by the insured, at the request of the insurer, but not loss of earnings.
b. Premiums for appeal bonds.
c. Litigation costs taxed against the insured.
d. Interest on a judgment against the insured.
e. Expenses incurred by the insurer.
5. Other Insurance – The insurer will not pay more than its share of the benefits and costs
covered by the policy.
6. Payment the Insured Must Make (This is the exclusion section of the policy) – The insured
is responsible for paying benefits in excess of those provided by the Workers’ Compensation
law, including those required because of the:
a. Insured’s serious or willful misconduct.
b. Insured knowingly employing an employee in violation of law.
c. Insured failing to comply with health or safety laws.
d. Insured firing, coercing, or otherwise discriminating against any employee.
Note
If the insurer makes any excess payments, the insured must promptly reimburse the
insurer.
7. Recovery From Others (Subrogation) – The insurer reserves the right to recover its payments
from anyone liable for causing injury.
8. Statutory Provisions – The following apply as required by law:
a. Notice of an injury must be given promptly.
b. Bankruptcy of the insured does not relieve the insurer of its duties under the policy.
c. The insurer is liable to any person entitled to benefits under the policy.
d. Under the Workers’ Compensation law of the applicable state(s), jurisdiction over the
insurer is jurisdiction over the insured.
e. The policy will conform to Workers’ Compensation laws that apply to benefits and
assessments payable under the policy, such as taxes, special funds, etc.
f. Terms of this policy that conflict with state law are automatically changed to conform.
CHAPTER FOURTEEN
Under Workers’ Compensation insurance, the insured is responsible for paying
benefits for:
a. Taxes on litigation
b. Knowingly hiring an employee in violation of the employment law
c. Appeal bond premiums
d. When the insured incurs expenses requested by the insurer
14.7 Part Two – Employers Liability Insurance

Part two of the policy, Employer’s Liability, provides insurance for bodily injury and other damages
for which the insured becomes liable outside of Workers’ Compensation statute and occupational
disease laws. If someone is permitted by law to sue the insured for negligence or other tort damages,
this part of the policy applies.
1. How This Insurance Applies – This insurance applies to bodily injury by accident, by
disease, or resulting in death.
a. The bodily injury must:
1) Arise out of, and in the course of, employment.
2) Take place during the policy period.
3) Be caused by the conditions of employment.
b. The employment must be necessary to the work described in the Information Page.
c. Any suits for damages for bodily injury must occur in the United States, its territories and
possessions, or Canada.
d. The insurance protects the insured against damages under the Doctrine of Dual Capacity,
which applies when an employee is injured by a product the employer manufactures.
Note
Employees cannot purchase supplemental benefits.
2. The Insurer Will Pay – The insurer will pay the sum, up to policy limits, and the insured must
legally pay for damages because of bodily injury to employees. The bodily injury must be
covered by Part Two – Employers Liability Insurance, and the damages paid by the insurer
include:
a. Those for which the insured is liable to a third party because of a claim.
b. Care and loss of service.
c. Consequential bodily injury to an injured worker’s spouse, or immediate family member.
d. Actions brought against the insured in a capacity other than as an employer.
3. Exclusions
a. Liability assumed under a contract.
b. Punitive damages awarded because an employee was employed in violation of law.
c. Bodily injury to an employee while employed in violation of law.
d. Any obligation imposed by any Workers’ Compensation, Occupational Disease,
Unemployment Compensation, or Disability Benefits law.
e. Bodily injury intentionally caused by the insured.
f. Bodily injury caused outside of the United States, its territories and possessions, or
Canada. (Injury to a resident temporarily outside of these areas would be covered.)
g. Damages arising out of coercion, criticism, defamation, evaluation, reassignment,

discipline, harassment, humiliation, termination of, or discrimination against any
employee, as well as arising from any personnel practices, policies, acts, or omissions.
h. Bodily injury arising from work that falls under federal jurisdiction.
i. Fines or penalties imposed for a violation of federal or state law.
j. Damages payable under the Migrant and Seasonal Agricultural Worker Protection Act.
4. The Insurer Will Defend – The insurer will defend any claim for benefits payable by this
insurance. The insurer reserves the right to investigate and settle claims.
5. The Insurer Will Also Pay – The following amounts in addition to other amounts payable.
a. Expenses incurred by the insured, at the request of the insurer, but not loss of earnings.
b. Premiums for appeal bonds.
c. Litigation costs taxed against the insured.
d. Interest on a judgment against the insured.
e. Expenses incurred by the insurer.
6. Other Insurance – The insurer will not pay more than its share of the benefits and costs
covered by the policy.
7. Limits of Liability – The Limits of Liability shown on the Information Page are the most the
policy will pay for all damages covered by the policy for bodily injury by accident or disease.
8. Recovery From Others (Subrogation) – The insurer reserves the right to recover its payments
from anyone liable for injury.
9. Actions Against the Insurer – There will be no right to actions against the insurer unless:
a. The insured has complied with all terms of the policy.
b. The amount owed by the insured has been determined with the insurer’s consent or by
trial and final judgment.
Employers Liability applies under which of the following circumstances:
a. The employee is allowed to sue the employer for negligence
b. Liability is assumed under a contract.
c. Punitive damages awarded because an employee was employed in violation of law.
d. An obligation imposed by a Disability Benefits law.
When an employee is injured by a product manufactured by the employer, the
Employers Liability will provide coverage under which of the following?
a. Third Party Over claim
b. Consequential Injury Fund
c. Loss of Services
d. Doctrine of Dual Capacity
CHAPTER FOURTEEN
14.8 Parts Three to Six
Part Three – Other States Insurance

Many employers have operations in multiple states. This policy is designed to provide coverage
for as many states as the laws permit. Employers with operations in the monopolistic states must
purchase coverage directly from the state entity that sells this coverage. Otherwise, agents can
adapt this policy for their customers to include very broad national coverage as long as the
Information Page shows the states in which they have active operations and may have potential
exposures. The coverage part sets forth the guidelines for providing this “other state” coverage in
the policy.
1. This insurance applies only if more than one state is listed, and must be within the policy
territory. (Monopolistic states may not be listed here.)
2. If the insured begins work in a state listed on the Information Page after the effective date of
the policy, the insurance will apply if other insurance does not exist.
3. The insurer will reimburse the insured for any payments made where insurance applies, and
the insurer is not allowed to pay directly.
4. The insured must notify the insurer within 30 days when an employee works in a state not
listed in the Information Page.
Part Four – The Insured’s Duties if Injury Occurs

The insured’s duties if injury occurs are to:
1. Provide for immediate medical services required by law.
2. Give the insurer the names and addresses of the injured persons and any witnesses.
3. Promptly forward all notices, demands, and legal papers related to the injury to the insurer.
4. Cooperate with the insurer’s investigation.
5. Do not interfere with the insurer’s subrogation rights.
6. Do not voluntarily make any payments, assume obligations, or incur expenses.
Part Five – Premium

1. Insurer’s Manuals – All premiums are determined by the insurer’s manuals of rules, rates,
rating plans, and classifications as authorized by state law.
2. Classifications – The classifications shown in the Information Page are assigned based on an
estimate of the exposures the insured would have during the policy period.
3. Remuneration – The premium for each work classification is determined by multiplying a
rate and a premium basis. The premium basis is employee remuneration.
4. Premium Payments – The insured will pay the entire premium when due.
5. Final Premium – The final premium will be determined, after this policy ends, by using the
actual, not the estimated, premium basis and the proper classification that applies by law. If
cancelled:
a. By the Insurer – The final premium will be calculated pro rata for the time the policy was
in force.
b. By the Insured – The final premium will be based on the time the policy was in force and
increased by the insurer’s short rate cancellation table.
Note
Deposit premium is the advanced premium charged when coverage is issued. Deposit
premium is based upon estimated payroll.
6. Records – The insured will keep records of information needed to calculate the premium.
7. Audit – The insurer may audit records pertaining to the policy at any time and for up to 3
years after the policy period ends.
Part Six – Conditions

1. Inspection – The insurer has the right, but not the obligation, to inspect the insured’s
workplace. Inspections are for purposes of underwriting and determining premium and not as
a guarantee of safety or compliance with state or other laws.
2. Transfer of the Insured’s Rights and Duties – The insured is not allowed to transfer any rights
and duties under the policy without the insurer’s written consent.
3. Cancellation
a. If the policy is cancelled by the insurer, the insurer must provide written notice to the
insured, stating when the cancellation will take effect.
b. Generally, the insurer must give the insured at least 10 days’ written notice.
c. The policy will end on the day and time stated in the cancellation notice.
d. This policy will automatically comply with any changes in the law regarding
cancellation.
4. Sole Representative – The First Named Insured will act on behalf of all insureds, receive any
cancellation notice, and unearned premium.
Which of the following is the sole representative under the policy?
a. Employer and his partners
b. Named Insured
c. First Named Insured
d. Company legal representative
Voluntary Compensation Endorsement

1. This endorsement is used when an employer wishes to provide Workers’ Compensation
benefits to employees, although the law does not require the employer to provide coverage.
2. The following information must be provided in the endorsement:
a. The class of employees to be covered.
b. The state of employment.
3. The employees must waive their right to sue and accept coverage under the endorsement.
Which of the following is used by an employer who wants to provide Workers’
Compensation benefits even when it is not required?
a. Stop-Gap Endorsement
b. Secondary Injury Fund
c. Other Insurance Endorsement
d. Voluntary Compensation Endorsement
CHAPTER FOURTEEN
14.10 Other Sources of Coverage
Assigned Risk Plan (Residual Market Plan)

1. Many states offer employers unable to purchase coverage in the voluntary market the
opportunity to obtain coverage in a Workers’ Compensation Assigned Risk Plan.
2. Typically, insurers who write Workers’ Compensation insurance in the voluntary market in
the state must participate in the state’s assigned risk plan.
3. Some states, in lieu of establishing assigned risk plans, establish state insurance funds as
an alternative for an employer to purchase coverage. The fund operates as a public insurer
(sponsored and controlled by the state) that competes with private insurers and issues a
policy similar to those issued by private insurers conforming to the Workers’ Compensation
laws of the state. Employers may purchase coverage directly from the Fund, and licensed
brokers may also place business with the Fund.
Self-Insurance Plans and Employer Groups

1. All states, except North Dakota and Wyoming, allow employers to self-insure upon satisfying
certain statutory requirements that are a guarantee of their ability to meet their obligations.
2. Large employers are sometimes attracted to self-insurance plans because losses can be
predictable and benefits are capped by statute.
3. Employers must obtain a Self-Insurance Certificate and may also purchase excess insurance
or reinsurance.
4. Some states also require the employer to purchase a surety bond.
If an employer cannot obtain Workers’ Compensation coverage for his employees,
which of the following is an alternative?
a. Assigned Risk Plan
b. Workers’ Compensation Fund
c. State Claim Fund
d. Surety Fund
Chapter Fourteen — Lightning Facts

