Manny is purchasing a Commercial Property policy with a Business Income form included. Manny can select from any of the following as a method to provide coverage, while avoiding the coinsurance requirement, EXCEPT:
The maximum monthly limit of indemnity optional coverage

The traditional definition of actual cash value (ACV) is:
Replacement cost minus depreciation

Sam and Dan are working to clean out the gutters around the roof on Sam’s house. Sam and Dan are standing at the top of separate ladders that are propped against the side of Sam’s house, when Dan’s ladder begins to wobble and ultimately falls into Sam’s ladder. Both men and their ladders crash to the ground. Whose injuries will be covered by Sam’s Homeowners policy under Coverage E – Personal Liability?
Only Dan’s injuries would be covered

Torts that can be covered by insurance policies include all of the following, EXCEPT:
Intentional torts purposely committed to cause harm to another.

The insured has a $1,000,000 personal umbrella policy with a $5,000 retention limit. For a $7,000 liability loss not covered under the insured’s personal auto policy, but covered under the umbrella policy, the insurance company would pay:
$2,000

All of the following is considered an “insured” under a CGL policy, EXCEPT:
Lawyers of the named insured

What specific type of liability policy gives an owner protection against liability claims arising out of the acts of its independent contractors?
Owners and Contractors Protective Liability Policy.

Which of the following would be eligible for coverage under a Businessowners policy?
A small retail store

Which of the following is NOT a correct statement in determining the cost of a “comparable automobile” when a physical damage loss has a occurred?
The cost of a comparable automobile as determined by a computerized automobile valuation service that produces statistically valid fair market values within the United States market

All of the following statements are TRUE of North Carolina automobile liability policies, EXCEPT
If the insured carries limits greater than the minimum financial responsibility limits required by state law, they are not required to carry Uninsured/Underinsured Motorists coverage.

The basic limit for Coverage F — Medical Payments of the standard Homeowners forms is:
$1,000 per person

Oliver Dogwood was in an auto accident which destroyed his car. While investigating the accident, Adjuster Doright found that Mr. Dogwood paid $1,000 for the vehicle. After checking with others he found the same vehicle with an asking price of $1,700, a retail price of $2,150 and a dealer price of $1,750. What amount will Mr. Dogwood receive?
$2,150

When a claims representative is collecting information from a third-party claimant, which of the following is the information that should be obtained first?
The nature and extent of the injuries or property damage claimed.

The Business Auto uses Symbol 7 to cover “specifically described autos” identified in the declarations. An auto acquired during the policy period will only be covered:
If the insured insures all of their vehicles with the company or it replaces a covered auto..

What coverage under the BOP automatically applies if a customer slips and falls on the named insured’s premises, regardless of legal liability?
Medical expense coverage

When an insurer is called upon to defend a suit under a CGL policy, the amount that can be paid for the defense costs is:
Not limited

Any North Carolina lender in making or servicing real estate mortgage or deed of trust loans on one to four family residences must accept a binder as proof of insurance. The binder presented to the lender must include all of the following, EXCEPT
A sworn statement that the insurance will be kept in force.

Which of the following statements is TRUE concerning Part A – Liability coverage on a standard Personal Automobile policy?
The coverage is provided only for accidents caused by those who are “insureds” under the policy..

Which of the following is NOT a reason to purchase a Dwelling policy instead of a Homeowners policy?
The Dwelling policy provides higher limits of liability than the Homeowners policy..

Which of the following is NOT excluded by Section II – Liability of the Business Automobile policy?
Cost to defend the insured

The insured and her 18-year-old son, who lives in the insured’s household, are crossing the street when both of them are struck by a drunk driver. The Part B – Medical Payments coverage of the insured’s personal auto policy will:
Provide coverage for both the insured and her son

All of the following are types of rehabilitative services provided under a workers’ compensation policy, EXCEPT:
Substance abuse

Which of the following statements defines a “bailee”?
Someone, other than the insured, to whom the insured property is entrusted temporarily.

In North Carolina, the motor vehicle liability policy law requires owners of motor vehicles to carry limits of:
$30/60/25

Many states amend property insurance coverage additions and extensions by statute due to insufficient coverage amounts or time limits. All of the following are property insurance additions or extensions that are frequently amended by state statute, EXCEPT:
Other Structures

How are household personal property claims settled under the farm policy?
Actual cash value

Which policy would be best for a prospective insured who wants coverage against liability assumed by him under specific written agreements?
Contractual Liability provided under a CGL policy

North Carolina law prohibits any Fire insurance policy covering property within the state of North Carolina to be issued for a term:
Longer than seven years

Collin suffered a work-related injury on the morning of February 5th and was off work completely until he returned to work on full duty on February 19th. Collin had worked for his employer for four years and was paid $42,125 per year. Collin’s state sets the TTD rate at 66 2/3rd percent of the average weekly wage. The state sets the maximum compensation rate at $420 per week and the waiting period at 3 days retroactive after 10 days. Collin was not paid for working on February 5th, so how many days of TTD compensation is Collin entitled to receive?
14

All of the following are examples of insurable interest in property, EXCEPT:
The interest an individual has in the property her parents will someday leave to her.

George went out for target practice one day with his handgun. He has practiced many times with the same target located in the woods behind his house. Unbeknownst to George, a neighbor was walking in the woods behind the target one day and was shot in the leg by George. Intentional acts are never covered by insurance, however, the claim filed by the injured neighbor may be covered under George’s liability coverage. Which of the following is the most likely reason why?
Shooting the gun was an intentional act committed by George, but the consequences of act (his neighbor being shot) were not intended

The duties of the insured after a loss are included in insurance policy language to:
Assist in the adjuster’s investigation of the claim

The perils insured against by a Homeowners policy are contained within the:
Insuring Agreements

Under a standard HO-3, the limit for Coverage C — Personal Property for a one or two-family dwelling:
Is set at 50% of Coverage A

Which of the following flood zones show a “flood depth” instead of a “base flood elevation” on a FIRM?
AO

North Carolina law stipulates that buildings located within the state that are covered under a Fire policy and suffer a total loss, the insurance company:
Is not liable to pay amounts beyond the actual cash value of the insured property at the time of the loss or damage

Which of the following is generally not considered to be a legal defense against claims of negligence?
The loss to the plaintiff was caused intentionally by the defendant. .

All of the following are true regarding the “Write Your Own” program of the NFIP, EXCEPT:
Insurers are required to participate in the program

How are death benefits calculated for an employee who has died as a result of a work related incident?
66 2/3% of the employee’s average weekly wage for 500 weeks

Sharon’s North Carolina home is covered under a Homeowner’s policy with a “Refrigerated Property Coverage” endorsement attached. She stores large amounts of expensive meats in her freezer at any given time. One morning, she doesn’t hear the low hum of her freezer motor. When she opens her freezer door, she finds that the freezer is no longer cold and all of her meat has spoiled. Sharon collects her receipts and finds that the price of the spoiled meat totals $658 and she submits a claim for this loss. How much will her insurer pay?
$500

Which of the following terms does NOT apply to workers compensation coverage in North Carolina?
Temporary sick leave with benefits

Coverage D – Loss of Use on the Homeowners forms provides coverage for “Civil Authority Prohibits Use” for:
No more than two weeks

All of the following statements are TRUE of the terms used in the standard workers’ compensation policy, EXCEPT:
“State” means any state of the United States, the District of Columbia, and all territories and possessions.

Under the comprehensive coverage of a Business Auto policy, which of the following would not be a covered loss?
After sliding on an icy pavement, a driver hits a guard rail.

The Insurance Information & Privacy Protection Act (IIPPA) requires insurers to conform to all of the following standards, EXCEPT:
Give reasonable notice for policy renewal and other policy changes..

The Section I Additional Coverage of the standard Businessowners policy provides coverage for “Debris Removal”. Which of the following statements best describes the limit for this coverage?
The total limit may be up to 25% of the policy limit for the loss payable with the deductible included, plus up to an additional $25,000 if the policy limits are exhausted

When would the Personal Auto policy respond to a loss with an all-terrain three-wheeled vehicle?
When used in an emergency situation

Sarah is shopping at a grocery store and wants to purchase a bottle of juice. The aisle is marked off with a rope awaiting the clerk to clean up a previously broken bottle and spill on the floor. Sarah moves the rope to get the item and slips and falls on the floor, cutting her face on the scattered glass. Which of the following would be the defense that the insurance company would most likely use in this situation?
Assumption of risk and contributory negligence on the part of the customer

All of the following are excluded under the 1943 Standard Fire policy, EXCEPT:
The theft of property after it had been removed from the insured premises to protect it from further loss..

Which of the following statements is NOT TRUE regarding the “period of restoration” for Business Income and Extra Expense coverage?
The period of restoration ends when the policy period ends

Fidelity bonds are used to cover:
Employee dishonesty

Violating a cease and desist order issued by the North Carolina Commissioner after finding a violation of the Unfair Practices will result in a a monetary fine of:
A sum of not less than $1,000 nor more than $5,000 for each violation

A licensee, for the second time, does not maintain records of insurance transactions as prescribed by the North Carolina Commissioner. He/she will:
Have their license suspended or revoked for a one year period

Which of the following endorsements can be attached to the Business Auto policy to extend coverage to individuals such as the owner of the business who does not carry personal auto insurance?
Drive Other Car endorsement

Under the “Money Orders and Counterfeit Money” insuring agreement of a standard Commercial Crime form, all would be covered, EXCEPT:
Taking a forged check from a customer in exchange for merchandise..

Which of the following statements is TRUE regarding nonwaiver agreements and reservation of rights letters?
The are used only with first-party claimants to protect the rights of insureds and insurers.

All of the following are reasons that an adjuster should keep very detailed log notes, EXCEPT:
To produce notes that will support a fraudulent denial of claims.

All of the following are excluded under the Commercial Building and Personal Property form, EXCEPT:
Furniture and fixtures

An insured carries property insurance with a limit of $25,000 and an 80% coinsurance requirement. The covered building, however, is worth $40,000. How much would she collect in the event of a total loss?
$25,000.

A guest on vacation deposits cash and traveler’s checks in the hotel safe deposit box located behind the front desk. When the guest attempts to retrieve them, the box is empty. What coverage is required to cover this loss for the hotel?
Guests property

Public adjusters:
Adjust first-party property loss claims.

The custom farming endorsement is usually attached to a farmowners policy when receipts exceed:
$5,000

Which of the following statements is correct regarding pollution coverage under the special cause of loss form of a Commercial Property policy?
It is excluded unless it was caused by a covered peril

With respects to insurers writing auto coverage in the North Carolina, which of the following is true regarding the North Carolina Motor Vehicle Reinsurance Facility?
All insurance companies writing auto coverage must participate in this program

Underground gasoline tanks on an insured’s property leak damaging the property next door. Which policy would pay for clean up?
Pollution Liability endorsement

The insured is liable for $500,000 in damages for a personal injury claim that is covered under the insured’s primary liability policy. The primary liability policy has a $300,000 limit per occurrence. The insured also has a $1 million Umbrella policy with a $3,000 self-insured retention limit. How would this claim likely be settled?
The primary policy would pay $300,000 and the Umbrella policy would pay $200,000

A customer has eaten seafood in a restaurant and became very ill while still in the restaurant. What type of CGL claim is this?
Products Liability

All of the following statements are true regarding a Personal Umbrella policy, EXCEPT:
The policy can be written as a monoline policy

Which of the following would be considered “economic losses” that could result in compensatory damages being awarded in a negligence case?
Medical expense and lost wages

Farm liability coverages include each of the following, EXCEPT:
Professional liability

Which of the following statements about the Standard Fire Policy is correct?
I. A covered fire must be hostile, not friendly.
II. Lightning includes artificially generated electrical current.
I only

Gavin operates a small manufacturing plant and is covered under a Commercial Property Business Income form. Under which of the following scenarios will Gavin be covered?
His loss of profit while out of business as a result of a fire loss

The retroactive date on a claims-made CGL form specifies:
That losses occurring before the date will not be covered by the policy.

A leased vehicle is considered to be a covered auto under the personal auto policy (PAP) if it is a private passenger auto leased for at least:
6 consecutive months

An insured’s boat is struck by another boat. He and his family are injured. His boat sinks because of the damage. An investigation determines that the party that caused the accident is not insured. If the insured carries a watercraft policy, what coverages would apply?
Uninsured boater’s coverage and hull insurance

Mark is injured at work in a state that provides a TTD benefit at 66 2/3%, the state minimum is $40 and the state maximum is $540. The waiting period is 3 days and the retroactive period is 15 days. Which of the following is Mark’s TTD benefit if he earns $20 per hour and usually works a 40-hour week. Mark is injured on July 14th and does not return to work until September 3rd. Which of the following is the amount of TTD benefit he would have received?
$3,809.50.

Mr. Vickers lives close to a river that has, on occasion, flooded. On Friday morning he is watching the weather station and notes that there is a flood warning in his area. He calls his agent and asks the agent to bind flood coverage immediately. Which of the following is true?
The application for coverage requires a 30-day waiting period before coverage applies. .

What is an administrator’s bond?
A bond required by the court of the administrator of the estate of the deceased

Section II of the Business Auto policy provides the details of the insurer’s “duty to defend” the insured in a lawsuit. This duty is more broad than the insurer’s responsibility to pay any damages for which the insured is liable. Which of the following describes this broadened duty on the BAP?
The BAP “duty to defend” extends to providing a defense against fraudulent claims. .

Spencer is covered under a standard Personal Automobile policy with a policy inception date of October 15th. Additionally, the policy will expire on October 15th of the current year. Spencer contacts his agent on October 7th and asks to have an new endorsement added to his policy. The agent agrees, adds the coverage the same day, and informs Spencer that there will be an additional premium of $20 per month charged. When will the adjustment of premium be effective for Spencer?
October 7th

A blanket employee dishonesty bond will:
Does not name the individuals.

Under what circumstances does an insurer allow the transfer of an insured’s rights and duties under a Commercial Package Policy without the permission of the insurer?
When the named insured dies

An insured has purchased a DP-3 policy to cover his dwelling that is valued at a replacement cost of $100,000. He insures it for $60,000 and later suffers a $30,000 fire loss. Which of the following amounts will be paid by the policy (if no deductible form is attached)?
$22,500

The insuring agreements of an Equipment Breakdown policy, provides coverage for:
First party coverages and property damage to property of others

If the insured, covered under a Homeowners policy, suffers the loss of an article that is part of a pair or set. All of the following are options for the insurer to settle the loss, EXCEPT:
Pay for the replacement cost of the entire pair or set

When someone dies without a will, their assets will be handled by a court appointed:
Administrator.

Emily owns a home that she has covered under a Homeowners policy. Because Emily lives alone, she had to leave her home and stay with her parents for the past six months while she recovers from major surgery. Except for the day-to-day items that Emily needs while she stays at her parents’ home, all of her other belongings are still located in her home. Which of the following best describes the condition of Emily’s home?
Unoccupied

The insured carries a yacht policy. One of the crew members is injured while performing a work related task. What coverage must be added under the policy that would respond to cover the crew member’s injuries?
Jones Act

In most states, which of the following most accurately describes an “admitted insurer”?
An insurer that can transact insurance in the state under a certificate of authority

The wording of the Standard Fire policy is so vague that many insurers have to rely on __ to take a position on the acceptance or denial of a claim.
Case law

Under the North Carolina personal automobile policy, the number of days an insured has to report a newly acquired vehicle to the insurer is:
30 days

The additional coverage of the Commercial Property cause of loss forms known as the “Limited Coverage for Fungus, Wet Rot, Dry Rot, and Bacteria” provides:
$15,000 coverage for all occurrences within a 12-month period

The broad and special dwelling forms (DP-2 and DP-3) will provide replacement cost coverage for buildings if the amount of insurance written on the building is at least:
80% of the full replacement cost at the time of the loss

Under a Businessowners policy, the “Hired and Nonowned Auto Liability” endorsement would cover:
Vehicles borrowed by the insured

Which of the following coverage endorsements under commercial crime and bonding would cover an ATM machine?
Automated Teller Machine Coverage

Which part of an insurance policy sets the rules of conduct, duties, and obligations of the insured and insurer under the terms of the insurance contract?
Conditions

The condition “Legal Action Against Us” in a CGL policy requires the insured to:
Comply with all of the terms of the policy

Which of the following is NOT one of the three main (general) coverages of the Building & Personal Property coverage form?
Property damage liability coverage

A typical boatowners policy includes all of the following coverages EXCEPT:
When used to carry cargo for others for a fee

The Coverage C – Uninsured Motorists coverage of a standard, unendorsed Personal Automobile policy applies to all of the following, EXCEPT:
Property damage sustained by the insured vehicle by an uninsured vehicle

Which of the following is not a subject for supplementary payments under a CGL policy?
Expenses for first aid at the time of an accident.

Which of these statements best describes “the law of agency?”
A relationship in which someone is authorized by contract to represent another party..

In connection with the bonding business which of the following statements is NOT true?
A surety bond protects the principal from sustaining a loss.

What is the purpose of the “Other States” coverage of a standard workers’ compensation policy?
To provide coverage for exposures that develop in other states during the policy period

A method of setting claim reserves based on the claim’s circumstances and the claim representative’s experience in handling similar claims is known as:
The individual case method

Using the modified comparative negligence standard, a plaintiff in a lawsuit who is 60% at fault for her injuries will receive:
No award.

Which of the following statements is NOT TRUE of the Builders’ Risk coverage form?
The form allows for vacancy of 60 days before coverage will no longer apply..

Which of the following coverages does NOT need to be added to a Garage Coverage form by endorsement for coverage to apply?
Collision

What does the Small Business Administration (SBA) surety bond program provide?
Reimburses the sureties that provide the bonds a percentage of the losses sustained if the contractor defaults. .

