Property & Casualty Insurance Exam (National Portion) flashcards

A package insurance policy designed for small to medium-sized businesses that combines property insurance, liability insurance, and often business interruption insurance into one standard policy form.

• Streamlined, cost-effective for eligible small businesses.
• Combines Property (building & contents), General Liability, and Business Income.
• Less customizable than a Commercial Package Policy (CPP).

Memory trick: For 'small' businesses, BOP is the 'bundled' choice; CPP is for 'bigger' and 'custom'.

The section of a Workers' Compensation and Employers Liability Policy that covers the employer's statutory obligations to pay for an employee's work-related injuries or illnesses as mandated by state law.

• Provides medical benefits, disability benefits (lost wages), rehabilitation, and death benefits.
• Coverage is 'no-fault', meaning benefits are paid regardless of who caused the injury.
• Adheres to the specific workers' compensation laws of the state(s) where employees are covered.

Memory trick: Part 1 is for Worker's Benefits, Part 2 for Employer's Lawsuits.

Specific monetary caps applied to certain types of personal property in a Homeowners policy, particularly for losses due to theft, to manage insurer exposure.

• Applies to items like jewelry, furs, firearms, silverware, and stamp/coin collections.
• Limits are often lower than the overall personal property coverage.
• Higher coverage for these items usually requires scheduling them.

Memory trick: HO's personal stuff has general rules, but some 'special' items get a 'limit' when stolen.

An endorsement added to a Personal Auto Policy (PAP) to extend coverage for certain limited business uses of a personal vehicle, typically for sole proprietors or small businesses.

• Addresses the 'business use' exclusion in a standard PAP.
• Often used for incidental business use, not primary commercial operations.
• May have specific limitations on vehicle type, gross vehicle weight, or type of business.

Memory trick: Personal is home, Endorsed is hybrid, Commercial is all business.

Standard HO-3 policies provide broad coverage for the dwelling and other structures, but many perils are specifically excluded and require special endorsements for coverage.

• HO-3 is an 'open perils' policy for Coverage A and B.
• Common exclusions include earthquake, flood, war, nuclear hazard, and governmental action.
• Exclusions can often be added back through endorsements for an additional premium.

Memory trick: HO-3 covers all, but Earth's quakes are out of bounds.

Businessowners Policies (BOPs) have specific eligibility criteria, often related to business size, type, revenue, and risk level, to ensure they cover appropriate small to medium-sized enterprises.

• Most BOPs are for small retail stores, offices, apartments, or light service businesses.
• Exclusions often include high-risk operations, large manufacturers, banks, and auto dealers.
• Revenue from certain activities (e.g., off-site catering, liquor sales) can exceed limits.

Memory trick: BOPs are for 'small and simple' businesses; anything 'too complex or risky' is usually out.

A Commercial Package Policy (CPP) allows businesses to combine multiple lines of commercial insurance into a single, integrated policy, offering efficiency and often cost savings.

• Combines two or more commercial coverage parts.
• Includes Common Policy Declarations and Common Policy Conditions.
• Each coverage part also has its own declarations and conditions, but they are specific to that part and supplement the common ones, not replace them entirely.
• Designed for businesses needing various types of commercial coverage.

Memory trick: A CPP is a package deal, not a bunch of separate boxes.

Commercial property coverage that indemnifies the insured for loss of net income and continuing expenses (Business Income) and additional costs incurred to resume or minimize interruption of business (Extra Expense) due to a covered peril.

• Triggered by direct physical loss to covered property.
• Covers profit, payroll, and other continuing expenses.
• Extra Expense helps maintain operations post-loss.

Memory trick: Physical damage is one thing, but 'income and extra costs' after a closure are a whole different beast.

Specific perils or types of liability that are not covered by a Commercial General Liability policy, often because they are covered by other specialized insurance policies or are uninsurable.

• Exclusions prevent overlapping coverage and manage risk.
• Common exclusions: Workers' Compensation, Auto, Aircraft/Watercraft, Professional Liability.
• Other exclusions: Pollution, Expected/Intended Injury, Contractual Liability (with exceptions).