1. A Compulsory Workers’ Compensation law requires employers to provide benefits to their
employees with insurance or demonstrate the ability to provide required benefits. When
complying with a compulsory law, employers cannot be sued for workplace injuries. 14.1
2. An Elective Workers’ Compensation law allows employers to choose whether to accept or reject
state Workers’ Compensation laws. If rejecting Workers’ Compensation laws, an employer may be
sued by an injured employee, and the employer is denied the use of common–law defenses. 14.1
3. Common-law defenses are assumption of risk, contributory negligence, and negligence of a
fellow employee. 14.1
4. Monopolistic Workers’ Compensation insurance is only available through a state fund. 14.1
5. Competitive Workers’ Compensation insurance is available through private insurers and, if
available, a state fund. 14.1
6. An employer-employee relationship exists if the employer retains the right to direct the way work
is completed, supplies the necessary equipment and tools, determines the work hours and the
end results, and controls the method of compensation. 14.2
7. Workers are exempt from Workers’ Compensation statutes in certain circumstances where
employers hire few employees, or employee job duties include agricultural, farm and ranch
work, domestic duties, casual work, work as independent contractors, sole proprietors, or officers
of corporations. 14.2
8. Covered injuries are those that occur while the employee is at work, and the injury results from a
risk that is reasonably related to employment. 14.2
9. An occupational disease must arise out of the course of employment and must be caused by
conditions that are particular to that employment. 14.2
10. The U.S. Longshoremen and Harbor Workers’ Compensation Act applies to workers who load,
unload, build, or repair ships, but does not include the ship’s crew. 14.3
11. The Jones Act or Merchant Marine Act of 1920 applies to sailors injured by the negligence of
others. 14.3
12. In most states, Medical Benefits provide unlimited coverage for all necessary medical and
hospital expenses related to the covered injury that occurred during the policy period. 14.4
13. A schedule of benefits applies for specific permanent partial injuries, such as a dollar amount for
the loss of an eye, or a dollar amount for the loss of a hand, and these benefits are usually paid in
addition to other income benefits. 14.4
14. Rehabilitation Benefits, such as physical therapy and vocational training are utilized with the
objective of returning the injured employee to work as soon as possible, and are usually paid by the
insurer or out of special state funds funded by taxes levied against insurers and self–insureds. 14.4
15. A Death Benefit (Funeral Expense Benefit) is a statutory maximum amount, varying from state to
state, and provided as a burial allowance. 14.4
16. Survivor income benefits are a percentage of the deceased worker’s wages and are provided
to the surviving spouse until remarriage, and/or children until age 18, or longer if a full–time
student. 14.4
17. The Second Injury Fund pays compensation on behalf of an employer to an employee who
has already suffered a prior disabling injury, and now sustains a subsequent injury, and the
combination of the two injuries creates a greater disability than the second injury would have
created by itself. 14.4
18. For Employers Liability is liability coverage, the insured must be legally liable for injuries and
damages sustained by an employee that are not addressed by a Workers’ Compensation statute
and that are sustained by third parties or dependents of the injured worker. 14.5
CHAPTER FOURTEEN
19. Employers liability pays all sums for injuries to employees that arise out of employment but
claimed against the insured in a capacity other than as employer, care and loss of services,
consequential injury to dependents of an injured worker, and damages claimed by a third party
as a result of a worker’s injuries. 14.5
20. The Workers’ Compensation Policy is a contract between the employer, who is the insured, and the
insurer; and the terms of the policy may not be changed or waived, except by endorsement. 14.5
21. An injured employee is entitled to benefits in the state where the injury occurs. 14.5
22. Payments the Insured Must Make in excess of those provided by the Workers’ Compensation
law are the policy’s exclusions and include payments required because of the insured’s serious or
willful misconduct, knowingly employing an employee in violation of law, failing to comply with
health or safety laws, and firing, coercing, or otherwise discriminating against any employee. 14.6
23. The insurer reserves the right to Recovery from Others (Subrogation) payments from anyone
liable for injury. 14.6
24. The Workers’ Compensation Policy Provisions, as required by law, include prompt notice,
bankruptcy of the insured, insurer liability, jurisdiction, policy conformance, and conflicting
terms. 14.6
25. Employers Liability provides insurance for bodily injury by accident or by disease, or resulting
in death for which the insured becomes liable outside of Workers’ Compensation statute and
occupational disease laws. 14.7
26. To be covered, bodily injury must arise in the course of employment, take place during the
policy period, and be caused or aggravated by the conditions of employment. Suits for damages
for bodily injury must occur in the United States, its territories and possessions, or Canada. 14.7
27. The Insured’s Duties if Injury Occurs include providing required immediate medical services,
providing information regarding injured persons, giving prompt notice of claims and legal papers,
cooperating with the investigation, and restraining interference with subrogation rights and
voluntarily making payments or assuming obligations. 14.8
28. Insurers who write Workers’ Compensation Insurance in the voluntary market must participate in
the state’s Assigned Risk Plan. 14.10
29. State Insurance Funds in some states is an alternative for an employer to purchase Workers’
Compensation Insurance and operates as public sponsor and controlled by the state and
competes with private insurers in writing Workers’ Compensation Insurance. 14.10
30. Self-Insurance Plans and Employer Groups allow employers to self–insure upon satisfying certain
statutory requirements that are a guarantee of their ability to meet their obligations. 14.10
RETENTION QUESTION ANSWER KEY
Chapter 1
1. D Its members also called policyholders, own a mutual insurance company.
2. B An insurance company that accepts all the risk for an insurance company sells
reinsurance and is called a reinsurance company.
3. C A foreign insurer is not organized under the laws of the state in which it is writing
insurance, whereas a domestic insurer is organized under the laws of the state in
which it is writing insurance.
4. D The Underwriting Department is responsible for evaluating the acceptability of a risk
and, once accepted, determines the actual rate to be charged.
5. A The producer or agent is licensed to represent the insurance company when
transacting insurance business.
6. C Implied authority is that which the public assumes the agent has if it is not written
into the agent’s agency contract.
7. D The producer is responsible to the insurance applicant to promptly forward
premiums to the insurer, recommend the best protection, gain knowledge of
the applicant’s insurance needs and current insurance coverage, and serve the
applicant’s best interests.
8. D The Fair Credit Reporting Act protects consumer privacy by ensuring that data
collected by companies on a person is confidential, accurate, relevant, and used for
a proper purpose.
9. B A hazard increases the chance of loss and the three types are moral, morale, which
is indifference or carelessness, and physical, which is a physical condition.
10. C An insurable risk must also include a large number of groups with the same perils,
affordable premiums, and the loss must be measurable.
11. A An insured should not profit from an insurance loss.
12. D The fourth element of a legal contract is a competent party or someone that has the
legal capacity to enter into a legal contract.
13. B A warranty is a statement guaranteed true in all respects and if later discovered to be
false, the contract may be voided.
14. B Marital status is not an underwriting factor, but the nature of the risk is also
considered.
15. B The loss ratio is calculated by paid losses and reserves divided by the total earned
premium and used to determine the expected losses for a line of business.
Chapter 2
1. B An endorsement is a written amendment to the policy that also broadens or restricts
the policy provisions and takes precedence over the original policy language.
2. D A bailee takes a bailor’s property in order to repair, service, or store it.
3. B During arbitration a neutral third party decides the outcome of a claim.
4. A Additional living expenses are an indirect loss as they are paid as a consequence of
a direct loss such as a total fire loss to a home.
5. C The cost to replace damaged property with the same material and workmanship and
at current prices and ignores depreciation is the replacement value.
6. B Actual cash value is today’s replacement cost of an item minus the amount of
depreciation of the item.
7. B Scheduled coverage insures several items on a policy, like a house for a certain
amount and personal property for a different amount.
8. D Rights, such as the insured’s terms for cancellation, or the duties, such as the
insured’s duties in the event of a claim, are found in the Conditions section of the
insurance policy.
9. D If the insurer broadens coverage with no increase in premium, the coverage applies
to existing policies automatically.
10. C Fire is a basic peril covered under property policies. Ordinance or law, flood, and
neglect are common exclusions.
11. A The Named Insured receives the broadest coverage of all persons or organizations
protected by a policy.
12. C The coinsurance penalty reduces the amount paid in a partial loss as total losses are
paid based on the coverage limit on the policy.
Chapter 3
1. A A tort is a wrongful act for which compensation may be sought from the responsible
party.
2. C Special damages are paid for tangible losses and general damages are paid for
damages that cannot be objectively calculated, such as pain and suffering.
3. B The Notice of Loss is the initial notification to the insurer that a loss has happened.
Proof of Loss is a formal statement providing the details necessary for the insurer to
determine liability.
4. A Medical payments will also pay for surgical, x-ray, dental, ambulance, hospital,
nursing, and funeral expenses incurred by a third party on the insured’s premises.
5. D The fourth element is “violation of the duty is the proximate cause.” It is not
necessary to have an intervening cause.
6. B If the insured can prove that the claimant was negligent to any degree in causing the
accident, contributory negligence will prevent recovery of damages by the claimant.
7. A Under no-fault, the tort system is abolished and a party who is negligent and causes
injury to another does not have to pay for those injuries.
8. C Pro rata liability is a clause that in the event more than one insurance policy covers
a loss, each will pay its share of loss in proportion to the total insurance on the risk.
9. D Under an aggregate limit, the payment for an accident during a policy period
reduces the amount of insurance available for all future accidents that occur for the
remainder of the policy period.
10. C The combined single limit pays for any coverage wherever needed or in any
combination.
Chapter 4
1. D The Dwelling Program does not accept dwellings on farm property as these can be
insured on a different property policy.
2. C The DP-3 Special form covers the dwelling and other structures on an open peril
basis which covers all perils except the perils specifically excluded.
3. A The DP-2 and DP-3 policies pay for losses to the dwelling on a replacement cost
basis.
4. A Coverage A – Dwelling includes structures attached to the dwelling, such as a
carport, attached garage, breezeway, or deck.
5. B Construction materials used for repairs or renovation of the dwelling or other
structures are covered under Coverage A – Dwelling.
6. C The Coverage D – Fair Rental Value limit of insurance is up to 20% of the Coverage
A limit.
7. B Also excluded are accounts, bank notes, coins and currency, birds, animals, or fish,
and electronic data processing tapes, wires, and records.
8. A This coverage is also in addition to the Coverage A limit.
9. D The DP-1 policy only provides 5 days of coverage while the property is removed
from the dwelling to avoid a covered loss.
10. B Coverage is provided under only the DP-2 and DP-3 forms.
11. B If a direct loss by fire, explosion, or glass breakage occurs as a result of earth
movement, the policy will cover the ensuing damage.
12. C Losses caused by power failure off the insured premises is not covered, but if a
covered peril ensues as a result of the power failure, the damage from that ensuing
loss is covered.
13. A The Theft Coverage endorsement can be added to any form, including the basic DP-
1.
14. D Debris removal is not covered under a personal liability supplement.
15. B The increase is applied by the percentage shown on the endorsement annually.
Chapter 5
1. C The HO-6 covers the personal property of the condominium unit owner as well as
building coverage.
2. B The HO-5 Comprehensive Form covers personal property for open perils whereas
the HO-3 policy covers it for named perils.
3. D In order to qualify for coverage under the Homeowner policy, a full-time student
living away at college is an insured if under age 24.
4. C Vacant means the dwelling is unfurnished and not occupied.
5. D The Coverage C limit is 50% of Coverage A in the standard Homeowner policy, and
may be increased.
6. D Coverage C provides $500 for loss of business property away from premises.
7. C The automatic limit for Coverage D for the HO-2, HO-3, and HO-5 is 30% of
Coverage A and 10% of Coverage A for the HO-8.
8. D This endorsement provides up to $2,500 coverage for appliances, carpeting and
household furnishings in a rental apartment located in the residence premises.
9. A Governmental action is the destruction, confiscation, or seizure of covered property
by order of the government and is excluded in the Homeowner policy.
10. B This endorsement provides up to $5,000 of coverage for property directly damaged
by water that backs up through sewers or drains or overflows from a sump pump.
11. A Coverage under this section does not apply to the insured and regular residents in
the insured dwelling.
12. C Up to $1,000 will be paid under this coverage for property damage by the insured to
another person’s property regardless of fault.
13. D Section II excludes coverage if a vehicle used to assist the handicapped is parked
away from the insured location.
14. D An injured person isn’t responsible for settling the claim.
15. B This endorsement covers sail boats with or without power, and property damage or
bodily injury arising out of the ownership, maintenance, use, loading, or unloading
of the described watercraft.
Chapter 6
1. C If a vehicle covered by Part D coverages is replaced by a new car with the same
coverage, the policy will automatically extend coverage for 14 days.
2. B A lease for less than 6 months is not considered a private passenger auto eligible for
coverage under the Personal Auto Policy.
3. C A temporary substitute is also covered if the vehicle is out of normal use due to
breakdown, servicing, loss, or destruction.
4. A Payment for all defense costs is part of the Part A – Liability Coverage Insuring
Agreement, which also includes payment for bodily injury or property damage for
which the insured is legally responsible.
5. D The amount of surcharge to be applied to the policy is not linked to the limit of
liability.
6. C A Medical Payments claim will be paid within 3 years for reasonable expenses for
medical and funeral expenses regardless of fault.
7. A Bodily injury sustained by an insured isn’t covered if the insured is using a vehicle
while engaged in business. However, a coverage giveback applies to private
passenger autos, pickups, vans, and owned trailers used with such vehicles. This
exclusion applies to the business use of trucks and other commercial vehicles.
8. B A hit-and-run vehicle can’t be identified and is therefore covered under Part C.
9. A Besides a company car, a vehicle owned by the insured or a family member or a
vehicle furnished or available for the regular use of the named insured or a family
member is not considered an uninsured vehicle.
10. D Rollover and hitting another vehicle or object are covered by collision coverage.
11. C The insurer’s limit of liability for loss is the lesser of the actual cash value (ACV) of
the vehicle and the amount necessary to repair or replace the vehicle with another
of like kind and quality.
12. B Calling the police is only a duty when seeking uninsured motorist coverage.
13. A At least 20 days’ notice is required.
14. C Claims history is generally a valid reason for non-renewing a policy, not cancelling
the policy mid-policy term.
15. B This endorsement provides excess coverage over the primary coverage insuring the
non-owned vehicle.
Chapter 7
1. C The Pair and Set Clause applies. Coverage is written on a valued or actual cash
value basis and appraisal is required.
2. B This floater covers traveler’s personal property on an open perils basis anywhere in
the world except on the insured’s premises.
3. D The hull, motor, trailer, equipment, and marine accessories are covered on an open
peril basis.
4. A This policy fills in insurance gaps and covers perils that are excluded under standard
property policies (such as flood), and excludes perils that are covered under
standard property policies.
5. D Earth movement includes earthquakes, land shock waves or tremors, landslides,
mudslides, mudflows, sinkhole, and the rising, sinking, or shifting of the earth, and
must occur within 72 hours.
6. B Communities in flood-prone areas must have an approved flood control program in
order to benefit from the NFIP.
7. A The Emergency NFIP program covers up to $35,000 on 1- to 4-family dwellings.
8. C While farm property is not eligible, some incidental business use on the farm
property is allowed.
9. A The Umbrella acts as an excess liability policy over the limits of the underlying
policies.
10. B Personal injury perils are covered under the Umbrella policy, and will drop down to
cover from the first dollar if personal injury coverage is not covered on the primary
policy.
11. C Like a deductible, the insured pays the self-insured retention unless there is a
primary policy available to pay its limit of insurance.
Chapter 8
1. D Other policy conditions are cancellation conditions, examination of books and
records, premiums, and duties under this policy.
2. A Utility services are not covered under the basic cause of loss form.
3. B Steam boiler explosion is not covered under the broad cause of loss form.
4. D 25% of the coverage applies to direct loss.
5. C $10,000 is the limit of coverage.
6. D A building is considered vacant unless 31% of the building’s total square footage is
rented or used.
7. D The coverage automatically ends 90 days after construction is completed.
8. C Coverage includes the buildings and the fixtures that are a part of the building, such
as refrigerators, air conditioners, and other appliances, if the Association Agreement
requires the association insure the property..
9. D The unit-owners’ appliances cannot be owned by the insured to qualify for
coverage, but the business personal property of the insured is covered.
10. B The Period of Restoration begins after the loss and lasts 72 hours, and ends when the
property has been repaired or replaced.
11. D Loss of income is not covered by this coverage form.
12. C This endorsement provides coverage if the enforcement of any building, zoning, or
land use law results in the loss of value of the undamaged portion of the building.
Chapter 9
1. A This exposure involves an insured business that conducts its operations on premises,
either described or elsewhere, and covers occurrences that take place during the
policy period and in the policy territory.
2. B A product exposure involves the manufacture, sale, handling, distribution, or
disposal of insured property away from the insured premises.
3. D This legal liability occurs when a business is held responsible for the actions or
failures of others through a binding contract or agreement.
4. C Coverage is for the bodily injury or property damage caused by negligent work by
the insured, but this policy does not cover the actual work.
5. B The occurrence form is appropriate when the insured knows that the loss occurred
during the policy period, but not necessarily when it was reported.
6. D Host Liquor Liability is provided for those who only have incidental exposure. For
example, if the insured is an insurance agency and is hosting its annual Christmas
party, the exclusion won’t apply. However, if the insured is a restaurant that serves
alcohol and is hosting its annual Christmas party, the exclusion WILL apply.
7. B Libel, slander, misappropriation of advertising ideas or style of business,
infringement of copyright, title, or slogan in the insured’s advertisement, and
violation of privacy are also personal injury perils.
8. A Others covered are those named in the Declarations, including employees other
than executive officers or managers.
9. C The Products-Completed Operations is another limit, and all the limits pay
regardless of the number of insureds, claims made, suits brought, or persons or
organizations making claims or bringing suits.
10. B Several suits against several insureds do not increase the insurance for that
occurrence or policy period.
11. D The insured contract describes the liability assumed by the insured and also includes
an obligation to indemnify a municipality, an elevator maintenance agreement, and
an agreement in which an insured assumes tort liability.
12. C The CGL policy excludes bodily injury or property damage arising from discharge,
dispersal, seepage, migration, and release or escape of pollutants, and these three
coverages are bought back for coverage on an individual account basis.
Chapter 10
1. C Owned trailers used by businesses may be covered for physical damage coverage
but it is not automatic coverage.
2. D Symbol categories also describe only non-owned autos, hired autos, and owned
private passenger autos only.
3 A Under Section II – Liability coverage bodily injury liability coverage does not apply
to a fellow employee.
4. C Transportation expenses are paid up to $20 per day and a maximum of $600 for
temporary transportation expenses for the total theft of a covered vehicle.
5. D The other choices are Loss Conditions, and also included as General Conditions are
concealment, misrepresentation, or fraud, liberalization, other insurance, premium
audit, policy period, and territory.
6. B Garagekeepers coverage is added part of the Garage Coverage form to eliminate
possible coverage gaps, such as bailee liability.
7. B Garagekeepers Coverage provides Comprehensive, Specified Causes of Loss, and
Collision coverage for the vehicle and its equipment while in the care, custody, and
control of the insured.
8. A The other two symbols are owned private passenger autos only and owned autos
other than private passenger autos only.
9. C A common carrier can use either the TRUCKER COVERAGE FORM or the MOTOR
CARRIER COVERAGE FORM.
10. C This coverage is included because truckers and motor carriers may hire independent
operators to drive the owned vehicle.
11. D As a result of this Act, the number of motor carriers doing business increased and
the consumer costs associated with trucking decreased, thus reducing trucker wages.
12. B The Individual Named Insured endorsement adds all resident family members to the
Business Auto Coverage form in order to allow family member permission to drive
business autos.
Chapter 11
1. D Mysterious disappearance is the loss of property when the cause of loss cannot be
determined.
2. C Robbery is a theft using threat of violence.
3. B An employee is a person in the insured’s service and compensated for that service
for 30 days after termination.
4. D The messenger can be the insured or any of the insured’s partners or employees.
5. A The Loss Sustained form provides coverage for a loss that both occurred and was
discovered during the policy period or was discovered within one year of the
termination of the policy period.
6. A The Commercial Crime Coverage Forms (both Loss-Sustained and Discovery) are
designed for private businesses. The insuring agreements of these policies and forms
contain one limit of insurance for all types of employee theft.
7. C This endorsement insures money and securities taken from a messenger or armored
car service caused by theft, disappearance, or destruction; and the other choices are
specifically excluded.
8. D This form has 8 insuring agreements, but the insured can choose one, several, all, or
none.
9. B Accounting errors are not covered, and also excluded are vandalism losses if not
related to a theft, and fire losses from vandalism, theft, burglar, or robbery as there
are all covered under the standard property forms.
10. C An exclusion will apply if the insured fails to report the extortionist’s demands to an
associate, local law enforcement, or the FBI before the loss occurs.
Chapter 12
1. D The other three classes are exports, domestic shipments and property in transit, and
commercial property floater.
2. C Signs, accounts receivable, commercial articles floater, jewelers block coverage,
valuable paper and records, and equipment dealers coverage are controlled, or
filed, forms; the other choices are uncontrolled, or unfiled forms and also include
contractors equipment, electronic data processing, and installation floaters.
3. B Also covered are computers and their components and systems used exclusively in
the insured’s computer operation, such as air conditioning or electrical equipment;
the other choices are exclusions.
4. A Express warranties are those that are written into the policy contract.
5. B Protection and Indemnity, or P&I, is purchased by the ship owner to protect against
cargo lost due to the insured’s negligence, damage to other property when not
caused by collision, damage to property on board caused by collision, and injuries
to seamen resulting in unworthiness of the vessel.
6. D Commercial Auto Liability is also a required underlying coverage to qualify for the
Umbrella policy.
7. C Other covered perils include conflict of interest, malpractice, neglect, errors and
omissions, and breach of contract.
8. B The insurance company issuing the bond is the surety or guarantor, the party owing
the duty is the principal or obligor, and the party who is paid by the surety if the
principal fails to perform is the obligee.
9. D A Court Bond is a Surety Bond required by the court to enforce certain behavior.
10. A The types of coverage also include expediting expenses, business income and extra
expense, newly acquired premises, ordinance or law, errors and omissions, and
brands and labels.
11. C The Suspension condition allows the insurance company to immediately suspend
coverage against the loss.
12. D Coverage H is bodily injury and property damage liability.
13. D There is no Coverage K.
14. C All risk covers when the aircraft is on the ground, during taxi, and in flight.
15. C This policy also excludes failure to harvest a mature crop, share cropping, loss from
injury to buds, blossoms, blooms, leaves, and vines unless the crop is affected.
Chapter 13
1. B Replacement cost is the valuation method for the building and business personal
property as long as the limit of insurance for lost or damaged property at the time of
the loss is at least 80% of the full replacement cost of the property.
2. D Other ineligible risks include automobile repair or service stations, dealers, garages,
places of amusement, and restaurants and bars that do not meet the restaurant
eligibility rules.
3. A The BOP also covers buildings and business personal property located in or on or
within 100 feet of the covered building.
4. C Unless the loss is excluded, the loss to a covered building and business property is
the risk of direct physical loss, or open perils.
5. D This Coverage Extension applies to the business personal property while in transit or
at a property not owned, leased, or operated by the insured.
6. B Ordinary payroll expenses, however, are only paid for 60 days following the loss
unless the insured requests additional time and it is stated in the Declarations.
7. D Errors or omissions are excluded from coverage under the BOP.
8. D The limit of insurance for buildings will automatically increase by 8%.
9. C The named insured, executive officers and directors, and stockholders of any
covered organization other than a partnership, joint venture, or limited liability
company are covered.
10. C A person taking part in athletics, renters and a person hired to do work on behalf of
an insured are excluded.
11. D The First Named Insured may cancel the policy by mailing or delivering an advance
notice of cancellation to the insurer.
12. A The Named Perils endorsement provides named perils coverage in lieu of the open
perils.
Chapter 14
1. C The Monopolistic law is only available through a state fund, and the Elective version
allows employers to accept or reject the state Workers’ Compensation law.
2. A Some states exempt workers of employers with fewer than three employees.
3. B While it is a company game, it does not occur while working, performing the
assigned jobs, during the designated work hours, and it is not reasonably related to
employment.
4. B FELA applies to interstate railroad workers, the Harbor Workers’ Act applies to
workers who load, unload, build or repair ships, and the Defense Base Act applies to
workers on military bases outside the United States.
5. C Temporary Partial benefits are generally calculated as a percentage of the difference
in wages.
6. D Employers must be legally obligated to pay and the employer is also responsible
for injuries to employees that arise out of the employment, but claimed against the
insured while the insured is in a capacity other than as employer. Intentional injury
by the employee is not covered.
7. B The insured must also pay because of his serious or willful misconduct, failure to
comply with safety regulations, or discrimination.
8. A Employer’s Liability provides insurance for bodily injury and other damages for
which the insured is liable outside of Workers’ Compensation and the employee is
permitted by law to sue the insured for negligence.
9. D Doctrine of Dual Capacity applies when an employee is injured by a product the
employer manufactures.
10. C The First Named Insured will receive any cancellation notice and receive any
unearned premium.
11. D The voluntary compensation endorsement.
12. A This state Plan offers Workers’ Compensation coverage for employers who are
unable to purchase coverage in the voluntary market, and all authorized Workers’
Compensation insurers in the state must participate in the Plan.
KEY WORD INDEX
A Binder 25 Completed Operations Exposure