Which of the following represents an indirect loss?
A kitchen fire made a house untenable, causing the occupants to incur hotel charges.

Which of the following statements is TRUE regarding the sections of a Homeowners policy?
Section I coverages vary greatly between the different HO forms.

Sharon’s home is covered under a Homeowners insurance policy in North Carolina. She has also purchased the “Refrigerated Property Coverage” endorsement to be attached to her policy. Sharon wisely purchased this endorsement because she has a large extended family that comes to her home on weekends for her home-cooked meals and she stores expensive cuts of meat in her freezer. One Friday morning Sharon goes to the freezer to pull out several pounds of Italian sausage to begin cooking for the weekend. When she opens the freezer a horrid smell fills her home and she realizes that her freezer has stopped working and all of her meat is spoiled. After collecting her receipts, Sharon submits a claim for the meat that totals $382. How much will the insurance company pay Sharon?
$282

Under “pollution cleanup and removal” coverage under the standard ISO BOP form, when must a loss be reported?
Within 180 days

Sean is covered under a standard, unendorsed Personal Auto policy. He has an external hard drive connected to the manufacturer-installed stereo system of the car, with thousands of digital music files stored there. The vehicle is broken into and the hard drive is stolen. How will the insurance company handle the claim for the hard drive?
Deny the claim in full because this loss is excluded by Part D of the policy..

Under the Commercial Building and Personal Property Coverage form, if no optional coverages are selected, loss valuation/settlement is based on:
Actual cash value.

Which of the following is included in the Supplementary Payments under a standardized Personal Automobile policy?
Interest accruing after a judgement is entered (post-judgement interest).

Pete’s business is covered by a standard Businessowners policy. He has been accused by a customer of displaying inaccurate pricing on his website. Which of the following statements best describes how this claim would be handled by the BOP?
Coverage for any claim caused by a wrong description of the price of goods, products or services is excluded by the personal and advertising injury coverage of the BOP

The National Flood Insurance Program will pay which of the following amounts to assist with moving of property to safety when there is imminent flood danger?
$1000

Which sections of the Standard Fire policy are found on the first page of the policy?
The Declarations page and the Insuring Agreement

Kim owns an Art studio where she offers painting lessons and sells painting and art supplies. She carries a Commercial General Liability policy to cover her business. Which of the following situations would be covered by Kim’s CGL insurance?
A client slips and falls on wet paint that was dripped on the floor in Kim’s art studio. The client breaks her arm.

The North Carolina Insurance Code has established a penalty for willfully making false statements in a financial statement. The violator is considered:
Guilty of a Class I felony and can be subject to a fine of not less than $2,000, nor more than $10,000

To be eligible for coverage under a standardized Dwelling policy, the insured must not allow more than _ boarders to live on the premises.
5

Jeff has his 1974 Pontiac Firebird Trans-Am SD-455 covered under a standardized personal automobile policy. He has had a full restoration done to both the interior and exterior of his muscle car and he can’t wait to show it off. When Jeff’s buddy Dale sees the car, he challenges Jeff to race against him in his 1971 Chevy Camaro SS350. Jeff accepts the challenge and the two men set a date for the following week. The following week, many people find out about the race and come out to watch on race day. Shortly after the race begins, Jeff loses control of his car when a tire blows out and he swerves into the crowd of people watching the race, injuring several. He is sued for bodily injury. Which of the following statements best describes how Part A of Jeff’s personal auto policy will cover the costs to defend the claims against Jeff?
The insurer will not defend against the claim because it is not covered under the policy

Coverage for all reasonable expenses incurred by an insured in order to continue as nearly as practicable the normal operation of his/her business after a loss is:
Extra Expense Coverage.

All of the following statements are TRUE about Workers Compensation benefits, EXCEPT:
Waiting periods apply to medical and disability benefits.

All of the following are exceptions to the workers’ compensation exclusive remedy, EXCEPT:
An on-the-job injury caused by worker fatigue from working an excessive number of over-time hours..

Under a Business Auto policy, which coverage symbol indicates that a car is subject to mandatory no-fault insurance as required by state law?
5

Philip has several vehicles that are all covered under Personal Automobile policies. He has several acres of land with a barn and chicken coup on the property. To drive around on the acreage, Philip has a very old truck that is not licensed or insured. One afternoon, Philip is driving out to check on his cows when he hits a rut and his head slams down on the steering wheel, injuring him severely. How will Part B – Medical Payments provide coverage for Philip’s injuries?
Bodily injury sustained while occupying an uninsured auto owned by the insured is excluded under Part B, therefore no coverage would apply

An insured who would like to cover an employee while driving their own car on company time would need which of the following endorsements?
Employees as Insureds endorsement

Under the “Emergency Program” in all states except Alaska and Hawaii, the National Flood Insurance Program will insure a single-family residence for up to:
$35,000.

Which of the following statements is true about the Standard Fire Policy?
Standard Fire Policy is no longer used in its original format

Which of the following Commercial Property cause of loss forms include the additional coverage for “Fungus, Wet Rot, Dry Rot, and Bacterial”?
The basic, broad, and special cause of loss forms..

Homeowners policies cover all of the following, EXCEPT:
A 2-family dwelling occupied by tenants who are renting the covered premises from the named insured..

Alec goes to an amusement park and rides a roller coaster that was designed to flip the riders upside down. Alec is taller than the average person so when the roller coaster flips, he hits his head on the safety bar. After receiving medical care, Alec files a claim against the amusement park, seeking payment for his medical bills, pain and suffering. What defense against negligence would the amusement park most likely use to deny this claim?
Assumption of Risk

The insured’s business is covered under a jewelers block policy. The owner’s wife decides to wear an expensive piece of jewelry to a party that is for sale by the business. In case of a loss, how will the insurer handle the claim?
Deny the claim because of an exclusion.

Liability Insurance PAP (Part A)
Pays all the sums and insured must legally pay as damage due to BI/PD caused by an accident and resulting from the ownership, maintenance or use of a covered auto.

Coverage Part A through F of a PAP
A. Liability
B. Medical Payments
C. UM/UIM
D. Physical Damage
E. Insured Duties
F. General Provisions

Certificate of Insurance (COI)
A document that proves the existence of insurance coverage

Occurrence
Something that continue to happen and may cause injury later on.

Accident
A sudden unforseen and unintended one time event

Assumption of risk
An individual who is aware of the potential risk involved and chose to expose themselves to it.

Comparative negligence
Measures the amount of negligence contributed to each party. The injured party will not cover damages equal to the percentage of negligence they contribute.

Contributory Negligence
If an insured party contributed to their injury in anyway due to their own negligence, we will not pay anything.

What state is a contributory state?
North Carolina

Negligence
Failure to do (or not do) what a reasonable prudent person would or would not have done in a similar instance.

Temporary Substitute Automobile
Not owned by the named insured but used temporarily as a substitute for the owned auto that is not currently being used.

What is an example of a Temporary substitute Automobile?
A dealership loans an insured a vehicle to drive while their car is getting fixed.

Non Owned Automobile
Not owned by the named insured or any relative.

What is an example of an Non Owned Automobile?
An insured borrows a neighbors car.

If an additional vehicle is not reported to the insurer within 30 days:
No coverage will apply to the added vehicle.

If a vehicle is added to an existing policy (In addition to):
It will have the broadest coverage if insured within 30 days of becoming the owner.

If a replacement vehicle is not reported within 30 days:
Part D (Comprehensive and Collision Coverage) will not apply to the replacement vehicle.

A new vehicle that replaces another vehicle will:
Have the same coverages as the old vehicle if the named insured request to insure it within 30 days of becoming the owners.

Insured
Any blood relative by marriage, adoption, wards, foster children, living in the same home, including children away at college. Also, any person using someones car with their permission.

Named insured
Listed on the declarations page. Included a spouse wether they are named in the policy or not, provided they live in the same home.

1st Coverage for watercraft or yacht are:
Hull insurance for damage to the insured boat itself

2nd Coverage for watercraft or yacht are:
Protection and indemnity liability coverage for BI and PD exposures for damage to other people or other peoples boats.

What doesn’t watercraft or yacht coverage provide?
Coverage for boats used for hire, charger, or for transporting people for a fee.

How many days removal coverage is provided on the National Flood Insurance Program?
45 days

Elevation certificates
Required on dwellings that are written in the regular program in certain flood zones in order to properly rate the policy.

Flood insurance policies become effective after:
30 days after receipt of the coverage application and the premium payment.

The general property form on flood insurance is used to:
Insure larger residential structures and non residential buildings.

The dwellings form on a flood insurance plan is:
Used to ensure residential property of no more than 4 units and the contents

Flood insurance is available in 2 forms, what are they?

1. Dwelling
2. General property

The deductible for an emergency plan applies:
Separately to the building loss and contents if purchased on a per occurrence basis.

How much is the deductible on an emergency plan?
$1,000 Deductibe

The community becomes eligible for a regular plan:
When a community complied with flood control requirements and the extent of the flood plan has been mapped.

What are the 1st definition included in a flood?
Overflow of inland or tidal water

What is the 2nd definition included in a flood?
Unusual accumulation and run off of surface waters

What is the 3rd definition included in a flood?
Mud flows or mudslides in normally dry land areas

What is the 4th definition included in a flood?
Abnormal flood related erosion of shorelines

What is a flood?
General and temporary conditions of partial or complete inundation of normally dry land areas.

What is the 1st thing the “write your own” program will allow?
Private insurance companies to sell and service flood insurance in their own name.

What is the 2nd thing the “write your own” program will allow?
Collect Premiums

What is the 3rd thing the “write your own” program will allow?
Keep percentage of premiums to cover expenses and profit.

What is the 4th thing the “write you own program will allow?
Invest the rest of the profit to provide funds to pay claims.

What is the purpose of the National Flood Insurance Program?
The encourage communities to practice flood control and to restrict development in flood prone areas.

What does the The Federal Insurance Administration (FIA) do?
Sets rates, coverage limits, and eligibility requirements for flood insurance through the National Flood Insurance Program.

What does the Federal Emergency Management Agency (FEMA) Do?
Sets program standards for the National Flood Insurance Program.

How many roomers and boarders can a dwelling policy insure?
Up to 5 roomers and boarders

How many roomers and boarders can a homeowners policy insure?
Up to 2 roomers and boarders.

What is probability?
Measuring the chance of an event occuring

What is a risk?
The uncertainty of a loss

What is a pure risk?
A chance of loss only

What is speculative risk?
When there is a chance of gain and a chance of loss

What is a broker?
A person who represents the insurED. They also must be able to post a bond more than or equal to $15,000 in favor of the state of NC.

What is the characteristics of insurable risk?
A low probability of a loss occurring
Less than catastrophic results
Lost must be measurable
The loss must be significant
The loss must be accidental and unintended

What is insurable risk?
A risk an insurance company is willing to accept.

A transfer of risk
Insurance

What is the 1st way to prevent adverse selection?
Rate up marginal risk

What is the 2nd way to prevent adverse selection?
Insurability standards

What is adverse selection (Bad Risk)?
When an insured with a high risk of loss attempt to purchase insurance and are successful in getting the insurance.

Law of Large Numbers
As a larger number of events are included, the difference between actual and expected results become smaller.

Who are competent parties?

1. Minors
2. The mentally infirm
3. Persons under the influence of drugs or alcohol.

What is a legal object?
A legal purpose in order to be enforced

what is a peril?
A cause of loss.

What is a hazard?
Something that increases the probability of a peril occurring.

What is the Principle of indemnity?
Restoring you to where you were before a loss but you will not make any money off of the loss.

What is a direct loss?
Actual damage to tangible property. There is a deductible for this type of loss

(i.e.) house, detached garage and contents

What is an indirect loss? (Consequential loss)?
The money or income lost as a result of a direct loss.

Offer and acceptance agreement
An offer is made by the proposed insured. Acceptance occurs when the policy is issued.

What is consideration?
The exchange of something of value by both parties

What is an Agent?
A person who represents the insurER. They can bind coverage.

What is the declarations page?
The personalized part of a policy.

What are the parts of the declarations page?
The parties of the contract
The policy term
The amount of insurance purchased
The amount of the premium
The object of person insured

What is the insuring agreement?
That perils that are insured (covered)

What are conditions?
The provisions and stipulations of the policy. The rules of conduct between the insurer and the insured.

What are exclusions?
The list of perils that are not covered

What are endorsement?
The modifications (adding or taking away) from the policy.

What are the definitions?
The named insured, who is an insured and what constitutes a premises.

What is unilateral?
One sided, only the insurance company can make a legally enforceable promise.

What is adhesion?
When an application cannot bargain over the wording in a contract.

What is a waiver?
voluntary abandonment of a right or advantage

What is estoppel?
When an insurance company is legally stopped from denying reducing or otherwise changing coverage based on a condition of information that the insurance company has previously waived its right to act.

What is a representation?
Statements that are made with the utmost faith but are not guaranteed to be accurate. (a substantial truth).

What is a warranty?
Statements guaranteed as accuracy for both past and future events.

what is misrepresentation
A lie regarding material information.

Material Misrepresentation
Knowing the truth about something upfront but still lying about it.

Non material misrepresentaion
Has no effect on contract at all.

What is the 1st responsibility of the commissioner?
To assure insurance laws are adhered to
Monitor financial responsibility
Provide assurance that companies and agents can do business
regulate unfair trade and claims practices
Approve both rats and forms for insurance
Gave any hearing done within 10 business days
The commissioner must suspend an agents license prior to a hearing.

Records must be maintained for?
No less than 5 years

It is unlawful to discriminate in the rates charged for automobile coverage based on:
age or sex

Proof of loss must be submitted within
15 days receiving notification of a loss

What is twisting?
The misrepresentation of a policies terms and values to include the lapse or replacement of an existing policy.

(lying about what a policy covers)

What is rebating?
Giving something of value in order to persuade the client to purchase an insurance policy.

It is illegal for an agent to charge money in excess of a premium fee for a policy unless?

1. A sign is posted in the business lobby
2. The client provides written consent
3. A separate receipt is issued for the payment for such fees.

Commingling
An illegal practice which clients funds are deposited with the general agency funds.

What are pretext interviews?
When an individual does not reveal their identity or pose as someone else.

How long is a disclosure of authorization form good for?
12 months max effective time

An Adverse Writing Decision
Must be a written request within 90 days. The company must respond within 21 days of the decision and the insured has 30 days to dispute the decision.

What is the 1st felony that can result in criminal prosecution in NC?
Agent/Broker who converts to their own use of any money or property.

What is the 2nd felony that can result in criminal prosecution in NC?
Willfully submitting false statement.

What is the 3rd felony that can result in criminal prosecution in NC?
Knowingly placing and insurance coverage with a non admitted insurance.

What is a named peril?
Coverage for only the named perils on a policy.

What is an open peril?
Coverage on all perils except for those specifically excluded on a policy.

If an insurER cancels a policy?
The premium refunded is pro-rate basis. The insurED cannot be penalized.

If the insurED cancels a policy?
The premium refunded is on a short rate basis. The insurED received less than half of the premium. The InsurED CAN be penalized.

Vandalism and Malicious Mischief (VMM)
Only added if extended coverage endorsement (WHARVES) is included.

When is VMM suspended?
If property is vacant or unoccupied for 30 days.

When is SFP suspended?
if a property is vacant or unoccupied for 60 days.

What Dwelling and Homeowners policies provide replacement cost for partial structural losses?
DP 2/3 and HO 2/3/5

What is the purpose of the Unfair Trade Practices act?
The purpose of this act is to prohibit all practices considered by this state as an unfair method of competition or deceptive practice.

What is the action that constitute unfair trade practices?
Misrepresentation of advertising policies (twisting, dividends, financial conditions or reserves of the insurer, and names or titles of insurance policies that misrepresent the true nature of the contract)

What are the other action that constitutes unfair trade practices?
Defamation
boycotting, coercion and intimidation
False financial statements
Unfair discrimination
Rebating
Misuse of confidential information.

What are supplementary payments?
In additional to the limits of liability.

How much can go towards the cost of bail bonds because of an accident?
$250

How much can be paid per day for the loss of earnings due to an attendance to hearings etc?
$200

What are the min limits of liability for NC?
30/60/25

Medical payments on a PAP are ineligible for payments on?
Motorcycles

Limits apply to per person, per accident and will pay all:
Expensed incurred within 3 years.

UM (uninsured motorist coverage) provides BI and PD coverage for:
Hit and run drivers

How much is the Deductible for UM under PD?
$100

UIM (Underinsured Motorist coverage) provides coverage for:
At fault drivers liability limit for BI. Provides coverage for someone who has less coverage than you.

What is arbritation?
When a 3rd party (arbritator) is hired to settle claims that the named insuER or insurED cannot agree on.

Other than collision claims settlement is handled on a:
ACV basis

OTC coverage for personal effects is limited to:
$100 (fire and lightening losses only)

OTC coverage for a non-owned trailer has a limit of:
$1500 coverage limit

How much money applies to any electronic equipment that is permanently installed outside of vehicles manufacturer?
$1000 coverage limit

How much coverage applies to any equipment or device that is permanently installed in an vehicle for a manufacturer.
Unlimited coverage applies

Transportation expenses for a total theft of a covered auto or loss of a non owned vehicle are how much?
$15 per day to a max of $450

How many hours will coverage apply for transportation expenses after a theft of a vehicle?
48 hours

How soon should you notify the police if a vehicle is stolen or damaged by a hit and run driver?
Promptly (immediately)

How many days should you submit notice of cancellation of a non liability coverage?
10 days notice of cancellation

How many days should you submit cancellation of liability, med pay, and UM/UIM coverage for non premium payment?
15 days notice of cancellation

How many days should you submit cancellation when you become a non resident of NC?
60 days notice of cancellation

Towing and labor cost will pay up to how much?
$25

Extended transportation expenses cover non auto that is out of service for more than 24 hours because of physical damage (not theft) for how much?
$15 per day 450 max up to $30 per day and $900 max.