Memory trick: CGL says 'no' to employee injury, vehicles, pro errors, and pollution – others handle those risks.

Liability limits in a Personal Auto Policy expressed as three separate numbers: maximum bodily injury payout per person, maximum bodily injury payout per accident, and maximum property damage payout per accident.

• Format: BI per person / BI per accident / PD per accident.
• Per-person limit applies first to each individual's bodily injury.
• Per-accident BI limit applies to the total bodily injury for all persons in one accident.
• Per-accident PD limit applies to total property damage for one accident.

Memory trick: Remember 'P-A-D': Per Person, Per Accident (BI), and Property Damage. Each has its own cap.

The standard commercial auto coverage form used by businesses to insure vehicles they own, lease, hire, or borrow, including private passenger autos, trucks, and other commercial vehicles.

• Provides liability and physical damage coverage.
• Applicable to a wide array of businesses, not just those in transportation.
• Can be tailored with various endorsements to meet specific needs.

Memory trick: Business is general, Garage is specific, Motor Carrier hauls, Truckers drive far.

Part One of the Workers' Compensation and Employers Liability Policy provides coverage for the employer's obligations under the Workers' Compensation laws of the states listed in the policy, including medical expenses and lost wages for injured employees.

• Covers statutory benefits required by state workers' compensation laws.
• Benefits include medical care, disability income, rehabilitation, and death benefits.
• Coverage is 'no-fault' for work-related injuries.
• The listed states define the scope of coverage.

Memory trick: Part One is for the 'Worker's' direct benefits, Two for the 'Employer's' broader liability.

The coinsurance clause encourages policyholders to insure property to a certain percentage of its value. If they fall short, a penalty is applied, and the insurer will only pay a proportional share of the loss.

• Formula: (Amount of Insurance Carried / Amount of Insurance Required) x Amount of Loss = Payout.
• Amount Required = (Property Value) x (Coinsurance Percentage).
• The payout will not exceed the policy limit or the amount of loss.
• Common coinsurance percentages are 80% or 90%.

Memory trick: Did you carry enough? If not, you'll share the loss.

Product Liability Insurance protects manufacturers, distributors, and sellers from claims of bodily injury or property damage caused by a defect or malfunction of their products.

• Covers design defects, manufacturing defects, and warning defects.
• Can be included in a CGL policy under 'products-completed operations hazard' or as a stand-alone policy.
• Distinguished from professional liability, which covers services/advice.
• Crucial for businesses that produce or sell goods to the public.

Memory trick: Errors in 'Products' need 'Product Liability', errors in 'Services' need 'E&O'.

Personal Auto Policies (PAPs) are primarily designed for personal use and typically exclude coverage for vehicles used in certain business activities, especially those involving transporting people or goods for a fee.

• Excludes 'carrying persons or property for a fee' (e.g., taxi, delivery services).
• May exclude other 'business use' depending on the policy and state.
• Incidental business use (e.g., commuting, occasional client visits) is usually covered.
• Requires a commercial auto policy or specific endorsement for regular business use.

Memory trick: Your PAP is for YOU, not for your PAY-ING business trips.

Personal Auto Policy (PAP) split limits separate bodily injury liability into a per-person maximum and a per-accident maximum, plus a separate limit for property damage.

• First number: maximum payable for bodily injury to any one person in an accident.
• Second number: maximum payable for bodily injury to all persons in an accident.
• Third number: maximum payable for property damage in an an accident.

Memory trick: Per Person First, Per Accident Next, Property Damage Last.

A critical component of a Businessowners Policy that covers the loss of business income and additional necessary expenses incurred to minimize business suspension after a covered property loss.

• Covers net income (profit or loss) that would have been earned.
• Covers continuing normal operating expenses, like payroll.
• Covers extra expenses to avoid or minimize the suspension of business.

Memory trick: Building, Business Stuff, and Business Money Loss.

The broadest Dwelling Policy form, offering open perils coverage for the dwelling and other structures, broad named perils coverage for personal property, and including Fair Rental Value.

• Open perils for dwelling and other structures (all perils unless specifically excluded).
• Broad named perils for personal property (same as DP-2).
• Includes Fair Rental Value (Coverage D) for loss of rents.