Blanket Limit 29, 107 135
Abandonment of Property 31
Boatowners Policy 108 Comprehensive Form (HO-5)
Absolute Liability 38
Bodily Injury 108, 112, 141 60
Acceptance 18
Bodily Injury Liability 36 Compulsory vs. Elective 218
Accident 24, 36
Broad Form (HO–2) 59 Computer Fraud 166
Accounts Receivable 171
Broker 9 Concealment 19
Accounts Receivable Coverage
Broker’s Bonds 183 Concurrency/Concurrent Poli-
Form 174
Burglary 26, 44, 165 cies 25
Actual Cash Value (ACV) 27,
Business Income 184, 214 Concurrent Causation 25
44, 59, 98, 106, 126, 127,
Businessowners Policy 200 Conditional Contract 19
186
Business Pursuits 113 Condominium Association Form
Actuarial Department 7
118
Additional Coverage(s) 32, 48, C
Consequential Loss 171
76, 119, 124
Cancellation 24, 144 Consideration 18
Additional Insured(s) 33
Career Agency System 8 Contents Broad Form (HO-4)
Admitted vs. Non-admitted 7
Case Reserve Method 21 60
Adverse Selection 15, 20
Certificate of Authority 7 Contingent Liability Exposure
Advertising Injury 81, 140, 208
Certificate of Insurance 36 135
Aggregate Limit 13, 40, 123
Civil Commotion 50, 176 Contract Bonds 183
Agreed Value 27, 126
Claim/Claimant 7, 12, 19, 21, Contract Carrier (trucker and
Agreement 18
25, 79, 88, 93, 99, 100, motor coverage) 156
Aleatory 18
106, 113, 134, 141, 144, Contract Law 17
Alien Insurer 7
162, 209, 211, 222, 223 Contract of Adhesion 18
Annual Transit Coverage Form
Claims-Made Form 137 Contract of Utmost Good Faith
176
Class Rating 20 17
Apparent 9
Coinsurance 33, 109, 123, 125, Contractor 135, 173
Applicant 18
128, 130, 176 Contractor’s License Bonds 183
Appraisal 107
Collapse 51, 110 Contractual Liability 136
“A” Rating or Judgment Rating
Collision 95, 107, 157, 177 Contributory Negligence 38
21
Combined Ratio 21 Controlled Lines of Coverage
Arbitration 25, 94
Combined Single Limit 40, 90 171
Assigned Risk Plan 228
Commercial Articles Coverage Court Bonds 183
Assignment 18
Form 174 Coverage Extension 204, 209
Assumption of Risk 38
Commercial Property Floater Coverage Territory 90, 208,
Attained Age 18
Risks 170 209
Attractive Nuisance 35
Commercial Umbrella Insur- Crop Hail Insurance Actuarial
Automatic Coverage 101
ance 178 Association (CHIAA) 192
Average Value Method 21
Common Carrier Cargo Liability Custodian 163
B 175 Custody 89, 113, 123, 131,
Common Carrier (Trucker and 139, 170, 172, 174, 185,
Bailee 25, 171, 172 202, 207, 210
Motor Coverage) 156
Bailor 26
Common Policy Conditions
Bankruptcy Clause 31 D
118
Basic Extended Reporting Period
Common Policy Declarations Deductible(s) 13, 25, 99, 117,
(BERP) 137
Page 118 131, 206
Bid Bond 183
Compensatory Damages 36 Defense Base Act 220
Bill of Lading 175
Competent Parties 17 Defense Cost 88
KEY WORD INDEX
Defense Coverage 140 Executives 7 Functional Replacement Value