The post assessment insurance guaranty association:
Avoids losses and delays in the payment of covered claims due to financial impairment of insurers.

It will pay claims when an insurance company goes bankrupt
It will keep company from going bankrupt.

The post association applied to al direct loss coverages accept
life, accident and health insurance.

What 3 accounts should the Post assessment Insurance Guaranty Association maintain?
Automobile insurance
Workers compensation
All other coverages subject to the association

The Insurance Guaranty Association shall be responsible for all covered claims existing prior to an insurER insolvency within:
30 days of insolvency

Under the post insurance guaranty association a covered claim is defined as?
A portion of a claim in excess of $50 but less than $300,000 except for workers compensation claims. Is also not in excess of the face amount on the policy

The insurance guaranty association has the power, upon majority vote of the board of directors to:
Inform the commissioner of any information indicating that an insurer may be suffering financial impairment.

The insurance Guaranty association is subject to:
It is subject to examination and regulation by the commissioner of insurance.

The essential property insurance for beach area property was adopted to:
Promote the orderly growth and development of the coastal area.

The north carolina insurance underwriting association applies to what?
Real property east/ and or south of the intracoastal waterway and adjoining coastal counties.

The board of directors for the north carolina insurance underwriting association has the power to?
Assume reinsurance
Cede reinsurance
purchase reinsurance

The north carolina insurance underwriting association provides what maximum amount of insurance for residential property?
$750,000

The north carolina insurance underwriting association provided what maximum amount of insurance for commercial property?
$1,000,000

The north carolina underwriring association provides what perils insured for coverage?
Fire and lightening
EC (WHARVES)
VMM
Crime insurance (no theft coverage)
Business income and extra expense coverage.

Under the north carolina underwriting association insurers may exclude windstorm and or hail damage by attaching what?
Absolute windstorm or hail exclusion endorsement.

The north carolina joint underwriring association was formed for what purpose?
the purpose of causing basic property insurance to be issued on eligible risk.

FAIR plan members will be who?
Admitted companies writing direct loss property insurance coverage in NC

under the FAIR plan, Basic property insurance is considered to cover?
The same perils (Except business income and extra expense) as the NC insurance underwriting association.

Denial of coverage through the fair plan may be?
Appealed to the commissioner of insurance or their designee.

What is the purpose of the NC Rate bureau?
Prepare and recommend proposed policy forms
Prepare and recommend rates
Filings to the commissioner

(Remember promulgate)=send out

Coverage forms under the rate bureau are:
Residential property with not more than 4 units
Motor vehicles
Workers compensation

Each company writing any coverage forms for the NC rate bureau must:
Be a member of the rate bureau, and are entitled to one voting representative to the bureau.

NC rate bureau rates are proposed to be:
Adequate
Not excessive
not unfairly discriminitory

Proposed rates for the NC Rate bureau cannot become effective until after:
A waiting period of 210 days has passed.

The Commissioner may notify the rate bureau within:
50 days

The commissioner may notify the rate bureau for workers compensation within
60 days

If not in compliance with the proposed rates for the NC rate bureau:
A hearing must be scheduled within 30 days.

During an appeals process for the NC rate bureau?
The new rates may be used.

Proposed rates with the NC Rate bureau may be used in a:
Separate escrow account

Whenever an insurer changes either the coverage provided or the rated charged:
The insureds must be given at least 15 days advance notice.

What is the purpose of the safe driver incentive plan?
To encourage safe driving practices by motorist in our state.

What factor is not considered on the safe driver incentive plan?
Age and sex

What factors are considered in the rating of an automobile policy?
Vehicle use
principle or occasional operator
Driving experience
Address

Drivers with 3 years or less driving experience will
receive a surcharge (higher premium) without having violations or at fault accidents.

Conviction records for moving violations must be:
Must be obtained at least annually from the NC DMV

What is the purpose of the NC vehicle reinsurance facility?
To provide required automobile liability, medical payments, and UM/UIM coverage.

Eligible risk for the NC motor vehicle reinsurance facility include:
Resides in NC
Has an NC drivers license
Owns and Automobile registered in NC
Subject to NC financial responsibility laws

what coverages are required for the NC motor vehicle reinsurance facility regardless of their driving record?
Liability
Med Pay
UM/UIM

What are the maximum limits reinsured by the NC motor vehicle facility?
100,000/300,000/50,000 with $2000 med pay

What is the maximum limit for uninsured motorist (UM)?
1,000,000/1,000,000/50,000

What is the minimum limit for Underinsured motorist (UIM)?
1,000,000/1,000,000

What may an agent not do under the NC Motor reinsurance facility?
They may not refuse to accept an application or bind coverage to an eligible risk.

The NC motor reinsurance facility is governed by how many board of governors?
12

how many board of governors are appointed by the member insurance companies under the NC motor vehicle reinsurance facility?
5

how many board of governors are appointed by the commissioner under the NC motor vehicle reinsurance facility?
7

Under the NC motor vehicle reinsurance facility ceded business may not be terminated unless
Premium payments have not been made
The named insurer moved out of the state

What is the single limit for NC?
$85,000

Coverage B for building and personal property covers?
furniture, fixtures, stock, improvements and betterments within 100 feet of the building.

Coverage A for building and personal property cover?
Buildings

Coverage C for building and personal property covers?
Personal property of others in, or within 100 feet of the building, including property in vehicles.

What is a bailee?
The property, in the care custody and control of the named insured.

on building and personal property coverage debris removal is covered for how much?
25% of the total payment plus the deductible

On building and personal property coverage if the expense exceeds 25%:
The insurer will pay an additional $10,000

Preservation of property is?
The removal coverage provided to insure loss to property when removed to protect it from further damage.

The open peril coverage on preservation of property is covered up to how many day?
30 days

The cost of extracting pollutants from land and water on the premises is covered only if reported in writing within how many days?
180

What are the extensions of coverage under the building and personal property coverage form?
Newly acquired property covered up to 30 days
Valuable records and papers (limited to 2500 at each described location)
Business property temporarily located off premises other than stock, which is covered up to $10,000.

A common policy condition gives:
The insurer the right to make inspections and surveys at any time as it relates to “insurability and premiums.”

Exclusions on the building and personal property coverage form include: (the one that is on the exam)
Outdoor property (fences, antennas, towers, and signs not attached to the building).

What are the 4 cause of loss forms?
Basic form
Broad form
Special form
Earthquake form (only used if one of the 3 above are purchased).

Earthquakes cover
All shocks or eruptions that occur within 168 hours.
Volcanic eruption, explosion or effusion

Exclusions to the earthquake form include:
Any earthquake or volcanic eruption that begins prior to policy inception
Fore, explosion (not volcanic), landslides, tidal waves, mudslides or flows from and earthquake or volcanic eruption.
Artificially generated electrical current

Loss valuation clauses are based on
ACV

What are the optional coverages on a building and personal property form?
Agreed value
Inflation guard
Replacement cost

What is the purpose of business income coverage?
Provides coverage for the loss of business income due to a business interruption or extra expenses that are incurred to continue operations while damage property is being restored.

The coverages for the business income form are:
Business income (interruption) Net
Extra expenses
Extended business income (up to 30 days from the time ops are restored)
Civil authority

What is the maximum period of indemnity loss time?
120 days

What is the monthly limit of indemnity?
The maximum the insurer will pay for loss of income during each period of 30 consecutive days during the loss period.

Civil losses are a maximum of:
3 weeks

Extra expenses are:
Incurred to continue operations at another location. Will not pay for higher lease cost.

Loss conditions for 30 days or less is?
40% coverage?

Loss conditions for over 30 but no more than 60 days is?
80% coverage

Loss conditions for over 60 days is?
100% coverage

What can be insured under CGL?
The named insured
The partners, ad their spouses
Officers, directors, and shareholders
Employees

What are the limits of coverage available under the CGL?
The general aggregate limit
An aggregate limit
A per occurence limit
A Fire and damage limit

On a CGL what is considered someone who is injured of sustains damage while on premises?
A customer slipping on a wet floor and injuring their back.

On a CGL what is considered the operations liability whether on or off the premises?
A tree trimming service that damages a customers property while removing a damaged limb from a tree.

What are the 5 insured contracts under contractural liability? (LEASE)
Lease
Easement
Agreement
Sidetrack
Elevator maintenance

What are the 3 ways a CGL can pay claims?
Can pay as primary
Can pay in excess
Can pay equally with the other insurer until the claim is paid or the limit of the policy is reached.

The 4 coverages for CGL are:
PD
BI
PI (defamation, libel, slander)
Advertising injuries (wrongs to a business)

Supplementary payments n a CGL will pay up to :
$250 per day for earnings lost by the named insured.

NC workers compensation provides coverage for business employing:
3 or more people except for agricultural employers with less than 10 people are exempt.

Workers compensation provides
A fair and equitable compensation for bodily injury and disease arising out of, and the course of, employment.

Workers compensation the employer or insurer may select
the physician or hospital.

Disability benefits will not come into effect until
after the 7 day waiting period

What is the payout amount for workers compensation
2/3 of employees salary.

Temporary total
You cannot work right now, but you will fully recover and return to work.

Permanent partial
You lost a limb, and you may return to work but you will not be able to perform all job duties.

Permanent total
You will never work again.

How much are death benefits under workers compensation?
$10,000 for burial allowance

Income benefits are payable for how many weeks?
500 weeks

A spouse who is disables shall receive benefits for
life or until remarriage

A child who has NOT turned 18 and has reached 500 weeks of income benefits for workers compensation will continue to
Get benefits until they turn 18.

When should death claims be filed and where should they be submitted to?
Death claims should be submitted in writing to the industrial commission within 2 years of the work related death.

The assigned risk plan is:
A method of binding required workers compensation coverage on those business that are “hard to place” due to increased hazards of the occupation.

Under workers compensation the rate bureau will:
Bind coverage for 30 day while they assign the risk to a member insurer who must issue the coverage on a standard basis.

All disputes concerning workers compensation issues are referred to
The industrial commission for resolution.

A domestic insurer is
In state

A foreign insurer is
In another state

A alien insurer is
In another ountry

What is malingering?
Lying about a health concern (sickness) in order to miss out on work.

what is libel/defamation?
Making statements that are not true or malicious with the intentions to injure an insurers business reputation.

What is spread of risk?
Used to decrease loss probability

What are the 2 parts of a homeowners policy?
Part I: Property
Part II: Liability

HO2
Broad form coverage (NAMED Peril) DP2 plus theft

HO3
Special form (OPEN PERIL on dwelling) named peril on contents.

HO4
Contents (renters) (NAMED PERIL) for contents only

HO5
Comprehensive (OPEN PERIL) on structures and contents

HO6
Condo owners (NAMED PERIL) coverage for contents for condo owners.

Homeowners coverage A
Dwelling: Insures the structure and equipment/fixtures permanently affixed that pertain to service of the structure (heat pumps, central AC etc). Construction supplied are covered except for theft.

Homeowners Coverage B
Other structures: Garages, and other detached outbuilding that are separated from the dwelling by a clear space or they are only connected by a non combustible material (fence, utility line, sidewalk, etc).

Homeowners Coverage C
Personal property contents: Includes household or personal property common to the occupancy of the premises that belong to the insured and family members.

Homeowners Coverage D
Loss of use: Coverage providing additional living expenses incurred while the dwelling structure is untenable.

Homeowners Coverage E
Personal Liability: Will pay for damages because of BI or PD coming out of the insured premises or the insureds personal activities.

Homeowners Coverage F
Medical payments to others pays other than the insured, caused by an accident coming out of the insureds premises or the insureds personal activities.

Coverage C limits on homeowners
$200 on money and platinum
$1500 on securities, deeds, tickets stamps and manuscripts
$1500 on watercraft including trailers, equipment for outboard motors
$1500 on utility trailers. Theft coverage is restricted to on premises only.
$2500 of property on the premises used for business
$1500 for property away from premises used for business
$1500 for loss by theft of jewelry, watches furs, and precious/semi-precious stones
$1500 loss of electronic apparatus used personally while it is in car.
25% of coverage C limits to a max of $10,000 loss by theft of silverware.
10% of coverage C limits to a max of $10,000 loss by theft of guns

Coverage extensions under the homeonwers
Debris removal up to 5% of coverage A limits

The coverage limit for trees, shrubs and plants under homeowners is?
$500 up to 5% of coverage A. Wind losses/damage not covered.

Claims settlement under a homeowners include
Claims for partial losses under COV A and B to be paid on basis of RC with no deductible for depreciation.
Personal property will be handled on ACV basis.

What is a tort?
A civil wrong

What is a tortfeasor
Someone who commits a civil wrong

Liability coverages for motor boats are for
boats not exceeding 50 HP

Liability coverages for owned or rented outboard motorboats
boats not exceeding 25HP

Liability coverage for rented sailing boats
boats not exceeding 26 FT

Exclusions to a homeowners policy include:
Losses caused by power failure away from the insured premises
Water that backs up through sewers or drains
Flood

Dwelling policies are for who?
People who cannot qualify for coverage under the homeowners.

Dwelling policies replaces the
SFP

SFP is similar to:
DP1

DP1
Basic form: (NAMED PERIL) includes SFP, EC, VMM and Volcano. Peril includes damage done by vehicles unless the vehicle is owned by the insured or person in the household.

DP2
Broad form: (NAMED PERIL). DP1 plus burglars, falling objects, weight of ice, sleet or snow, overflow, power surge, and cracking, burning or bulging of hot water heater. Includes done by vehicle owned/operated by insured or household resident.

DP3
Special form: Open Peril Policy on dwelling and other structures. Same perils as DP2.

Dwelling Coverage A
Dwelling: Available on all forms

Dwelling Coverage B
Other structures: (10% of A) available on all forms

Dwelling Coverage C
Personal Property/Contents: Purchased separately but available on all forms

Dwelling Coverage D
Fair Rental Value: (10% of A) available on all forms. Automatic on Coverage A.

Dwelling Coverage E
Additional Living expenses: (10% of A). Available on DP2 and DP3 endorsement needed on DP1 for this coverage.

Theft Added by an endorsement on Dwelling policies covers:
Broad theft coverage: Owner occupied dwelling and covers both on and off premises.
Limited theft coverage non owner occupied dwellings and only covers theft on the premises.

An umbrella policy may be written for
Businesses or individuals

The umbrella policy pays on
An excess basis with the underlying policy being the primary policy without a deductible.

What is an Self insured retention (SIR)?
An amount of money that the named insured will remain liable for on a claim.

SIR’s are usually what amounts?
$10,000 on personal
$50,000 to $100,000 on commercial

Umbrella policies will:
Always pay their benefit after the appropriate underlying amount has been satisfied.

An umbrella policy will only be responsible for any liability in excess
Even if the underlying policy is canceled.

Liability coverage for professionals who primarily operate in the service sector, (lawyers, accountants, insurance agents) are protected with what type of insurance?
Errors and Omissions insurance

Medical professionals typically have what type of insurance?
Malpractice

In NC the maximum time between renewal periods is how many years?
7 years

A lender shall accept as proof of required property insurance a binder or other temp contract of insurance as long as such evidence contains?
The name and address of named insured and mortgagee.
The amount of insurance.
A description of the collateral and the provision that the binder may not be cancelled within 10 days prior notice of the mortgagee.

What is claims made?
If a claim is paid during the policy period.

What is occurrence basis?
If the occurrence takes place during the policy period.

Claims made provides what type of coverage?
Extended reporting period

An Extended Reporting Period (ERP) is?
Continuing coverage for those events that occurred during its policy period.

What is a basic ERP?
Occurrences that take place during the policy period and are reported within 60 days after policy termination. Will be provided a 5 year extension to file claim.

What is a supplemental ERP?
Provides coverage of unlimited duration on an excess basis only. Must request coverage in writing within 30 days of the end of policy period.

What is an inception/expiration date?
The date on which coverage becomes effective or expired

What is the time policies become effective or expire in NC?
12:01AM

What is the occurrence date?
The date on which a loss occured

Identification of parties involved on the loss report should only include?
The names and addresses of:
The parties involved
Anyone injured
Witnesses

Vicarious liability
When someone is held liable for the actions of omissions of another person.

Strict Liability
Liability incurred for causing damage to life, limb or property by a hazardous activity or a defective product.

Special damages
Lost wages (past and future), funeral expenses, and rehabilitation expenses.

General damages
Pain and suffering

Punitive damages
When a plaintiff is awarded in addition to compensatory damages when the defendants conduct has been especially malicious.

Res Ispa Loquitur
The thing that speaks for itself

Res Gestae
Excited utterance

Prima Facie Evidence
Evidence that is sufficient on its face to prove a given fact.

Lex Loci Delicti
Locality and jurisdiction. (Location).

A policy form is?
The coverage purchases

A policy number is?
The particular policy the insured purchased

This describes the accident or loss that happend. It is essential to the loss report.
How
When
Where

Coverage shows
The type of coverage purchased
The limits of the coverage purchased

A deductible is:
Any covered property claim that must be paid by the insured before the insurer makes any payments.

What is the difference between an HO4 and an HO6
HO6 covers $1000 for structures versus an HO4 does not cover anything for structures.

If a claimant calls and speaks with an adjuster, the claimant states they have an attorney on the phone what should they do?
The adjuster can no longer speak with the claimant or ask to include the attorney. They must stop the conversation and only speak with the attorney going forward.

Utmost Good Faith
Both parties must act honest and openly in order for the contract to be valid.