Memory trick: Basic is limited, Broad adds more, Special covers all (almost).

The second part of a Workers' Compensation policy that provides coverage to the employer for liability claims brought by employees or their families that fall outside the exclusive remedy of the Workers' Compensation statute.

• Covers employer's legal liability for work-related employee injuries.
• Applies when the Workers' Compensation statute does not provide the sole remedy.
• Examples: loss of consortium, third-party over actions, dual capacity claims.

Memory trick: Part 1 is for 'employee benefits', Part 2 is for 'employer's legal defense' when benefits aren't the only issue.

A provision in property insurance policies where the insured shares in the loss if the amount of insurance carried is less than a specified percentage of the property's value at the time of loss.

• Formula: (Amount Carried / Amount Required) x Loss = Payout.
• Amount Required = (Property Value x Coinsurance %) at time of loss.
• Encourages policyholders to insure property to a reasonable value.

Memory trick: To avoid a 'penalty', make sure 'carried' insurance meets the 'required' amount based on value.

The 'Building' coverage part of the Building and Personal Property Coverage Form includes the structure, completed additions, permanently installed fixtures (including machinery), and outdoor fixtures.

• Covers the structure itself.
• Includes fixtures, machinery, and equipment permanently installed.
• Also covers personal property used to maintain or service the building, like fire extinguishing equipment.

Memory trick: Buildings have Fixed Machines, plus Service Stuff.

Homeowners policies impose specific dollar limits on certain types of personal property, especially for theft, to control the insurer's risk for high-value or easily stolen items.

• Applies to specific categories like jewelry, furs, firearms, silverware, and stamp/coin collections.
• Limits are often lower for theft than for other perils.
• Insureds can schedule items for higher coverage or purchase endorsements.

Memory trick: Jolly Fellas Find Silver Coins Valuable, but Stamps are Limited.

The National Association of Insurance Commissioners (NAIC) is an organization of state insurance regulators that develops model laws, regulations, and best practices for states to adopt, promoting uniformity in insurance regulation across the United States.

• Composed of state insurance regulators.
• Develops model laws and regulations.
• Promotes uniformity and consistency in state regulation.
• Does NOT have enforcement power.

Memory trick: NAIC: 'N'urtures 'A'll 'I'nsurance 'C'onsistency through models.

A federal law that explicitly affirmed that the states are the primary regulators of the insurance industry. It also stated that federal law would apply to insurance only to the extent that state law does not regulate the business of insurance.

• Passed in response to the U.S. v. South-Eastern Underwriters Association Supreme Court case
• Solidified state-level insurance regulation
• Allows federal intervention if states fail to regulate effectively

Memory trick: McCarran-Ferguson: States Rule, Feds May Follow.

The primary regulatory authority over the insurance industry in the United States, exercised by individual state insurance departments or commissioners, responsible for licensing, solvency, market conduct, and policy form/rate approval.

• McCarron-Ferguson Act (1945) affirmed state regulation
• Each state has its own insurance department
• Regulates solvency, rates, forms, and producer licensing

Memory trick: Each State Regulates its Own Insurance Domain.

The Gramm-Leach-Bliley Act (GLBA) requires financial institutions, including insurance companies, to protect the privacy of consumers' nonpublic personal information. Key provisions include providing annual privacy notices and allowing consumers to opt out of certain information sharing with nonaffiliated third parties.

• Applies to financial institutions (including insurers).
• Protects nonpublic personal information.
• Requires annual privacy notices.
• Grants consumers the right to opt out of sharing with nonaffiliated third parties.

Memory trick: GLBA: 'G'uards 'L'imited 'B'asic 'A'ccess to private data.

A State Guaranty Association is a non-profit, state-mandated organization that protects policyholders in the event an insurance company becomes insolvent. It pays covered claims and returns unearned premiums up to specified limits.

• Protects policyholders from insurer insolvency.
• Funded by assessments on solvent insurers.
• Covers claims and unearned premiums up to state-mandated limits.
• Exists in every state.

Memory trick: When an insurer 'Fails', the 'State' 'Guarantees' policyholder 'Claims'.