Definitions 25 Expense Ratio 21 27
Dental 209 Experience Rating 20 Fund Transfer Fraud 166
Direct Loss 27, 106, 166, 214 Exports 170 Funeral Expense Benefit 221
Direct Mail 8 Express 9
G
Directors and Officers Liability Extended Coverage 43
(D&O) 181 Extended Reporting Period (Tail General Average 177
Direct Response Company 8 Coverage) 137 Glass Breakage 207
Direct Writing System 8 Extra Expense 119, 129, 131, Governmental Action 72, 171,
Disability 21, 94, 221 184, 185 174
Disability Income Benefits 221 Extra Expense Coverage Form Gross Negligence 35
Discovery Form 164 130
Domestic Insurer 7 H
F
Domestic Shipments and Prop- Hazard 14
erty in Transit 170 Facultative Agreements 6 HO–3 (Special Form) 59
DP–1 (Basic Form) 43 Fair Credit Reporting Act 10 Hold Harmless Agreement 17
DP–2 (Broad Form) 44 FAIR Plan 112 Hostile Fire 25
DP–3 (Special Form) 44 Fair Rental Value 48, 67
Dram Shop Liability 182 Falling Objects 44, 45, 61, 62, I
Duty to Defend 138, 140, 181 120 Impaired Property 145
False Arrest 80 Implied 9
E
False Statement 19, 80 Imports 170
Earth Movement 52, 109, 186, Federal Emergency Manage- Improvements and Betterments
205 ment Agency (FEMA) 110 127, 202
Earthquake 107, 109, 152, 171, Federal Employees Compensa- Inchmaree Clause 177
174, 192 tion Act 220 Indemnify 16
Effective or Issue Date 19 Federal Employers Liability Act Indemnity 18, 108
Electrical Failure 185, 197 (FELA) 220 Independent Agency 8
Electronic Data 122, 123, 140, Fellow Servant Rule 218 Indirect Loss 129, 139
145, 214 Fidelity Bonds (Honesty Bonds) Indirect Loss or Consequential
Electronic Data Processing Cov- 183 Loss 27
erage 173 Fiduciary Bonds 183 Individual Rating 20
Employee Dishonesty 162, 207 File and Use 21 Inflation Guard 126
Employee Theft or Dishonesty Financial Anti-Terrorism Act Inherent Vice 25
(Form A) 165 (USA Patriot Act) 11 Inside the Premises: Robbery or
Employment Practices Liability Financial Rating Services 6 Safe Burglary – of other
181 First Named Insured 33, 144 Property 166
Endorsement 18, 25 Flat Cancellation 24 Installation Floater 172
Equipment Breakdown 96, 169, Flood Insurance 110 Instrumentalities of Transporta-
186 Foreign Insurer 7 tion or Communication
Equipment Dealers Floater 173 Forgery 70, 162, 165 170
Errors and Omissions (E & O) Four Elements of a Legal Con- Insurable Events 16
181 tract 17 Insurable Interest 3, 16, 30
Estoppel 17 Fraternal Benefits Societies 5 Insurance Contract 9, 16
Excess Coverage 112 Fraud 19 Insured 33
Excess Insurance 26 Fraud and False Statements 11 Insured Location 131, 187, 189
Exclusive or Captive Agency Friendly Fire 25 Insured Premises 166
System 8
KEY WORD INDEX
Insurer (Principal) 9 M N
Insuring Agreement 29, 238
Malicious Mischief 50, 65, 107, Named Insured 33
Intentional Loss 32, 53, 106
166 Named Peril 27, 60, 175, 176,
Internet Liability and Network
Mandatory Rates 21 213
Protection Policy 182
Manual Rating 21 National Association of Insur-
Intervening Cause 38
Marketing 7 ance Commissioners
Issue Age 18
Market Value 27 (NAIC) 3
J Mass Marketing 8 National Flood Insurance Pro-
Mechanical 131, 151, 174, 185 gram (NFIP) 106, 110,
Jewelers Block Coverage 174
Medical Expense 55, 190, 208, 111
Joint Underwriting Association
209, 211 Nationwide Marine Definition
6
Medical Malpractice Insurance 170
Jones Act or Merchant Marine
181 Neglect 32, 180
Act of 1920 220
Medical Payments Coverage 36 Negligence 35, 37, 177, 220,
Judicial Bonds 183
Merchant Marine Act (Jones Act) 259
L 11 Negotiate 9
Merit Rating 21 No-Fault Liability 38
Labor and Materials Bond 183 Military Action 186 Non-Admitted 7
Lapse Date 9, 19 Misrepresentation 13, 19 Non-Concurrency/Non-Concur-
Law of Agency 8 Mobile Home 43, 190 rent Policies 25
Law of Large Numbers 15 Modified Form (HO–8) 60 Non-Personal Contract 18
Legal Action Against Us 31 Money Orders and Counterfeit Non-Renewal 24, 144
Legal Liability 17, 35, 108, Money 166 Notice of Loss 36
119, 134, 175, 177 Monopolistic vs. Competitive Nuclear Hazard 52
Legal Purpose 18 218
Libel 80, 190 O
Morale Hazard 14
Liberalization 30 Moral Hazard 14 Obligee 182
License and Permit Bond 183 Mortgage holder 126 Occupational Disease 219
Limited Coverage 119 Motor Carrier 149 Occurrence 24, 36
Limited Pollution Liability Cov- Motor Carrier Act 11 Occurrence Form 137
erage Form (Designated Motor Carrier Act of 1980 157 Offer 18
Sites) 146 Motor Carrier Coverage Form Open Competition 21
Limit of Liability/Limits of Insur- 156 Open Peril(s) 27, 45, 59, 61,
ance 40 Motor Truck Cargo Carrier’s 106, 107, 108, 120, 170,
Liquor Liability 138, 182 Legal Liability Form 175 172, 174, 175, 203, 207
Lloyds of London 5 Motor Truck Cargo Owners Optional Coverage(s) 117, 123,
Loss 14 Coverage Form 175 126, 138, 173, 174
Loss Cost Rating 21 Motor Vehicle Dealer Bonds Ordinance or Law 52, 110,
Loss Exposure 15 183 123, 186, 204
Loss of Consortium 36 Multi-Peril Crop Insurance Outside the Premises 166
Loss of Use 130, 140, 145, (MPCI) 192
152, 159 Mutual Insurance Company 4 P
Loss Payment 31, 176 Mutual Insurer 5 Parol Evidence Rule 17
Loss Ratio 21 Mysterious Disappearance 26, Particular Average 177
Loss Reserves 21 107, 163 Penalty/Penalties 13, 128, 130,
Loss Sustained Form 164
131, 176, 218
Loss Valuation 24
Performance Bond 183
KEY WORD INDEX
Peril 14 R Stock Insurance Company 4

Per Occurrence Limit 40 Subrogation 30
Reasonable Expectations Doc-
Per Person Limit 40 Supplemental Extended Report-
trine 19
Personal Articles Floater (Sched- ing Period (SERP) 138
Receipt 143, 175
uled Article Floater) 106 Surety 169, 228
Reciprocal Insurance Company
Personal Contract 18 Surety Bonds (Performance
5
Personal Injury 90, 108, 112, Bonds) 183
Refund 138
208, 211 Surety (Guarantor) 182
Rehabilitation Benefits 221
Personal Injury Liability 36
Reinsurance 228 T
Personal Producing General
Reinsurance Companies 6
Agent 8 Tabular Method 21
Remuneration 107, 226
Physical Hazard 14 Tax Bonds 183
Renewal 18
Policy Period 123, 128, 144, Tenant 47, 58, 68, 127, 210
Replacement Cost 44, 59, 60,
150, 208, 209, 212, 221, Terrorism Risk Insurance Ex-
73, 123, 126, 200
223 tension Act of 2005 and
Replacement Value 27
Pollution Extension Endorse- 2007 (TRIA) 12
Reporting Period 128, 138
ment 146 Theft 26, 50, 65, 107, 110,
Representation 19, 144, 145
Pollution Liability 134 123, 159, 166, 174, 207,
Residence Employee 63
Pollution Liability Coverage 238
Residence Premises 64
Form (Designated Sites) Tort 35
Residual Markets 6
146 Tort Law 17
Retroactive Date 137, 138
Power Failure 52 Transit Coverage Forms 176
Retrospective Rating 21
Premises and Operations Expo- Transportation expense 105
Right of Salvage 25
sure 134 Transportation Expense 96,
Riot 45, 50, 176
Premium Assumptions 20 103, 159
Risk 14
Primary Insurance 26 Treaty Agreements 6
Risk Retention Groups (RRG) 5
Principal (Obligor) 182 Trip Transit Coverage Form 176
Risk Sharing/Risk Sharing Plan
Principle of Indemnity 16 Truckers Coverage Form 156
5, 6
Prior Approval 21
Probability 7, 14
Robbery 26, 165, 166 U
Running Down Clause 177
Producer (Agent) 9 Umbrella Policy 106
Product 135 S Uncontrolled Lines of Coverage
Products Exposure 135 171
Professional Liability 113, 169 Salvage Value 25
Underinsured Motorists Cover-
Promise 17, 18, 19, 176, 264 Scheduled Limit 29
age 95
Proof of Loss 31, 36, 99, 126 Second Injury Fund 217, 221
Underwriting 7, 9, 10, 14, 16,
Property Damage 54, 88, 89, Self-Insurer 5
112
90, 95, 112, 135, 150, Short Rate Cancellation 24
Unilateral Contract 19
151, 186, 191, 208 Signs Floater 174
Property Damage Liability 36 Sinkhole 109, 188
85, 93, 94, 99, 102, 158
Pro Rata Cancellation 24 Slander 80
Unoccupancy 26
Pro Rata Liability 40 Specific Limit 29
U.S. Longshoremen and Harbor
Proximate Cause 25 Speculative Risk 14
Workers’ Compensation
Punitive Damages 36, 224 Split Limit 40
Act 220
Pure Risk 14 Stated Amount 18
Stated Value 27
Statute of Limitations 38
Statutory Law 38
KEY WORD INDEX
V
Vacancy 26, 189
Valuable Papers and Records
124, 174
Valued Contract 18
Valued Policy 27
Valued Policy Law 33
Vandalism 165, 166
Vandalism and Malicious Mis-
chief Endorsement (VMM)
44, 45, 61, 62
Vicarious Liability 35
Violent Crime Control and Law
Enforcement Act of 1994
13
Voidable Contract 19
Void Contract 19
Volunteer Worker 145
W
Wages 157, 221
Waiver 17
War 52
Warranties 19, 145, 176
Watchperson 163
Watercraft Liability 108
Water Damage 52
Workers’ Compensation 94,
217, 222, 223, 227
Write Your Own (WYO) 111
Y
Yacht Policy 108
GLOSSARY
A Additional Coverages – Agreement – One party must