Adhesion
One party sets the terms for the contract; the other party may simply agree or disagree

Unilateral
Only the insurer makes a promise to act; the insured can void contract at any time.

Personal
The insured person is protected from loses not the personal property.

Conditional
The insurer must only honor the contract if the insured meets certain conditions.

Lavatory
The execution of the contract depends on an unknown future event.

Conditions
List of requirements the insured must meet for coverage to apply.

Declarations
Information that makes a policy unique to the insured.

Exclusions
Causes of loss or items of property that are not covered by the policy.

Endorsements
Add, reduce, or change the coverage of the policy in some way.

Definitions
Explains exactly what specific words mean in the context of the policy.

Insuring Agreement
Essence of the contract. Summarizes what the insurer will cover and how.

Government vs Private insurance
Mandatory, run by the government, suited to needs of the general public.

Offer insurance products based on customer preferences.

Stock vs Mutual insurance
Publicly traded; stock holders participate in dividends.

Policy holders participate in dividends.

Reciprocal Insurer
group of people or organizations that insure each other.

Re-insurer
insurance for insurers

Fraternal Benefit Society
non profit mutual organization that will usually offer insurance benefits to members and their families.

Risk Retention Group
an alternative to traditional insurance, owned by its members; provides liability coverage for multiple companies in the same business.

Risk

1. potential for loss
2. the insured item

Speculative Risk
any risk in which gain is possible. Not insurable

Pure risk
any risk in which no gain is possible. Insurable

Exposure
The possibility or likelihood of damage or loss

Hazard
anything that increases exposure

Peril
The cause of damage or loss

Loss
Reduction in value
expense caused by covered peril
the amount an insurer pays to settle a claim

Risk Avoidance
eliminates risk

Risk Reduction
reduces or mitigates risk

Risk Transference
paying someone else to take the risk

Risk Retention
Accepts the risk

Insurer
Agency providing insurance

Insured
Person purchasing the policy

First Named Insured
First person or entity listed on the dec page

Binder
Temporary coverage until policy is issued.

Representation
A statement assumed to be true

Misrepresentation
False Statement

Warranty
Guarantee of action or condition

Concealment
Deliberately withholding pertinent information

Waiver
Relinquishing a right, claim, or privilege.

Express Waiver
written

Implied Waiver
assumed based on practice

Estoppel
The legal process of preventing one party from reclaiming a right that was waived.

Moral Hazzard
Deliberate, reckless behavior because of insurance coverage.

Morale Hazzard
Risky behavior because of the comfort of insurance coverage

Legal Hazzard
Increases chance of loss because of legal action

Physical Hazzard
Physical conditions that make losses more likely

Fraud
Using dishonesty to profit from an insurance policy

Soft Fraud
Exaggeration a claim

Hard fraud
deliberately causing or faking a loss

Occurrence
An event or circumstances that cause a loss

Proximate Cause
The original occurrence in an unbroken chain of events that results in a loss

Direct Loss
Physical harm to tangible property

Indirect Loss
Economic loss resulting from direct loss

First Party Claim
made by the policy holder on her own property

Third Party Claim
made by anyone other than the policyholder

Insurable Interest
Direct financial interest in protecting a unit

Lender
The lenders financial interest in an insured item

Linder Interest Provisions
Protect lender interest by allowing the lender certain rights in the policy

Subrogation
The transfer of rights that allows the insurer to recover its losses after it has indemnified the policy holder

Actual Cash Value ACV
Pays the depreciated value of the item right before the loss occurred

ACV= Replacement cost- Accumulated Depreciation

Replacement Cost
Pays to replace damaged item at current market value

Valued Policy
Assigns a set value to each insured item

Stated Amount
The insure states value of insured item up front, and after a loss, the policy pays the lessor of ACV or Stated Amount

Annual Depreciation
replacement cost divided by the items useful life

Accumulated Depreciation
the items annual depreciation multiplied by its age

Deductibility
Predetermined amount the policyholder must pay before the insurance company will pay the remaining cost

1. Fixed- a set amount
2. Percentage- a percentage of the value
3. Franchise- Insurer pays 100% of damages if losses exceed a certain amount

Coinsurance
imposes a penalty if the homeowner does not insure home for at least 80% of its worth

Had divided by should

Liability
protects policyholders when they cause damage to another party

Negligence
Failure to use reasonable degree of care that results in injury or damage of another party

Vicarious Liability
When negligence is transferred from ne party to another

Liability Policy Limits
Maximum payout for each policy

Single limit
A fixed limit for each policy

Split Limit
Three payouts to one person, multiple people, property damage

Aggregate Limit
Max payout per occurrence, max payout per policy

Statutory Law
based on written, legislated laws

Common Law
based on court cases and customs

Tort law
applies to civil court cases

Intentional Tort
planned wrongful act

Negligent tort
unintentional wrongful act

Tortfeasor
the defendant in the court case

Inception/Expiration Date
an insurance policy covers the insured starting at 12:01am on the day on which coverage begins and expires at 12:01am on the expiration day of the policy.

Occurrence Date
Date of which the loss occurred

Identification of parties involved
The loss report should include the names and addresses of the parties involved in the loss, the names and addresses of any injured person(s) and the names and addresses of any witness(s).

Policy Form/Number
Identifies the type of coverage purchased (policy form) and the policy number for the particular policy purchased by the insured.

Description of the Loss
Information concerning how, when and where the accident or loss happened is an essential element in any loss report.

Coverage
Shows the type of coverage(s) purchased as well as the limits of coverage purchased.

Damages – Special Compensatory damages
Are amounts paid to compensate the plaintiff for direct expenses such as medical treatment, lost wages (both past and future), funeral expenses and rehabilitation expenses required because of bodily injury. Special damages are paid for losses that can be determined and documented. They are often referred to as “out-of-pocket” expenses.

Damages – General Compensatory Damages
Are paid for losses that cannot be specifically measured and itemized in order to compensate the plaintiff for things such as pain and suffering, loss of the use of an arm or leg, loss of vision, physical disfigurement and/or loss of consortium.

Damages – Punitive Damages
Are typically awarded to the plaintiff in addition to compensatory damages when the defendants conduct has been especially malicious. Punitive damages are awarded to punish the defendant and to deter others from engaging in similar actions.

Unfair Claims Settlement Practices

1. Knowingly misrepresenting relevant facts or policy provisions relating to the coverage at issue. 2. Failing to acknowledge with reasonable promptness communications pertaining to claims. 3. Failing to adopt and implement reasonable standards for the prompt investigation of claims. 4. Arbitrary and unreasonable refusal to pay claims. 5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss has been completed. 6. Not attempting in good faith to make prompt, fair and equitable claims settlement when the insurer’s liability has become reasonably clear. 7. Compelling insureds to institute suits to recover amounts due under a policy by offering substantially less to settle immediately. 8. Attempting to settle claims for less than the amount for which a reasonable person would believe one was entitled based on written or printed advertising material accompanying or made a part of an application. I. Attempting settlement of claims on the basis of applications that were altered without notice to knowledge of or consent of insureds.

Total Losses on Motor Vehicles/Miscellaneous Provisions

1. If the insurer and the claimant are unable to reach an agreement as to the value of the vehicle, the insurer shall base any further settlement offer not only on the published regional average value of similar vehicles, but also on the value of the vehicle in the local market. 2. Local market value shall be determined by using either the local price of a comparable vehicle or if no comparable vehicle can be found, quotations from at least two qualified dealers within the local market area. Additionally, if the claimant represents that the vehicle was in better than average condition, the insurer shall give due consideration to the condition of the claimant’s vehicle prior to the accident. 3. When a motor vehicle is damaged in an amount which equals or exceeds 75 percent of the preaccident actual cash value, an insurer shall “total loss” the vehicle by paying the claimant the preaccident value and in return, receiving possession of the legal title for salvage purposes. 4. The insurer will be responsible for all reasonable towing and storage charges until three days after the owner and the storage facility are notified in writing that the insurer will no longer reimburse the owner or storage facility for storage charges. 5. Loss and claims payments shall be mailed or otherwise delivered within 10 business days after the claim is settled.

After Market Parts
An after market part is any part made by a non original manufacturer.

Speculative Risk
When there is a chance of gain as well as a chance of loss. Insurance is not intended to protect against this type of risk.

Pure Risk
When there is a chance of loss only.

Insurable Risk
One that an insurance company is willing to accept.

Characteristics of Insurable Risk

1. Low probability of loss occurring, 2. Less than catastrophic results, 3. The loss must be measurable, 4. The loss must be significant, 5. The loss must be accidental and unintended.

Probability
Measures the chance of an event occurring, it is the measure of uncertainty (risk).

Law of Large Numbers (Law of Averages)
Mathematical principle that makes it possible to predict future losses based upon prior experience.

Spread of Risk (Geographic Dispersion)
Also used to decrease loss probability. This process involves spreading the company’s policies (exposures) over a broad geographical area in order to avoid large losses in the vent of a catastrophic event. An example is a hurricane.

Adverse Selection
Adverse selection occurs when insureds with a high risk of loss attempt to purchase insurance and are successful in obtaining insurance.

Perils
Are the actual cause of loss such as a fire, theft, wind, hail, etc.

Hazards
Increase the probability of a peril occurring. Bald tires on an automobile increase the chance of a wreck happening. The tires are the hazard, the wreck is the peril.

Property Insurance
Indemnified (repays) a person or business with an interest in the physical integrity of tangible property for its loss or the loss of income produced by that property.

Casualty Insurance
Provides protection to meet the unexpected costs imposed by law due to acts that have caused bodily injury or property damage to another individual. Included isn’t he field of casualty (liability) insurance are automobile, crime and surety bonds.

Private or Voluntary Insurance
Portion of the insurance industry where individuals seek coverage to meet recognized needs. These coverages are neither required nor made available by government. An example would be collision insurance in a personal automobile insurance policy.

Social Insurance
Programs either required or made available by government.

Reinsurance
Filed of the industry where insurers sell portions of their individual contracts of insurance to other companies. This activity helps with the spread of risk and/or improves cash positions by lowering reserve requirements for these contracts. Insurance companies also purchase reinsurance to protect themselves in case of catastrophic losses.

Capital Stock Companies
Proprietary companies that are in business to make a profit for their stockholders. These companies are owned by stockholders who retain management responsibility through the selection of a Board of Directors. Profits are paid to the stockholders in the form of a commercial stock dividend that is fully taxable to the stockholder.

Mutual Insurance Companies
Are owned by their policyholders. Each policyholder “owns” a part of the company equal to their proportionate share of the company’s total insurance in force. The policyholders select a board of directors who appoint officers to be in charge of the company’s daily operations. Operating surpluses of these companies may be returned to their policyholders in the form of a non-taxable policy dividend. The dividend is non-taxable because it is a return of premium (the company charged too much).

Reciprocal (Assessment) Companies
Are non-incorporated associations of individuals or businesses (subscribers) who engage in cooperative insurance. Each policyholder is insured by all other policyholders and each policyholder insures the others as coverage is exchanged on a reciprocal basis. Two important facts to remember about reciprocals are: 1. Managed by Attorney-in-Fact (not necessarily a lawyer), 2. The Attorney-in-Fact can assess the policyholders for additional premiums if underwriting losses jeopardize financial solvency.

Domestic Companies
Companies organized in this state.

Foreign Companies
Organized in another state.

Alien Companies
Organized in another country.

Certificate Of Authority
When authorized by the state and become known as an Admitted or Authorized company.

Non-Admitted or non-authorized companies
For basic understanding, property, casualty and personal lines insurance agents are not permitted to represent or place insurance with non-admitted companies.

Independent Agency System
System in which an agent may represent more than one insurance company in the marketing of property and liability insurance products. Independent agents own the business and they retain all rights to the accounts they have placed with a company.

Direct Writers
Use captive or exclusive agents or employees in the sale of property and liability insurance products. Agents or employees can only represent that particular insurance company.

Agents
Representatives of the insurer. Agents must be licensed with the state to legally conduct insurance transactions. Agents receive their authority to operate on behalf of the company by the agency contract and by an appointment.

Property Casualty and Personal Lines Agents
May be given “binding” authority. A binding premium receipt (binder) is temporary evidence that insurance is in effect without condition.

Binder
Temporary evidence that insurance is in effect without condition. Binders may be written or oral. Oral binders must be replaced by a written binder as soon as possible. The binder provides coverage until the policy arrives.

Brokers and representatives
They “shop the market” on behalf of their clients and obtain coverage best fills the client’s needs. In order to obtain a broker’s license, the individual must have a valid agent’s license and post a bond of not less than $15,000 in favor of the State of North Carolina.

Responsibilities of Agents and Companies

1. Agents deal with their clients in a fiduciary capacity. A fiduciary relationship develops when an individual places trust in someone else to perform certain duties or actions. This is particularly true in the insurance business when an agent accepts money from the client to purchase or pay for a policy. The agent who diverts this money for their own use will be guilty of theft or embezzlement. Agents who perform their duties in an acceptable manner are not liable for contracts entered into on behalf of their principal. An agent can, however, be held personally liable for certain contracts when: A. The agent has breached their authority, B. The agent represents an incompetent principal, C. The agent commits a civil tort or a crime. 2. An agent’s duties to the principal (insurance company) include: A. Loyalty, B. Obedience, C. Use of reasonable care, D. Accurate accounting, E. Communication of information held by the agent to the company. 3. Even without intent, it is possible for an agent to make an error or an omission through negligence or lack of knowledge.

Underwriting
Selects those applications that the company wishes to insure using standards established by the company, but always guarding against adverse selection. Loss ratios can be directly affected by the underwriting standards of the company. Loss ratios are determined by dividing the losses (claims) of the company by the premiums collected.

Offer and Acceptance Agreement
In the insurance contract, the offer is made by the proposed insured. The acceptance occurs when the policy is issued. However, sometimes it is necessary for the company to rate-up a substandard risk. This action becomes a counteroffer and the applicant must then either accept or reject the counteroffer. Regardless, all contracts must have an offer and acceptance.

Consideration
This is the exchange of something of value by both parties. Information provided by the applicant is legally considered to be a part of the consideration.

Legal object
Contracts must fulfill a legal purpose in order to be enforced.

Competent Parties
Enforceable contracts can only be executed by individuals who have the legal capacity to enter such an agreement.

Incompetent parties

1. Minors, 2. The mentally infirm, 3. Persons under the influence of drugs or alcohol.

Declarations Page
A. The parties to the contract, B. The policy term, C. The amount of insurance purchased, D. The amount of the premium, E. The object or person insured.

Insuring Agreements
The “heart” of the contract that states the perils that are insured against. The insuring agreement also establishes the insurer’s responsibility to pay claims in the event a covered peril occurs.

Conditions
These are the provisions and stipulations of the policy. Conditions state the rules of conduct for both the insurance and insurer. Important conditions are the payment of premium, providing proof of loss and accurate responses to application questions.

Exclusions
These list what perils are not covered. Exclusions tend to be those things considered uninsurable.

Endorsements
Endorsements modify (add or take away rights) the basic contract.

Definitions
This part of the contract explains the meaning of important terms found in the contract, such as who is a named insured, who is an insured and what constitutes a premises.

Insurance contract consists of:

1. Declarations page, 2. Insuring Agreements, 3. Conditions, 4. Exclusions, 5. Endorsements, 6. Definitions

Unilateral Contract
Can only be enforced by one party. Only insurance company makes legally enforceable promise.

Adhesion
Insurance contract and its wording are prepared by the insurer. The applicant cannot bargain over that wording. Therefore, the contract is purchased as it is worded and the insured is “stuck with” that wording.

Waiver
A legal doctrine placed in writing that means the voluntary abandonment of a right or advantage.

Estoppel
One party to a contract may be estopped (stopped) by their past words or actions from asserting a right granted to them in the contract. An estoppel would be the legal consequences of a waiver.

Representations
Statements in the application that are made with utmost good faith, but they are not guaranteed to be accurate.

Warranties
Statements guaranteed as to accuracy for both past and future events.

Misrepresentation
Simply, this is a lie regarding material information.

Concealment
Withholding of a material fact. Concealment is not an overt lie, but a failure to state the entire truth.

Mono line Policy
Provides property or liability insurance

Multi line Policy
Provides both property and liability insurance.

Package
Commercial Insurance only.

General Regulations of Insurance
The purpose of the statutes and regulations governing the conduct of the insurance industry is to promote and protect the public welfare.

Commissioner of Insurance
Chief regulatory body for the oversight of the industry. The voters of this state elect the Commissioner of Insurance to a four-year term of office as a member of the Council of State. If the office becomes vacant during the Commissioner’s term, the Governor shall appoint the replacement.

Commissioner of Insurance responsibilities

1. Assure that insurance laws are adhered to by all parties. The Commissioner or his/her Deputy has the power to issue subpoenas and/or administer oaths. To assure adherence to the law, the Commissioner may institute civil actions or criminal prosecutions through the Attorney General. 2. Monitor the financial stability of admitted companies through the review of their annual financial statements. 3. Provide assurances that companies and agents are competent to conduct the business of insurance. 4. Regulate unfair trade and claims practices. 5. Approve both rates and forms for insurance marketed in this State. The Department will make available for public inspection the rates and deviations for residential and non-fleet (personal) automobile coverage. 6. All examinations or investigations may be conducted by the Commissioner personally or by someone appointed by the Commissioner. Any examination and/or hearing must be preceded by at least 10 days prior to written notice to all parties. 7. The Commissioner may suspend an agent’s or adjuster’s license prior to a hearing if the Commissioner believes such action is necessary to protect the publish health, safety or welfare. Revocation of authority can only be done after a hearing or conviction in court of violating insurance laws.