A federal law passed in 2002 (and reauthorized multiple times) that created a federal backstop for commercial property and casualty insurance losses resulting from certified acts of terrorism, sharing the risk between the federal government and private insurers.

• Federal government acts as a reinsurer
• Applies to certified acts of terrorism only
• Insurers must offer terrorism coverage, and the federal government shares losses above a deductible and retention

Memory trick: TRIA: Terrorism Reinsurance In America.

A federal law that requires financial institutions (including insurers) to explain their information-sharing practices to customers and to safeguard sensitive data. It includes the Financial Privacy Rule, Safeguards Rule, and Pretexting Rule.

• Mandates privacy notices for consumers
• Grants consumers the right to opt out of certain information sharing
• Requires safeguarding customer information (Safeguards Rule)

Memory trick: GLBA: Give Notice, Let Opt-out, Guard Data.

A federal law that regulates the collection, dissemination, and use of consumer credit information. When an adverse action (e.g., denial of credit, insurance, or employment) is taken based on a consumer report, the user must provide specific disclosures to the consumer.

• Protects consumer privacy of credit information
• Ensures accuracy and fairness of credit reports
• Mandates disclosures when adverse actions occur due to credit reports

Memory trick: Credit Report Users Must Disclose, Protect, and Correct.

Established by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the FIO monitors all aspects of the insurance industry, identifies gaps in regulation, advises the Treasury Department, and represents the U.S. in international insurance forums.

• Part of the Department of the Treasury
• Does NOT regulate or license insurers
• Focuses on systemic risk, international policy, and consumer access

Memory trick: FIO: Federal Insights, Not Regulatory Might.

The Federal Insurance Office (FIO) was established to monitor the insurance industry, collect data, and advise Congress on insurance matters. However, it does not have direct regulatory or enforcement authority over insurers and cannot preempt state insurance laws.

• Monitors insurance industry.
• Collects data and advises Congress.
• Does NOT have direct regulatory power.
• Cannot preempt state insurance laws.

Memory trick: FIO: 'F'ederal 'I'nformation 'O'ffice, but 'No' direct power over states.

The State Department of Insurance (or equivalent office) is the primary regulatory body at the state level responsible for overseeing the insurance industry. Its duties include licensing insurers and producers, approving policy forms and rates, and enforcing insurance laws.

• Primary state regulator for insurance.
• Approves policy forms and rates.
• Licenses insurance companies and producers.
• Investigates consumer complaints.

Memory trick: The 'State' 'DOI' 'Directly' 'Oversees' all insurance matters.

State-created organizations that protect policyholders by paying covered claims and refunding unearned premiums when an insurance company becomes insolvent and is unable to meet its obligations. They are funded by assessments on solvent insurers.

• State-specific, not federal
• Funded by assessments on member insurers
• Provide a safety net for policyholders up to statutory limits

Memory trick: Insolvency's Net: Guaranty Associations Catch Claims.

The Terrorism Risk Insurance Act (TRIA) creates a federal program that shares the risk of loss from certified acts of terrorism with participating insurers. Insurers pay a deductible and a percentage of losses above that deductible, with the federal government reimbursing remaining insured losses.

• Applies to 'certified acts of terrorism'.
• Insurers pay a deductible and co-share.
• Federal government reimburses a percentage of losses.
• Aims to ensure availability of terrorism coverage.

Memory trick: TRIA: 'T'errorism 'R'isk 'I's 'A'ssisted by federal partnership.

An unfair trade practice in insurance involving the publication, dissemination, or circulation of any untrue, deceptive, or misleading statement, representation, or advertisement concerning the business of insurance or any person in the conduct of the business of insurance.

• Can be explicit falsehoods or misleading by omission
• Applies to all forms of communication (print, digital, verbal)
• Aims to deceive consumers about policy terms, benefits, or insurer's financial standing

Memory trick: Don't Mislead, Rebate, Twist, or Discriminate for a commission.

A voluntary association of the chief insurance regulatory officials of the 50 states, the District of Columbia, and five U.S. territories. It serves to promote uniformity in state regulation through the development of model laws, regulations, and best practices.