Additional coverages are make and communicate an
Abandonment of Property –
automatically included in offer to the other party and the
Specifies that the insured may
property policies without an second party must accept that
not abandon or relinquish
additional premium, depending offer.
ownership of damaged property
upon the type of policy. They’re
to the insurer for disposal or Aleatory Contract – Parties to
paid in addition to those stated
repair. a contract exchange unequal
in the insuring agreement
amounts of money. Insured’s
Absolute Liability – A doctrine and include debris removal,
premium paid is less than the
that applies only in particular collapse, and fire department
potential benefit to be received
circumstances. Employers service charges.
in the event of loss.
are absolutely liable for
Additional Insured(s) – A
employee work-related injuries. Alien Insurer – An insurer
person or organization not
Responsibility without fault or organized under the laws of
ordinarily protected by a policy
negligence. any jurisdiction outside the
but which, through the addition
United States, whether or not
Acceptance – The acceptance of an endorsement to the
it is admitted to do business in
of an insurance contract takes policy, is granted status as an
this state.
place when the insurance insured.
company agrees to issue Annual Transit Coverage Form
Admitted Insurer – An
insurance. Aggregate Limit – Used to
admitted (authorized) insurer
protect all property/shipments
Accident (Injury) – Requires is authorized to do business in
being shipped or received from
that the injury be unintended this state.
other shippers during the year
and unforeseen
Adverse Selection – The via any common carrier.
Accounts Receivable Coverage insuring of risks that are more
Apparent Authority – Authority
Form – Coverage provides prone to losses than the average
created when a producer
insurance when the insured’s (standard) or above average
exceeds expressed authority,
business records are destroyed (preferred) risk.
and the insurer does nothing to
in a loss caused by a covered
Aggregate Limit – The counter it.
peril, and the business is unable
maximum amount payable for
to collect money it’s owed. Applicant – The person making
loss (per location and/or per
application for insurance
Actual Cash Value – The person) from all occurrences
coverage.
policy pays for the cost to within a policy period
repair or replace the damaged regardless of the number of Application – A written formal
property at the time of loss, less separate accidents. request by an applicant to an
depreciation. insurer requesting the insurer
Agreed Value – The insurer
issue a policy based upon
Actuarial Department – and insured agree, at the time
information contained in the
Gathers and interprets statistical of insuring, on an amount
application.
information used in rate of insurance to be paid in
making; an actuary determines the event of a loss; used Appraisal – Specifies that if
the probability of loss and sets when valuation is difficult to the insured and insurer cannot
premium rates. determine. agree on the amount of a
loss, either may demand an
appraisal.
GLOSSARY
Arbitration – The process Bailor – An individual who occurrence arising out of the
whereby a disputed claim is retains the ownership of use or maintenance of covered
decided by a neutral third property that has been taken property or a non-owned boat.
party. into the care, custody, and/or
Bodily Injury Liability – Legal
control of a bailee.
Assigned Risk Plan – A state liability arising from physical
required plan where all insurers Bankruptcy Clause – Specifies injury to a person, including
must participate, providing auto that bankruptcy or insolvency sickness, disease, and death
insurance for those persons of the insured does not relieve caused by the negligent or
not able to obtain insurance the insurer of any of its duties purposeful acts or omissions of
through normal channels. or obligations under the policy. an insured.
Assignment – Specifies that the Basic Extended Reporting Broker – Person that negotiates
insured may not transfer rights Period – Extended reporting insurance contracts on
of ownership or interest in an period is a provision in a behalf of the insured, thereby
insurance policy to another claims-made form. Allows representing the client’s
party without the insurer’s claims to be reported after interest, not the insurer.
written consent. the policy term for a specific
Broker’s Bonds – Bonds such
period of time after the policy’s
Assumption of Risk – The as insurance, mortgage, or
expiration or cancellation date.
plaintiff who consciously title agency guarantee that the
exposes himself to danger Bid Bond – Guarantee that the broker performs according to
assumes some risk of possible contractor making the bid will, law.
injury. upon acceptance of the bid by
Burglary – The taking
the contractor’s customer (the
Attained Age – Insured’s age of property from inside
Obligee), proceed with the
at any point in time, typically the premises by a person
contract and replace the Bid
used at renewal or conversion. unlawfully entering or leaving
Bond with a Performance Bond.
the premises as evidence by
Attractive Nuisance – An
Bill of Lading – Required to visible signs of forcible entry or
important “exception” to the
be issued to the shipper of the exit.
usual liability for injuries
goods being transported; two
to trespassers is in cases of Business Income – Covers
types (straight and released)
injuries to children. Examples: actual loss of business income
swimming pools, ladders, Binder – A document that sustained during the period of
refrigerator doors left open. temporarily provides insurance restoration due to suspension
coverage until a policy is of operations, as a result of a
Average Value Method – A
issued. direct physical loss caused by a
loss reserve established based
covered loss.
on average settlements of Blanket Limit– This method of
particular claim types. writing coverage is used when Businessowners Policy –
you are insuring more than one Designed for small to medium
B property in one policy by only sized business firms that do not
an amount of insurance that require extensive underwriting.
Bailee – An individual or
applies to all properties covered
organization who has taken Business Pursuits – Extends
under the policy.
into its care, custody, and/or liability coverage for
control the property of another Boatowners Policy – Similar involvement in business not
for servicing, repair, or storage. to HO, provides bodily owned or controlled.
injury and property damage
liability coverage for an
GLOSSARY
C specified percentage of that provides more comprehensive

value thereby encouraging the coverage than that contained in
Cancellation – The termination
insured to purchase insurance underlying primary insurance.
of an insurance policy before
to value.
its expiration date. Insured or Common Carrier Cargo
insurer may cancel. Collapse – The abrupt falling Liability – Requires a bill
down or caving in of a of lading to be issued o the
Career Agency System –
building, or any portion of a shipper of the goods being
Agents are recruited, trained
building, but only if it cannot transported. Two types of are
and supervised by either a
be occupied for its current Straight and Released
managing employee or General
intended purpose.
Agent who is contracted with Common Carrier (Trucker and
the insurance company. Collision – The upset of the Motor Coverage) – Coverage is
covered vehicle or non-owned provided for loss or damage to
Case Reserve Method – A loss
auto, or their impact with property arising from the legal
reserve established for each
another vehicle or object. liability of the carrier. It covers
claim, when reported.
the interest of the trucker—
Combined Ratio – Sum of the
Certificate of Authority – not the shipper, owner, or
loss ratio and expense ratio.
Authorization granted by the consignee—when loss or
Department of Insurance to an Combined Single Limit – The damage to the cargo occurs.
agency or insurer to transact limit of the policy may be
Common Policy Conditions
insurance in this state. applied to either the bodily
– Cancellation, changes,
injury (BI) or property damage
Claim – A request for payment examination of your books
(PD), wherever needed, or in
of benefits and records, inspections and
any combination.
Claimant – A person making a surveys, and premiums
Commercial Articles Coverage
request for payment of benefits Common Policy Declaration
– Coverage provides insurance
Claims-Made Form – Provides Page – Shows the Who, What,
for fine arts, cameras, musical
for the defense and payment of When, Where, and how much
instruments, and their related
claims, for which the insured that applies to the insurance
equipment when used for
is legally liable. Offers same provided by the policy; defines
business or commercial
coverage as Occurrence Form, each of the coverage parts
purposes.
but is of particular significance included on the policy.
Commercial Ocean marine
to risks that have the potential Compensatory Damages –
Insurance – Coverage is called
to generate claims years after Awarded to the injured party
Protection and Indemnity;
an occurrence that caused for the actual loss sustained;
covers legal liability imposed
injury or damage. can be Special Damages or
on the insured for damages
Class Rating – A group of General Damages
arising out of the operation of
insureds who have similar the insured vessel. Competitive – Workers’
exposures and experience are Compensation insurance
Commercial Property Floater
charged the same rate. available through private
Risks – Insure property
Coinsurance – Applies to insurers.
pertaining to a business,
commercial property and profession, or occupation. Competent Parties – All parties
is used only in the event of to a contract; Minors, mentally
Commercial Umbrella
a partial loss; establishes incompetent, persons under
Insurance – Provides coverage
the basis of payment if the influence of drugs or alcohol do
against catastrophic losses,
insured fails to maintain a not have legal capacity.
extends liability limits, and
GLOSSARY
Completed Operations Condominium Association certain customers and NOT the