Regulations Regarding Insurance Transactions

1. Insurance company’s, agency’s or agent’s records are subject to inspection to determine compliance with the law. The refusal to submit to an examination of records is also grounds for the revocation or refusal of licensure. All records must be maintained for no less than 5 years. 2. All statements given on an applications are considered representations. 3. Any deductible or cost-sharing amount between the named insured and insurer must be expressed in the contract and no provision increasing this amount is allowed. Cost sharing (coinsurance clauses) can be included in insurance contracts only if the policy prominently displays the notice that the contract has a coinsurance clause. 4. It is unlawful for an insurer to discriminate in the rates charged for automobile coverage on the basis of either age or sex. 5. When a proof of loss is required by an insurer, the company must apply such a form within 15 days of receiving notification of the claim. If not provided, the insured may submit the proof of loss with any written document that provides the necessary information concerning the occurrence and the extent of the loss. 6. It is unlawful for lending institutions to require the purchase of insurance through the lending institution as a condition of making or renewing a loan. 7. Twisting involves misrepresentation of a policy’s terms and values to induce the lapse or replacement of an existing contract of insurance. 8. A rebate is any valuable consideration not specified in the contract, which is offered as an inducement to purchase insurance. 9. It is illegal for an agent to charge money in excess of the premium for policy fee’s or the performance of services unless a prominent sign is posted in the business lobby, the client provides prior written consent to each charge and a separate receipt is issued for the payment of such fees. 10. Agents shall be held personally liable for contracts that they have unlawfully executed. An agent soliciting for and transacting with a non-admitted company will, in addition, be guilty of a misdemeanor if the agent did not know the company was non-admitted; a felony if the agent knew or should have known that the insurer was non-admitted. 11. Commingling, the accounting records of agents shall be separate and apart from any other business records and funds due to insurers and return premiums due to policyholders must be available at all times. 12. All payment receipts issued by an agent should be dated and contain the name and address of the agent and the name of the insurance company. The receipt should also be signed by the person accepting the payment. 13. Every agent, adjuster or other insurer’s representative shall, when conducting insurance business with a member of the public: A. Identify himself or herself and his or her occupation; and B. Provide his or her National Producer Number and the Department’s website address and phone number for verification of licensure status when requested to show proof of licensure.

Twisting
Involves the misrepresentation of a policy’s terms and values to induce the lapse or replacement of an existing contract of insurance. Such actions would be to the detriment of the insured.

Rebate
Any valuable consideration, not specified in the contract, which is offered as an inducement to purchase insurance. It is illegal for any person to offer or for any person to accept such an inducement.

Commingling
The accounting records of agents shall be separate and apart from any other business records and funds due to insurers and return premiums due to policyholders must be available t all times.

Payment Receipts
Issued by an agent should e dated and contain the name and address of the agent and the name of the insurance company. The receipt should also be signed by the person accepting the payment.

Agent, Adjuster or Insurer’s Representative shall:
A. Identify himself or herself and his or her occupation; and B. Provide his or her National Producer Number and the Department’s website address and phone number for verification of licensure status when requested to show proof of licensure.

Licensing Law (Resident Licensing)
All persons wishing to solicit and/or effectuate insurance coverage as an agent for an insurer must obtain an agent’s license. Such licenses are perpetual unless surrendered, terminated or revoked. Will remain active provided they meet the continuing education requirements each 2 years. Applicants must be at least 18 years old, trustworthy, financially responsible, have not willfully violated any insurance law and reside in this state. Applicants must show certification of having completed 20 hours of pre-licensing education for Life, Accident and Health, Property, Casualty and Personal Lines insurance prior to taking the state exam, unless exempt from requirements. Medicare Supplement/Long Term Care supplemental licensure requires 10 hours of pre-licensing education.

Continuing Education Requirements
Two years following the biennium in which their license was issued based on the licensee’s month and year of birth. 1. 24 hours of continuing education are required for all lines of authority with three of 24 hours covering ethics. 2. 3 Hours of CE on flood insurance every four years.

Change of Residency
Must be communicated to the Commissioner within 10 business days.

Change of Name
Must be communicated to the Commissioner within 30 days.

Appointment Cancellations
Shall be communicated within 30 days.

Temporary License
A temporary license is only good for 180 days.

Unfair Trade Practices Act
The purpose of this act is to prohibit all practices considered by this state as an unfair method of competition or deceptive practice. 1. Misrepresentation or False Advertising of Policies, 2. Defamation, 3. Boycotting, Coercion and Intimidation, 4. Filing false financial statements, 5. Unfair Discrimination between individuals with similar exposures and hazards, 6. Rebating is any valuable consideration, not specified in the contract, which is offered as an inducement to purchase insurance, 7. Misuse of Confidential information.

Misrepresentation or False Advertising Policies
A. Misrepresentation of benefits (twisted), B. Misrepresentation of dividends, C. Misrepresentation of the financial condition or reserves of the insurer, D. Names or titles of insurance policies that misrepresent the true nature of the contract.

Defamation
Circulation, by either oral or written means, of a false or derogatory statement intended to injure another party.

Insurance Information and Privacy Protection Act
Outlines procedures to be used to protect the confidential nature of the information processed in the insurance industry. However, this act does not apply to information collected from public records of a governmental authority, such as the NC Dept. of Motor Vehicles.

Adverse Underwriting Decision

1. An application for insurance has been rejected, 2. An existing policy has been terminated, 3. Coverage has been placed with a residual market mechanism. Failure to place coverage with a company requested by the applicant and charging of a higher rate based on information that differs from that supplied by the insured. However, charging higher premium due to an increase in hazard is not considered to be an adverse underwriting decision.

Pretext Interviews
Conducted when an individual does not reveal their identity or they pose as someone else in order to obtain information.

Notice of Information Practices
Summarizes the applicant’s rights under the act including the right to know what information was gathered and from whom. Shall be provided to the applicant no later than at the time of the delivery of the policy when personal information is collected only from the applicant or from public records or at the time of collection of personal information is initiated.

Disclosure Authorization Form
Grants permission for the insurance company to obtain and/or release specified non-public information. The maximum effective time period for this authorization in property and casualty insurance is 12 months.

Responsibilities of Agents and Companies when an adverse decision has taken place. These responsibilities include:

1. Providing specific reasons for the adverse underwriting decision or advising the applicant that the reasons are available upon written request to the company. If the written request is submitted within 90 days, the company has 21 business days to respond. 2. Provide a summary of the applicant’s right to know what information prompted the decision and their right to challenge the decision if the information is felt to be inaccurate. Any disputed information must be responded to within 30 business days. 3. An insurance institution or agent shall clearly specify those questions designed to obtain information solely for marketing or research purposes from an individual in connection with an insurance transaction. 4. No adverse underwriting decision may be based on a previous adverse underwriting decision.

Powers of the Commissioner of Privacy Act
The Commissioner may investigate alleged violations of the insurance information and Privacy Protection Act. If just cause is found, the commissioner may hold a hearing after at least 10 days prior written notice to all parties. The Commissioner may subpoena companies, agents and insurance support organizations. The law also allows the applicant to be heard at this hearing and they may be represented by legal counsel.

Specific Statutes Commonly Violated
These actions are considered to be felonies. 1. Any agent or broker who converts to their own use any money or property received without instructions of or approval of the insurer shall be guilty of embezzlement. 2. Any person who willfully submits false statements or proof of loss in the filing of a claim to receive payment for such claim will be guilty of insurance fraud. 3. Any person who knowingly places any insurance coverage with a non-admitted insurance company.

Property Insurance – Direct Loss
Actual monetary loss caused by the physical damage to or destruction of tangible property.

Property Insurance – Indirect (Consequential) Loss
Results as a consequence of a direct loss. An indirect loss involves a loss of revenues or extra expenses that result from physical damage to or destruction of property.

Named Peril
Provides coverage only for those perils identified in the policy. Unless a loss is caused by a covered (named) peril, there will be no insurance company. Therefore, the burden of proof is on the named insured to prove that their loss was caused by a covered peril (ex. Wind, hail).

Open peril (All Risk)
Will insure against all perils unless they are specifically excluded from the coverage. Therefore, the burden of proof lies with the insurer to demonstrate that the loss was caused by an excluded peril. Special means Open peril.

Insurable Interest
Financial interest in the property. This interest must exist at the time of the loss, but not necessarily at the time of policy purchase.

Standard Fire Policy – SFP
This policy was the first property insurance policy that was standardized by law. Named Peril policy insuring against direct losses caused by fire, lightning and removal of property to protect it from further damage and Proximate Cause meaning an unbroken chain of events leading from “cause” to “effect”.

SFP Provisions

1. Friendly fire, 2. Cancellation, 3. Mortgagee (Loss Payee) Rights, 4. Pro-Rata Liability, 5. Concealment and Fraud, 6. Legal Action, 7. Sub rotation, 8. Abandonment Clause, 9. Policy Inception and Expiration

Friendly Fire
SFP provision – no coverage for a fire if the damage was a result of a friendly fire. A friendly fire was one that was intentionally lit and stayed within its intended bounds.

Cancellation
SFP provision – 1. If the named insured canceled, unearned premium was refunded on a short-rate basis. The cancellation date had to e clearly expressed, 2. The insurer could have canceled by written notice to the named insured of 5 days. Any unearned premium was refunded on a pro-rata basis.

Mortgagee (Loss Payee) Rights
SFP provision – established in the SFP providing for payment to the mortgagee. In addition, the mortgagee had the right to submit a proof of loss if the named insured failed to do so.

Pro-Rata Liability
SFP provision – addressed the possibility of more than one policy covering the same property. Concurrency means covering the same property against the same perils.

Concealment and Fraud
SFP Provision – Protected the insurer from willful (material) representations by the insured. The insurer could have declared the entire policy “null and void” if willful misrepresentations had been given. However, the mortgagee’s insurable interest was still protected until the required 10 day advance cancellation was given.

Legal Action
SPF provision – Legal Action against the company could be initiated after 3 years from the date of loss.

Subrogation
SFP Provision – Required the named insured to assign to the insurer the right to recover claim payments from negligent third parties.

Abandonment Clause
SFP provision – Prohibited the insured from abandoning their partially damaged property to the insurance company in order to claim a total loss.

Inception/Expiration Date
SFP provision – 12:01 a.m. where the property was located.

Duties of the Insured in the event of loss were:

1. Protect the property from further damage. This included separating damaged from undamaged property. 2. Give the insurer prompt notice of the loss. 3. Submit a signed statement of loss (proof of loss) within 60 days from the date of the company’s request unless the company extended this time period in writing. Proof of loss included an inventory of damaged property, the value of the damaged property, any other applicable insurance, tc. 4. Allow the insurance company to inspect the property. 5. Cooperate in the investigation including questioning under oath.

Actual Cash Value (ACV) Settlement
This is loss payment based upon today’s replacement cost minus depreciation.

Repair, Rebuild or Replace Settlement
The insurer could repair, rebuild or replace the damaged property with material of like kind and quality. If this option was chosen, the named insured had to be notified within 30 days of the proof of loss being submitted.

Agreed Value/Salvage Value Settlement
Insurer could have taken possession of the property at an agreed value. The named insured had to be notified within 30 days of the proof of loss being submitted if this settlement option was to be exercised.

Total Loss Settlement
In the event of a total loss, settlement cannot exceed the face value of the policy regardless of the actual amount of loss.

Modification to Claims Settlement

1. The Appraisal Method was used when the named insured and the company could not agree as to the actual cash value of property. Each party hired and paid the cost of an appraiser. The appraisers selected an umpire whose cost was shared equally by the named insured and insurer. Each appraiser would determine an ACV for the disputed property. If the appraisers do not agree, then the umpire would rule on the differences. Agreement of any two parties established the actual cash value of the property. 2. Recovery for a loss cannot exceed an individual’s actual interest in the property. If an individual owns 25% of the damaged/destroyed property, then they are entitled to only 25% of the claim payment.

Appraisal Method
The Appraisal Method was used when the named insured and the company could not agree as to the actual cash value of property. Each party hired and paid the cost of an appraiser. The appraisers selected an umpire whose cost was shared equally by the named insured and insurer. Each appraiser would determine an ACV for the disputed property. If the appraisers do not agree, then the umpire would rule on the differences. Agreement of any two parties established the actual cash value of the property.

Exclusions in the SFP policy:

1. Specifically excluded were money. 2. Acts of war. 3. Losses caused by a failure of the insured to use reasonable means to protect insured property from further damage. 4. Civil authority losses. 5. Any increase in hazard may have restricted or suspended coverage. 6. When a building became vacant or unoccupied, coverage was suspended 60 days later if such conditions continue consecutively. A. An unoccupied building has contents but no tenants, B. A vacant building has neither contents nor tenants (empty).

Extended Coverage Endorsement (EC)
A named peril endorsement to the SFP providing direct loss coverage for the perils of WHARVES (wind, hail, aircraft, riot, vehicle, explosion, smoke)

SFP Peril – Wind
Covered damage to the exterior.

SFP Peril – Hail
Covered damage to the building.

SFP Peril – Aircraft
Covered damage caused by physical contact with an aircraft or spacecraft. Sonic booms were not covered.

SFP Peril – Riot/Civil Commotion
Covered direct loss caused by pillaging and looting.

SFP Peril – Vehicles
Covered damage caused by physical contact with a vehicle designed to run on roads or tracks. Did not cover damage to fences, driveways, walks, lawns, trees, plants or shrubs. Nor was coverage provided if the vehicle was owned or operated by the named insured or any resident of the insured’s household.

SFP Peril – Explosion
Covered loss resulting from the explosion of accumulated gasses or unconsumed fuel within the firebox or combustion chamber of any fired vessel, such as a water heater or oven. Did not cover sonic booms or explosions of a boiler or steam pipe if owned, operated or leased by the insured.

SFP Peril – Smoke
Covered smoke damage due to the faulty operation of a heating or cooking unit, but only when the unit was connected to a chimney by a smoke or vent pipe. Smoke from fireplaces or industrial operations would not be covered.

Vandalism and Malicious Mischief (VMM) Endorsement
Covered the willful and malicious damage to or destruction of property. VMM did not cover damage to glass, theft of property, burglary or larceny. VMM could only be added if EC was included in the coverage. VMM coverage was suspended if the property was vacant for 30 consecutive days.

Sprinkler Leakage Endorsement
Covered the accidental leakage or discharge of a sprinkler system. The loss must be due to improper operation or malfunction.

Rate for Property Insurance
Based upon cost per $100.00 of insurance coverage ($/100).

Pro-Rata Liability
When more than one policy insures the same property.

Basic Form (DP-1)
Covers fire, lightning, wind, hail, damage done by aircraft, riot, vehicles (unless owned or operated by named insured, resident of household), explosion, smoke, VMM and volcanic eruption (airborne damages only).

Broad Form (DP-2)
Covering all DP-1 perils, including damage done by vehicles owned or operated by the named insured or a resident of household) plus damage done by burglars, falling objects, weight of ice, sleet or snow; sudden and accidental discharge or overflow of water from a plumbing, heating or air conditioning unit or from within household appliances, damage from artificially generated electrical current; freezing, and and the sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system or an appliance for heating water.

Special Form (DP-3)
Open Peril Coverage on the dwelling and other structures; however, content losses are not covered on an open peril basis.

Coverage Parts (Insuring Agreements) of dwelling policies:

1. Coverage A = Dwelling. Available on all coverage forms. 2. Coverage B = Other Structures (10% of A). Available on all coverage forms. 3. Coverage C = Personal Property/Contents. Limit purchased separately. Available on all coverage forms. 4. Coverage D = Fair Rental Value (10% of A). Available on all coverage forms. 5. Coverage E = Additional Living Expenses (10% of A). Available on the DP-2 & DP-3. The coverage is added by an endorsement on the DP-1.

Coverage A – Dwelling Policy
Provides protection for the structure and equipment/fixtures that are permanently affixed pertaining to the service of the building. This includes TV aerials, awnings, and outdoor equipment, although loss to these items by wind, hail, or weight of ice, sleet or snow will be excluded. Also covered are materials and supplies on the premises intended for use in the construction, alteration or repair of the dwelling or other structures, however, theft losses for such property are excluded. Both the DP-2 and DP-3 cover the freezing of a plumbing, heating, air conditioner system or a household appliance.

Coverage B – Dwelling Policy – Other Structures
Include garages and other detached outbuildings that are separated from the dwelling by a clear space or they are only connected to the dwelling by a non-combustible material, such as a fence, utility line or other similar connection. An amount equal to 10% of the Coverage A limit is automatically extended for such other structures. Payment under Coverage B reduces Coverage A limit by the amount paid for the same loss (single limit) in the DP-1 only. On the DP-2 and DP-3, Coverage B is considered to be additional insurance and a payment does not reduce the coverage on the dwelling (Coverage A). Structures used for commercial, manufacturing or farm purposes are not covered.

Coverage C – Dwelling Policy – Contents
Includes household and personal property that is common to the occupancy of the premises and belongs to the named insured and family members. Property of others in the care, custody and control of an insured is also covered. Property of guests or servants may be covered after a loss at the named insured’s operation. The named insured purchases an amount of Coverage C appropriate to their loss exposure that is separate from the coverage on the dwelling structure. Excluded from coverage are pets, aircraft, motor vehicles other than equipment used for maintenance of the premises (riding lawn mowers) and boats, other than rowboats and canoes.

Coverage D – Dwelling Policy – Fair Rental Value
An indirect loss coverage for loss of rental income and payment of ongoing expenses (i.e. certain necessary utilities) when a rental dwelling or outbuilding, such as a garage apartment is untenable due to a covered peril. An amount equal to 10% of the Coverage A limit is automatically extended for this coverage. Payment under this coverage reduces the Coverage A limit by the amount paid for the same loss in the DP-1 only. Also, the loss payment under Coverage D may not exceed 1/12th of the 10% of Coverage A for each month the structure is untenable in the DP-1 only. Payment under this coverage is limited only by the policy limit on the DP-2 and DP-3. Rental value is payable even if the dwelling is not rented at the time of loss.