• No direct regulatory authority
• Focuses on model laws and standards
• Facilitates information sharing and coordination among state regulators

Memory trick: NAIC: National Advice, Individual State Choice.

An illegal unfair trade practice in insurance where a producer persuades a policyholder to cancel, lapse, or surrender an existing insurance policy and replace it with a new one, to the detriment of the insured.

• Involves replacing an existing policy
• Must be to the insured's disadvantage
• Often involves misrepresentation or incomplete comparisons

Memory trick: Don't Mislead, Rebate, Twist, or Discriminate for a commission.

A false statement of a material fact made by one party during contract negotiations with the intent to induce the other party to enter into the contract. In insurance, it refers to making false or misleading statements about a policy's terms, benefits, or the insurer's financial condition.

• Can be oral or written
• Must be material (influence decision)
• Often involves misleading statements about policy guarantees or benefits

Memory trick: Don't Mislead, Rebate, Twist, or Discriminate for a commission.

Protects a business from legal claims due to bodily injury or property damage to third parties arising from the business's operations, premises, or products.

• Covers defense costs and settlement/judgment amounts.
• A crucial component of Commercial General Liability (CGL) and BOPs.
• Does NOT cover injuries to employees (Workers' Comp).

Memory trick: BOP: 'B'usiness 'O'wners 'P'rotection.

The right of the insurer to take possession of damaged property after paying a total loss, and then sell it to recoup some of the claim payment.

• Applies after a total loss payment.
• Reduces the insurer's net loss.
• Often seen with vehicles or heavily damaged goods.

Memory trick: Provisions: The 'PRO-mises' and 'PRO-cedures' inside your policy.

Provisions in an insurance policy that specifically list perils, property, or situations that are not covered.

• Limit the scope of coverage
• Common exclusions include war, nuclear hazard, flood, earthquake
• Help manage risk and keep premiums affordable

Memory trick: Understand what's IN and OUT of policy's reach.

The section of an insurance policy that outlines the rights, duties, and responsibilities of both the insured and the insurer.

• Defines actions required after a loss
• Includes provisions for cancellation, subrogation, and assignment
• Ensures compliance for coverage to apply

Memory trick: DECLARations, INSURING agreements, CONDIitons, EXCLUsions are policy parts.

A policy condition outlining the responsibilities of the insured party immediately following a covered loss, which typically includes giving prompt notice, protecting property from further damage, and providing proof of loss.

• Prompt notice to insurer
• Protect property from further damage
• Cooperate with investigation
• Provide proof of loss

Memory trick: DUTIES after LOSS are a must-do list.

A form of liability insurance that protects businesses from claims of bodily injury or property damage caused by their products or completed work, after the product has been sold or the work has been finished and put to its intended use.

• Covers product liability
• Covers completed work liability
• Claims arise after product/work is out of insured's control
• Standard part of CGL policies

Memory trick: GENERAL liability covers daily slips, PRODUCTS & COMPLETED work cover what you MAKE and FINISH.

A provision in property insurance that specifies how multiple policies covering the same loss will share in payment, typically based on each policy's proportion of the total insurance amount.

• Prevents over-indemnification
• Applies when multiple policies cover same risk
• Calculated based on each policy's limit relative to total limits

Memory trick: PROportions RAtio the LOSS.

A method of property valuation where the insurer and insured agree on a specific value for the insured property at the time the policy is written. In case of a total loss, this agreed amount is paid, regardless of the actual cash value or market value at the time of loss.

• Value determined before loss
• Eliminates depreciation disputes
• Often used for unique or hard-to-value items
• Requires appraisal or documentation

Memory trick: ACV is OLD, REPLACEMENT is NEW, AGREED is SET, STATED is a CAP.

Standard Businessowners Policies contain specific exclusions for certain types of risks, such as Workers' Compensation, auto liability, and professional liability, which require separate policies.

• Workers' Compensation is excluded
• Auto liability is excluded
• Professional liability is excluded
• Requires separate policies for excluded risks

Memory trick: BOPs EXCLUDE employee and vehicle woes.

A policy provision that states if the insurer adopts any revision that broadens coverage without additional premium, the broadened coverage will automatically apply to the existing policy.