Exposure – Applies to Form – Used in place of the general public.
occurrences that occur after Building and Personal Property
Contract Law – Pertains to the
the insured’s operations have Coverage Form when insuring
formation and enforcement of
been completed and result buildings and fixtures that are
contracts.
from improper or defective a part of the building insured
workmanship, installation, by a condominium association. Contract of Adhesion – One
construction, or repair. Includes coverage for building party prepares a contract
items such as refrigerators, (insurer) and submits it to the
Compulsory – Employers
air conditioners, and other other party on a take-it-or-
required to provide Workers’
appliances, owned by the leave-it basis (insured).
Compensation benefits to
Association. Contract of Utmost Good Faith
employees or demonstrate the
ability to provide. Consequential Loss – A second – Both parties bargain in good
or financial loss occurring as faith in forming the contract,
Computer Fraud – Covers
the result of a direct loss. and rely upon the statements
losses when a computer is
and promises of each other.
fraudulently used to transfer Consideration – Insured’s
money, securities, and other payment of premium in Contractors Equipment Floater
property from the insured exchange for the insurer’s – Provides open perils coverage
premises, banking premises, promise to pay claims. on the insured’s equipment,
OR to a person or place outside such as mobile tools,
Consideration Clause –
the insured premises. equipment, and machinery,
Specifies the amount and
including forklifts, compressors,
Concealment – The frequency of premium paid
generators, and small hand
withholding of known by the owner as something of
tools.
(material) facts so important value provided in exchange for
that the disclosure of them the company’s promise to pay Contractor’s License Bonds
would change the decision (the insuring clause) – Guarantee that a contractor
of an insurer with respect to complies with laws pertaining
Contingent Liability Exposure
underwriting, settling a loss, or to his or her trade.
– Applies when the liability of
determining premium. Contractual Liability – Liability
others causes the insured to
Concurrency/Concurrent be legally liable for the actions assumed by the insured under
Policies – A situation under of, or failures to act, of other a contract. A business may
which at least 2 policies parties, such as sub-contractors be held legally liable for the
provide identical coverage for or independent contractors. actions of, or failures to act, of
the same risk. parties per the language of a
Contract Bonds – Guarantee
contract or legal agreement.
Concurrent Causation – A that contractors perform
principle holding that when according to a construction Contributory Negligence –
two perils simultaneously cause contract. Prevents recovery for damages
a loss, the insurer must pay the caused by a negligent party if
Contract Carrier (Trucker
loss even if one of the perils is the claimant was also negligent.
Motor Coverage) – Business,
excluded by the policy. Controlled Lines of Coverage
individual, or organization that
Conditional Contract –Both carries persons or property for a – Policy forms, endorsements,
parties to a contract must fee, from one place to another. and rates that are filed by
perform certain duties and Persons or property being insurers with the departments of
follow rules of conduct to make transported are only those of insurance in each of the states
the contract enforceable. where they write insurance.
GLOSSARY
Court Bonds – Consist in which an insured is legally sites, call centers and vending
of Judicial Bonds, which liable. machines.
guarantee certain parties
Definitions – Words, terms, Direct Writing System – An
fulfill statutory obligations
and phrases that are clearly insurer deals directly with the
in connection with court
described and used in an insured through an employee
proceedings; and Fiduciary
insurance policy for the agent.
Bonds, which guarantee the
purpose of clarifying the intent
honest and faithful performance Discovery Form – Provides
of the insurer with respect to
of executors, trustees, and other coverage for losses that are
the extent of coverage provided
fiduciaries. discovered during the policy
by the policy.
period, but that did not
Coverage Territory – Specifies
Difference in Conditions (DIC) necessarily occur during the
the geographic area in which
Insurance – DIC is a special policy period. Requires the use
the property must be damaged
form used to fill in the gaps of a retroactive date.
in order for coverage to apply.
of a property policy. There is
Discrimination – Permitting
Crop Hail Insurance Actuarial no standard policy form, no
individuals of the same class
Association – Provides named coinsurance, no pro rata clause.
and hazard to be charged
peril coverage (such as hail,
Direct Loss – Damage different premium rates for the
fire, lightning, wind, freezing,
to property in which the same coverage.
frost); coverage begins at 12:01
proximate cause of the loss is
a.m. following date application Domestic Insurer – An insurer
an insured peril.
is signed, if crop is visible organized under the laws of
above ground. Coverage ends Direct Mail – A marketing this state, whether or not it is
when crop is harvested. system utilizing direct mail, admitted to do business in this
newspapers, magazines, radio, state.
Custodian – The insured or
television, internet, web sites,
any of the insured’s partners or Domestic Shipments and
call centers and vending
employees while having care Property in Transit – Involves
machines; sells insurance
and custody of the property shipments while in transit,
policies directly to the public
while inside the premises, while in the custody of others,
with licensed employees or
excluding a watchperson or and while being returned.
contractors.
janitor. Disability Income Benefits –
Directors and Officers Liability
Custody – Protective care of a Benefits are generally limited to
(D&O) – Written to protect
property or item. the period of disability; benefit
the directors and officers of a
types include, Temporary Total,
corporation or other legal entity
D Permanent Total, Temporary
for wrongful acts committed
Partial, Permanent Partial.
Deductible – A specified while acting in their capacity
dollar amount of each covered as directors and officers for the Domestic Shipments and
property loss that an insured organization. Property in Transit – Involves
must pay. shipments while in transit,
Direct Response Company
while in the custody of others,
Defense Base Act – Workers’ – Sells insurance policies
and while being returned.
Compensation that applies directly to the public with
to workers on military bases licensed employees or DP-1 (Basic Form) – Perils
outside the United States. contractors utilizing direct insured against are fire,
mail, newspapers, magazines, lightning, and internal
Defense Cost – Settle any explosion.
radio, television, internet, web
lawsuit or claim based on a loss
GLOSSARY
DP-2 (Broad Form) – DP-1 rising, sinking, or shifting of the Employee Theft or Dishonesty
perils, EC perils, and VMM are earth. (Form A) – Covers acts of theft
covered, as well as Damage by an employee that result in
Easement – Liability
by Burglars; Falling objects; loss of, or damage to, money,
assumed under the right
Weight of ice, snow, or sleet; securities, and other property.
to use someone’s land or
Accidental discharge or
license agreement, except in Employee Practices Liability
overflow of water or steam;
connection with construction – Provides coverage for
Sudden and accidental tearing
or demolition operations on or employment discrimination,
apart, cracking, burning, or
within 50 feet of a railroad. sexual harassment, and
bulging; Freezing; Sudden
wrongful termination.
and accidental damage from Effective Date – The date when
artificially generated electrical insurance coverage begins. Endorsement – A form
current changing the provisions of a
Elective – Employers have
policy.
DP-3 (Special Form) – choice to accept or reject
Coverage for the dwelling and Workers’ Compensation laws. Equipment Breakdown –
other structures is provided on Insurance for loss due to the
Elements of a Legal Contract
an open perils basis, meaning equipment breakdown of most
– Competent parties,
coverage is provided for all types of equipment, such as
legal purpose, agreement,
causes of loss except for those boilers, machinery, refrigeration
consideration
perils specifically excluded. systems, air conditioning
Electronic Data – Includes systems, electrical equipment,
Duty to Defend – The insurer information, facts, computer etc.
promises to defend any law programs, and the cost
suit brought against the insured Equipment Dealers Floater –
to replace or restore such
for damages caused by an Provides insurance for property
information.
occurrence to which coverage consisting primarily of mobile
applies, whether or not any Electronic Data Processing agricultural and construction
damages are paid. Coverage – Form insures equipment, including property
computers, component of others in the dealer’s care,
E parts, associated peripheral custody, or control, such as
equipment including printers binders, reapers, harvesters,
Earth Movement – Earthquake, and faxes, and systems used tractors, bulldozers, and road
including land shock waves or exclusively in the insured’s scrapers.
tremors before, during or after computer operations, such
a volcanic eruption. Landslide; Errors and Omissions –
as air conditioning, fire
mudslide or mudflow; Professional liability insurance
suppression, and electrical
subsidence or sinkhole, earth covering the liability of an
equipment.
sinking, rising, or shifting. agent or agency.
Employee Dishonesty –
Earthquake Endorsement – Estate Conservation – Provides
Coverage provides insurance
The peril of earthquake, or money to pay any estate taxes
for Business Personal Property,
earth movement, is excluded or loans that must be satisfied
including money and securities,
on virtually all property upon the death of the estate
resulting from dishonest acts
policies. Included in the owner (the insured) preserving
committed by any of the
peril of earthquake are earth the insured’s estate.
insured’s employees acting
movement, land shock waves alone or in collusion with other
or tremors, landslide, mudslide, persons.
mudflow, sinkhole, and the
GLOSSARY
Estoppel – A legal doctrine that Extended Coverage – Provides Fair Access to Insurance
prevents the denial of a fact, if insurance for property Requirements (FAIR Plan) –
the fact was admitted to be true consisting primarily of mobile Established by states to provide
by a previous action. agricultural and construction basics property insurance
equipment, including property to property owners who are
Excess Coverage – Property
of others in the dealer’s care, unable to secure coverage
coverage above the primary
custody, or control. in the standard property
amount of insurance. Excess
marketplace.
does not pay until primary is Extended Reporting Period
exhausted. (Tail Coverage) – If a claims- Fair Rental Value – Policy pays
made policy isn’t renewed or the fair rental value of the part
Excess Insurance – Property
replaced, the claims-made form of the described location that is
coverage above the primary
contains a provision for the rented to others at the time of
amount of insurance. Excess
extension of time during which a loss if the rental unit is unfit
does not pay until primary is
claims must be reported. for its normal use because of
exhausted.
a direct loss covered by the
Extra Expense – The necessary
Exclusion Ratio – The amount policy.
expenses incurred by the
of each annuity payment that
insured during the “period of Falling Objects – Damage to
is excluded taxation and is
restoration” that would not the exterior of the building must
considered a return of premium
have been incurred had the take place for coverage to apply
paid.
covered loss not occurred. to contents inside the building.
Exclusive (Captive) Agency
Extra Expense Coverage Form False Statement – A false
System – Agent represents
– Covers additional expenses statement in the application
solely one company or group
that are incurred during the that can render the contract
of companies having common
period of restoration, which void, if material to acceptance
ownership. The insurer retains
the insured would not have of the risk.
ownership rights to the business
incurred if there had been no
written by the agent. Federal Emergency
direct physical loss (such as
Management Agency (FEMA)
Expense Ratio – Determined relocation expenses and costs
– Government agency that
by dividing an insurer’s total to equip a temporary location).
administers the National Flood
operating expenses by total
Insurance Program (NFIP).
earned premium. F
Federal Employees
Experience Rating – Rates Facultative Agreements – A Compensation Act – Workers’
based upon employers prior reinsurance agreement allowing Compensation that applies to
loss experience. the ceding company and all U.S. civilian employees.
Exports – May be insured at the reinsurance company an
opportunity to exchange advice Federal Employers Liability
any location and Acquires its
about the underwriting of each Act (FELA) – Workers’
character when being prepared
case. Compensation that applies to
for export. They must retain that
interstate railroad workers.
character unless diverted for Fair Credit Reporting Act –
domestic trade. Protects a consumers right to Fellow Servant Rule – Removes
privacy, making certain data is the employer’s negligence if a
Express Authority – Authority
confidential, accurate, relevant, fellow employee contributed in
that is written into the
and properly used. any way to the loss.
producer’s contract.
GLOSSARY
Fidelity Bonds (Honest Bonds) Foreign Insurer – An insurer Fund Transfer Fraud – Covers
– Cover employers from direct organized under the laws of loss of funds resulting from
loss due to fraudulent or any other state, possession, a fraudulent instruction that
dishonest acts (theft) by their territory, or the District of directs a financial institution to
employees. Columbia of the United States, transfer, pay, or deliver funds
whether or not it is admitted to from the insured’s transfer
Fiduciary Bonds – Guarantee
do business in this state. account.
the honest and faithful
performance of executors, Forgery – Signing of the Funeral Expense Benefit – A
trustees, and other fiduciaries. name of another person or statutory maximum amount,
organization with intent to varying from state to state,
File and Use – Filed with
deceive. provided as a burial allowance.
insurance regulator, in use
immediately. Fraternal Benefit Society –
G
Nonprofit organizations that
Financial Anti-Terrorism Act
generally sell insurance only to General Average – A partial
(USA Patriot Act) – Imposes
members. loss sustained voluntarily, but
record keeping and government
reporting requirements on Fraud – The intentional done so to save a vessel or
banks, financial institutions and misrepresentation, deceit, or cargo from a total loss.
non-financial businesses for concealment of a material fact Governmental Action – The
specific financial transactions known to a person with the destruction, confiscation, or
and customer financial records. intention of causing injury to seizure of covered property by
another party. order of the government and is
Financial Rating Services –
Independent financial rating Friendly Fire – A fire that was excluded in the Homeowner
services that evaluate and rate intentionally set and stays policy.
the claims paying ability and within its intended boundaries Gross Negligence – A willful,
financial stability of insurance (e.g., a fireplace). reckless disregard for the
companies;producers are consequences affecting the life
Fraud and False
responsible for placing business or property of another.
Statements – An act committed
with insurers that are financially
by an individual who Guarantor – Party who
sound.
knowingly gives or conceals provides the bond and
First Named Insured – The false material information to an guarantee if obligor fails.
person, firm, or organization insurer, agent, or broker with
whose name appears in the first the intent to obtain insurance, H
position of the Declarations an inaccurate rating, or undue
Hazard – Something that
Page of the policy when several claim payments; punishable by
increases the chance or
names are listed. fines and/or imprisonment.
likelihood of a loss occurring.
Flat Cancellation – The Functional Replacement Value
HO-2 (Broad Form) – Fire,
cancellation of a policy on – A property policy provision
lightning, internal explosion,
the date the policy becomes that changes the valuation
wind, hail, aircraft, riot,
effective. method otherwise applicable
vehicles, volcanic eruption,
(ACV or RC) to valuation
Flood Insurance – Flood explosion, smoke, VMM. Plus,
that allows replacement with
policies provide protection for Damage by burglars, falling
less costly property that is
direct loss to insured property objects, weight of snow/ice/
functionally equivalent.
due to flooding. sleet, accidental discharge/
overflow of steam or water,
GLOSSARY
sudden and accidental freezing The form insures real property Improvements and Betterments
or tearing apart/cracking/ (building and building items) – Fixtures, alterations,
burning/bulging of steam/ for which the insured is installations, or additions
hot water heating system, responsible under the bylaws of made a part of the building
plumbing, air conditioning the condominium association or structure that the tenant
or automatic fire protection or cooperative corporation. It occupies but does not own;
sprinkler system, household also insures personal property includes structures that the
appliance for heating water, of the insured while anywhere tenant acquired or made at
sudden and accidental damage in the world. their expense, but cannot
from artificially generated legally remove.
HO-8 (Modified Form) –
electrical current.
Used when insuring older Inchmaree Clause – Covers
HO-3 (Special Form) – In homes where replacement direct damage caused by the
the Special Form (HO-3), the value and market value are bursting of boilers, breaking of
dwelling and others structures disproportionate or when a propeller shafts, or loss due to
(Coverages A and B) are moral hazard would be created faults or errors in navigation by
insured on an open perils basis, if insurance were written in an the crew.
meaning all perils are insured amount equal to 100% of a
Indemnify – Concept that an
if they aren’t specifically dwelling’s replacement value.
insured is restored to the same
excluded in the policy.
Hold Harmless Agreement financial condition as prior to
HO-4 (Contents Broad Form) – A contractual agreement the loss.
– Designed to insure those removing the liability of one
Independent Agency – An
who are tenants. HO-4 insures party from a second party.
agent or agency that enters into
personal property under
Hostile Fire – A fire that agency agreements with more
Coverage C against loss from
produces a visible spark, flame, than one insurer.
the 16 named broad form perils
or glow and leaves the area in
found in the HO-2 and HO-3 Indirect Loss – A second or
which it was intended to be
forms. financial loss occurring as the
kept.
result of a direct loss.
HO-5 (Comprehensive Form)
– The HO-5 provides the I Individual Rating – A rate used
broadest coverage of any of the for a policyholder because a
Impaired Property – Tangible large enough pool of similar
homeowners forms. Coverages
property, other than an risks is not available to any
A, Coverage B, and Coverage
insured’s product or work, other type of rate. Primarily
C provide insurance on an
which cannot be used because used for commercial and
open perils basis. Losses to the
it is thought or known to be specialty risks because of the
dwelling and other structures
defective, inadequate, deficient, number of unique variables
are valued on a replacement
or dangerous. involved.
cost basis, losses to personal
property are valued on an Implied Authority – Authority Inflation Guard – The limit of
actual cash value basis. the public assumes the insurance for property subject
producer has. to this additional coverage
HO-6 (Unit Owners Form) –
The Unit-owners Form provides Imports – May be insured at automatically increases by the
named perils coverage to the any location and must remain annual percentage shown in the
owner of a condominium segregated from other property Declarations. This percentage
or cooperative unit under so it can be easily identified. of increase is applied to the
Coverage A and Coverage C. policy at the rate of 1/365 of
each year.
GLOSSARY
Inherent Vice – A condition Insurance Contract – A Intervening Cause – A

or defect that exists within legal contract purchased to disrupted chain of events,
property itself that causes indemnify the insured against a thus freeing a defendant from
the property to spoil, break, loss, damage, or liability arising liability.
become defective, or destroy from an unexpected event.
Issue Age – Insured’s original
itself.
Insured – The party to an age on the policy issue date.
Inside the Premises: Robbery insurance contract whom the
or Safe Burglary of Other insurer agrees to indemnify for J
Property – Covers most types losses, to provide benefits for,
Jewelers Block Coverage
of tangible property, including or to render services to.
– Provides on an open perils
jewelry, firearms, computers,
Insured Location – Any basis insurance for jewels,
etc., from loss or damage
location described in the watches, gold, silver, platinum,
resulting from an actual
Declarations. pearls, and precious and
or attempted robbery of a
Insured Premises – The interior semi-precious stones for both
custodian.
of that portion of a building business personal property
Installation Floater – Primary and goods for sale during the
occupied by the insured to
property insured is moveable normal course of the insured’s
conduct business.
property, such as electrical, business.
plumbing, or heating Insurer (principal) – The
insurer is the source of Joint Underwriting Association
equipment to be installed in a
the authority in which the – Requires insurers writing
building.
producer/agent must abide. specific coverage lines in
Instrumentalities of a given state to assume the
Transportation or Insuring Agreement – The profits/losses accruing their
Communication – Covers items insurer’s promise of protection share of the total voluntary
that are often at a fixed location to the insured. market premiums written in
because they play an important Insuring Clause – Defines who that state. Participating insurers
role in the transportation and is insured by whom and the accept every eligible risk, and
communication industries. amount of coverage/benefit then may choose to reinsure
Insurable Events – Any event, provided by the policy. some risks.
whether past or present, which Intentional Loss – Loss arising Jones Act (Merchant Marine
may cause loss or damage or out of any act committed by or Act of 1920) – Workers’
create legal liability on the part at the direction of the named Compensation that applies
of the insured. insured or any additional to sailors injured by the
Insurable Interest – The insured, with the intent to cause negligence of others.
potential for an insured or a loss. Judgment Rating (“A” Rating)
beneficiary to suffer a financial Internet Liability and Network – Rates are based on the
or economic hardship in the Protection Policy – Provides underwriter’s judgment and
event of a loss. liability coverage on a claims- experience.
Insurable Risks – Large number made basis for risks that are Judicial Bonds – Guarantees
of homogeneous units that specific to business use of that certain parties fulfill
are calculable. Loss must be the internet, such as network their statutory obligations
measurable, accidental, and security, electronic publishing in connection with court
cause financial hardships; liability, and loss of data. proceedings.
premiums must be affordable.
GLOSSARY
L in premium, the broadened insurer expenses and profits