Coverage E – Dwelling Policy – Additional Living Expenses
Provided in the DP-2 and DP-3 (added by endorsement on the DP-1). Payment is in the same manner as Coverage D, but this coverage is designed for when the dwelling is occupied by the named insured instead of when it is rental property. This indirect loss coverage pays the extra living expenses incurred when the dwelling becomes untenable so that the name insured and family members may maintain a normal standard of living.

Date of initial property damage
Obligates the insurer, and payments under Coverage D and Coverage E are not limited by the policy expiration. Payment will be made for the shortest time required to either repair or replace the damaged property or until the date the named insured permanently settles in a new residence fo ran Additional living expense Loss (Coverage E).

Prohibited Use Coverage
If a civil authority prohibits use of the insured property because a peril named against has damaged a neighboring location, dwelling forms limit payments under Coverage D and E to a maximum period of two weeks.

Personal Liability and Theft Coverages
Added by endorsement.

Broad Theft Coverage
Used for owner-occupied dwellings and covers both on premises and off premises theft.

Limited Theft Coverage
Used for non-owner-occupied dwellings and only covers on premises theft.

Personal Liability Coverage
Can be added by endorsement for owner-occupied property only. The minimum limit of liability is $100,000 per occurrence and $1,000 per person medical payments coverage to others. The liability coverage provided by this endorsement is essentially the same as provided by the North Carolina Homeowners Program.

Eligibility for the Dwelling Program is restricted to:

1. All dwellings (except farm dwellings) containing no more than four apartments or families and dwellings containing five or fewer roomers or boarders. 2. Certain incidental business occupancies are permitted if they are (1) operated by an insured and (2) they provide a service rather than sales. Ex. Beauty shop, in-home office.

Persons Insured
The named insured as well as all members of the named insured’s family living at the described location.

Deductibles for dwelling policies
Apply on a per occurrence basis for each incident causing a loss. Deductibles do not apply to Coverage D and E. The standard deductible is $250 although changes are allowed.

Coverage extensions (additional coverage):

1. Coverage for removed property (open peril) at another location of 5 days on DP-1 and 30 days on the DP-2 and DP-3. 2. Debris removal is provided, but not as an additional amount of insurance. Therefore, debris removal coverage will be provided only if the Coverage A loss does not equal the Coverage A limit. 3. Personal property of an insured is covered worldwide up to 10% of the amount payable under Coverage C. 4. The cost of reasonable temporary repairs to protect the property is covered, but this is not an additional amount of insurance. 5. Coverage for trees, shrubs and plants is provided in the DP-2 and DP-3 only. The limit is $500 per tree, shrub or plant up to 5% of the Coverage A limit. Perils insured against include: fire, lightning, explosion, riot, aircraft, vehicles not owned or operated by an insured or VMM. Wind, hail and the weight of ice, sleet and snow losses are not covered. 6. Collapse of a building is provided in the DP-2 and DP-3. This is a peril extension for collapse caused by any broad form peril, decay, hidden insect damage, weight of contents, use of defective building materials or the weight of water collecting on the roof. 7. Breakage of glass provided in the DP-2 and DP-3. 8. $500 is provided for Fire Department Services Charges.

Claims Settlement for partial structural losses
Will be based upon actual cash value (ACV) in the DP-1. Claims are settled on the basis of replacement cost (no deduction for depreciation) in the DP-2 and DP-3 if the dwelling or an “other” structure is insured within 80% of its value at the time of the loss. As long as the named insured carries insurance equal to or greater than the 80%, the insurance company will pay all partial losses up to the policy limits and in proportion to the actual interest the named insured has in the property. However, if the named insured does not maintain the required 80%, then the insurance company will penalize the named insured by only paying a proportion of the loss. Personal property/contents loss settlement will be based upon ACV in the DP-1, DP-2 and DP-3.

Personal Property Replacement Cost Coverage
By endorsement on the DP-2 and DP-3. This endorsement will provide “new for old” settlement for all items except for fine art, memorabilia, collector items and those items that cannot be replaced due to their unique attributes or antiquity.

Other items:

1. Cancellation of a dwelling policies requires proper written advanced notice during the first 60 days of coverage. 2. Dwelling policies contain the standard provisions regarding abandonment, subrogation, assignment, increase in hazard, fraud, etc. 3. Liberalization of the policy applies to any broadening of coverage requiring no additional premium.

Homeowners Insurance
May be issued to the owner/occupied or residential property containing up to 4 units. Homeowners is a multi-line policy in that both property and liability coverage are provided in the same policy. The policy is divided into 2 coverage sections. Section I provides the property coverage. Section II provides the liability coverage and is identical in all HO forms.

Broad Form (HO-2)
Provides named peril coverage insuring the following perils: Fire and lightning, E.C. Perils (WHARVES), VMM, Theft, Volcanic eruption (airborne damage only), falling objects, weight of ice, snow or sleet, sudden and accidental discharge or overflow of water from within a plumbing, heating or air conditioning unit or household appliance, freezing of a plumbing, heating or air conditioning system or a household appliance, sudden and accidental damage from artificially generated electrical current.

Special Form (HO-3)
Provides open peril coverage on the dwelling and other structures and broad form, named perils on the contents (same perils as the HO-02).

Contents Broad Form (HO-4)
Provides broad form, named perils direct loss coverage for contents only. Commonly referred to as renters insurance or tenant homeowners as there is no structure coverage. The perils are the same as those of HO-2.

Comprehensive Form (HO-5)
Provides open peril coverage on both structures and contents. The definition of theft is also broadened in this form to include coverage for the mysterious disappearance of personal property.

Unit-Owners Form (HO-6)
Provides broad form, named perils coverage (same as the HO-2) and is similar to the HO-4 in that the primary purpose is to provide contents coverage for condominium owners whose major exposure is contents and not the building. HO-06 does provide $1,000 flat amount of structure coverage (Coverage A) to cover improvements and betterment’s or additions and alterations made to the unit.

Coverage A (Homeowners)
Dwelling. Not available in HO-4. $1,000 flat amount on HO-6. Insures the structure and equipment/fixtures permanently affixed pertaining to the service of the structure such as heat pumps, cabinets, central air conditioning, etc. In addition, materials and supplies to be used for the repair, construction or alteration of the dwelling are covered except for theft losses.

Coverage B (Homeowners)
Other Structures (10% of A). Not available on HO-04 and HO-06. Includes garages and other detached outbuildings that are separated from the dwelling by a clear space or they are only connected to the dwelling by a non-combustible material, such as a fence, utility line or other similar connection. Other structures are insured against the same perils as is the dwelling. Amounts payable will be in addition to the Coverage A limits. If the 10% of Coverage A is insufficient, higher amounts may be purchased.

Coverage C (Homeowners)
Personal Property (contents) (50% of A on HO-02, HO-03 and HO-05). C is the primary coverage on the HO-04 and HO-06. Includes household or personal property common to the occupancy of the premises that belongs to the named insured and family members. Property of others in the care, custody and control of an insured is also covered. Property of guests and servants may be covered after a loss at the named insured’s option. In addition, limit of liability for personal property usually located at a self-storage facility or an “insurer’s” residence, other than the primary residence, is 10% of the limit of liability for Coverage C or $1,000, whichever is greater.

Coverage D (Homeowners)
Loss of Use (20% of A on HO-02, HO-03 and HO-05; 20% of C on HO-04 and 40% of C on HO-06). An indirect loss coverage providing for additional living expenses incurred while the dwelling structure is untenable. Such expenses might be temporary living arrangements, laundry services and restaurant charges. Also includes coverage for rental value and prohibited use (up to two weeks). Payment will be made until the premises is repaired or replaced and the payments are not limited by the policy’s expiration.

Coverage C Limits
A. $200 on money, B. $1,500 for deeds, tickets, stamps and manuscripts, C. $1,500 on all types of watercraft. D. $1,500 on trailers not used with watercraft. However, theft coverage is restricted to on-premises only. E. $2,500 for property on the premises used primarily for business purposes and $1,500 for property away from the premises used primarily for business purposes. F. $1,500 for loss by theft of jewelry. G. 25% of Coverage C limits to a maximum of $10,000 for loss by theft of pewter’s are, plated gold ware and silverware. 10% of Coverage C limits to a maximum of $10,000 for loss by theft of guns. $1,500 for loss to electronic apparatus used personally while it is in or on a motor vehicle. A device equipped to be operated by power from the electrical system of the vehicle or portable. The policy limits coverage to $250 on antennas, tapes, wires, records, discs or other media used with any electronic apparatus.

Scheduled Personal Property Endorsement
Personal Articles Inland Marine Floater to the HO policy. Provides scheduled open peril coverage for specified property on a worldwide basis. If a loss involves only part of any pair, set or parts, the insurer may repair any part to restore the pair or set to its value before the loss, or pay the difference between the value of the pair or set before and after the loss.

Coverage Extensions Additional Coverages include:

1. Debris removal up to a maximum of an Additional 5% of the Coverage A limits, 2. The insurer will pay only up to $500 to remove fallen trees that damage a covered structure on the residence premises. Payment will be made for the named insured’s tree felled by wind, hail, weight of ice, sleet or snow or a neighbor’ s tree felled by a peril that is covered under Coverage C. The $500 is the most that will be paid in any one loss regardless of the number of fallen trees. 3. Moved property coverage for a maximum of 30 days at another location if the property is moved to protect it from further damage. 4. Trees, shrubs and plants $500 per item up to 5% of Coverage A limit. Wind losses are not covered. 5. Up to $500 will be paid per occurrence because of the theft or unauthorized use of credit cards. 7. In the HO-04, additions and alterations are covered for an additional 10% of the Coverage C limits (max. $1,000), 8. Landlord furnishings, theft losses are excluded. 9. Ordinance or law. 10% of the Coverage A limit may be used to pay for certain increased costs of construction incurred due to the enforcement of an ordinance or law. 10. Grave markers.

Exclusions in Section I coverages:

1. Structures used for business. 2. Pets and aircraft. 3. Losses by the failure of the insured to protect the property. 4. Losses caused by power failure away from the insured premises. 5. Water that backs up through sewers or drains. 6. Flood.

Claims Settlement for Partial Structural Losses
Under Coverages A and B will be paid on the basis of replacement cost with no deduction for depreciation provided that the amount of insurance on the damaged building is 80% or more of the full replacement cost of the building at the time of the loss.

Claims Settlement for Personal Property Losses
Will be handled on an ACV basis.

Personal Property Replacement Cost Endorsement
Applies to all items insured under Coverage C and to awnings, carpeting, household appliances and outdoor equipment. This will provide “new for old” settlement for all such items except for fine art, etc. When the replacement cost for the entire loss is greater than $500, the insurer will only pay ACV until the actual repair or replacement is completed.

Functional Replacement Cost
Certain buildings and personal property are impossible to replace. This provision allows the insurer to replace ornate and obsolete items with items that perform essentially the same function.

Deductibles for homeowners policy
Apply on a per occurrence basis for Section I losses only. The Section II (liability) coverage is not subject to deductibles. The standard deductible is $250 although changes are allowed.

Section II Coverage Parts (Insuring Agreements)

1. Coverage E = Personal Liability, 2. Coverage F = Medical Payments to Others

Personal Liability (Coverage E)
Will pay on behalf of any insured all sums that the insured shall become legally obligated to pay as damages because of bodily injury or property damage arising out of the insured premises or an insured’s personal activities. This would include coverage for animals owned by the insured (vicarious liability). In addition, the insurer will pay the cost to defend the insured against all suits. These payments are known as Supplementary payments and they are not subject to the limits expressed in Coverage E. Minimum limits are $100,000 per occurrence with higher limits available.

Medical Payments to Others (Coverage F)
This covers the necessary medical expenses incurred by persons, other than an insured, who sustain bodily injury caused by an accident arising out of the insured premises or insured’s personal activities. Such expenses must be incurred within 3 years of the accident for the expenses to be covered. The basic limit for med pay is $1,000 per person. The purpose of Coverage F is to provide limited “no-fault” coverage to injured parties to minimize the potential of costly court actions.

Section II Coverage Extensions (Additional Coverages):

1. Loss assessment by a tenants or owners association for BI or PD claims arising out of commonly owned property. The limit for this extension is $1,000. 2. Liability resulting from the use of a golf cart (while on the golf course being used for golfing purposes only), rented inboard motor boats not exceeding 50 HP, owned or rented outboard motorboats not exceeding 25 HP and owned or rented sailing vessels not exceeding 26 feet. 3. Property damage to others is provided up to $1,000 per occurrence for damage to the property of others caused by an insured person. However, damage done intentionally by an insured who is 13 or older is excluded.

Section II Coverage Exclusions:

1. Occurrence arising out of a business engaged in by an insured. This includes home day care services offered as a business pursuit of an insured. However, this exclusion does not apply to an insured minor involved in occasional or part-time self-employment business pursuits normally undertaken by minors, such as babysitting. 2. Occurrences arising out of the transmission of a communicable disease. 3. Occurrences arising out of sexual molestation, corporal punishment or mental/physical abuse. 4. Occurrences arising out of the sale, manufacture and/or distribution of a controlled substance.

Eligibility for homeowners coverage
Restricted to private residential dwellings with no more than two families or two boarders in a 1-family dwelling.

Permitted Incidental Occupancies Endorsement
If an insured owns an incidental business conducted on the residence premises, liability losses arising out of that business must be insured by the endorsement. Secondary dwellings are eligible for coverage under a separate policy if located in the same state. Farms, business structures and property of an unrelated tenant are ineligible.

Persons Insured in Homeowners Policy
Include the named insured and spouse, if residing with the named insured. Personal property coverage is extended to all resident relatives, a student enrolled in school full time provided the student is under the age of 24 and a relative and was a resident of the household before moving out to attend school or non-related residents under the age of 21 who are full time students and in the care of the insured.

North Carolina Mandatory Homeowner Endorsements

1. Special Provisions alters the policy to meet the requirements of the State of North Carolina. One of the alterations is that a suit against the insurance company must be started within 3 years from the date of loss. 2. Home Day Care Business Liability Exclusion and Limited Property Coverage excludes liability coverage for a home day care business and limits business property coverage to $2,500 on premises and $1,500 off premises. These limits are provided for any business property owned by the insured.

Personal Injury Liability Endorsement
Provides coverage for Section II losses. Without this endorsement, the Section II Coverage is for BI and PD losses only. Personal injury includes losses arising out of false arrest, detention or imprisonment or malicious prosecution; libel, slander, or defamation of character; or invasion of privacy, wrongful eviction or wrongful entry. Sexual harassment is not covered under the personal injury endorsement.

Watercraft Endorsement
Watercraft liability and medical payments coverage for vessels exceeding the size limits provided by the standard HO policy may be provided. The actually liability coverage provided is identical to the Watercraft or Yacht Coverage.

Refrigerated Property Coverage Endorsement
Provides up to $500 coverage for covered property stored in refrigerators or freezers on the residence premises for direct loss caused by an interruption of electrical service to the unit or because of mechanical failure of the unit.

Water Back Up and Sump Discharge or Overflow Endorsement
Will pay up to $5,000 for a direct loss not caused by the negligence of the insured caused by water that backs up through sewers or drains, or overflows or is discharged from a sump or sump pump even if caused by mechanical breakdown.

Business Pursuits Endorsement
Extends the personal liability and medical payments coverage to some business pursuits, primarily instructional occupations (teaching) by eliminating the exclusion for liability arising from an insured’s business activities. Coverage for corporal punishment may be purchased by paying an additional premium.

Mobile Homeowners Policy
Is a named peril, multi-line policy that will insure mobile homes that are permanently affixed. Limited coverage is provided if the home is in transit. Insured perils for the property coverage are: everything including earthquake and flood.

National Flood Insurance Program (NFIP)
To provide direct loss flood insurance at subsidized rates. The purpose of the NFIP is to encourage communities to practice flood control and to restrict development in flood prone areas by denying program participation to communities that do not meet the flood insurance program’s requirements.

Write Your Own Program
Allows private insurance companies to sell and service flood insurance policies in their own name, collect premiums, keep a percentage of the premium to cover expenses and profit, and to invest the rest to provide funds to pay claims. If there is not enough money to pay claims, the National Flood Insurance Program provides the difference. On the other hand, if there is a profit, it is paid to the United States Treasury.

Flood Definition
Defined as general and temporary conditions of partial or complete inundation of normally dry land areas. 1. Overflow of inland, 2. Unusual accumulation and run off of surface waters, 3. Mud flows, 4. Abnormal flood related to erosion of shorelines.

Flood Insurance Rate Maps
When the community complies with flood control requirements and the extent of the flood plain has been mapped, it then becomes eligible for the regular plan.

Deductible for the Emergency Plan
$1,000, but can vary depending on the zone. The deductible applies separately to the building loss and the contents loss on a per occurrence basis.

Flood Insurance Forms
Dwelling Form – used to insure residential property of no more than four units and the contents of such property. A 10% extension is allowed for appurtenant structures. General Property Form is used to insure larger residential structures and all non-residential buildings.

Flood Insurance Policies
Become effective 30 days after receipt of the coverage application and the premium payment.

Elevation Certificates
Are required on dwellings that are written in the regular program in certain flood zones in order to properly rate the policy. The certificate measures the elevation of the lowest floor of the building and compares it to the base flood elevation by the community. If the lowest floors is higher, more favorable rates will be used.

Flood Insurance – Removal Coverage
45 days is provided.

