California Property & Casualty Broker-AgentProperty InsuranceHard
A business has a Commercial Property policy with a Building and Personal Property Coverage Form and a Causes of Loss - Special Form. A pipe bursts due to freezing, causing water damage to the interior of the building and the business's inventory. The policy states that water damage from freezing is covered IF the insured has used reasonable care to maintain heat or shut off water and drain pipes. This condition is an example of what type of policy provision?
- AExclusion
- BDeclaration
- CCondition
- DEndorsement
Show answer & explanationAnswer & explanation
Correct answer: C. Condition
This is a condition. Conditions in an insurance policy define the duties and obligations of the insured and insurer, or specify how the policy will operate. In this case, the condition states that coverage for freezing damage is contingent upon the insured taking 'reasonable care' to prevent it.
Why the other options are wrong
- A. An exclusion would state that freezing damage is NOT covered at all, or under specific circumstances, but without the 'if' clause tied to insured's action.
- B. Declarations identify who, what, when, where, and how much is covered, but not the rules of operation.
- D. An endorsement modifies the existing policy, but the 'reasonable care' clause is typically a standard policy condition, not an added modification.
Policy Conditions
The section of an insurance policy that outlines the duties and obligations of the insured and insurer, as well as the rules of conduct and procedures that must be followed for the policy to be valid or for coverage to apply.
- Duties of insured (e.g., notice of loss, protecting property)
- Rules for policy operation (e.g., cancellation, subrogation)
- Can affect coverage if not met
Memory trick: DICE: Declarations, Insuring Agreement, Conditions, Exclusions