coverage automatically applies (which insurer adds to arrive at
Labor and Materials Bond –
to existing policies without the final rate).
Guarantees that bills for labor
need for an endorsement.
and materials called for in a Loss Exposure – The extent to
construction contract will be License and Permit Bond – which one may be affected by
paid when due. This bond can Required by municipalities a peril.
be written separately or as part or other public bodies as
Loss of Consortium –
of a Performance Bond. a condition for granting a
Compensation to husband
license or permit to engage
Lapse Date – The date when or wife for the loss of
in a specified activity. The
insurance coverage ends. companionship of a spouse.
bond guarantees that the party
Law of Agency – A relationship seeking the license or permit Loss of Use – Inability to use
between two parties where will comply with applicable damaged property.
one (the producer/agent) may laws or regulations. Loss Payment – Specifies the
act on the behalf of the other time frame within which the
Limited Pollution Liability
(the insurer/principal) and bind insurer must pay a loss to the
Coverage Form (Designated
the actions or words of the insured after the insurer has
Sites) – This form is identical to
principal. received the insured’s proof of
the Pollution Liability Coverage
Law of Large Numbers – The Form, except that it does not loss and reached an agreement.
larger the number of exposures include clean up. Loss Ratio – Determined
considered, the more closely by dividing paid losses plus
Limit of Liability/Limits of
the losses reported will equal loss reserves by total earned
Insurance – The restriction a
the probability of loss. premiums.
liability policy places on the
Legal Actions Against Us – dollar amount of coverage. Loss Reserves – The net
Specifies that the insured may premiums plus interest reflects
Liquor Liability – Covers
not bring suit against the insurer possible future contract
liability arising out of the
until the insured has complied obligations. An accounting
business of manufacturing,
with all of the terms of the measurement of an insurer’s
selling, or serving alcoholic
policy. future obligation to its
beverages.
Legal Liability – The policyholders.
Lloyds of London – Not
responsibility under law or Loss Sustained Form – Provides
considered a company, but
contract for an act or failure to coverage for losses that took
a grouping of syndicates.
act. place and were discovered
Members assume portions of
Legal Purpose – All parties to a risks underwritten by Syndicate during the policy period
contract must enter it for a legal Manager; limitations on liability OR that took place within
purpose; public policy cannot not permitted. the policy period and were
be violated by a legal contract. discovered within one year of
Loss – Reduction, decrease, or
the termination of the policy
Libel – The dissemination of disappearance of value. A loss
period.
any written or printed matter is the basis of a claim under the
tending to unjustly injure a terms of an insurance policy. Loss Valuation – A property
person’s reputation. policy pays for losses to
Loss Cost Rating – A rating
property based on the valuation
Liberalization – Specifies organization provides insurers
method contained in the policy
that if the insurer broadens with the portion of a rate that
or chosen by the insured in
coverage with no increase does not include provisions for
GLOSSARY
an endorsement added to the Merit Rating – A rating or damage, in order of

policy. approach that rewards an precedence, as its interests may
insured who takes measures appear.
M to decrease the probability
Motor Carrier – A business,
of loss occurring by the
Malicious Mischief – Purposely individual, or organization
implementation of loss control
causing damage to the property Engaged in transporting
or safety programs.
someone else owns. property or passengers.
Misrepresentation – A false
Mandatory Rates – Rates set by Motor Carrier Act of 1980
statement in the application
state rating bureaus. – Motor carriers and private
that can render the contract
motor carriers that transport
Manual Rating – Rates based void, if material to acceptance
property are required to
upon job (work) classification. of the risk.
establish evidence of financial
Market Value – A property Mobile Home Insurance – An responsibility in the form of
policy provision that changes owner occupied mobile home insurance, a bond, a guarantee,
the valuation method otherwise may be covered under an HO-2 or qualification as a self-insurer.
applicable (ACV or RC) to a or HO-3 by endorsement or a
Motor Carrier Coverage Form
valuation method that allows separate Mobile Homeowners
– A variation of the Truckers
reimbursement to the insured, Policy.
Coverage Form that covers
according to the price a
Money Orders and Counterfeit those engaged in the business
willing buyer would pay for
Money – Covers the insured’s of transporting property for hire
the property purchased from a
acceptance in good faith of (Truckers) and those engaged
willing seller.
money orders and counterfeit in transporting property or
Mass Marketing – Mass money received in exchange passengers (Motor Carriers).
marketing is used to target a for merchandise or services
Motor Truck Cargo Carrier’s
specific type of insurance to a during the course of conducting
Legal Liability Form – Provides
large group of individuals. regular business activities.
property coverage for the
Medical Expense – Reasonable Monopolistic – Workers’ insured’s cargo.
charges for medical, surgical, Compensation insurance only
Motor Truck Cargo Owners
x-ray, dental, ambulance, available through state fund.
Coverage Form – Provides
hospital, professional nursing,
Morale Hazard – An attitude Open Perils property coverage
and funeral services.
of indifference toward the for the insured’s cargo.
Medical Malpractice – Written risk of loss that increases the
Motor Vehicle Dealer Bonds
for medical professionals such probability of a loss occurring.
– Guarantees that the dealer
as doctors, surgeons, nurses,
Moral Hazard – Dishonest performs according to law.
and dentists, whose negligent
tendencies that increase the
acts or omissions may injure or Multi-Peril Crop Insurance
probability of a loss. Moral
harm patients. – Written by private insurers,
hazards most closely related to
reinsured by Federal Crop
Medical Payments Coverage – some form of lying, cheating, or
Insurance Corporation. Covers
Coverage for the bodily injury stealing.
loss due to adverse weather,
of third parties sustained on
Mortgage Holder – Policy will fire, insects, plant disease,
an insured location or as a
pay to each mortgage holder wildlife, earthquake, and
result of the insured’s activities.
shown in the Declarations volcanic eruption.
Payments made without regard
its share of a covered loss
to fault or negligence.
GLOSSARY
Mutual Insurance Company Property Floater Risks, and policy at the end of a policy
– Owned by policyholders. Commercial Property Floater period.
Policyholders receive non- Risks) that may be insured
Notice of Loss – Insured must
taxable dividends as a return under a marine contract.
notify the insurer in writing as
of unused premium when
Neglect – Not using all soon as possible in the event
declared.
reasonable means to save and of any Loss or occurrence. The
Mysterious Disappearance – preserve property at and after written notice should include
The disappearance of property the time of a loss. the named insured, policy
without an identifiable cause of number, and details about the
Negligence – Quoting inflated
loss. time, place, circumstances of
information, misrepresenting a
the occurrence, and names and
plan of coverage, or neglecting
N addresses of any claimants and
to reveal the effect information
witnesses.
Named Insured – Any might have on the client at a
person, firm, or organization later date. Nuclear Hazard – Any
specifically designated by name nuclear reaction, radiation, or
No-Fault Liability – The injured
on the Declarations Page of the radioactive contamination—
party collects insurance benefits
policy. whether controlled or
from his or her own insurance
uncontrolled—except that
Named Peril – Coverage as if it were first-party coverage,
fire resulting from the nuclear
applies only to losses caused by thus eliminating the process of
hazard is covered.
perils that are specifically stated determining negligence or legal
in the policy. liability.
O
National Association of Non-Admitted Insurer – An
insurer that has not sought Obligee – Party for whose
Insurance Commissioners
approval (or) has not been able benefit the bond is written.
(NAIC) – Consists of all state
and territorial insurance to obtain approval to transact Obligor – Party who has agreed
commissioners or regulators; business in this state from the to fulfill the obligation.
promotes uniformity across all Commissioner (Director) of
Occupational Disease –
states. Insurance.
Disease that must arise out of
National Flood Insurance Non-Concurrency/Non- the course of employment,
Program (NFIP) – Administered Concurrent Policies – A and be caused by conditions
by Federal Emergency situation where liability policies that are particular to that
Management Agency (FEMA), that are in a layered program employment.
enables certain property owners (such as primary and excess
Occurrence – An accident,
to purchase flood insurance. policies) do not agree as to
which includes continuous or
The federal government makes their policy effective dates or
repeated exposure to the same
payment for, or subsidizes, all provisions, creating a gap in
general harmful conditions.
flood losses. coverage.
Occurrence Form – Provides
Nationwide Marine Non-Personal Contract –
for the defense and payment of
Definition – Consists of 6 Owner may transfer or assign
claims, for which the insured is
broad classes of property ownership of a life or health
legally liable, that occur during
(Imports, Exports, Domestic insurance policy to another
the policy period, regardless
Shipments, Instrumentalities person.
of when a claim is made, even
of Transportation or Nonrenewal – When an insurer if the claim is made after the
Communication, Personal determines not to renew a policy has expired.
GLOSSARY
Offer – The application Per Occurrence Limit – The Personal Producing General
submitted by the applicant. most the coverage will pay Agent – This agent doesn’t
for a loss arising out of any recruit career agents, but
Open Competition – Insurance
1 occurrence, regardless of sells insurance for carriers
regulator allows competition
overall policy limits. it is contracted with while
between insurers to produce
maintaining its own office and
rates. Per Person Limit – The
staff.
maximum amount the coverage
Open Perils – Coverage applies
will pay for loss to any 1 Personal Umbrella Policy – A
to all losses caused by all perils
person, regardless of the overall policy covering bodily injury,
except for those specifically
policy limits. property damage, personal
excluded.
injury liability in excess of the
Personal and Advertising
Ordinance or Law – Increased insured’s underlying policy
Injury – Liability arising
costs due to the enforcement limits. This provides excess
from false arrest, wrongful
of any ordinance or law coverage over the limits of an
eviction, invasion of privacy,
regulating the use, construction, underlying policy.
libel or slander, the use of
demolition, remodeling,
another’s idea in the insured’s Physical Hazard – A physical
renovation, or repair of
advertisement, infringement condition that increases the
property.
of copyright, or the use probability of loss (flammable
Outside the Premises – Insures of another’s slogans in an material stored near a furnace).
money and securities in the advertisement.
Policy Period – Specifies that
hands of a messenger or
Personal Articles Floater – coverage applies only to a loss
armored car service for loss
Used to insure “individual” or losses that occur during the
resulting directly from theft,
personal property on an policy period stipulated on the
disappearance, or destruction.
itemized or scheduled basis. Declaration Page of the policy.
P Coverage is worldwide.
Pollution Extension
Personal Contract – Owner Endorsement – Deletes the
Parol Evidence Rule – A written
cannot transfer or assign Pollution Exclusion for bodily
contract is the final expression
ownership of an insurance injury and property damage
of agreement and may not be
policy (property and casualty) liability, but continues to
altered by prior or simultaneous
to another person. exclude clean up costs.
oral or written negotiations
without the written consent of Personal Injury – Insurance Pollution Liability Coverage
both parties. policies cover the insurable Form – Provides coverage on a
interest of the insured. The claims-made basis with its own
Particular Average – A partial
insured cannot transfer or limit of liability. Also provides
loss sustained by a specific
assign a policy to someone else coverage for clean up imposed
vessel or cargo.
(except life insurance). by governmental direction if
Penalty/Penalties – Fines and the cost is incurred because of
Personal Injury Liability –
possible prison time. environmental damage caused
Legal liability arising from the
Performance Bond – Guarantee by a pollution incident.
wrongful conduct of the insured
that the contractor will perform, resulting in injury other than Power Failure – The failure of
as agreed in the contract. bodily injury. power or other utility service if
Peril – A specific cause of a it takes place off the described
loss. location. Power failure
occurring on the described
location is covered.
GLOSSARY
Premises and Operations Products Exposure – Exposure Pro Rata Liability – A clause
Exposure – Applies to an leaves a business vulnerable designed to prevent the insured
insured business that conducts to legal liability for defects in from collecting more than
its operations both at its own product design or manufacture. the actual extent of loss by
premises and elsewhere. Also leaves a business exposed allowing each policy to pay its
to liability for the failure to share of a loss.
Premium Assumptions – Must
warn or explain with respect to
charge an adequate premium Proximate Cause – The cause
its products. Coverage applies
for the risk based on the same that sets other causes in motion
to bodily injury or property
factors used in evaluating when multiple causes combine
damage the product causes, but
the risk. Rates are considered to produce loss or damage. The
not to loss to the product itself,
inadequate when they do cause without which a given
and the injury or damages must
not cover projected losses result would not have occurred.
occur away from the premises
and expenses. Rates must
the insured owns or rents. Punitive Damages – Damages
not be excessive or unfairly
assessed in addition to specific
discriminatory. Professional Liability –
and general damages as a
Exposure of loss to businesses
Primary Insurance – Property punishment for extreme,
or professionals that have a
coverage that provides benefits objectionable conduct by a
higher than average exposure
up to the limits of a policy, negligent party, as in the case
for being legally liable for
regardless of other policies in of gross negligence.
damages other than bodily
effect.
injury or property damage. Pure Risk – Situations where
Principal (Obligor) – Party only the chance of loss and no
Proof of Loss – A formal
who has agreed to fulfill the chance for gain exists.
statement made by the insured
obligation.
and provided to the insurer R
Principal of Indemnity – The that provides necessary details
principle of restoring the for the insurer to determine its Reasonable Expectations
insured to the same financial liability under a policy. Doctrine – The reasonable
condition as before the loss, expectations of policyowners
Property Damage – Legal
with no intent of loss or gain. and beneficiaries will be
liability arising from damage
Prior Approval – Filed with honored even though the strict
to tangible property, including
insurance regulator, not used terms of the policy do not
loss of use of that property
until approved (or until specific support those expectations;
caused by the insured’s
time passes without being what a reasonable and prudent
negligence.
disapproved). buyer can expect.
Property Damage Liability
Producer (Agent) – A person Reciprocal Insurance Company
– Legal liability arising from
appointed by an insurance – A group owned insurer; each
damage to tangible property,
company to represent the subscriber assumes a part of the
including loss of use of
company and to present risk of all other subscribers. Pro
that property caused by the
policies on its behalf. rata sharing of risk (assessment
insured’s negligence.
is possible), managed by
Product – Any goods or Pro Rata Cancellation – The attorney-in-fact.
products that are manufactured, cancellation of a policy for
sold, handled, distributed, or Rehabilitation Benefits –
which a refund is made of
disposed by the insured and Paid while the insured is
unearned premium calculated
others conducting business totally disabled and receiving
in proportion to the time the
under the insured’s name. benefits, if the insured elects
policy was in force.
GLOSSARY
to participate in some form including household and Risk Retention Groups –