• Automatically broadens coverage
• No additional premium required
• Applies to existing policies

Memory trick: LIBERATED policies get better for FREE!

Sections of an insurance policy that specify perils, property, persons, or situations that are not covered by the policy, limiting the scope of coverage.

• Narrow the scope of coverage
• Prevent adverse selection
• Eliminate coverage for uninsurable perils
• Found in most insurance policies

Memory trick: DECLARATIONS set the STAGE, AGREEMENT makes the PROMISE, EXCLUSIONS say 'NO WAY', CONDITIONS set the RULES.

Part of an auto insurance policy that pays for damage to your car due to incidents other than a collision, such as fire, theft, vandalism, falling objects, or hitting an animal.

• Also known as 'Other Than Collision' coverage
• Covers a broad range of non-collision perils
• Typically includes a deductible

Memory trick: COLLISION hits things, COMPREHENSIVE covers everything else.

A policy provision used to resolve disputes between the insurer and insured regarding the amount of a loss. Each party selects an appraiser, and if they fail to agree, a jointly selected umpire makes the final decision.

• Resolves disputes over loss amount
• Each party appoints an appraiser
• Umpire resolves disagreements
• Binding on amount of loss

Memory trick: APPRAISE the VALUE, ARBITRATE the CASE.

A fundamental principle of insurance that states the insured should be restored to the same financial position they were in immediately prior to the loss, without profiting from the loss.

• Prevents unjust enrichment
• Restores to pre-loss condition
• Core of property and casualty insurance
• Often limited by policy limits and deductibles

Memory trick: INDEMNITY makes you WHOLE, SUBROGATION chases the CULPRIT, ADHESION means STICK, GOOD FAITH means TRUST.

A property insurance provision that encourages insureds to carry adequate coverage (e.g., 80% of property value). If they fail to do so, they become a coinsurer and must bear a portion of any partial loss.

• Encourages adequate insurance
• Applies to partial losses only
• Penalty for underinsurance
• Calculation: (Amount Carried / Amount Required) * Loss

Memory trick: COINSURANCE: Carried over Required, times the LOSS.

A common exclusion in standard property insurance policies, meaning damage from rising water (flood) is not covered.

• Requires a separate flood insurance policy (e.g., NFIP).
• Distinguished from other water damage (e.g., burst pipes).
• Applies to perils like overflowing rivers, heavy rainfall, storm surge.

Memory trick: Exclusions: What your policy 'EX-cludes' or 'EX-its' from coverage.

A written amendment or attachment to an insurance policy that modifies, clarifies, or adds to the provisions of the original policy.

• Used to customize coverage for specific needs
• Can add or remove coverage, or change policy terms
• Becomes part of the legal insurance contract

Memory trick: ENDORSEMENTS ADD or CHANGE policy details.

The section of an insurance policy that contains the insurer's promise to pay and specifies the perils covered, the property covered, and the nature of the coverage.

• The heart of the policy, defining coverage scope
• Outlines the circumstances under which the insurer will provide benefits
• Often includes definitions of key terms

Memory trick: INSURING AGREEMENT is where the PROMISE is made.

An insurance policy that provides coverage only for losses caused by the specific perils or causes of loss explicitly listed in the policy. If a peril is not named, it is not covered.

• Only listed perils are covered
• Burden of proof on insured to show loss from named peril
• Less comprehensive than open peril policies
• Examples: fire, lightning, windstorm

Memory trick: NAMED means LISTED, OPEN means EXCLUDED.

An insurance policy that covers all causes of loss unless specifically excluded in the policy.

• Also known as 'All-Risk' or 'Special' coverage.
• Provides broader coverage than 'Named Peril' policies.
• Burden of proof is on the insurer to show an exclusion applies.

Memory trick: Peril Policies: Named is a LIST, Open is an EXCLUSION list.

A policy condition that voids coverage if the insured intentionally misrepresents a material fact or commits a fraudulent act related to the policy or a claim.

• Protects insurers from dishonest policyholders.
• Applies to intentional acts, not mistakes.
• Can lead to denial of claim and policy cancellation.

Memory trick: Conditions: The 'Conditions' you 'Conform' to for coverage.