Watercraft or Yacht coverage
Provides protection when the watercraft or yacht is used solely for private purposes. These policies do not provide coverage for boats used for hire, charter or for transporting people for a fee.

Hull Insurance Coverage
Covers damage to the insured boat itself. Typically open peril coverage.

Protection and Indemnity Coverage
Liability coverage for BI and PD exposures, such as damage to other people or other people’s boats.

Comprehensive Personal Liability (Comprehensive Family Liability)
May be written to cover the non-business liability exposures of individuals. Comprehensive Personal Liability (CPL) coverage is virtually identical to the coverage provided by Section II of a homeowners policy.

Personal Automobile Policy (PAP)
Written in simplified language compared to the older family auto policy. The PAP policy used in this state was developed by the NC Rate Bureau.

If a newly acquired automobile replaces a vehicle currently shown on the Declarations Page of the policy
It will have the same coverage as the vehicle it replaced, but only if the named insured asks the insurer to insure it within 30 days after becoming the owner.

If a newly acquired automobile is in addition to any vehicle currently shown on the Declarations page of the policy,
It will have the broadest coverage now provided for any vehicle shown if the named insured asks the insurer to insure it within 30 days after becoming the owner.

temporary substitute vehicle
a nonowned auto or trailer used temporarily because of mechanical breakdown, repair, servicing, loss, or destruction of a covered vehicle

The territorial limits of a personal auto policy include which of the following
U.S., its territories and possessions, Puerto Rico, Canada and ports in between. No coverage in Mexico.

Negligence in auto insurance
Is a type of tort or civil wrong. It is the failure to do (or not to do) what a reasonable, prudent person would or would not have done in similar circumstances.

Contributory Negligence
Holds that if the injured party contributed to their injury in any way due to their own negligence, then there is no right to recover damages from the other party.

Liability Insurance (Part A)
Will pay all sums an insured must legally pay as damages due to BI/PD caused by an accident and resulting from the ownership, maintenance or use of a covered auto.

Supplementary Payments
Paid in addition to the limits of liability are: (1) up to $250 towards the cost of bail bonds required because of an accident; (2) up to $200 per day to the insured for loss of earnings due to their attendance at hearings, etc., and (3) other reasonable expenses incurred at the insured’s request. Liability is referred to as a 3rd party coverage.

Minimum Limits of Liability are:
$30,000 per person BI/$60,000 per occurrence BI/$25,000 per occurrence PD (split limits) or a single limit of $85,000 (30/60/25)

Liability while operating a non-owned vehicle
Will be provided by the insured’s policy on an excess basis with the vehicle’s policy being primary.

Medical Payments (Part B) (Automobile Insurance)
Covers the named insured, family members or any other person while occupying an insured vehicle (med pay is an ineligible coverage on motorcycles). It also covers the named insured and family members even as pedestrians. The limits apply per person, per accident and will pay all expenses incurred within 3 years. Medical payments is referred to as 1st party coverage.

Uninsured Motorist Coverage (UM) (Part C)

1. Pays the insured’s BI and PD (PD is subject to a $100 deductible) claim if they are injured by a motorist who has no liability coverage or 2. By a driver whose company is declared insolvent or 3. by a hit and run driver (pays BI only and there must have been “physical contact” with another vehicle). Currently, UM coverage of the same limit as the Part A liability coverage is automatically included in the policy unless the named insured alters the limit. Current law does not allow UM coverage to be rejected. Contains an arbitration clause that is very similar to the appraisal method. This clause establishes the right of the named insured to make a written demand for arbitration if the named insured and insurer cannot agree whether the insured is entitled to recover damages under this particular coverage or the amount of damages.

Underinsured Motorist Coverage (UIM)
Is available and applies when the “at fault” driver’s liability limit for BI is less than the damaged caused by the accident. Currently, UIM must be included on policies with liability limits greater than 30/60.

Physical Damage (Part D)
Pays for repairs to the insured vehicle for damage caused by colliding with another object because of an upset on the roadway. This is termed Collision insurance.

Other Than Collision (Comprehensive) Insurance
Covers damage caused by fire, theft, earthquake, wind, hail, flood, VMM, glass breakage, hitting an animal, riot, civil commotion, falling objects, missiles and explosion. OTC can be purchased separately from each other. Both usually have deductibles that can differ. Claims settlement is on an ACV basis. Coverage for personal effects is limited to $100 (fire and lightning losses only) and a non-owned trailer has a $1,500 coverage limit. Unlimited coverage will apply to any electronic equipment or device that is permanently installed in the insured vehicle by the manufacturer. A $1,000 of coverage applies to any electronic equipment or device.

Transportation Expenses
Arising out of the total theft of a covered auto or loss of use expenses arising out of the total theft of a non-owned auto will be provided if OTC coverage is purchased. Payment will be up to $15 per day to a maximum of $450 per loss for all such expenses beginning 48 hours after the theft until the vehicle is either returned or the vehicle loss is settled.

Insured’s Duties (Part E)
After a loss or accident include providing prompt notice, etc.

General Provisions (Part F)
Address such issues as bankruptcy of the insured, legal action, change of premiums for misrepresentations, subrogation and assignment.

Termination of Coverage (PAP)

1. 10 days notice for cancellation of non-liability coverage for any reason. 2. 15 days notice for cancellation of liability, med pay and UM or combined UM/UIM coverage for non-payment of premium. 3. 60 days notice for cancellation of liability, med pay and UM or combined UM/UIM coverage under the following circumstance: the named insured becomes a nonresident of North Carolina.

Policies issued to insureds of North Carolina will automatically amend the stated limits of liability to conform to the requirements of another state (if higher than the insured has) when the insured is traveling in that state.

Exclusions (Auto)

1. Bodily injury or property damage caused intentionally by or at the direction of an insured; however, the exclusion applies only to damage in excess of the minimum limits required by the financial responsibility law in North Carolina. 2. A vehicle used to carry people or property for a fee. 3. Tapes, records or discs and any container designed to store these items. 4. Loss to any custom furnishings or equipment in or upon any pickup, van or private passenger automobile including such items as special carpeting, facilities for cooking and sleeping, height extenders, tool boxes, etc., but this exclusion applies only to customization that exceeds $1,000.

Towing and Labor Coverage
Will pay up to $25.00. Labor costs must be incurred at the place of disablement.

Extended Transportation Expenses Coverage
Pays benefits when a covered or non-owned auto is out of service for more than 24 hours because of physical damage (not theft). Limits are $15 per day up to $450 maximum.

Coverage for Damage to Automobile (Customizing Equipment Coverage)
Provides increased coverage limits for customized furnishings or equipment and/or audio, visual and data electronic equipment above that provided in the policy. Coverage is no longer available for cassette tapes and CDs.

Extended Non-Owned Coverage
Provides broader liability coverage, but only for the individual(s) named on the endorsement. It covers non-owned automobiles furnished for the regular use of the insured and for the use of vehicles to carry people or property for a fee.

Umbrella Liability Policies
May be written for businesses or individuals. They provide high limits of coverage and broad protection for those people who are subject to liability claims of excessive amounts.

Umbrella Policy Characteristics:

1. Pays on an excess basis with the underlying policy being the primary coverage. The umbrella kicks in on an excess basis without a deductible. 2. Named insured may have no underlying liability policy if he/she has a self-insured retention (SIR). This is an amount of money that the named insured will remain liable for on a claim. SIRs are typically quite large with amounts of $10,000 on person and $50,000 to $100,000 on commercial umbrellas ring common. 3. Umbrella policies will always pay their benefit after the appropriate underlying amount has been satisfied. For example, if the named insured has chosen an underlying liability policy of $300,000, the Umbrella will only be responsible for any liability in excess of $300,000 even if the underlying policy is cancelled. 4. Coverage is sometimes much broader. For example, many personal umbrella policies pick up personal injury coverage even though the underlying homeowner’s policy may not provide the coverage, although the named insured usually has to satisfy a small SIR.

Major Differences between personal and commercial umbrellas are:

1. obviously, the exposures. 2. Commercial umbrella limits can be in the millions while the personal umbrella is usually one to five million.

NC Regulations to Property and Casualty Insurance

1. No policy providing direct property loss coverage will be for a face amount greater than fair market value of that property. 2. Replacement cost coverage is permitted and may cover the difference between actual cash value and the cost to repair or replace with like kind and quality. 3. The maximum time between renewal periods for property coverage may be 7 years. 4. Contracts issued in excess of these requirements will be binding on the insurer. 5. A lender shall accept as proof of required property insurance a binder or other temporary contract insurance as long as such evidence contains: (a) The name and address of the named insured and mortgagee, (b) The amount of insurance, (c) A description of collateral and a provision that the binder may not be canceled without 10 days prior notice, (d) a receipt for payment of at least 1 year of premium.

Regulations Regarding Property Insurance Policies

1. Policies must state all conditions of the coverage in the contract. 2. If requested, contracts must show the rate of insurance (cost per $100), deficiency charges and improvement credits. Rate changes will be made with a statement of these items, if requested.

Post assessment Insurance Guaranty Association
Is a legally mandated association of all admitted companies who write direct loss property coverage in this state. The purpose of this Association is to (1) avoid losses and delays in payment of “covered claims” due to financial impairment of insurers. (2) the prevention of insurer default is also a purpose of the Association. Public confidence in the insurance industry is therefore maintained. All costs of this Association are assessed against the member insurance companies in proportion to the premiums collected by that insurer in relation to the total premium base for such coverage in this state.

The Association applies to all direct loss coverages except: (Guaranty Association)
A. Life, Accident, and Health Insurance. B. Title, Credit and Mortgage Guaranty Insurance. C. Surety. D. Ocean Marine Insurance.

For the purpose of administration and assessments of members, the Association shall maintain three accounts. They are: (Guaranty Association)
A. Automobile insurance. B. Workers’ compensation. C. All other coverages subject to the Association.

The Guaranty Association shall be responsible for all “covered claims” existing prior to an insurer insolvency or within 30 days of the insolvency. A “covered claim” is defined as:
A. The portion of a claim in excess of $500 but less than $300,000 except for workers’ compensation claims since the full benefits required by law must be paid. B. Not in excess of the face amount of this policy.

Essential Property Insurance for Beach Area Property (Beach Plan):
Coastal Property Insurance Pool regulations were adopted to promote the orderly growth and development of the coastal area. The program applies to all real property east and/or south of the intracoastal waterway and adjoining coastal counties. The Association is made up of all admitted companies writing direct loss property insurance in North Carolina. $750,000 on residential property and $3,000,000 on commercial property maximum amount.

Absolute Windstorm or Hail Exclusion Endorsement
Insurers may exclude windstorm and/or hail damage by attaching this endorsement.

Fair Access to Insurance Requirements (FAIR) plans
The purpose of this residual market mechanism is to facilitate the issuance of basic property insurance to encourage the improvement of such properties and therefore arrest their decline. Basic property insurance is considered to cover the same perils (except business income and extra expense coverage) as the North Carolina Insurance Underwriting Association.

North Carolina Rate Bureau
Required organization composed of representatives of all admitted companies writing coverage under the jurisdiction of this act. The purpose of the Rate Bureau is to prepare and recommend proposed policy forms and rates through filings to the commissioner. The Rate Bureau shall also propose, file and promulgate a method of classifying drivers for motor vehicle coverage under the Safe Driver Incentive Plan that will adequately distinguish between safe drivers and those posing increased risk due to chargeable accidents and convictions of moving traffic violations.

Coverage forms falling under the jurisdiction of the Rate Bureau are:
A. Residential Property with no more than 4 units, B. Motor vehicle coverage, Workers’ compensation and employers liability insurance.

Rates are proposed so as to be adequate, not excessive and not unfairly discriminatory. Factors considered are: (Rate Bureau)
A. Past loss and expense experience of the past 3 years, except property coverage where 5 years past experience is permitted. B. Possible future losses and expenses. C. Reasonable profit margin. D. Investment income. E. Potential for catastrophe. (Wind)

North Carolina Motor Vehicle Reinsurance Facility

1. All members must accept required liability, med pay and UM/UIM coverage on any eligible risk regardless of their driving record. The insurer may then choose to “cede” or transfer the liability for that policy to the Facility. 2. Any losses incurred by the Facility on these “ceded” risks are shared equitably through assessments of the member insurers. Insurers may then recoup these assessments through recoupment charges to all policyholders. 3. Maximum limits reinsured by the Facility are $100,000/$300,000/$50,000 with $2,000 Med Pay. The maximum limit for UM is $1,000,000/$1,000,000/$50,000). The maximum limit for UIM is $1,000,000/$1,000,000. 4. Ceded business may not be terminated unless: a. Premium payments have not been made (15 days). B. The named insured has moved out of state (60 days).

Financial Responsibility Laws
Require that motor vehicle operators must demonstrate their ability to respond to BI or PD claims that arise out of their operation of a motor vehicle. Such evidence must be furnished (1) when the individual is licensed as an operator, (2) licenses a vehicle or is involved in an accident that causes $500 or more of property damage or any bodily injury or death. Can be demonstrated by: 1. Coverage at least 30/60/25 or $85,000 single limit, 2. Qualifying as a self-insured, 3. Depositing a sufficient amount of money with the Department of Motor Vehicles or (4) posting a bond in favor of the State of North Carolina in an amount at least equal to the minimum liability insurance limits.

Building and Personal Property Coverage Form
A commercial property form that covers buildings, and/or their contents.

Coverage Parts (Insuring Agreements) of the Building and Personal Property Form are:

1. Coverage A = Building(s). 2. Coverage B = Business personal property (contents) of the insured, 3. Coverage C = Personal Property of others in, on or within 100 feet of the premises, including property in vehicles.

Coverage A (Building and Personal Property Coverage Form)
Restricted to the building(s) shown on the declarations page.

Coverage B (Business Personal Property)
Contents coverage can include stock, machinery, furniture and any other property owned by the named insured and used in the named insured’s business. Not restricted to only those items in the structure as coverage is provided within 100 feet of the premises.

Coverage C (Personal Property of Others)
Relates to the property in the care, custody and control of the named insured. This is essentially bailees coverage.

Additional Coverages (Building and Personal Property Policy) are:

1. Debris removal. Most insurer will pay under this coverage is 25% of the total payment for the direct physical loss, plus the deductible. If the actual debris removal expense exceeds the 25% limitation, or if the sum of the direct loss and debris removal expense exceeds the limit of insurance, the insurer will pay up to an additional $10,000. 2. Removal coverage is provided to insure loss to property when removed to protect it from further damage. Preservation of Property coverage. Open peril coverage is provided for up to 30 days. 3. The cost of extracting pollutants from land or water on the premises is covered.

Other Extensions of Coverage (Building and Personal Property Policy) are also provided without an additional charge, if the insured meets certain policy conditions.

1. Newly acquired property is covered up to 30 days. 2. Valuable records and papers coverage is limited to $2,500 at each described location. 3. Business property temporarily located off premises other than “stock”.

Inspections and Surveys Condition
gives the company the right to make inspections or surveys of the insured business at any time

Exclusions found in the Building and Personal Property Coverage form include:

1. Money, 2. Property covered more specifically under a different coverage form such as boilers, vehicles, glass, etc., 3. Outdoor property, such as fences, antennas, towers and signs not attached to the building.

Cause of Loss Forms
Must be attached to the Building and Personal Property Coverage form.

Basic Form (Building and Personal Property Coverage) covers:
DP-1 perils and Glass, but not breakage caused by vandalism.

Broad Form (Building and Personal Property Coverage) covers:
Breakage of glass by vandalism ($100 per plate/$500 per occurrence), covers all that the basic form covers, falling objects, weight of snow, ice or sleet and water damage.

Special Form (Building and Personal Property Coverage) provides:
Open peril coverage for physical loss except for those things specifically excluded or limited.

Earthquake Form (Building and Personal Property Coverage) covers:
A. Earthquake, all shocks or eruptions that occur within a 168-hour period constitute a single occurrence. B. Volcanic Eruption/land borne damage, explosion or effusion.

Exclusions from Earthquake Form include:
A. Any earthquake or volcanic eruption that begins prior to the policy inception. B. Fire, explosion (not volcanic explosion), landslides, tidal waves, mudslides or flows, even if attributed to an earthquake or a volcanic eruption. C. Artificially generated electrical current.

Loss Valuation Clause
State how the amount of certain losses will be determined. Usually this is on an ACV basis except for: 1. Stock sold but not yet delivered will be settled at the selling price. 2. Covered glass losses will be at replacement cost. 3. Valuable papers and records losses will be the cost of material and labor to transcribe and duplicate, $2,500.

Optional Coverages (Building and Personal Property Coverage) include:
A. Agreed Value settlement will have an identified settlement amount and an expiration date. Total losses during this period would be settled at the agreed value. This suspends coinsurance requirements during the effective period. B. Inflation Guard automatically increases the insurance coverage periodically during the term of the policy by pre-determined percentages that are estimated to keep the property insured to value (also known as Automatic Increase in Insurance Endorsement). C. Replacement Cost (Coinsurance) provides for replacement without a deduction for depreciation. This option is elected in lieu of ACV.

Coinsurance Clauses
a clause in an insurance policy under which the insured agrees to maintain insurance equal to some specified percentage of the property value or otherwise to assume a portion of any loss. The common percentages are 80% and 90%. The formula for determining coverage for partial losses is as follows: IC (insured) divided by IR (Required) x L (loss) = AP (Amount Paid).

Example of Coinsurance Clause for determining coverage for partial losses is as follows:
Replacement cost = $100,000, Amount Carried = $60,000, Coinsurance = 80%, Amount of Loss = $10,000, Deductible = $1,000. $60,000 (amount carried) divided by $80,000 (Required) = .75 x $10,000 (amount of loss) = $7,500 minus $1,000 (Deductible) = $6,500 (paid by insurer)

Consequential (Indirect) Loss Coverage Forms
Provide coverage for those losses that are sustained as a result of a direct loss to really property. The types of indirect losses one can suffer are quite varied. We will concentrate on two forms that are classified as “time element” losses due to total losses increasing the longer the insured premise is untenable.