of vocational rehabilitation domestic services. An insurer owned by its
approved by the insurer. policyholders that primarily
Residence Premises – A 1-4
assumes and spreads the
Reinsurance – A device used by family dwelling, where the
liability related risks of its
insurers to transfer or share in a insured resides, including other
members. Membership is
risk. Consists of the originating structures and grounds at that
limited to risks with similar
application (ceding company) location. If the dwelling is more
liability exposures such as
and the insurer who share in than 1 unit, the insured must
theme parks, go cart tracks, or
the risk (reinsurance insurer). reside in one of the units.
water slides.
Reinsurance Companies – Residual Markets – A market
Risk Sharing/Risk Sharing Plan
Insurers (ceding company) designed for those risks unable
– Insurers agree to apportion
transfer of risk to other insurers to find coverage in the ordinary
among themselves those risks.
(reinsurance insurer). market.
Robbery – The taking of
Remuneration – In Workers’ Retroactive Date – Date
property from the care and
Compensation, the premium specified in the Declarations,
custody of a person by one who
for each work classification is after which an occurrence must
has caused or threatened bodily
determined by multiplying a take place to be covered. Date
harm or committed an unlawful
rate and a premium basis. The may be the policy’s effective
act witnessed by that person.
premium basis is employee date or any date in the past
remuneration. that the insurer agrees to, such Running Down Clause –
as the effective date of the first Provides coverage for legal
Replacement Cost – The policy
claims-made policy issued to liability of the shipper or
pays the full cost to replace or
the insured. carrier for claims arising out of
repair the damaged property
collisions caused by the shipper
(not exceeding policy limits) at Retrospective Rating – Initial
or carrier. Clause covers the
the time of the loss without an premium is charged, then
negligence of the shipper or
adjustment for depreciation. adjusted at end of policy
carrier that results in damage to
period to reflect actual loss
Replacement Value – The the property of others.
experience.
cost to replace property with
property of like kind and Right of Salvage – The right of S
quality, at current pricing, the insurer to take possession of
without a deduction for damaged property after the loss Salvage Value – The amount
depreciation. to the property has been paid. for which property can be sold
at the end of its useful life. In
Reporting Period – Time during Risk – A condition where the property insurance, the salvage
which claims must be reported chance, likelihood, probability value is the scrap value of
in order to receive a benefit. or potential for a loss exists; damaged property.
uncertainty concerning a loss.
Representations – Statements Scheduled Limit – Insures one
made are said to be true to Risk Management – The or more items of property on
the best of the applicant’s determination of what types of a single policy. The amount of
knowledge and beliefs. protection are required to meet insurance applying to each item
an insured’s needs. Survey of is shown on a schedule.
Residence Employees – An
an insured’s operations, assets,
employee whose duties are Second Injury Fund – Pays
exposures, that could give rise
related to the maintenance or compensation on behalf of
to losses.
use of the residence premises, an employer to an employee
GLOSSARY
who has already suffered a bodily injury (BI) and property Surety Bonds (Performance
prior disabling injury, and now damage (PD). Bonds) – Surety bonds
sustains a subsequent injury, guarantee that specific
Stated Amount – An
and the combination of the obligations will be fulfilled.
amendment to the valuation
2 injuries creates a greater If the principal defaults,
method of a property policy
disability than the second injury the surety must perform the
insuring an unusual or
would have created by itself. contract, duty, or obligation of
valuable piece of property
the principal, or indemnify the
Self-Insurer – Assumes the that establishes, at the time of
obligee for actual loss. Types
financial risk one’s self; insuring, a maximum amount
include contract bonds, court
generally an option only for of insurance to be paid in the
bonds, and license & permit
large companies. event of a loss.
bonds.
Short Rate Cancellation – The Stated Value – A valuation
Surety (Guarantor) –
cancellation of a policy for method that states the value
Assumption of liability for the
which the premium refund of a particular property on the
obligations of another.
is calculated according to a declarations page, but provides
short rate table whereby the for the insurer to pay the lesser
T
insurer retains a portion of the of the stated value or ACV of
unearned premium. the property following a loss. Tabular Method – A loss
Sidetrack Agreement – Statute of Limitations – The reserve based upon the
Contract between a railroad length of time in which a estimated length of an insured’s
and a business the railroad may person may file suit. Statutes or claimant’s life or expected
service. The business holds the of limitations can vary by line, disability.
railroad harmless if an accident type of liability and state. Tax Bonds – Guarantee a
occurs while the railroad is business complies with laws
Statutory Law – Enactment of
using the sidetrack to deliver pertaining to payment of taxes.
laws by legislatures.
goods to the business.
Stock Insurance Company Terrorism Risk Insurance
Signs Floater – Provides Extension Act of 2005 & 2007
– Owned by stockholders.
coverage insurance for neon, – The Terrorism Risk Insurance
Dividends, if declared are
automatic, or mechanical signs, Act (TRIA) was passed by
taxable as profits.
and street clocks, as well as Congress in response to the
billboards, ordinary fixed or Subrogation – The legal process 9/11 terrorist attacks. The Act
plastic-faced signs. by which an insurer seeks provides a temporary program
recovery of the amount they that, in the event of major
Slander – The oral spreading
paid to an insured, from the terrorist attack, allows the
of lies that damage another’s
third party who was responsible insurance industry and federal
reputation.
for having caused the loss. government to share losses
Specific Limit – Insures a single according to a specific formula.
Supplemental Extended
item of property for a single
Reporting Period – An optional Theft – The broadest of the
limit of insurance.
reporting period of unlimited crime coverages, includes any
Speculative Risk – Instances duration. SERP covers claims act of stealing, burglary, or
where there is a chance of loss arising from occurrences that robbery.
or gain. took place after the retroactive
date and before the end of the Time Element – Covers actual
Split Limit – The amount of loss of business income
policy term, regardless of when
coverage is divided between sustained during the period of
the claim is made.
GLOSSARY
restoration due to suspension U U.S. Longshoremen and Harbor

of operations, as a result of a Workers’ Compensation Act
Umbrella Policy – Designed
direct physical loss caused by a – Workers’ Compensation that
to provide coverage on a
covered loss. applies to workers who load,
worldwide basis to third parties
unload, build, or repair ships
Tort – A civil or private wrong and does not pay benefits
(but not to the crew of the ship).
committed by one person directly to an insured.
against another, for which the
Uncontrolled Lines of V
law provides a remedy (usually
Coverage – Inland Marine
a monetary penalty). Vacancy – A property that has
forms not filed with or through
Tort Law – Law that pertains neither occupants nor personal
any rating bureau. Developed
to injuries suffered by one property is described as vacant.
by individual insurers.
party as a result of another Valuable Papers and Records
Underinsured Motorist –
party’s actions. A civil wrong – Valuable papers and records
Protects the insured against
other than a crime or breach of coverage provides insurance
drivers who do have auto
contract. for the destruction of valuable
liability insurance, but whose
Transit Coverage Forms – papers and records by a
coverage limits are inadequate
Transit coverage forms are used covered cause of loss.
or insufficient to respond to
when the insured purchases claims. The coverage pays only Valued Contract – A contract
inland marine insurance up to the amount that exceeds that pays a stated amount in
for shipments of goods via the limit of liability of the at- event of a total loss.
common or contract carriers. fault party. Valued Policy – Policy that
Transportations Expense – Pays Underwriting – The process of states the value of property
for the cost of transportation evaluating a risk for the purpose as the amount shown on the
expenses incurred as a result of issuing insurance coverage. Declarations page. Will pay
of a covered collision or Includes selection classification stated full face value in the
other than collision loss. No and rating. event of a total loss, regardless
deductible applies and the limit of the actual cash value.
Unilateral Contract – Only one
of coverage is up to $20 per
party is legally bound to the Vandalism and Malicious
day, or a total of $600.
contractual obligations after the Mischief Endorsement – The
Treaty Agreements – premium is paid to the insurer. peril of vandalism or malicious
Reinsurance agreement that Only the insurer makes a mischief (VMM) may also be
covers all risks contained in promise of future performance, included with the payment
the subject line(s) of business and only the insurer can of an additional premium.
automatically. be charged with breach of EC and VMM coverages, if
Trip Transit Coverage Form – contract. purchased, must appear on the
Used for irregular shipments, declarations.
wish to insure a single – Provides insurance to insured Vicarious Liability – The
shipment. persons injured in accidents imposition of liability on one
Truckers Coverage Form – that are caused by another person for the actionable
Covers business exposures of party. conduct of another, based
motor carriers for hire who solely on a relationship
Unoccupancy – A property that
transport the goods of others. between the 2 persons. For
contains personal property or
instance, an employer is liable
contents but has no occupants
for acts of its employees.
is described as unoccupied.
GLOSSARY
Violent Crime Control and Water Damage – Flood, surface

Law Enforcement Act of 1994 water waves, tidal water,
– The Act made it a felony overflow of a body of water,
for a person to engage in the water or waterborne material
business of insurance after that backs up through sewers
being convicted of a state or or drains or overflows from a
federal felony crime involving sump or sump pump, water or
dishonesty or breach of trust. waterborne material below the
surface of the ground.
Void Contract – An agreement
without legal effect. Either it Workers’ Compensation –
was made illegally or it was Covers all work related injuries
declared void by the courts and occupational diseases.
because it doesn’t contain all
Write Your Own (WYO) – A
the elements of a legal contract.
cooperative effort involving
Voidable Contract – A valid FEMA and the private sector
contract that may be set aside that allows existing property
by one of the parties for reasons and casualty insurance
satisfactory to a court. companies to write, issue, and
service flood insurance under
Volunteer Worker – A person
their own names.
who is not an employee of
the insured, and who donates
Y
his/her work and acts at the
direction of the insured, but is Yacht Policy – Ocean marine
not paid a fee, salary, or other form, designed for larger
compensation. vessels.
W
Waiver – The voluntary
abandonment of a known or
legal right or advantage.
War – War includes undeclared
war, civil war, insurrection,
rebellion, revolution, or any
warlike act by a military force.
Warranties – Statements made
in an application for insurance
or material stipulations in the
policy that are guaranteed as
true in all respects.
Watchperson – Any person the
insured retains to have care and
custody of property inside the
premises. This individual has
no other duties.

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TABLE OF CONTENTS

Property & Casualty Insurance

Personal Lines: Chapters 1-7 & State Laws

Property Only: Chapters 1, 2, 4, 5, 7, 8, 11, 12, 13, State Laws

Chapter 1 General Insurance...................................................................................... 3

This edition is valid starting October 2018

1.1 The World of Insurance

Private Firms and Persons

Trade and Regulatory Associations

Insurance Regulation at the State Level

Insurance Regulation at the Federal Level

Private versus Government Insurers

1.2 Types of Insurers – Insurance Companies or

Stock Insurance Company

Mutual Insurance Company

4 Dividends are not guaranteed.

Reciprocal Insurance Company

Fraternal Benefit Societies

Risk Retention Groups (RRG)

1.3 Fundamentals of Insurers

Financial Rating Services

1.4 Insurer Domicile and Admittance

1.5 Insurer Management and Distribution

1.6 Insurance Agents and Producers

1.7 Federal Regulations

Fair Credit Reporting Act (15 USC 1681–1681d)

Financial Anti-Terrorism Act (USA Patriot Act)

Fraud and False Statements (Fraudulent Insurance Act)

Merchant Marine Act of 1920 (the Jones Act)

Gramm-Leach-Bliley Act (GLBA, a.k.a. the Financial Services Modernization

1.8 Risk Management

1.9 Insurance Concepts

Four Elements of a Legal Contract

Insurance Contracts: Characteristics, Definitions and Interpretations

Effective Date – The date when insurance coverage begins.

1.11 Insurer Underwriting

Chapter One — Lightning Facts

Lightning Facts available in “audio” MP3 format. Visit our website.

2.1 Property Insurance Terminology

Bailor A person or organization that entrusts property to a bailee.

2.2 Types of Property Losses

2.3 Methods of Writing Property Insurance Limits

Standardized Policy Structure

2.4 Policy Structure

2.5 Common Policy Provisions

Chapter Two — Lightning Facts

Lightning Facts available in “audio” MP3 format. Visit our website.

3.1 Liability Insurance Terminology

3.2 Liability Insurance Principles and Concepts

Strict and Absolute Liability

3.3 Common Policy Provisions

Limit of Liability/Limits of Insurance

Named Insured Provisions

Chapter Three — Lightning Facts

Lightning Facts available in “audio” MP3 format. Visit our website.

4.1 Dwelling Policies

Dwelling Program Eligibility

Dwelling Coverage Forms

DP–2 (Broad Form)

DP–3 (Special Form)