Business Income Coverage Form (Including Extra Expense Coverage)
Provides coverage for the loss of business income due to a business interruption or extra expenses that are incurred to continue operations while the damaged property is being restored.

Business Income (Interruption)
Will indemnify for loss of net profit and for continuing operating expenses, such as the lease payment and insurance, upon suspension of business operations due to a covered peril. Note that this coverage will not replace total revenues collected because many business expenses are discontinued while operations are suspended. Payment of revenues would, therefore, result in an economic gain to the insured.

Extra Expense Coverage Form
Is to provide for continuing operations at a temporary location to decrease or avoid loss of income due to a total shut down of operations.

Extended Business Income Coverage Form
Provided for up to 30 days from the time operations are restored.

Civil Authority Coverage Form
Losses where access to the named insured premises is prohibited due to covered perils occurring at another premises is covered for a maximum of 3 weeks.

Coinsurance for the Business Income Coverage
Only applies to the business income coverage and not to the extra expense coverage. But, unlike the 80%-90% required of direct loss property coverage, the coinsurance requirements of these policies may be as low as 50%. The formula for determining how much coverage the named insured must carry is essentially the same as for direct loss coverage with two exceptions. They are: (1) to determine the amount of insurance that should be carried, the coinsurance percentage is multiplied by the total of net income plus all operating expenses. (2). The formula actually determines the amount paid by the insurer as there is no deductible on Business Income Coverage.

Business Income Optional Coverages
May be elected by the named insured and activated by an entry on the declarations page.

Maximum Period of Indemnity (Business Income Coverage)
Limits the loss period to 120 days.

Monthly Limit of Indemnity (Business Income Coverage)
States the maximum the insurer will pay for loss of income during each period of 30 consecutive days during the loss period. The amount paid is figured by multiplying the policy limit by a chosen fraction (1/4).

Agreed Value (Business Income Coverage)
Requires the insured to submit financial data to substantiate an agreed settlement amount.

Extra Expenses Coverage Form
Pays for extra expenses incurred to continue operations at a temporary location during a period of restoration after a direct physical loss or damage to the named insured’s premises by a covered peril. Coverages provided are: 1. Extra Expenses which are incurred to continue operations at another location. However, this coverage will not pay for higher lease costs. 2. Civil Authority losses for a maximum of 3 weeks.

Loss Conditions in the Extra Expense Coverage
Are similar to other property coverages except loss payment for extra expenses is written with three applicable percentages, 40%, 80% and 100%. When the period of loss is 30 days or less – 40% of the limit applies, over 30 but not more than 60 days, 80% applies, over 60 days – 100% applies. Example: $150,000 policy limit, 50-day restoration period, 80% applies, $120,000 maximum paid by insurer (80% of $150,000)

Commercial General Liability (CGL)
Policies offer liability coverage for the commercial risk that does not qualify for coverage under another commercial multi-line form. Prior to ISO’s policy modernization and simplification program, liability exposures eligible for coverage were much more rigidly defined.

Premises/Operations Liability
Protects the named insured if someone is injured or sustains property damage while at the named insured’s premises. An example of a premise exposure might be a customer slipping on a wet floor and injuring their back. The operations portion of this subline covers liability claims arising from the named insured’s work, while in progress, whether on or off the premises. An example might be a tree trimming service that damages a customer’s property while removing a damaged limb from a tree.

Premises/Operations extends coverage to:
A. Owners and Contractors Protective Liability – protects the owner or general contractor against liability arising out of negligent acts of sub-contractors, B. Contractual Liability – protects against liability assumed under a contract. An insured contract is a lease.

Products/Completed Operations Liability
Protects the named insured against liability arising out of the sale of a product or completed work. An example might be a defective swing that breaks when sat upon or a repaired television that a shorts out causing a fire because the technician did not rewire the unit properly. The injuries or damages sustained must arise out of the named insured’s product or work, but only after the product (work) is completed, has been relinquished by the named insured and the product (work) has been taken off the premises.

Coverage A: Bodily Injury and Property Damage Liability (CGL)
Establishes the agreement for the insurer to pay all monies for which the insured is legally liable due to BI and PD, up to the limits of insurance. All occurrences are covered unless specifically excluded as long as the occurrence involves a commercial exposure.

Coverage B: Personal Injury and Advertising Injury (CGL)
Establishes the agreement for the insurer to pay all monies for which the insured is legally liable due to PI (not by advertisements) or advertising injury (caused exclusively by advertisements). This agreement will cover any offense no specifically excluded up to the maximum limits of the policy.

Coverage C: Medical Payments (CGL)
Establishes the agreement for the insurer to pay all reasonable medical expense incurred due to an accident regardless of fault. Payments are made up to a stated maximum, but only if report within 1 year from the date of the accident.

Supplementary Payments (CGL)
Apply to Coverages A and B only. The insurer has a duty and right to defend the insured against any suit or action brought by an alleged injured party that is pertaining to the coverage. All Supplementary Payments are in addition to the limits of liability. In addition to defense costs, Supplementary Payments will pay up to $250 per day for earnings lost by the named insured at the insurer’s request and bond costs up to a stated maximum.

Section II of CGL – Insured persons include:
A. The named insured and spouse in respect to the business operations of a sole proprietorship. B. The partners and their spouses in respect to the business operations of a partnership. C. Officers, directors and shareholders in respect to their duties with a corporation. D. Employees of the insured while acting “within the scope of their employment”. (Vicarious Liability)

Section III of CGL – Limits of Coverage Available
A. General Aggregate Limit (other than Products/Completed Operations), B. An Aggregate Limit fr Products/Completed Operations. C. A per occurrence limit. D. A Personal and Advertising Injury Limit. E. A Fire Damage Limit (including Fire Legal Liability). Fire Legal provides coverage for negligent fire damage the insured does to a building they occupy as a tenant. F. A per person Medical Expense Limit.

Section IV of CGL
Describes the specific conditions of the liability coverage. A. The named insured is required to provide prompt notice to the insurer of any occurrence that may prove to be grounds for a claim. B. Premiums paid in advance as indicated in the declarations page are a deposit only. Actual premium (earned premium) will be determined at the end of each policy period based upon the actual exposure. The insurer has the right to audit the named insured to determine the actual exposure. C. In most cases, CGL is considered the primary coverage. The CGL pays as if no other insurance exists and any other policy pays as excess insurance. In some situations, the CGL may be excess only. However, if more than one liability policy applies to a claim on a primary basis, the CGL will share equally with the other insurer until the entire claim is paid or the limit of the policy is reached. This is often referred to as “contribution by equal shares.” D. If the business owner acquires a new location during the term of the policy, liability claims arising out of the new location are automatically covered until the end of the policy period, provided it is the same type of business.

Claims Made Coverage Form (CGL)
Will be liable if the claim is paid during the policy period. If one coverage was occurrence and one coverage was claims made, both policies would be liable for the claim. Claims made coverage may establish a Retroactive Date in the policy that will establish the beginning point of the Claims Made Coverage. In other words, claims made policy will not insure any occurrence that takes place before the retroactive date. If a retroactive date is not established, the claims made coverage would also apply, but only on an excess basis.

Occurrence Coverage Form (CGL)
Will be liable if the occurrence takes place during the policy period.

Extended Reporting Period (ERP) (CGL)
Claims made coverage offers it and will provide continuing coverage for those events that occurred during its policy period, but for which no claim has been filed. The period of continuing coverage can help eliminate coverage gaps should a Claims Made policy be replaced by an Occurrence Form or if there was no liability coverage applying at the end of the Claims Made coverage.

Basic Extended Reporting Period (ERP) (CGL)
Provided at the end of Claims Made coverage at no additional premium. The basic ERP provides that occurrences that take place during the policy period and are reported within 60 days after policy termination will be provided a 5-year extension for the filing of the claim.

Supplemental ERPs (Maxi or Full Tails) (CGL)
Provide coverage of unlimited duration on an excess basis only. If the named insured desires to purchase a Supplemental ERP, they must do so in writing within 30 days of the end of the policy period.

Workers Compensation
Coverage is written by the insurance companies in North Carolina and any business employing 3 or more persons is required to provide the coverage, except agricultural employers with fewer than 10 workers are exempt. Premiums are paid by the employer.

Workers Compensation – Insuring Agreements

1. Part I provides the worker compensation benefits required by law. The premium is a deposit based upon estimated exposure. The coverage is subject to audit to determine actual exposure and final premium. Part II is the employer liability coverage that protects against an employee who brings an action against the employer under common law or torts. Part II is the Other States coverage that will provide coverage in compliance with other state’s workers compensation requirements if the other state is listed and the insurer is notified prior to or within 30 days of work commencing.

Part I – Benefits (WC) – Medical Expenses
Incurred to treat the injury or illness will be provided 100% coverage. The employer or its insurer may select the physician or the hospital.

Part I – Benefits (WC) – Disability Benefits
Require an initial 7-day waiting period. Workers compensation disability benefits will not be paid for the initial 7-day waiting period until the employee is disabled for longer than 21 days (beginning on day 22 benefits are paid retroactively to the very beginning of the disability. The basic disability benefit is 2/3 of average weekly earnings paid weekly.

Total Permanent Disability
Are restricted to the loss of use of two or more limbs through severance or paralysis, loss of both eyes, brain injuries resulting in severe and permanent cognitive impairment or 2nd or 3rd degree burns covering 1/3 or more of the body. Lifetime benefits are payable for such occurrences.

Death Benefits (WC)
Provide up to $10,000 for a burial allowance. Income benefits are also provided for a surviving spouse, dependent children or next of kin (parents and/or siblings). Income benefits are payable for 500 weeks, however, a spouse who is disabled, shall receive benefits for life or until remarriage and a child who has not reached age 18 at the end of 500 weeks shall continue to receive benefits until age 18. Death claims must be filed in writing to the Industrial Commission within 2 years of the work-related death.

Rehabilitation Benefits (WC)
Provided to enable the injured worker to regain productivity and therefore reduce overall costs to the workers’ compensation program.

Assigned Risk Plan (WC)
A method of binding required workers’ compensation coverage on those businesses that are “hard to place” due to increased hazards of the occupation. The assigned risk plan is administered by the North Carolina Rate Bureau. The Rate Bureau will initially bind coverage for 30 days while they assign the risk to a member insurer who must issue the coverage on a standard basis.

Industrial Commission (WC)
Regulatory body for workers’ compensation benefits. All disputes concerning workers compensation issues are referred to the Industrial Commission for resolution.

Premium Determination (WC)
Basic rates for workers compensation insurance are based upon a system of job classifications and manual rates. The premium base for each job classification is remuneration. Basic premiums are determined by multiplying the manual rate for each job classification code by each $100 of payroll for the classification.

Builders Risk Coverage
Provides coverage for buildings during construction. Written in one of two manners: A. Reporting form requires monthly reporting of building values. Full reporting (honesty clauses) requires accurate reports as the named insured cannot correct the value after a loss has occurred. B. Completed value Form (most commonly used) is written for a limit equal to the completed building value, but the premium is substantially reduced. This is done because the completed value amount is not at risk during the entire time of construction.

Special Provisions for Termination of Coverage (Builders Risk Form)
Coverage also ceases when any of the following occurs: 1. The builder’s interest in the property ceases; 2. The property is accepted by the purchaser; 3. The builder abandons the construction; 4. When any building is occupied in whole or part, or is put to its intended use; or 5. 90 days after construction is completed.

Business Owners Policy (BOP)
Provides broad coverage in a multi-line package policy for smaller businesses such as apartment buildings, offices and retail stores. The property coverage (Section 1) is written on a replacement cost basis with no coinsurance requirement. However, if the insured does not maintain an 80% coinsurance level, any losses will be paid on an ACV basis. Liability coverage (CGL) (Section II) is mandatory in both policies.

Building coverage (Part A) (BOP)
Written on a replacement cost basis and there is no coinsurance requirement. However, if the insured does not maintain an 80% coinsurance level, any losses will be paid on an ACV basis. The standard deductible is $250 with optional higher deductibles available.

Optional Section I Coverage (BOP) include:
(1) Burglary and Robbery – provides limited coverage for money and securities while on the insured premises, at the bank or in transit to or from these locations for the perils of burglary and robbery only. (2) Theft of Money and Securities provides broader protection for money. (3) Employee Dishonesty covers losses due to dishonest acts of employees only. (4) Mechanical Breakdown is a type of boiler and machinery coverage. It covers the actual physical damage to machinery that necessitates repair or replacement.

Eligibility for BOP Coverage
Limited to to smaller businesses and varies according to insurer underwriting standards. Typically, the following risks are ineligible: manufacturing, bars, grills, and restaurants, automobile dealers and all types of automotive repair and service operations, banks and all types of financial institutions, places of amusement, contractors and wholesalers and businesses with annual gross sales in excess of $1 million.

Business Automobile Policy (BAP)
Provides same types of coverage was available in the PAP. The BAP is used to insure trucks, trailers, semis, etc., including passenger type vehicles that are owned, leased, hired , rented or loaned to or by a business. Not included would be off the road vehicles such as bulldozers, graders, forklifts, etc. These vehicles would be insured by inland marine floaters.

Designation of Covered Autos (BAP)

1 any auto; #2 owned autos only-only those registered to the company; #8 hired autos only-includes all autos leased, hired, rented or borrowed; #9 non-owned autos-includes autos owned by employees and members of their household while being used in the course of the insured’s business.

Garage Liability Policy
CGL plus liability on vehicles.

Garage Keepers Liability
Pays for losses for which the named insured is legally liable. Basically, it is a bailees coverage in that it applies to damage to a vehicle left in the care, custody or control of the named insured. It covers losses caused by fire, explosion, theft, riot, vandalism and collision.

Farm owners/Ranchowners Policies
Similar to homeowners policy except it was redesigned to fit the needs of farmers.

Boiler and Machinery Insurance
Covers loss resulting from the sudden and accidental breakdown of objects such as boilers, air conditioners, refrigerators, etc. Although these objects are covered property in many of the commercial property policies, there are a number of limitations and exclusions, such as boiler explosion and breakdown that can damage boilers and machinery and the property surrounding them. Boiler and machinery insurance covers these gaps in coverage by covering damage to the insured boilers and machinery and damage to other property owned by the named insured, including property in the named insured’s care, custody and control for which a named insured is legally liable.

Features of Boiler and Machinery Insurance

1. Safety inspections, 2. In addition, business income extra expense and consequential losses (spoilage) resulting from the breakdown of such equipment can be added by various endorsements, 3. Under the expediting expenses extension of coverage provided in this policy, the insurer agrees to pay the reasonable extra cost of making temporary repairs, expediting permanent repairs and expediting permanent replacement of damaged covered property. An example of expediting expenses would be special transportation charges to speed delivery of repair parts. Payment for expediting expenses is limited to $5,000.

Crime Insurance
A. Burglary requires visible signs of forced entry or exit., B. Robbery is the taking of property by violence from a person.

Crime Insurance – Loss Sustained Form
Losses that occur during the policy period and that are discovered within one year after the policy period ends are covered.

Crime Insurance – Discovery Form
Losses are covered no matter when they occurred if they are first discovered during the policy period (much like the claims made form of the CGL).

Employee theft coverage
Covers money, securities and other property from employee theft.

Forgery or Alteration Coverage
Covers the forgery or alteration of outgoing checks or drafts. It does not cover incoming checks that have been forged.

Computer Fraud Coverage
Covers money, securities and other property which is transferred from the premises or banking premises to a person or location outside those premises.

Inland Marine Insurance
Insure shipments that do not involve ocean voyages. The key to understanding inland marine insurance is that it insures property that is movable. Therefore, they are sometimes called floaters.

Bailee’s Customers Policies
Used by businesses that are legally liable for property of others in their care, custody or control. This coverage is especially good for repair shops and dry cleaning establishments (misdelivery is excluded.)

Motor Truck Cargo Policy
Used to insure domestic shipments of goods. The Owners form is purchased by a business transporting its own property by its own trucks (property coverage).

Contractors Equipment Floater
Provide open peril coverage for contractor’s equipment located away from the premises.

Builders Risks Policies
Specifically written to provide open peril coverage for structure during construction, including theft of building supplies.

Installation Floaters
Purchased by contractors to cover property, other than basic building materials, that must be installed in a building or structure. These floaters are used to insure such things as heating and air conditioning equipment, elevators and electrical equipment. Property is covered during transportation to the site, during unloading and installation and until control is passed to the purchaser or owner of the building.

Suretyship (Bonding) – Three parties to bonding are:

1. Obligor, 2. Obligee, 3. Surety (insurance company who promises to pay)

Types of Surety Bonds
(1) Contract bonds guarantee the performance of the terms and provisions of a written contract. A number of contract bonds (completion bonds and performance bonds) may be required to guarantee different aspects of a single construction project. (2) Judicial Bonds fall into two broad category’s, court or litigation bonds and fiduciary bonds. (3). Miscellaneous Bonds include license or permit bonds, public official bonds, loss instrument bonds (security bonds), motor vehicle bonds and workers compensation self-insurer bonds.

Fidelity Bonds
Contracts designed to protect an employer against dishonest or fraudulent acts by employees.

Commercial Blanket Bond
Covers all employees on a per loss basis.

Blanket Position Bond
Covers all employees per employee basis.

Commercial Package Policies (CPP)
Commercial lines program that was implemented by ISO. 1 or more package policy (BIGCAP). There are no mandatory coverages in CPP. First named insured to purchase only those coverages required to protect their exposures.